The Central Bank has published: (i) its feedback statement on its third consultation on fund management company effectiveness; (ii) details of new rules on the location of directors and designated persons and recordkeeping; and (iii) the final three chapters of its guidance dealing with managerial functions, operational issues and procedural matters. The rules and guidance are directed at "fund management companies" in Ireland that are authorised by the Central Bank, namely:

  • UCITS management companies;
  • self-managed UCITS investment companies;
  • AIFMs; and
  • internally-managed AIFs.


The Central Bank's third consultation proposed a new "effective supervision requirement" under which at least two thirds of the directors and two thirds of the designated persons of a fund management company must be located in the European Economic Area (or "EEA"). The Central Bank has recalibrated this requirement to permit more involvement by persons located outside the EEA by reducing the minimum threshold of directors and designated persons of a fund management company located in the EEA from "at least two thirds" to "at least half".

Under the Central Bank's new rule, a fund management company with a PRISM impact rating of Low1 will be required to have at least:

  • two Irish resident directors;
  • half of its directors resident in the EEA; and
  • half of its managerial functions performed by at least two designated persons resident in the EEA (which can include two directors resident in the EEA).

A fund management company with a PRISM impact rating of Medium Low or Higher will be required to have at least:

  • three Irish resident directors or at least two Irish resident directors and one designated person based in Ireland;
  • half of its directors resident in the EEA; and
  • half of its managerial functions performed by at least two designated persons resident in the EEA (which can include two directors resident in the EEA).

Impact of the new thresholds

While lowering the two thirds requirement to at least half is welcome, the new rules may still represent a challenge for some investment management groups that are primarily located outside of the EEA (e.g., the US and Asia). Currently two Irish resident directors must be on the board of each fund management company. The new rules will require a change of composition for boards that have three or more nonEEA directors without an equal number of directors based in the EEA.

In terms of the performance of the six managerial functions, the lowering of the requirement from two thirds to at least half of the managerial functions being performed in the EEA means that the two risk managerial functions (operational risk management and fund risk management) and the investment management function can be performed by designated persons within the investment manager (regardless of where they are located). This leaves the remaining three managerial functions to be performed by directors or designated persons in the EEA. These three managerial functions are distribution, capital and financial management and regulatory compliance.


On the issue of the proposed exit of the UK from the EU, the Central Bank noted that it was impossible for it to predict the terms of the UK's exit and subsequent arrangements. However, it suggested that the factors relevant to determining whether there is effective supervision listed in the feedback statement should allow interested parties to assess the likely impact, if any, of different forms of Brexit on the application of the Central Bank's rules. This uncertainty regarding the application of the Central Bank's rules and the impact of Brexit may present difficulties for UK investment managers. It would appear likely that the issue will be revisited by the Central Bank once the UK's future relationship with the EU is clearer and, based on previous comments from the Central Bank, there is an expectation that the UK will continue to be able to meet the Central Bank's criteria for effective supervision so designated persons in the UK post-Brexit should still be able to satisfy the Central Bank's location requirement.

Central Bank analysis

The Central Bank's feedback statement includes the results of its impact analysis of the new requirements under CP86. Regarding the director location requirement, the Central Bank concluded that making the necessary changes to achieve compliance with this requirement would not require a great deal of additional expenditure for fund management companies. However, the Central Bank acknowledged that some directors who are employees of the promoter and based outside the EEA may need to be replaced by directors who are located in the EEA and who are not employed by the promoter. The Central Bank noted that no existing fund management company that does not currently comply with the

new rules would need to change more than two directors to comply with the new rules. In terms of the impact of the effective supervision requirement on the designated person roles, the Central Bank balanced the ability to fill designated person roles with experienced members of the promoter's staff who will very often be located outside Ireland and/or the EEA against the need to ensure that fund management companies are organised in a way that ensures they are supervisable by the Central Bank. Clearly the Central Bank did not accept the argument that physical proximity to Ireland does not necessarily result in more effective supervision.

