In June 2015, the Central Bank of Ireland ("Central Bank") issued a paper on Fund Management Company Boards (the "Paper") available on its website1: The Paper covers:

  • A feedback statement on the Central Bank's Consultation Paper 86 on fund management company effectiveness ("CP86") that issued in September 2014;
  • New guidance on organisational effectiveness and key management functions;
  • New draft guidance on delegate oversight; and
  • New guidance on directors’ time commitments.

The Paper outlines the Central Bank's plan for the revised regulation of boards of in-scope entities, from a governance perspective. The in-scope entities are: UCITS management companies; alternative investment fund managers ("AIFMs"); self-managed UCITS; and internally managed alternative investment funds ("AIFs").

For more details, please read our client update on the Paper "Central Bank Issues New Rules for Fund Boards" available at the link below2

Key Management Functions Revisions

The Paper points towards a revision of the key management functions for fund boards and introduces a new organisational effectiveness role. Fund boards are required to comply with the new rules by 30 June 2016.

Some guidance is still pending from the Central Bank. Despite this, many fund boards are asking how the new regime might be expected to operate.

The CP86 feedback statement (in the Paper) confirms the revision of the existing 10/16 key management functions. Therefore, for both UCITS management companies and AIFMs, there are now six key management functions to be discharged:

  1. Regulatory compliance
  2. Fund risk management
  3. Operational risk management
  4. Investment management
  5. Capital and financial management
  6. Distribution 

The terms relating to these six key management functions are due to be expanded on in a further consultation as part of the Central Bank's continuing work on CP86, with additional guidance expected to be in place by the end of 2015.

Six Management Functions: Statutory Basis

While we still await this additional guidance, reference to the six key management functions has been reflected in the new Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 (the "Central Bank UCITS Regulations") which come into effect on 1 November 20153 – covered in our client update4.

The details, set out in Schedule 10 of the Central Bank UCITS Regulations, are referenced in the table in Appendix I below. This is an outline of the six key management functions on a statutory basis.

Increased Focus on Designated Persons

It is useful to highlight that the description of the role of the designated person (as it relates to the discharge of each key management function) has not really changed – having been a compulsory concept for UCITS since 2011 and for AIFMs since 2013. However, it is the enhanced focus on designated persons and the tone of the Central Bank's feedback statement in this regard that gives us a clear indication of what the Central Bank may expect.

First, the feedback statement makes the point that the designated person role is distinct from the role of a director. For example, the Central Bank now requires two separate letters of appointment for a person who is appointed as a director and also as a designated person.

Secondly, there is significant focus on the suitability of candidates to fulfil the role, per the extract below:

"When designating an individual director for such a managerial function, boards should be satisfied that:

  • the individual has the requisite skills and experience for the role;
  • sufficient support and resources are available to the individual to enable the role to be discharged; and
  • the designation does not compromise the ability of the individual, or the board as a whole, to satisfy any applicable independence requirement."

Thirdly, the phrase "day-to-day basis" is used repeatedly throughout the feedback statement in the context of the designated person's role. For example:

"Where a director does choose to take on a managerial function role, he or she is consenting to becoming involved in the fund management company on a day-to-day basis." (Our emphasis added.)

Designated Person's Connection to the Management Function

The position, since 2011, has been that the designated person does not have to be involved directly in the operations of the relevant function, but needs to be connected into the function and needs to be properly supported in order to be in a position to fulfil the function properly. The question is whether this position will be altered. This is something that will become clearer when the additional guidance is published.

Assigning Designated Person Functions

The challenge, for boards considering each key management function, is reconciling the answers to the following questions:

  • Who can assume the designated person role?
  • Who should assume the designated person role?
  • Who will the Central Bank expect to assume the designated person role?

It may be useful to refer to these points when considering how the designated person functions should be assigned for your board. Appendix I contains a section for your notes, as you make this assessment.

Location of Designated Persons

It is currently a requirement that any non- director designated person is an Irish resident. It is unclear from the Paper whether the Central Bank will change its position on this (that is, permit individuals who are not directors and are not Irish residents to be appointed as designated persons). This may be addressed in the next phase of the Central Bank's CP86 work. 

Organisational Effectiveness

he Paper introduces the new concept of an 'organisational effectiveness role' - to be fulfilled by an independent director who does not fulfil any of the six designated person functions.

The guidance on this aspect, as set out in Part III of the Paper, is final.

The person fulfilling this role is required to be a 'change leader' who 'drives through the change agenda'.

We have set out below a summary of the organisational effectiveness role based on information contained in the Paper, as follows:

The Organisational Effectiveness ("OE Person") will be assigned the specific task of keeping the effectiveness of the organisational arrangements of the Company under ongoing review, with the OE Person's reports being submitted to the Board for discussion and decision.

As part of its role, the OE Person shall:

  • monitor the adequacy and effectiveness of the Company's internal resources to its day-to-day managerial roles;
  • review the organisational structure of the Company on an ongoing basis and consider whether it remains fit for purpose;
  • consider any conflicts of interest affecting the Company and the Funds and take any
  • necessary action where any such conflicts are having or are likely in the near future to have an adverse impact;
  • review the composition of the Board to evaluate its effectiveness and report on this to the Board. This review shall seek to assess how well the decision taking by the Company is working in the interests of investors.  

The OE Person is also tasked with overseeing how well the arrangements for the supervision of delegates are working.