Fund firms have warned the Irish financial regulator that proposed changes to fund supervision may weaken governance.
The issue centres on the so-called “location rule”, which would require funds to have fund directors and ‘designated persons’ located in the European Economic Area (EEA) in addition to directors based in Ireland.
The Central Bank of Ireland (CBI), which regulates Irish funds, wants to bolster fund governance with more external directors but is also giving funds more flexibility in sourcing directors and designated persons.
However, firms have said they could lose valuable skills and experience if their own executives were unable to sit on boards.
The CBI acknowledged the concerns in its feedback statement published this week (and available here).
In the feedback statement, the CBI said: “Respondents expressed concerns about the imposition of the proposed requirement to enhance effective supervision in the form of a location rule. Respondents focused mainly on the impact of this proposed effective supervision requirement.”
The CBI quoted a respondent as saying: “Changes to fund management company boards in the manner prescribed would likely result in sub-optimal governance models being employed to comply – ie, some directors who are employees of the promoter/investment manager and who bring a particular expertise to the role will have to be replaced by directors who are located in the EEA. This would not be in the best interests of investors.”
The CBI added: “Respondents argued that investors would suffer negative impacts if key personnel employed by the promoter with a wealth of experience and specific promoter knowledge were replaced in favour of individuals located in the EEA.”
The statement is in response to a third consultation under the broader ‘CP86’ consultation exercise. The latest consultation was released in June and focused on “fund manager company effectiveness” and effective regulation.
The US and UK firms are the those mainly affected, as they account for 40% and 37%, respectively, of fund promoters based in Ireland.
Pat Lardner, chief executive of Irish Funds, said the trade body was digesting the feedback and added: “The clarity provided by the conclusion of this body of work and the additional flexibility which is incorporated, following feedback from industry, are both welcomed.”
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