Funds Europe and Irish Funds hosted a webinar panel to discuss how Ireland’s funds industry has responded to the Covid-19 crisis, the obligations on fund boards, and the aftermath.
The panel participants were:
Yvonne Connolly (CEO Ireland, Carne Group)
Philip Dempsey (country head Ireland, Sanne Group)
Rachel Turner (EMEA head of investment managers and insurance, BNY Mellon)
Pat Lardner (chief executive, Irish Funds)
Following the 2008 financial crisis, firms allocated resources to meet new regulations designed to make the financial system more stable and robust. These measures appear to have been effective in helping the funds industry cope with the pressures of Covid-19.
Prior to the coronavirus pandemic, the Irish funds industry had amassed close to €3 trillion in assets under administration. Figures from last year indicated it was contributing around €840 million in taxes annually and employed more than 16,000 people.
Irish Funds, the industry’s trade association, has stated its ambition to generate over $1 billion in taxes and employ 20,000 people. But since March 12, Ireland has been in a form of lockdown, much like the rest of Europe.
With the majority of staff working from home, the Irish government has published a five-phase roadmap for exiting lockdown. So, how has the industry adapted to lockdown so far?
Everyone has been “working flat out”, says Pat Lardner, chief executive of Irish Funds, in an effort to deal with the triple effect of full business continuity planning (BCP), high volatility and activity levels, and the expectation that “we will be living with this virus for some time”.
There has also been a conscious effort to contribute to those parts of society that have been more badly affected. This contribution is by way of an emergency relief fund set up in partnership with Irish charity Basis.point. “We realise how fortunate we have been compared to others,” says Lardner.
For global custodians such as BNY Mellon, it has been possible to continue to meet all service level agreements, despite working from home. Rachel Turner, Emea head of investment managers and insurance, puts this down to the flexibility and resourcefulness of the bank’s people and technology. “The extra investment in system resilience over the last ten years has helped us to grapple with the challenges of working from home,” she says.
Ensuring communication both internally and with external stakeholders and clients has also been important for fund administrators, says Philip Dempsey, country head Ireland at Sanne Group. “Communication is key. Interacting with clients and investors, constant dialogue with managers, and the relationships with partner firms as well as fellow asset servicers and Irish Funds have been important.
“Despite the fact that the operational challenges that have resulted from Covid-19 are unprecedented in Ireland, the virtual board meetings and the online execution and distribution of documents has worked well, as has the AML and KYC [anti-money laundering and know-your-client] involved in client onboarding. Albeit with some initial delays, firms adjusted to the new operating environment,” says Dempsey.
He also credits the Central Bank of Ireland (CBI) for overhauling the regulatory regime following the financial crisis of 2008 and creating a “framework for fund administrators to work within that has stood the test of time”.
Prior to the crisis, the CBI introduced CP86 – Consultation Paper 86 - as part of a focus on ‘designated persons’ and substance requirements for funds set up in Ireland. The bank moved quickly in the pandemic to ensure that these requirements were still met, says Yvonne Connolly, chief executive in Ireland for Carne Group.
“The level of reporting for funds has been increased by the CBI. It engaged with companies very early in the transition to working from home. They wanted to know what plans management companies (ManCos) and their delegates had in place, to keep the lines of communication open and to get early warnings of any issues there might be.”
The CBI’s focus, at least partly, has been on material issues to do with business continuity processes, delegates, liquidity management, evaluation issues and cyber-security risks. Depending on a firm’s Prism rating (the Central Bank’s risk-based supervisory system), these engagements were either daily or weekly. She notes the same level of engagement was not seen for self-managed funds, “presumably because they have a lower Prism rating”.
The Central Bank has also requested more information on liquidity risk. “Liquidity has been high on the agenda of regulators for some time now and Covid-19 has put it into sharper focus,” says Turner. The issue was also given a greater spotlight by the high-profile fund suspensions of a number of property funds.
But, as Turner says, it is important to remember that of the 35,000 or so funds in the European market, only eight were unable to meet their redemption requests. “There has been very little application of the tools that are there to manage those liquidity issues, like gating and fund suspensions.”
The impact of liquidity has been limited to date but that is not to say it will not be in future, says Turner. “So far the funds industry has suffered much less from Covid relative to the macro economy and the knock-on effect of bankruptcies and liquidations may be much more apparent in the future. That is why the regulator wants to have prior knowledge of any issues and be involved with any major decisions. We need to work together in managing any potential contagion and monitoring the situation carefully.
“The levels of reporting have increased with daily reporting for net redemptions where 5% of the NAV [net asset value] has been impacted, immediate notification of any use of gating or fund suspension and a particular focus on money market funds given the issues that followed the 2008 financial crisis,” she says.
‘Designated persons’ have also faced increased liquidity monitoring of both the underlying assets and the shareholder redemption activity, says Connolly. “The CBI wants to ensure there is not a deterioration of the overall liquidity profile and that there is increasing communication with clients to spread redemptions over time and as a result we have not seen widespread fund suspensions,” she says.
Fund management board members have largely met their obligations during the lockdown, says Connolly. “We did see some tech challenges at the beginning of the lockdown, but they’ve been ironed out. We’ve been used to people participating in board meetings by conference call, but we have seen an increased use of video-conferencing tech and that’s been very useful.
“We’ve also seen auditors, depositaries and directors using electronic signatures to complete financial statements. And we’ve had some useful guidance from regulators and revenue commissioners in both the UK and Ireland. They are sympathetic to absences at board meetings.”
Rethinking the workplace
As firms across all industries continue to adapt to current working conditions, a question for everyone is what kind of workplace will be there when people are eventually allowed to return to their offices. “We are going to have to rethink how we work,” says Dempsey.
“People will look to formalise their working from home arrangements and that will have many benefits across the funds industry and beyond. It will give a greater life balance, especially to those that have young families and work long hours. There will also be less traffic on the road as fewer commute on a daily basis. We know now that people can work from anywhere once they have the right technology and that is a game-changer.”
The search for the right technology is likely to lead to an acceleration in the digitisation of processes, says Turner. “Some digital tools were already on the market but were usually combined with traditional manual tools, so they were not being used in the optimal way.
“Covid-19 has forced the industry to address that. There is no paper to be printed and that reliance on using digital tools has become larger. It has led the industry to focus on the processes that really matter such as exceptions and allow the digital tools to take care of the commonplace processes. So, we are at an inflection point in terms of digital tools,” says Turner.
For Irish Funds, the big challenge will be to ensure that all of its members working remotely remain connected, says Lardner. “We are a small organisation representing some very big businesses and our big challenge is to maintain those conversations with policy-makers and regulators on priorities and implementing changes once things start to normalise. That will help to get money into the economy, to meet savers’ needs and to also fuel the businesses that will be spending capital and support our local communities.”
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