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IFIA issues voluntary corporate governance code for collective investment schemes and management companies

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The Irish Funds Industry Association (IFIA) has issued a voluntary corporate governance code for Irish authorised collective investment schemes (CIS) and Irish authorised management companies.

This follows an invitation by the Central Bank for the funds industry to develop and apply its own corporate governance code in place of the statutory code developed for banks and insurance companies. While the IFIA code is voluntary in nature, the Central Bank considers it “essential” that all Irish authorised CIS adopt the code, albeit on a voluntary basis. 

The IFIA code draws on the existing corporate governance practices as outlined in the Central Bank Notices and the Companies Acts but also includes some significant changes and additional focus relating to:

Independent directorships – certain independent directors serving on boards may no longer be considered independent and boards need to examine carefully the independence criteria

Time commitment of the board – each CIS or management company should specify and document the time commitment it expects from each director while directors are required to disclose their other time commitments and should have sufficient time to allocate to board duties

Conflicts of interest – the board must establish a documented conflict of interest policy for its members and where conflict of interests arise these must be noted in the minutes

Board performance review – the board must review its overall performance and that of individual directors annually with a formal documented review taking place at least once every three years

Attendance at meetings – all directors are expected to attend and participate at board meetings. Directors who reside abroad may attend via telephone or video conference but would be expected to attend at least one meeting per year in person

Terms of reference for committees – additional focus is placed on drafting appropriate terms of reference and procedures for committees of the board

Director training – directors must be aware of the relevant policies and procedures and have received adequate and sufficient training to enable them to discharge their duties

Comply or explain – where a board adopts the code but decides not to apply any provision of the code, it should set out its reasons why in the Directors’ Report accompanying the annual audited accounts, or alternatively publish the information on a website

The code is accompanied by an extensive FAQ document which has been approved by the Central Bank and adds additional clarity. 

The code becomes effective from 1 January 2012 with a twelve month transitional period. A survey will be carried out within an 18 month period to assess adoption rates among the industry. Depending on the outcome of the survey and the general approach by the industry to the code, the Central Bank will review its voluntary nature and application at that point. 

It is anticipated that a further IFIA voluntary code applicable to fund service providers will issue for consultation at a future stage.

On 23 November the Central Bank issued its final guidance in relation to the new fitness & probity regime for regulated financial service providers. This followed the publication of the fitness & probity regulations and standards in September 2011. 

The new regime is applicable to directors of funds and management companies and positions within service providers such as fund administrators and trustees/custodians. Under the new rules certain senior managerial functions are designated  “Pre-approved Controlled Functions” (PCFs) requiring approval of a proposed individual for appointment to a PCF position. PCFs include directors and positions such as Head of Compliance, Head of Accounting, Head of TA, Head of Custody etc. Other positions may be designated as “Controlled Functions” (CFs) and the Central Bank may investigate, suspend, remove or prohibit any person from acting in a CF position. 

The final guidance has clarified that the fitness & probity standards do not apply to persons performing a PCF or CF under outsourcing arrangements where the outsourced service provider is a regulated entity (Irish, EEA or EEA equivalent) and an appropriate written agreement is in place. This means that the fitness and probity standards do not apply to positions in investment managers regulated by an EEA or EEA equivalent authority where the investment manager is contracted to provide services to an Irish fund/management company. Branches of EEA authorised institutions operating in Ireland also fall outside the scope of application of the Standards. 

For financial service providers that are affected, the new fitness & probity regime will require new due diligence and documentation standards as well as appropriate governance structures and processes to fulfil ongoing obligations. 
 
From 1 December 2011 existing and new staff in senior positions classified as PCFs are subject to the Regulations and Standards. Firms are required to notify the Central Bank of each individual acting as a PCF by 31 December 2011. However, the Central Bank’s final guidance has clarified that due diligence on PCFs need not now be completed until 31 March 2012. 

From March 1, 2012 new appointments CFs will be subject to the Regulations and Standards. From 1 December 2012 the Regulations and Standards will apply to all staff in existing CFs. 

Taking the standard two months’ notice period into consideration, CFs hired in January should be put through the organisation’s new fitness and probity internal regime.

 

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