On 27 September, 2021, the Central Bank of Ireland (CBI), in accordance with its administrative sanctions procedure (ASP), reprimanded and fined an Irish domiciled UCITS management company (Firm) in the amount of EUR385,000 in respect of four admitted breaches of investment funds regulations, including advertent investment restriction breaches and breaches related to oversight of delegates and governance.
In relation to the advertent investment restrictions breaches, the CBI identified, that a discretionary investment manager appointed by the Firm, whilst completing a UCITS merger of two funds managed by the Firm, deliberately breached certain investment concentration restrictions set down in UCITS fund legislation and in the prospectus of the merging UCITS.
During the course of the ASP, the CBI also identified several instances of ineffective reporting and communication procedures with the Firm’s delegates, including:
- a failure to ensure timely provision of delegates’ reports to the board of the Firm and to designated persons involved in the senior management of the Firm and in certain instances, documenting such reports as having been received, where this was not accurate;
- a failure in exceptions based reporting and escalation reporting, resulting in late escalation of advertent breaches to the board of the Firm;
- ineffective supervision and monitoring of delegates of the Firm;
- a failure to engage in ongoing supervision and monitoring of significant projects (such as the UCITS merger) where there were clearly identified risks of which the board of the Firm was aware; and
- a failure to keep a designated director for monitoring compliance in place, during a period where the appointed individual was on extended sabbatical leave.
Compliance by fund management companies and funds with applicable fund legislation, CBI guidance as well as their fund documents and any documented policies, procedures and regulatory business plans/programmes of activities, will continue to be an area of focus for the CBI.
The CBI expects each fund management company, notwithstanding the delegation of functions, to exercise appropriate governance, oversight and monitoring programmes (including proactively challenging the activities and scrutinising the actions taken by their delegates) on an on-going basis but also when specific risks arise.
Boards of directors and senior management within fund management companies and funds should review their existing operations to ensure that they are paying sufficient attention to delegation arrangements.
How we can assist?
This sanction is a further indication that the CBI is actively conducting enforcement investigations and will hold funds, fund management companies and other fund service providers, and individuals who work in these firms, responsible for compliance with regulatory and governance obligations and for ensuring appropriate oversight of delegation arrangements.
In an environment where regulation and its enforcement will only increase, we recognise that effective compliance and avoidance of regulatory intervention are business critical issues. Mitigation of financial and reputational risks requires early engagement with experienced lawyers who understand the cultural as well as the legal and regulatory landscape in Ireland.
We are uniquely placed to advise funds, fund management companies and other fund service providers in relation to their governance frameworks, compliance issues as well as any regulatory investigations or sanctions procedures.
If you have any questions please contact any of the authors or your usual DLA Piper contact.