To date, treatment of investment restriction breaches, pricing errors, compensation and reporting has been governed by industry guidance and market practice. The CBI proposals differ on some points from the current guidance and practice.
The consultation paper looks at various aspects which include:
responsible parties and their obligations
treatment of errors and materiality
The regulatory framework is proposed to apply to fund management companies acting for Irish UCITS or AIFs and for non-Irish authorised funds and to SMICs and internally managed AIFs. The consultation paper is open for comments until 9 December 2019.
Read our In Focus paper for more information on this topic.
CBI deadlines for Christmas 2019
The CBI issued its Christmas deadlines for receipt of applications for:
fund and sub-fund applications that have pre-Christmas or pre year-end approval deadlines including self-managed/internally managed investment company/ICAV applications
approval of post-authorisation amendments that have pre-Christmas or pre year-end approval or noting deadlines
The CBI included the revised European Banking Authority Guidelines on outsourcing arrangements (EBA guidelines) in its Markets Update which issued on 9 September 2019 (discussed below). They will enter into force on 30 September 2019. The EBA Guidelines set out specific provisions for the governance frameworks of credit institutions and investment firms which are subject to the Capital Requirements Directive (as well as payment and electronic money institutions) in respect of their outsourcing arrangements and related supervisory expectations and processes. The aim of the guidelines is to establish a more harmonised framework for these financial institutions.
The CBI's Outsourcing Paper, November 2018 specifically refers to the EBA Guidelines (which were then in draft form). The CBI acknowledges that the EBA guidelines will not apply to all sectors but are a useful source of information which may be of assistance to other sectors in considering how to comply with their obligations.
UCITS ManCos, AIFMs, self-managed and externally managed UCITS and AIFs should be taking account of the CBI's position on outsourcing oversight, as should all regulated financial service providers (RFSPs). Each RFSP should assess its own circumstances when considering what kind of outsourcing oversight arrangements would be appropriate. Two important references when making this assessment are the CBI's Outsourcing Paper, November 2018 and the letter of recommendation it issued to boards in December 2016. The letter was issued following the CBI's thematic review of outsourcing arrangements for investment firms, fund managers and fund service providers.
If you are a RFSP looking at your outsourcing oversight arrangements, including whether to formalise an outsourcing policy, you can contact a member of the A&L Goodbody Asset Management & Investment Funds team for assistance.
Speech by CBI Director of Securities and Markets Supervision, Colm Kincaid, on "What does good regulation look like?"
Mr Kincaid discussed the CBI's role from the following perspectives:
the purpose of regulation
the CBI's strategic outlook
financial conduct regulation
enhancing the CBI's organisational capability
the CBI's gatekeeper role
the CBI's international engagement
Mr Kincaid noted that the CBI is committed to "strengthening our approach to conduct risk regulation" and adopting "a more systematic risk-based approach to how we supervise conduct."
On Conduct Supervision of Investment Funds, Mr Kincaid said:
"I mentioned earlier the need to do more to foster an EU capital market that best serves investors and the wider economy. It is noteworthy that the EU's largest capital market segment is its funds industry. It is also noteworthy that the largest component of the EU's funds industry comprises the highly regulated and retail investor focused UCITS sector. There is a lesson here about how confidence in a regulatory framework can contribute to the creation of a single EU capital market. This is one of the reasons we place such a focus on assertive supervision of UCITS, including in our recent reviews on performance fees and closet indexing.
We also need a range of options outside of UCITS of course, be that alternative investment funds or other capital raising options and here proportionality of regulation is key."