John Fitzpatrick, Chair of Insight Investment Management (Europe) Limited
The new working year has well progressed and many of the issues and topics that were so relevant in 2023 are still with us, in some situations still requiring further clarification with others now implemented fully or still under review as regards the practical side of application.
In looking at all activities, it is almost impossible to avoid repeating what has been mentioned in many articles published in previous updates without focusing on issues which are of the utmost importance.
Irish Financial Services Appeal Tribunal report on the Central Bank Fitness & Probity process
The 14th February, usually best known for being Valentines Day, saw the publication of a report by the Irish Financial Services Appeal Tribunal which was highly critical of the Central Bank and found that their Fitness & Probity process was very flawed in their refusal to approve a finance executive for a board position for an Irish fund.
The Tribunal opined that the process did not comply with the requirements of Irish constitutional and natural justice going on to specifically highlight their lack of fairness as well. It was the view of the tribunal that the Irish Constitutional rights had been infringed during the review of the individual who had appealed the decision to them.
The Central Bank on foot of the findings has set up an independent review of its Fitness & Probity regime which is a very important aspect of the supervisory regime devised, implemented and also managed by the Irish Financial Services Regulator. The importance of this regime cannot be underestimated as it is also interconnected with the IAF referred to later.
The review has commenced, and it is based on published terms of reference although, as it is more focused on benchmarking against other European regulatory bodies processes, it is important that the review addresses the very important flaws highlighted in the Tribunals findings.
The financial services industry really should expect the findings to provide clarity and transparency addressing all concerns which is necessary to ensure confidence not just in the process but the Financial Regulator itself.
The Individual Accountability Framework
The last month of two saw a flurry of activity regarding the implementation of the Individual Accountability Framework (“IAF”) which came into force earlier in the year on 9 March 2023. The IAF is very similar to the senior management regime in the United Kingdom the only difference being for Ireland, all board members are in scope and not just the board chair.
An important aspect of the implementation was the necessity for each board to have a training session and this provided the opportunity for all boards to reflect on the duties of a director and most importantly how Conduct and Business Standards important aspects of the IAF applied.
Many companies have had to look at both job descriptions and the terms within contracts of employment for all senior management in scope for the new IAF which was a significant exercise. The implementation also necessitated a thorough review of D&O insurance policies.
Mounting on other recent regulatory requirements
Last year saw another ‘Dear Chair’ letter from the Central Bank on Cost of Fees as part of the ESMA Common Supervisory Action for UCITS. A gap analysis with an action plan was the order of the day to be in place by September 2023.
Just when everyone was addressing the above earlier issues it became necessary to look at Operational Resilience and again the industry faced another deadline of 1 December 2023 to prepare an evidential document setting out actions and plans to address a previously published cross industry guidance paper by the Central Bank.
2024 saw the publication of the objects for the new year by the Central Bank and it was no real surprise that their concerns were very much the same for financial regulators around the world as they focused on Sanctions, Money Laundering and Financial Terrorism, Sustainability and SFDR, Costs, Artificial Intelligence to include Digital Innovation, Crypto Currency, Delegation and Outsourcing, Market Conduct Risk Management, Market Integrity, Data Quality and Cyber Security – there are more but these continue to be an issue for everyone not just today but on an ongoing basis.
It is very difficult to say where the focus from a board perspective should be other than to say that each and every one of those areas deserve review and consideration.
European Long Term Investment Fund (ELTIF)
An important new fund structure became a reality as regards product offering – the European Long Term Investment Fund or ELTIF for short with the amended legation now available under the new regime to Professional Investors, Qualified Investors and indeed Retail Investors also.
Given the structuring flexibility under the Irish regulatory regime available to certain ELTIFs as well as the favourable domestic tax treatment, the industry is expecting the new structure to become the product of choice for global asset managers seeking to market regulated funds investing in long-term investments to both professional investors and retail investors on a cross-border basis within the EU.
So, three months into 2024 and already it seems to be another interesting year of regulatory compliance, design and discussion not to mention the strong possibility of new legislation and regulation.
