by Lorcan Murphy, Managing Director, ACOLIN Ireland
Ever more industry-backed European harmonisation attempts such as MiFID II and AIFMD have tried (with reasonable success) to facilitate cross-border fund distribution. However, with regards to distribution oversight the harmonisation efforts of our European and national lawmakers have yielded confusion amongst the market players today. An already complex industry is becoming even more tangled and opaque. But isn’t this exactly what more regulation is supposed to fix?
Let us take a look at two Directives that are having a big impact on fund distribution oversight at the moment.
The requirements behind the CSSF circular 18/698 in itself are not new. The introduction in August 2018 includes detailed guidelines, old and new, for the authorisation and organisation of Investment Fund Managers incorporated in Luxembourg. Its inclusion of AML guidelines in the Circular is a clear recognition by the CSSF, of the increased focus and importance of KYD related issues to investors.
Similarly, the Central Bank of Ireland has also clarified its guidance in relation to fund management companies based out of Dublin. Circular CP 86 details the standards that apply across a range of aspects of fund management company activities including organisational effectiveness, performance of managerial functions, delegate oversight, and resourcing. Included in this guidance is a requirement to ensure that oversight of distribution arrangements is conducted in accordance with CP 86, meaning that the Board of Directors have full oversight of the distribution activities and counterparties.
Whereas the principles of the requirements named above are nothing particularly new or revolutionary – the way they are enforced has left a mark on the industry. Many fund managers had not been ready – their inhouse systems, the way they monitored their respective distribution channels (if at all), were not up to par with what the regulators wanted to see. This is now under review. Issues that arise include the lack of a common standards to monitor, to measure against and report with. Also, the fact that every European Member State imposes slightly different requirements has caused some difficulty not only between fund managers and their respective regulators, but also between fund managers and their distributors, who were now faced with having to monitor, report on and comply with a multitude of standards imposed various national regulators.
It may be the investor who is set to benefit from the increased focus on regulation, but fund managers are the ones who need to make the changes. As a result, more resources are being allocated towards compliance oversight capabilities in order to provide the complex data that is required, potentially taking away investment from revenue-generating functions.
Those fund managers that prefer to focus their efforts on driving investment performance for their clients and on business development, may decide to delegate this function to a third party, allowing them to benefit from not only an existing infrastructure, but also highly experienced staff.
At ACOLIN, we have developed a comprehensive suite of services designed to ensure fund managers meet their distribution oversight requirements, whilst reducing the regulatory burden. Since 2006, we have worked hand in hand with international teams, allowing fund managers to focus on their core capabilities and create value for investors.