Funds Europe – More broadly, what is the regulatory ‘temperature’ in Ireland now? What do asset servicers, management companies (ManCos) and wider fund organisations need to consider and prioritise?

Creswell – What’s being tested by the Central Bank, in effect, at present is the veracity of the ManCo structure. Are the ManCos really in control? Are they really getting the risk management data and running their own numbers? Are they independently reviewing risk processes, governance and so on? I can speak for our structure where we know that’s happening, so my expectation is that the thing that has really changed, and what we expect to see prioritised is really a firming up around all the components of the ManCo that allow the ManCo to do their job.

We also expect to see more on ESG [environmental, social and governance]. We are familiar with mutual fund businesses in the US where we’ve seen the SEC [Securities and Exchange Commission] examining US companies around their ESG policies and procedures, so the theme last year for 2021 was a very invasive, very aggressive examination of fund managers for ESG, and very publicly – it’s all in the press – they came and named-and-shamed some very big well-known companies and levied very high fines.

I wouldn’t say my focus has moved beyond the ManCo, because there’s still a lot of work being done, but I’m very confident that that train has left the station and will arrive securely.

For us, the discussion now with the Central Bank is the work that Central Bank needs to be doing around ESG. We would expect to see a Dear Chairman letter some time this year that begins to look at the ESG underpinnings of Ucits and AIFs. What we haven’t had is a thematic review, and we should probably expect one in the next 18 months. I think it would be very healthy.

We’ve dealt with category 6, category 8, category 9; the Taxonomy is out and our entire industry is reacting appropriately. But there’s a lot of work to be done by the Central Bank in terms of clarifying what its ESG position is.

We’re already doing that work, categorising our funds, and there’s been some criticism by some service providers to the industry that measure Ucits performance – external service providers – who have said, ‘Actually, a lot of Category 8, or Category 9 funds don’t do what they say on the tin.’ But that’s not being driven by the regulator; it’s the third-party evaluations being done. Everything around ESG is currently a priority, it’s going to remain a priority going forward.

McEvoy – Locally, there are a number of new regulatory initiatives underway, some of which are quite substantial.

There is the cross-industry guidance on outsourcing and cross-industry guidance on operational resilience, each of which requires firms to ensure they have a robust strategy with processes and controls in place in these areas. The upcoming Individual Accountability Framework is also a fundamental development. It focuses on incentivising positive individual behaviour and providing regulatory means to enforce on individuals.

All of these either are already or will need really active management and assessment to make sure the firms are compliant across ManCos and administrators, etc. So, it is ever-evolving.

Another topical area is AIFMD II and delegation. With the proposals as they stand, local regulators will need to report to Esma [the European Securities and Markets Authority] where managers are delegating more than retaining in respect of portfolio management and risk management. One would think the volume of reporting, particularly with regard to portfolio management, is going to be very high, and it does indicate that the proportionality of delegation will remain under continued assessment at a European level.

Fox – Esma obviously set the tone and the direction for a lot of what we see from a regulatory perspective that gets rolled out across member states. We know over recent years Esma focused on substance and including a paper looking at substance requirements for ManCos that were relocating due to Brexit. CP86 has put the industry on a very solid footing here. Having the ability to demonstrate to other regulators that we have real and meaningful substance with decision-making being taken within structures here is powerful and important.

The Central Bank has indicated that they will complete their common supervisory approach (CSA) on fund valuations and Ucits costs and fees. There will also be a focus on the oversight of delegates and operational resilience. The Central Bank are also taking a close interest in sustainable finance-related disclosures.