Investr Mney Regulatins A new regime fr fund service prviders in Ireland On the 30 th March 2015, the new Investr Mney Regulatins were brught int effect by Statutry Instrument 105 f 2015, with crrespnding Guidance Ntes published by the Central Bank f Ireland. These new rules apply t fund service prviders, including fund administratin firms wh perate bank accunts fr the cllectin and payment f mney frm and t investrs in respect f subscriptins and redemptins in funds. The new rules must be implemented by 1 st April 2016 and will have a significant impact n the daily prcesses and cntrls fr sme fund service prviders. The high level f versight affrded t client assets generally, cupled with the fact that these are brand new requirements, make it extremely imprtant fr firms t understand the requirements and hw they can cmply by the deadline. There are many different banking mdels in peratin acrss the fund servicing industry in Ireland, s it will be necessary t unravel the new requirements frm a cntractual and technical perspective within each firm. An alternative Fund Asset Regime may be an ptin fr sme firms but this has yet t be defined and will undubtedly require a significant cntrl and versight framewrk that is cmpliant with bth the AIFMD and UCITS regulatins.
Client Asset Regulatins Previusly, the client asset requirements (CAR) in Ireland applied t all investment business firms. On the face f it, the CAR therefre applied t transfer agency activities in respect f subscriptins and redemptins, invlving the transfer f mnies t and frm the fund thrugh cllectin accunts. Hwever, the ne size fits all apprach f the CAR psed many practical challenges in applying client asset rules t third party fund service prviders, in effect making it unwrkable. As f 30 th March 2015, there are nw tw regulatins, the Client Asset Regulatins fr Investment Business Firms (replacing the regulatins f 1 Nvember 2007) and the new Investr Mney Regulatins which are specifically fr fund service prviders wh wn and perate cllectin accunts. The intentin f the Central Bank f Ireland is t ensure that all Irish investment business firms are required t cmply with a client asset regime in the interests f ensuring that any mney due t clients r investrs in funds is remte frm the inslvency f the Irish firm. It shuld be nted that Irish authrised cllective investment schemes are nt in the scpe f these regulatins as fund assets cntinue t be subject t fund rules e.g. AIFMD and UCITS Ntices. This may include cllectin accunts that are apprpriately structured as fund assets. It is undesirable that n apprpriate requirements t safeguard client assets are impsed. Treatment f cllectin accunts The treatment f cllectin accunts has been an area f nging cncern fr the Central Bank f Ireland fr sme time. In a review published in March 2012, reviewers appinted by the Central Bank articulated their view that mnies passing thrugh cllectin accunts are client assets within scpe but acknwledged that fr practical reasns the CAR are nt applied t the peratin f these accunts. The reprt stated: We regard this lacuna as unsatisfactry. It is undesirable that n apprpriate requirements t safeguard client assets are impsed at this stage f the prcess. This shuld be reslved. The Investr Mney Regulatins are the Central Bank f Ireland s slutin t these cncerns. They bring fund service prviders, and in particular, cllectin accunts, squarely int a client asset regime. There has been extensive industry engagement with the Central Bank f Ireland n this tpic and the final regulatins are the result f lengthy discussin and input frm industry regarding the rle and respnsibilities f fund service prviders in handling investr mney. Nnetheless, it is likely that many fund service prviders will need t examine their plicies, prcedures, systems and cntractual arrangements in sme detail, in rder t ascertain what steps they will need t take t achieve cmpliance with the new regulatins in the 12 mnth lead-in time. 2
Cre principles There are six cre principles utlined in the Investr Mney Regulatins, as fllws: Segregatin Designatin Recnciliatin Daily calculatin Risk management Investr mney examinatin Fund service prviders will need t apply these principles t all cllectin accunts that are nt cnsidered t be fund assets. This represents a very significant change t the current peratin f cllectin accunts, requiring detailed new prcesses t maintain the required level f identificatin, segregatin, recnciliatin and versight. As with any frm f principles based regulatin, significant effrt will be required t demnstrate t the Central Bank f Ireland hw a firm s prcesses and prcedures are in line with the requirements. Each f these six cre principles is explained in summary belw: Segregatin Investr mney shuld be held separately t nn-investr mney, such as fund mney r the fund service prvider s wn mney. Further infrmatin is prvided in the guidance ntes t clarify that mney received befre the dealing date f the relevant fund is cnsidered t be investr mney, but that any mney received frm an investr n r after the dealing date f the fund, is nt cnsidered investr mney and shuld nt therefre be held in the cllectin accunt. Designatin Each accunt used by the fund service prvider fr the purpse f hlding investr mney, must be designated as a cllectin accunt by the fund service prvider s bank. This designatin must appear in the accunt name. The fund service prvider must als btain an Investr Mney Facilities Letter frm its bank in respect f each cllectin accunt pened. Recnciliatin Each cllectin accunt must be recnciled n a daily basis. All recnciliatin recrds and backup must be readily available fr inspectin. The persn carrying ut the recnciliatin must be independent f the persn respnsible fr maintaining the recrds that are used t perfrm the recnciliatin (segregatin f duties). Additinal prvisins are made fr recnciliatins that are prduced electrnically r utsurced t a third party, but firms must be able t evidence the rbustness f their system cntrls and versight in each case. 3
