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Fund Management Companies Guidance (CP86)


Following the publication of the final Fund Management Companies Guidance (‘CP86’) by the Central Bank of Ireland (“CBI”) we look at what it means to be “supervisable” in the eyes of the CBI. The conclusion and release of CP86 reflects the CBI’s commitment to supporting the supervisory framework for the effective governance of fund management companies. CP86 in its entirety covers the areas of delegate oversight, organisational effectiveness, directors’ time commitments, managerial functions, operational issues and procedural matters.

Fund management companies are UCITS management companies, authorised alternative investment fund managers (AIFMS), self-managed UCITS and internally managed alternative investment funds (AIFs).

The aim of CP86


The aim of CP86 is not to introduce a whole series of additional regulatory compliance rules but to ensure high quality compliance with existing regulatory obligations. Therefore, CP86 includes 6 chapters of “guidance” and just 4 new “rules”. However, in a recent address to the funds industry, the CBI indicated that it does not expect the boards of fund management companies to simply “comply or explain” their approach to the adoption of CP86, but rather to aim for full compliance with the guidance. Compliance with CP86 is intended to provide the CBI with comfort that the regulatory obligations of the fund management company are being managed and that the company is effectively supervisable and within the sphere of influence of the CBI.

Supervisability Factors


The CBI’s mandate is to ensure high quality, effective and proportionate supervision of Irish authorised fund management companies. In order to achieve this, the CBI has considered what it means for management companies to be ‘supervisable’. In the Third Consultation the CBI described the concept of “supervisability” and the ability of the CBI to exert effective influence over a firm on an ongoing basis.

The CBI’s ability to exert effective influence over fund managers means that the firms must understand the demands and expectations of the CBI, feel the presence of the CBI and understand what the outcome would be for a firm if it were to fall below the standards set by the CBI.

In this context, the CBI has set out a number of factors, thirteen in total, which it considers as being necessary to allow it to supervise a regulated entity. Some of these factors have contributed to the development and final outcome of the ‘Location Rule’ (set out below) for Directors and Designated Persons such as physical proximity, ease of travel, common supervisory, legal and cultural demographics etc. However, some of the factors that the CBI considers necessary for a management company to be supervisable include the ability to access documents, records and other data, and the ability to request this information from any person involved in the management of a regulated financial service provider. They also consider it necessary to be able to carry out investigations and on-site inspections and to be able to access existing records of telephone conversations and electronic communications.

A challenge for the boards of fund management companies, in preparation for compliance with CP86 will be to assess how supervisable they are. How easily can records be retrieved for provision to the CBI and what is the quality of those records? Is there an agreement in place with delegates that will allow the management company to access certain information in a timely manner if requested to do so by the CBI? How accessible are the Directors and Designated Persons to the CBI? Is there a clear line of communication? Has the Board tested these arrangements to ensure that it can respond to a CBI request for information or notice of investigation/on-site inspection efficiently and effectively?

The Location Rule


As noted above, a number of the factors considered by the CBI to be necessary to ensure that a firm can be effectively supervised, include the physical proximity of the Directors and Designated persons and the ease with which these individuals can travel to meet with the CBI (or the ease with which the CBI could travel to meet those individuals). The CBI has also expressed its views on the need for firms to operate within similar cultural, legal and regulatory and supervisory environments to Ireland, so that the expectations of the CBI are understood and can be met. In weighing up these factors with the need for skilled, experienced individuals on the boards of management companies, the CBI finalised the CP86 Location Rule as follows:

Where a management company has a PRISM impact rating of:

a) Medium Low or above, the management company shall have at least -
i. 3 directors resident in the State or, at least, 2 directors resident in the State and one designated person resident in State,
ii. half of its directors resident in the EEA, and
iii. half of its managerial functions performed by at least 2 designated persons resident in the EEA, or

b) Low, the management company shall have at least -
i. 2 directors resident in the State,
ii. half of its directors resident in the EEA, and
iii. half of its managerial functions performed by at least 2 designated persons resident in the EEA.

Currently there are 40% (US) and 36.9% (UK) fund managers in Ireland and these managers could have been heavily impacted by this rule*. However, once the rule comes into effect, it will still be possible for non EEA managers to continue to manage Irish funds, although some may need to consider the location of board members. Firms will continue to apply a global strategy and investors will benefit from the availability of local and global expertise in the management of their investments.

Fund management companies based outside Ireland, with passported Irish domiciled funds, are not subject to the location rule.

* Source: The Central Bank of Ireland Feedback Statement on CP86 – Consultation on Fund Management Company Effectiveness – Managerial Functions, Operational Issues and Procedural Matters Third consultation

Further Information on Supervisability


Deloitte can help you to assess the impact of CP86 on your business and to develop an implementation and change support programme which will enable a management company to comply with CP86 and the expectations of the CBI.
We can assess the ease with which a management company can be supervised, the organisational structure of the Board, Designated Persons and Delegates, the effectiveness of those structures and the mechanisms in place to evidence risk management.

We provide regulatory compliance and risk management support to funds, management companies and their service providers in Ireland and we have extensive experience supporting our clients through CBI inspections, remediation projects, fitness and probity applications, corporate governance requirements, training and independent compliance reviews.


This article is first of a series of articles by Deloitte in relation to CP86. In the next article we will look at the CP86 guidance on Delegate Oversight and examine what it means for a fund management company to demonstrate effective oversight in the context of risk management.

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