Funds Europe – Over the past six years, the Irish funds industry has had to adjust to increased levels of fund governance requirements from the Central Bank of Ireland (an initiative known as CP86). Has this been a painful process?
Creswell – My first impression early in the process of CP86 was of this overwhelming volume and frequency of requests from the Central Bank and we, along with everybody else, received numerous ‘Dear Chairman’ letters – we had one for liquidity, value for money, closet tracking, governance and so on, and they were not trivial enquiries. But if you went through those ‘Dear Chairman’ letters, the CBI actually communicated very clearly what they wanted. Initially it was quite overwhelming but then we paused, read the detail and went, ‘This actually all makes sense,’ and we got busy, we got the resources and I think most of the industry got behind that.
What’s most interesting is we haven’t seen mass sanctions, we haven’t seen mass enforcement, there hasn’t been mass remediation. I know that some people had remediation letters, and those were all resolved. I think almost exclusively they resolved very swiftly and very constructively.
The CBI has been a leader in the industry, it has kind of reset the bar, it’s told us very clearly what the expectations are and after the initial shock and awe, we all come out of this as winners. Let’s not forget we’re all fiduciaries, we’re holding assets of other people’s money, and the industry has come out of this very much stronger.
We’ve had to invest, we’ve had to hire more people, we’ve had to invest in processes, but I do think the Irish structure is one that everybody can have a very high level of confidence about. So, even though I’m a practitioner and it’s cost us money, it’s been a very business-positive process.
McEvoy – Some perhaps were more challenged than others and it is reflective of a broader European trend. In many ways it’s been helpful because CP86 ultimately resulted in quite clear guidance that has been applied across the sector now.
We also now have the European Commission’s published proposals on AIFMD II [the second Alternative Investment Fund Managers Directive] which are under discussion, including around AIFM substance. A lot of that heavy lifting is done here in Ireland thanks to CP86, so it looks like there shouldn’t be much to do for AIFMs here in the market in that regard.
For some we have seen a move to a third-party AIFM model, as the bar for establishing and running a proprietary AIFM has certainly raised. We’ve seen consolidation amongst AIFMs – and obviously AIFMs now in the market should assume they will continue to face some challenge and scrutiny.
Prew – It’s not stopping here and Ireland will be introducing the Senior Executive Accountability Regime, or SEAR, over the next 18 months. This is the Irish equivalent of the Senior Managers Certification Regime (SMCR) in the UK, and a key focus of SEAR is on governance and accountability.
Fox – The landscape in Ireland has changed over recent years. There has been a sharp increase in the number of Ucits management companies and AIFMs over the last three or four years. This is due in large part to the UK’s departure from the European Union and the effect of the CP86-related increase in management company substance. There has been a migration from self-managed investment companies (Smics) into either in-house proprietary management companies or on to third-party management company platforms. As a result, the number of Smics has reduced significantly. There are obviously still some, but I think they are likely to continue to reduce in number.
To quantify some of the change, I would highlight a finding from an Economic Impact report carried out on the industry at the end of 2020, which showed asset/fund management headcount numbers increase by approximately 60% over two years to stand at 3,600.
Of course, there are particular areas where there has been a greater focus in terms of increased headcount or substance – such as fund risk, investment management, operational risk, regulatory compliance – and although over the period under which the change was taking place it was challenging and sometimes difficult, now that we’re towards the end of this period of change and increased substance, we have reached a threshold where I think we’re in a much stronger place.