As with any frm f principles based regulatin, significant effrt will be required t demnstrate hw a firm s prcesses and prcedures are in line with the requirements. Daily Calculatin Every day, as at the clse f business n the previus wrking day, the fund service prvider must ensure that its investr mney resurce (the amunt f investr mney n all cllectin accunts) is equal t its investr mney requirement (the amunt f investr mney that shuld be n the cllectin accunts). Shrtfalls need t be funded by the fund service prvider. Failures t perfrm the daily calculatin are reprtable t the Central Bank f Ireland. Risk Management Each firm subject t the rules must appint a Head f Investr Mney Oversight ( HIMO ) which is a Preapprved Cntrlled Functin ( PCF ), and each firm must dcument and maintain an Investr Mney Management Plan ( IMMP ). The respnsibilities f the HIMO and the cntent f the IMMP shuld be tailred t the business mdel f each fund service prvider. The IMMP shuld be apprved at least annually by the Bard f the fund service prvider. Investr Mney Examinatin The regulatins require an external auditr t prvide an assurance reprt annually n the firm s safeguarding f investr mney, indicating the adequacy f prcesses and systems and the level f cmpliance with the new regulatins. The reprt must be prvided t the Central Bank f Ireland within 4 mnths after each financial year end. Preparing fr refrm The new rules will represent a significant change in practice fr sme fund service prviders. Fr thers a perid f restructuring will be required. In bth instances firms will at a minimum need t review current structures, existing cntracts and legacy arrangements against the new requirements. The new rules will represent a significant change in practice fr sme fund service prviders. T date Industry prpsals have fcussed n structuring cllectin accunts as custdy assets f the investment fund in line with AIFMD, the intentin being that the Investr Mney Regulatins will nt apply. These prpsals seek t reflect the AIFMD and the prpsed UCITS V mdel by applying the cash mnitring and recnciliatin duties t cllectin accunts. In line with AIFMD, cllectin accunts culd be pened in the name f the fund, the manager n behalf f the fund r the depsitary n behalf f the fund. The latest industry prpsal t the Central Bank f Ireland, attempts t set ut the basis upn which such fund accunts culd be pened at umbrella, r even manager level, but still be treated as fund assets, with a view t minimising the number f cllectin accunts that a fund r manager wuld need t pen. 4
Hw can we help? Delitte has been actively invlved in dialgue with industry fr sme time with regard t the develpment and implementatin f the Investr Mney Regulatins. We will cntinue t engage with key industry stakehlders ver the next 12-18 mnths t address the peratinal challenges that fund service prviders in Ireland will inevitably face under the Investr Mney Regulatins r the prpsed alternative Fund Asset Regime. We can help yur firm in respnse t these new regulatins in the fllwing ways: Perfrm a high level impact analysis in the cntext f bth the Investr Mney Regulatins and the prpsed Fund Asset Regime. Assess yur firm s current banking mdel in mre detail t determine if it already lends itself t either an investr mney regime r a fund asset regime, r even a mix f bth. Help yu t determine which mdel is the mst apprpriate fr yur business and yur client base with due cnsideratin t the fllwing: Restructuring requirements Cntractual arrangements Oversight & cntrl Shuld yur banking mdel, r even part f it, be within the scpe f the Investr Mney Regulatins in their entirety, we can help yu t meet yur bligatins in the fllwing ways: Impact analysis IMMP prductin / review Senir Management Training (HIMO & Bard f Directrs) Whichever mdel yu chse, we will help yu t develp prcedures and prcesses, design and deliver training prgrams, and implement yur mdel f chice. 5
Cntacts Fr mre details, please cntact Clm McDnnell Partner, Enterprise Risk Services T: +353 1 417 2348 E: cmcdnnell@delitte.ie Sean Smith Directr, Enterprise Risk Services T: +353 1 417 2306 E: seansmith1@delitte.ie Laura Wadding Senir Manager, Enterprise Risk Services T: + 353 1 417 2934 E: lwadding@delitte.ie Delitte refers t ne r mre f Delitte Tuche Thmatsu Limited, a private cmpany limited by guarantee, and its netwrk f member firms, each f which is a legally separate and independent entity. Please see www.delitte.cm/ie/abut fr a detailed descriptin f the legal structure f Delitte Tuche Thmatsu Limited and its member firms. Delitte s 1,300 peple in Dublin, Crk and Limerick prvide audit, tax, cnsulting, and crprate finance t public and private clients spanning multiple industries. With a glbally cnnected netwrk f member firms in mre than 150 cuntries, Delitte brings wrld-class capabilities and high-quality service t clients, delivering the insights they need t address their mst cmplex business challenges. Delitte s apprximately 200,000 prfessinals are cmmitted t becming the standard f excellence. This publicatin cntains general infrmatin nly, and nne f Delitte Tuche Thmatsu Limited, Delitte Glbal Services Limited, Delitte Glbal Services Hldings Limited, the Delitte Tuche Thmatsu Verein, any f their member firms, r any f the freging s affiliates (cllectively the Delitte Netwrk ) are, by means f this publicatin, rendering accunting, business, financial, investment, legal, tax, r ther prfessinal advice r services. This publicatin is nt a substitute fr such prfessinal advice r services, nr shuld it be used as a basis fr any decisin r actin that may affect yur finances r yur business. Befre making any decisin r taking any actin that may affect yur finances r yur business, yu shuld cnsult a qualified prfessinal adviser. N entity in the Delitte Netwrk shall be respnsible fr any lss whatsever sustained by any persn wh relies n this publicatin. 2015 Delitte & Tuche. All rights reserved