The importance of Management Companies to the Irish funds market
13th February 2023
In January, Acolin was thrilled to host a panel discussion on the regulatory impact on fund distribution in Ireland.
We were lucky to be joined by three fantastic guests in Dublin. Independent Non-Executive Director Bronwyn Wright, CEO of Gemini Capital Connor Hoey and Mark Browne, Partner & Head of Asset Management at Clerkin Lynch came together in Dublin to share their thoughts and insights on what we can expect in 2023.
One of the many interesting takeaways from the evening was the increased focus on management companies (ManCo) by the regulator. The general consensus was that due to their sudden and rapid growth, management companies will find themselves under more regulatory scrutiny in 2023. Although all ManCos are approved entities; some are now also conducting MiFID II type activities and therefore will be subject to increased regulation. Recent presentations by the Central Bank of Ireland (CBI) show the bank wants to see correct procedures and policies in place but that it will also look at appointment of CEOs, ensuring board diversity and rotation of directors. It is certainly the case that ManCos have expanded their role post CP86 and that this brings with it high cost pressures in the market.
Higher costs is an issue across the whole market, but ManCos also face a significant resource challenge. In Ireland, there is little depth in the employment market for important skills that ManCos are looking for.
The panel saw this resource issue particularly impacting operational oversight and risk management, including ESG, and highlighted that although there is good operational oversight talent in Ireland, experienced compliance talent is difficult to find at a reasonable cost.
Corporate governance and resourcing were also highlighted as important areas look out for. The panel noted that there was a 67% increase in the number of CEOs on ManCos and this is largely to demonstrate accountability to the CBI and to show that there is leadership on the ground. The CBI will also look at the diversity of Independent Non-Executive Directors in relation to diversity of skills but also gender diversity. A point was made that this will, or should, lead to more regular review of the Board composition.
Even with the increasing regulatory and operational burden on ManCos, Ireland has been a clear beneficiary of Brexit as proprietary ManCos are setting up local branches to access local markets. These ManCos are well advised to review their operational structure and anticipate their growing regulatory obligations.
On the topic of ESG, the panel discussed the work that was done in relation to SFDR level 2 but noted that the CBI will likely issue a “Dear Chair” letter this quarter to highlight any issues that were spotted. Boards will have to review processes to ensure compliance with the points raised in the letter. Major dates that need to be considered are the approval of financial statements with SFDR content which is due soon depending on a firm’s year end, and 30 June which is when the principle adverse impact disclosures must be filed.
ESG data and the quality of ESG data were raised as a concern. Particularly the reliability of data and the varying sources for this type of data. Recently, ESMA has indicated that it will continue to focus on this area and the level of focus will very much depend on whether the sub-funds are Article 6, 8 or 9.
In closing the panel agreed, that the CBI is issuing fines at unprecedented levels and noted that key pieces of legislation talk about the “Responsible Person” which in most cases is the ManCo and therefore they will have full liability as per the CBI UCITS checklist.
ManCos have evolved and expanded their role in the fund distribution lifecycle which the CBI has clearly recognized as it looks to bring them into the MiFID regulatory fold.