The Front Page, Asset Management & Investment Funds: Irish Practice Developments

Some Approaching deadlines for 2015

  • 28 February 2015, Fitness & Probity – Deadline for filing the Annual PCF Confirmation Return (to 31/12/14) for Funds (see January Front Page).
  • Friday 27 March 2015, deadline for responses to ESMA Discussion Paper on UCITS Share Classes (see January Front Page).

This list does not cover ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include annual FDI Return) and semi-annual accounts because these dates will vary to reflect the particular year end.

ICAV bill passed all stages in the Oireachtas
As highlighted in our Front Page article, the legislation which provides for the establishment of the Irish Collective Asset-management Vehicle (the ICAV) has now been passed by both Houses of the Oireachtas

Central Bank programme of themed inspections in Markets Supervision for 2015
The Central Bank of Ireland (Central Bank) published its programme of themed-inspections in Markets Supervision, which outlines a number of supervisory priorities for this year. This programme builds on the supervisory work of previous years and also anticipates areas of emerging risk. The themed-inspections, which supplement day-to-day supervisory activities under the Central Bank’s risk-based supervisory framework (PRISM), will focus on:

  • Cyber Security / Operational Risk - Inspection of controls and procedures around system security and access.
  • Integrity of Regulatory Returns - Review of firms’ regulatory reporting.
  • Treatment of Pricing Errors for the Calculation of Fund NAVs - Examination of the processes for the treatment of pricing errors and the payment of compensation.
  • Depositary Oversight - Review of depositary oversight of investment funds including the depositary’s annual report to investors.
  • Proprietary Trading - Reviewing the governance and control environment for MiFID firms trading on their own account.
  • Conduct of Business - Review of selected MiFID conduct of business requirements.
  • Suspicious Transaction Reports (STRs) - Follow-up on previous themed-inspection from 2013 related to market discipline in filing STRs.
  • Person Discharging Managerial Responsibilities (PDMRs) - Review of policies and practices in relation to notification of relevant trading activity by persons discharging managerial responsibility in listed firms in the context of the Market Abuse Directive.
  • Risk Management in UCITS - Examination of the on-going application of risk management processes employed by UCITS.

Director of Markets Supervision, Gareth Murphy said: ‘Investor protection, market integrity and financial stability are at the core of the Central Bank's mandate. By announcing these themed-inspections, we are highlighting areas where investment firms, funds and market participants may need to raise standards. Following these inspections, we will communicate our assessment of regulatory standards in these areas and, where necessary, we will ensure that specific remedial actions are taken.’

Central Bank enforcement priorities for 2015
The Central Bank published its statement of enforcement priorities for 2015. The Central Bank’s enforcement strategy is focused on deterring breaches of requirements, securing compliance and promoting the behaviours and high standards expected from regulated firms, in order to protect consumers and safeguard the stability of the wider financial system and the economy.

Director of Enforcement, Derville Rowland, said:

“The Central Bank’s statement of enforcement priorities focuses on areas of particular importance in support of our overarching objective of safeguarding stability and protecting consumers. In addition, the publication of this statement reflects our commitment to being open and transparent in the work we do.

These priorities build on our enforcement work and experience to date and that of our supervisory colleagues. They enable us to target our resources in the right places to help deliver the best regulatory outcomes across all sectors of the Irish financial system and within the prudential, conduct of business and consumer protection areas of the Central Bank’s work.

The publication of our enforcement priorities highlights for firms the need for them to review their business practices and to ensure that they can at all times demonstrate the highest standards of compliance.

While we have identified our planned priorities it should be noted that our enforcement activity will not be confined solely to these pre-defined areas. We will continue to review our enforcement work in the context of the changing regulatory environment throughout the year. Our priorities will be delivered alongside our reactive enforcement activity when serious issues emerge as a result of the Central Bank’s supervisory work or other sources such as through whistleblowers.”

Enforcement priority areas include;

  • Prudential requirements,
  • Systems and controls,
  • Provision of timely, complete and accurate information to the Central Bank,
  • Appropriate governance and oversight of outsourced activities,
  • Anti-Money Laundering / Counter Terrorism Financing compliance, and
  • Fitness and probity obligations.

Low impact firms: The Central Bank has specifically allocated resources for enforcement actions against firms with a low impact PRISM rating on the Bank’s risk assessment framework

Central Bank report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Banking Sector
The Central Bank published a report on 17 February 2015 of its observations in relation to Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Financial Sanctions (FS) compliance by banks in Ireland. The Central Bank has stated that it expects all financial and credit institutions to carefully consider the issues raised in the report, and to use the report to inform the development of AML/CFT and FS frameworks.

The issues identified, which are set out in the report, include:

  • Incomplete risk assessments that do not effectively consider the inherent Money Laundering / Terrorist Financing risks relevant to the bank;
  • Risk assessments undertaken are very high level and lack thorough analysis of key risks;
  • Failure to include AML/CFT reviews in annual monitoring and internal audit plans;
  • Deficiencies in the Politically Exposed Persons process, including initial screening, the timing of Senior Management approval and the failure to sufficiently identify, verify and document Source of Funds and Source of Wealth data;
  • Non-adherence to stated AML/CFT and FS policies;Failure to ensure the provision of appropriate and comprehensive training to Board and committee members, as well as enhanced training for staff in key AML/CFT and FS roles;
  • Shortcomings in relation to the coverage and the timing of automated screening of customer databases for FS purposes.

Head of Anti-Money Laundering, Domhnall Cullinan said: "The Central Bank acknowledges that satisfactory processes and controls were found in place in some areas. However, the number and nature of issues identified suggests that more work is required by banks in Ireland to effectively manage Money Laundering and Terrorist Financing risk. While the banking sector in Ireland is the specific focus of the report, many of the issues raised are relevant to the broader financial services sector in Ireland." See here for more detail.

Central Bank appointment of Gerry Cross to the role of Director, Policy and Risk
The Central Bank announced the appointment of Gerry Cross to the role of Director, Policy and Risk. In his new role (commencing 5 May), Mr Cross will oversee the development and implementation of regulatory policy in relation to banking, insurance, funds, and securities and markets both domestically and internationally. Reporting to the Deputy Governor Financial Regulation, he will be part of the Central Bank’s senior leadership committee and contribute to ensuring ongoing high quality and effective regulation of the financial sector.

Announcing the appointment, Deputy Governor, Cyril Roux, said: “Gerry's breadth of experience in financial policy-making places him in very good stead to lead regulatory policy in the Central Bank at a time of broad based change.”

Fitness and Probity - Frequently Asked Questions
The central Bank issued an updated Fitness and Probity – Frequently Asked Questions which were updated with changes in respect of Significant Credit Institutions and data protection for sole traders.

For more information please contact Nollaig Greene or a member of the Asset Management & Investment Funds Team.

Date published: 27 February 2015