On 12 June 2015 the Central Bank issued feedback on its consultation paper CP86 (“Consultation on Fund Management Company Effectiveness – Delegate Oversight”) and related guidance. As part of this feedback statement the Central Bank published its draft Delegate Oversight Guidance for consultation and on 4 November 2015 the Central Bank published its feedback statement on this consultation.
The Delegate Oversight Guidance focusses on the role of boards where significant tasks are delegated externally. The guidance notes that the board should, notwithstanding any delegation of tasks, take all major strategic and operational decisions affecting the fund management company and any investment funds it manages and gives examples of those responsibilities that should be retained by the board. The guidance goes on to outline the approach recommended by the Central Bank in relation to: the allocation of responsibilities; documented policies and procedures; structures which foster constructive challenge; and the effective provision of appropriate information to boards. The oversight of delegated tasks is considered under the following headings:
- investment management;
- risk management (both operational and investment risk);
- operation and administration;
- support and resourcing; and
- boards of externally-managed investment companies.
For the most part the final Delegate Oversight Guidance remains similar to the draft guidance published on 12 June 2015. Points to note from the Central Bank’s feedback are as follows:
- the section relating to risk management provides that the board should adopt a risk management framework which, inter alia, confirms the risk appetite;
- the guidance has been updated to reflect that a fund management company may include reports received from its delegates in its reports to the board of an externally- managed investment company. However, a fund management company’s report should not consist solely of the transmission of reports received from its delegates and should include commentary from the fund management company on how it has performed its role;
- the Central Bank has confirmed that it does not require Irish funds to appoint another Irish delegate to carry out the management roles. Matters concerning designated persons will be dealt with in a future Central Bank consultation;
- the guidance provides that the board approve the proposed investment approach. The Central Bank did not incorporate a proposal that this approval be “based on the recommendations of the Investment Manager who has expertise in this regard”, noting that the proposed good practice places responsibility on the board for approving the investment approach. Incorporating the proposed amendment could dilute this good practice by implying that the board could base its decision to approve the investment approach solely on the recommendations of the investment manager which the Central Bank advised is not the intention of the proposed good practice;
- the guidance provides that changes to the investment approach at any time should be subject to approval by the board. The Central Bank did not incorporate a proposal that only “material or significant” changes to the investment approach would require board approval, noting that allowing changes to be made to the investment approach by another party would diminish this control to an unacceptable extent.
Following the publication of the finalised Delegate Oversight Guidance the Central Bank has published a new document titled “Fund Management Companies – Guidance” into which it has set out the finalised Delegate Oversight Guidance and also the finalised guidance on the Organisational Effectiveness role and on Directors’ Time Commitments which were published on 12 June 2015 as part of the Central Bank’s CP86 feedback statement. The Central Bank intends that future fund management company guidance will also ultimately be located in this document.
The “Fund Management Companies – Guidance” notes that it should be evident from the fund management company’s board minutes that the fund management company is acting in accordance with this guidance, if this is the case, and so boards should ensure the minutes accurately reflect the operations of the board and demonstrate how they are complying with the Central Bank guidance.