The Central Bank advised that the recalibration of the effective supervision requirement had come about as a result of an effort to find the correct balance of expertise with location and supervisability. The Central Bank did not find arguments concerning increased costs or detriment to Ireland's competitive position submitted by respondents to the third consultation convincing, but was swayed to a certain extent by arguments concerning expertise and the need to facilitate organisational models which draw appropriately on the expertise of the promoter. The Central Bank stated that applying such expertise to the operation of a fund management company should help to ensure that it is run in the best interests of investors and in a way that achieves the best outcomes for investors.


The Central Bank has introduced a new rule on the retrievability of records which requires a fund management company to keep all of its records in a way that makes them immediately retrievable in or from Ireland.

The Central Bank has clarified that in the context of these rules, "immediately" means documentation requested before 1pm (Irish time) should be provided to the Central Bank on the same day and documentation requested after 1pm (Irish time) should be provided to the Central Bank before 12 noon on the following business day.

The Central Bank has also amended the draft operational issues guidance to clarify its expectations as regards the minimum requirements for record retention, archiving and retrievability of a fund management company's documents. The guidance clarifies that an annual audit of the company's record retention policies may be undertaken by an external party or internally, for example, by the internal audit function of the company.


The final guidance on managerial functions, operational issues and procedural matters is largely unchanged from the draft guidance on these issues included in the third consultation. The main changes to the draft managerial functions guidance included in the third consultation can be summarised as follows:

  • Co-location of designated persons: in light of the refinement of the new rule on the location of directors and designated persons (outlined above), the proposal that a fund management company's designated persons must work in the same location has been removed. This is a welcome change as it enables managerial functions to be performed by individuals within the fund management company's group who are based in different locations. It also facilitates the appointment of external service providers to perform certain managerial functions while other managerial functions may be retained internally within the fund management company's group.
  • Dual appointment as director and designated person: the guidance now includes a specific reference to the ability of an individual to be appointed as both a director and a designated person of a fund management company.
  • Seniority of designated persons: the guidance has been amended to remove an assumption that a designated person must always occupy a more senior role than the delegate being overseen. However, this is included as an example of what may be an inappropriate appointment depending on the circumstances.
  • Contractual arrangements between fund management companies and service providers: the Central Bank has clarified that the delegation by a fund management company of its regulatory functions should be documented in written contractual arrangements in a manner determined by the fund management company. The final guidance suggests that a general obligation to perform the contract "in accordance with applicable law and regulation" is not sufficient to address the Central Bank's expectations. The clarification provided by the Central Bank would not appear, however, to rule out the documentation of any consequential amendments to contracts in place betweenfundmanagementcompanies and their service providers by means of ancillary service level agreements, letters of understanding or similar arrangements, rather than by the amendment of the contracts themselves.
  • Role of designated persons in relation to policies and procedures: the Central Bank has clarified its expectations regarding the respective roles of designated persons and the board of directors of a fund management company in the design of the various policies and procedures ("P&Ps") that the fund management company is required to have in place under applicable law and regulation. It is ultimately the board's responsibility to ensure that the fund management company has designed appropriate P&Ps, structures and limits and these are subject to the approval of the board. The guidance states that designated persons should advise on the design process and assist with the creation of the P&Ps, structures and limits.


Fund management company guidance

The Central Bank published the first three chapters of its fund management company guidance dealing with delegate oversight, organisational effectiveness and directors' time commitments in November 2015. These are now included in the final guidance without noteworthy amendment. The Central Bank has confirmed that divergence from the guidance will not be a regulatory breach but the Central Bank will have reference to the guidance when forming a view as to whether a fund management company has complied with its regulatory obligations.

Transitional arrangements for new rules

The Central Bank has advised that existing fund management companies must comply with the new rules (relating to the streamlining of the managerial functions to six managerial functions, the organisational effectiveness role, the location of directors and designated persons and recordkeeping) introduced by CP86 by 1 July 2018. This extension of the time for existing fund management companies to comply with the new rules from the one-year transitional period previously proposed to an 18-month period is useful in that it affords some extra time for them to consider how best to implement the new rules. However, any application for authorisation from a new fund management company submitted on or after 1 July 2017 will need to comply with the new rules immediately. The new rules will be included in the Central Bank UCITS Regulations and in the Central Bank AIF Regulations in due course.