acoi welcomes our members to the 4th seminar in the

ACOI Welcomes our Members to the 4th seminar in the

ACOI lunch time CPD seminar series January - June 2012.

CPD Reference: 2012-0733

Our Event: Regulatory Updates for The Funds Industry.

Chaired: Mr. Ken Sharkey, Chairman of the Funds

Working Group, and Compliance Manager, Invesco

Speakers: Mr. Kevin O’Doherty, Regulator Affairs Consultant,

Compliance Ireland and Mr. Shay Lydon, Partner, Matheson Ormsby

Prentice

• Upcoming Events

Date Topic

17/04/2012 Lunchtime Seminar: Data Protection Directive

08/05/2012 Lunchtime Seminar: CBI Sanctions

15/05/2012 Lunchtime Seminar: FACTA - An Overview & Our Experience to Date

12/06/2012 Technical Workshop: AML / Data Protection

12/06/2012 Technical Workshop: CPC

22/06/2012 Lunchtime Seminar: Buildling a Shared Commitment to Ethics Excellence - A Global Perspective

22/06/2012 Annual Dinner: Celebrating the Buidling of a Shared Commitment to Compliance Excellence

Funds Regulatory Update – Part IIKevin O’Doherty, Compliance Ireland

3 April 2012

FUNDS REGULATORY UPDATE

Topic 5 – IFIA Corporate Governance Code for CIS and ManCos

IFIA Governance Code Issued by IFIA NOT by Central Bank NOT legally mandated Came into effect on 1 January 2012 One year transition period Applicable to:

Irish authorised Collective Investment Scheme [“CIS”]

Irish authorised Management Company [“ManCo”]

© Compliance Ireland Training 2012 5

IFIA Governance Code Voluntary Code ‘Comply or Explain’

Financial Statements Website

Minimum Requirements Board remains responsible No individual to have unfettered powers Governance structure to be adequately

sophisticated© Compliance Ireland Training 2012 6

IFIA Governance Code Board to be of sufficient size and expertise to

oversee adequately the operations of the CIS or ManCo

Minimum of three Directors Majority of non-executive directors [“NEDs”]

recommended At least one Independent NED [“INED”] At least one director connected with promoter

or investment manager© Compliance Ireland Training 2012 7

IFIA Governance Code Two Irish-resident directors Two directors capable of meeting CBI at short

notice Directors to have sufficiency of time

Time commitment spelt out in advance Requirement to have a buffer Directors to disclose to ManCo/CIS other time

commitments Duty to re-evaluate during periods of stress


IFIA Governance Code Up to 8 other non-funds directorships

permitted rebuttable presumption – ‘comply or explain’

Carve-outs for Group companies Public interest and charitable Non-trading or shelf companies

Conflicts of interest to be documented


IFIA Governance Code CIS and ManCos shall formally review Board

membership at least once every three years. Directorships subject to Fit & Proper Regime Directors should be aware of company law

obligations Chairman should be an INED

shall lead the Board, encourage critical discussions and challenge mindsets

shall promote effective communication


IFIA Governance Code INEDs to be identified clearly in the annual

report INEDs must have knowledge and

understanding of: the investment objectives the regulation of collective investment schemes policies and outsourcing arrangements

Consider with requirement for balance of skills and expertise on board


IFIA Governance Code Section 7 of Code sets out reserved powers

of board Formal documented board effectiveness

review to take place every three years Delegation to third-party administrators

[“TPAs”] is permitted Requirement for board to ensure internal control

procedures of TPAs are being monitored


IFIA Governance Code Board retains responsibility for compliance

function Board retains responsibility for risk

management Regular reporting from TPAs and notifications

of breaches



Topic 6 – Central Bank of Ireland Fit & Proper Regime

Requirement

Requirement to be Fit & Proper: A person cannot perform a controlled function

at a regulated financial service provider [“RFSP”] unless: (a) The firm is satisfied on reasonable grounds

that the person complies with Fit & Proper Code (b) the person has agreed to abide by Fit &

Proper Code Section 21 of CBRA 2010


Background

Part 3 of CBRA 2010 SI437 of 2011 – the Central Bank Reform Act 2010

(Sections 20 and 22) Regulations 2011 SI615 of 2011 – the Central Bank Reform Act 2010

(Sections 20 and 22) (Amendment) Regulations 2011 Fitness and Probity Standards (Code issued

under Section 50 of the Central Bank Reform Act 2010)

Guidance on Fitness and Probity Standards There is also an FAQs document


Requirement

CBRA 2010 sets out persons affected by Fit & Proper:

Control Functions [“CFs”] Defined in Section 20 of CBRA 2010

Pre-approval Control Functions [“PCFs”] Defined in Section 22 of CBRA 2010 These are also CFs – just really important ones!


