The Central Bank of Ireland has welcomed the publication by the Irish Funds Industry Association (IFIA) of a corporate governance code for fund service providers. The code follows on from the IFIA’s corporate governance code for collective investment schemes and management companies which has been effective since 2012.
The code applies to fund administrators and custodians/depositaries regulated by the Central Bank of Ireland. Similar to the corporate governance code for collective investment schemes and management companies, the code focuses on the composition, role and ongoing obligations of the boards of directors.
Voluntary nature of code and transitional period
The code is voluntary but its adoption is encouraged by the Central Bank of Ireland. The code provides for a transitional period of 12 months. Compliance with the code and, where applicable, the reasons for any departure from the code must be disclosed in the service provider’s annual report (or a publicly available medium, e.g. website, referenced in the annual report) for the years commencing on or after 1 January 2015.
Composition of board
Three directors are recommended as a minimum size for the board of a service provider. At least one director must be an independent non-executive director. The board must have a chairman who cannot also be the Chief Executive Officer (CEO).
The code reflects the current rules of the Central Bank of Ireland by providing that two of the directors must be Irish resident and that the board of the administrator must not have directors in common with the board of the custodian/depositary.
Role of board and ongoing obligations
The board is responsible for the direction and oversight of the service provider as well as for the appointment of senior management including the CEO. The code requires that the board holds at least two meetings per half year and that at least one meeting is held in person on an annual basis. The code contains requirements in relation to conducting the board’s meetings as well as the operation of the committees of the board if such committees are established.
As with the corporate governance code for collective investment schemes and management companies, the code contains certain provisions aimed at ensuring ongoing review of the board’s corporate governance processes. The following requirements are of note:
- The directors’ time commitments to the service provider must be documented in their letters of appointment.
- The directors’ other time commitments and concurrent directorships must be disclosed to the board and the board must be satisfied that its members have sufficient time to discharge their duties.
- A review of the performance of the board and individual directors should take place annually.
- A formal review of board membership should take place at least once every three years.
- The chairman should be reviewed at least once every three years.
- The board must maintain a conflict of interest policy.
- The board must establish and keep up-to-date a formal schedule of matters reserved specifically for its decision.