Our Asset Management & Investment Funds Partner, Vincent Coyne, spoke to 'Ignites Europe' about asset managers setting up Irish entities as part of their Brexit planning and senior staff compliance with stringent corporate governance requirements.

The original article, written by Robert Van Egghen, can be viewed here, published on 16 April 2019.

Asset managers setting up Irish entities as part of their Brexit planning are being warned that their senior staff risk not being compliant with stringent corporate governance requirements.

The Central Bank of Ireland last week issued a Dear CEO letter to all regulated firms in the country to remind them of their obligations under the central bank’s fitness and probity regime, saying there was “a lack of general awareness” of the rules among market participants.

The regime, which came into force in 2010 following the financial crisis, aims to ensure that persons in senior positions within financial services firms are competent and capable, and meet certain ethical standards.

In the letter, the central bank warns that Irish firms are not meeting their obligations under the regime, including not regularly checking whether a director still meets the compliance requirements.

The regulator adds that it has “seen examples where individuals have been criticised publicly by other regulators and/or the courts for past actions”.

However, the central bank says firms “have failed to take any steps” to examine whether these individuals are fit and proper to hold a senior role at an Irish entity, leaving it to the Irish regulator to “intervene”.

Peter Stapleton, head of the funds and investment management team at the Maples Group, says this statement sends a warning shot to all firms, including asset managers, setting up Irish entities that they must ensure senior directors are compliant with the regime.

Mr Stapleton says that with “a large number of people relocating to Ireland” the onus is on firms to ensure that senior managers meet the standards of the regime.

“The regulator has clearly laid down a marker that firms coming into Ireland need to be compliant,” he says.

More than 100 financial firms have submitted applications to the central bank to set up an Irish entity as a result of Brexit.

Declan O’Sullivan, partner at Dechert, says the “huge uptick” in authorisation requests over the past year has placed an administrative burden on the Irish regulator so it needs firms to be “the first line of defence” in monitoring individuals.

He says: “We have seen a big increase in applications from Mifid firms and from management companies needing to increase substance. Everybody has been required to up their game. “It is not the case that firms have been turning a blind eye but there is now a greater emphasis on [complying with] the fitness and probity regime.”

It is understood that at least two individuals have been unable to take up senior manager positions in recent months due to their failure to meet the requirements of the regime.

Mr O’Sullivan says that in instances where an individual has not passed the fitness and probity checks it is usually because they played a role in the financial crisis, such as working for a bank that required a bailout by the government.

The central bank has taken a tough approach towards firms setting up Irish entities as a result of Brexit in order to guard against the possibility of letterbox entities.

However, Vincent Coyne, partner at William Fry, says the Dear CEO letter is targeted more at firms that have been present in Ireland for a while that may have forgotten their responsibilities, rather than new arrivals.

Mr Coyne says newly authorised firms will “already be very familiar” with the fitness and probity regime as they will have to have carried out “an assessment of historic practice” among senior managers as part of the application process.