Commencement

Five exemptions: “Call Centre” exemption – scripted Outsourced to another RFSP – e.g. funds Foreign RFSPs providing services cross-border

into Ireland Branches of foreign RFSPs in Ireland Group dominant influences


PCFs

PCF-1: Executive Director PCF-2: Non-executive Director PCF-3: Chairman of the Board PCF-4: Chairman of the Audit Committee PCF-5: Chairman of the Risk Committee PCF-6: Chairman of the Remuneration

Committee PCF-7: Chairman of the Nomination

Committee


PCFs

PCF-8: Chief Executive PCF-11: Head of Finance PCF-12: Head of Compliance PCF-13: Head of Internal Audit PCF-14: Head of Risk PCF-15: Head of Compliance with

responsibility for Anti-Money Laundering and Counter Terrorist Financing Legislation Not the same thing as the MLRO


PCFs

PCF-33: Branch Manager of branches in other EEA countries

PCF-34: Head of Transfer Agency PCF-35: Head of Accounting (Valuations) PCF-36: Head of Trustee Services PCF-37: Head of Custody Services


PCFs

PCF-38: Head of Transfer Agency [SMICs & ManCos]

PCF-39: Head of Accounting (Valuations) [SMICs & ManCos]

PCF-40: Designated Person with powers delegated from a SMIC or Manco


Control Functions

CF-1:function in relation to the provision of a financial service likely to enable the person to exercise a significant influence on the conduct of a RFSP

CF-2:function in relation to the provision of a financial service related to ensuring, controlling or monitoring compliance by a RFSP

The Guidelines suggest there should be a higher degree of due diligence in relation to these CFs


Standard

Persons who are subject to the Fit & Proper Standards must:

(a) be competent and capable (b) act honestly, ethically and with integrity (c) be financially sound

Requirement that employee undertakes to abide by the Code


Checks to be done



Topic 7 – Central Bank of Ireland PRISM system

Irish Risk Rating RegimePrism is the Central Bank’s key new

supervisory assessment tool: Probabilistic Risk Impact SysteM


Irish Risk Rating RegimePrism is designed to allow Central Bank to: Adopt a consistent way of thinking about risk

across all supervised firms Allocate resources based on impact and

probability Undertake a significant level of engagement

with all higher impact firms Assess firm risks in a systematic and

structured fashion© Compliance Ireland Training 2012 28

Irish Risk Rating & Selection Process Evaluates institutions under a number of general & specific risk

headings including: supervisory complexity, structure, corporate governance, capital, contagion and related party transactions, business risk, reputational risk, regulatory risk, operational risk, and foreign exchange risk

Specific risk categories include credit, funding, liquidity and market risk. Potential impact of an institution on a number of stakeholders is also

evaluated and forms part of the final score


How does PRISM work?IMPACT: Central bank will devote considerably more

time to firms which have greatest potential impact

Indicators have been selected after examining consultation on what measures would be good empirical determinants of impact (December 2010)


Category E: CIS and Other Service Providers and UCITS SMICSAssets under management

Turnover


Impact rating

Breakdown of Impact categories

High (Including ultra high) – circa 20 firms Medium high – circa 70 firms Medium low – circa 450 firms Low – circa 10,300 firms


FUNDS

Resourcing


Engagement

Central Bank will engage with firms at a level that corresponds to their impact category. Engagement will consist of a variety of reviews, assessments and meetings.

High impact firms will receive an inspection visit every quarter with each visit having a different focus.

Medium-high impact firms will have full risk assessments conducted very 2 to 4 years.

10% of medium-low impact firms will be subject to proportionate full risk assessment visits each year


Engagement

Low impact firms will be regulated using a combination of reactive and thematic techniques. Technology will analyse financial returns. Supervisors will receive automatic alerts when a low-impact firm fails key financial health checks.

Consumer focused low impact firms will be subject to thematic visits to ensure that they are treating customers fairly.

Summary inspections will be conducted occasionally.


Risk Categories


Mitigating Risk Supervisors not only will analyse and identify risks, they

should focus on ensuring appropriate and achievable mitigating actions are taken to address any risks deemed unacceptable.

Any risk category that is probability rated as medium high or high must be mitigated.

A Risk Mitigation Programme(RMP) will be opened. One or more outcome focused actions to reduce the risk will be constructed by the supervisor. A deadline will be given.


Mitigating Risk

Examples of an RMP could be to raise more capital, cease a particular activity or strengthen the control framework. Occasionally it may include telling a firm that the staff running a particular business line or support function lack the requisite skills and to address this.

RMP will be focused on risks which if left unmitigated could ultimately threaten the financial future of the firm or lead to a material mistreatment of consumers.


Mitigating Risk When the firm has completed the RMP action,

information will be provided to the supervisor.

This information will be evaluated and the supervisor will decide whether it was successful or not in achieving its desired outcome. If it has the RMP will be closed. If it hasn’t, the supervisor will consult with supervisory

management, and a new RMP action to mitigate the risk will be constructed.

Wilful non-compliance with an RMP action will be taken seriously by the Central bank


acoi welcomes our members to the 4th seminar in the

Documents

compliance manager

compliance ireland3

ifia governance codeup

ifia governance codeboard

ifia governance codecis

ifia governance codeineds

ifia corporate governance

shared commitment