Changes to CBI's list of PCFs will impact RFSPs, INEDs, Head of AML/ CTF roles
The Central Bank of Ireland (CBI) proposes, in a Notice of Intention, to amend the list of pre-approval controlled functions (PCFs) under its Fitness and Probity Regime as follows:
Introduce stand-alone PCFs in respect of:
Independent Non-Executive Directors
The Head of Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF)
Remove PCF-31 Head of Investment
Expand PCF-16 to include branch managers in non-EEA countries
The CBI has invited comments from stakeholders on these proposals by 20 October 2021.
Key changes for Funds
Non-executive directors and independent non-executive directors. The CBI has emphasised the importance it attaches to the role of non-executive directors and independent non-executive directors. The CBI regards independent non-executive directors, in particular, as an integral component of the board of a regulated financial service provider (RFSP) and a fundamental safeguard within an RFSP’s governance framework. On this basis, and in the interest of greater clarity, the CBI intends to split the non-executive director (PCF-2) role to reflect the distinction between the non-executive director (PCF-2A) role and independent non-executive director (PCF-2B) role.
AML/CTF roles. The CBI has noted the increasing importance of the role of individuals with responsibility for AML/ CTF, and the number of appointments of individuals to carry out this role in its own right (as opposed to within the remit of the role of head of compliance). The CBI is of the view that it is necessary to replace the role of head of compliance with responsibility for AML/ CTF legislation (PCF-15) with a dedicated role of head of AML/CTF (PCF-52). The role of head of compliance (PCF-12) will be retained.
Investment officer role. The CBI notes an element of duplication between the chief investment officer (PCF-30) role and the head of investment (PCF-31) role and accordingly intends to remove PCF-31.
Persons already in place when the amended regulations come into effect will not be required to seek CBI approval to continue to perform one (or more, in the case of current PCF-15 holders) of the amended PCF roles. The following in-situ process will apply in respect of each amended PCF.
Non-executive directors and independent non-executive directors. All non-executive directors will be re-designated as non-executive directors (PCF-2A). RFSPs will be required to submit a list of the individuals who should be designated as independent non-executive directors (PCF-2B), and to confirm that they have undertaken the relevant due diligence to assess independence.
Head of Compliance (PCF-12). No action required.
Head of compliance with responsibility for AML/ CTF legislation (PCF-15). All individuals designated as PCF-15 will have this designation end-dated. RFSPs will be required to notify the CBI of the appropriate PCF designation(s) of the individual i.e. either or both PCF-12 and PCF-52.
Head of AML/CTF (PCF-52). Where an RFSP determines that it is appropriate for an individual designated as PCF-15 to be re-designated as PCF-52, RFSPs will be required to notify the CBI accordingly. In all other cases, an RFSP should review its functions and determine whether any would meet the head of AML/ CTF role. Where an RFSP determines that this role does exist, the RFSP will be required to review their assessment under Section 21 of the Central Bank Reform Act 2010 (that the individual complies with the Fitness and Probity Standards and has agreed to abide by those standards) in respect of individuals in situ and submit confirmation of such an assessment to the CBI.
RFSPs will have six weeks from the date the amended regulations come into effect to submit the in-situ confirmations. The full application process will apply to any new appointment to the amended PCFs after the amended regulations come into effect.
RFSPs may choose to refresh their existing F&P documentation in advance of giving any confirmations, to reflect changes in their policies, letters of engagement and letters of confirmation.
CBI’s expectations around business growth in third party management companies
The CBI issued the 41st Edition of the CBI's AIFMD Q&A and the 33rd edition of the CBI UCITS Q&A. The updated Q&As include 1147 (AIFMD) and Q&As 1101 (UCITS), which set out CBI expectations in relation to an AIFM or UCITS management company (as the case may be) operating or planning to operate in the manner of a third party management company.
The Q&As note that third party fund management companies generally refer to “fund managers that provide a platform to business partners by setting up funds at the initiative of the latter and typically delegating investment management functions to those initiators/business partners or appointing them as investment advisers.”
Fund management companies must have sufficient resources to enable them to carry out their functions to the required standard, taking into account the nature, scale and complexity of their business. This is of particular relevance to third party management companies where the on-boarding of new business may change the nature of, or increase the number of, delegate relationships and therefore amplify the complexity of operations.
The Q&As highlight that where new business results in a material increase in the nature, scale or complexity of a management company’s business (whether through a standalone transaction or on a cumulative basis), this is considered to be a change which “materially affects the basis on which authorisation has been granted”. Accordingly, the management company must notify the CBI of such changes to its operating model in accordance with legislation.
This notification obligation will arise in circumstances which include (but are not limited to):
material increases in the number of funds under management
material increases in the number of delegates
on-boarding of self-managed UCITS funds or internally managed AIFs who are changing their status to be externally managed
In these circumstances, the management company must engage proactively with the CBI supervisors and furnish updated financial projections, capital plan and programme of activity with increased resourcing projections for review.
The CBI also wrote to some fund management companies as a follow-on to the CP 86 thematic review Dear Chair letter, setting out further detail on the CBI’s expectations around governance and substance.
New IFD/ IFR regulations
S.I. 355 of 2021 and S.I. 356 of 2021 complete a partial transposition of Directive (EU) 2019/2034 (the Investment Firms Directive or IFD) and the implementation of Regulation (EU) 2019/2033 (the Investment Firms Regulation or IFR) into Irish law, effective 21 September 2021. IFD and IFR puts in place a new prudential framework for investment firms authorised under the Markets in Financial Instruments Directive (MiFID II). You can read more about the IFD/IFR here.
CBI had clarified that AIFMs and UCITS ManCos with MiFID II top-ups should continue to comply with their current prudential regime pending further engagement with the CBI concerning the application of a new regime (in the context of the IFD and IFR).
CBI 1 December 2021 deadline for new MMF daily reporting
The CBI updated its Guidance Note on Money Market Fund Regulation (MMFR) Reporting. The deadline for the filing of the new MMF daily reporting schema has been extended so as to give firms more time to prepare. The new ‘go-live’ date for the automated daily reporting is 1 December 2021 (rather than 1 October 2021).