Considerations & Preparation for CP86 Inspections
CP86 was introduced in December 2016 by the Central Bank of Ireland. The guidance applies to UCITS management companies (“ManCos”), authorised Alternative Investment Fund Managers (“AIFMs”), self-managed UCITS and internally managed Alternative Investment Funds (“AIFs”) that are authorised as AIFMs.
In November 2019, the Central Bank indicated that they would commence thematic inspections of ManCos. The aim of these inspections is to enable the Central Bank to measure standards of industry compliance in order to inform their supervisory approach and ensure that the required systems of governance are in place. With the Senior Executive Accountability Regime (‘SEAR’), coming into effect this year, it inevitably adds pressure for those in senior positions as the Central Bank intends to immediately identify the person responsible for any misconduct instead of the Firm.
At GECKO Governance, we have identified a number of issues that will be at the forefront of these inspections and how Mancos can and their senior management should prepare for them.
The Central Bank will undoubtedly be interested in the challenges directors face in terms of governance issues and the impact upon firms. Firms must analyse their current governance structure and clearly set out who the senior executives are within the Firm.
Organisational Effectiveness Role
The Organisational Effectiveness role (OE) was born out of CP86, by the Central Bank to ensure continuous monitoring and review of the effectiveness of the firm. This will be high on the agenda of the onsite inspections as the Central Bank will want to review how well the OE role is being carried out in practise and if the requirements are being met.
Firms should expect questions in context of –
- • Resources of the company and whether they are satisfactory in light of the Central Bank’s resource requirement of new ManCos;
- • How the role of the OE is defined, how it adds value to investors and how firms measure this through best practises on a daily, weekly, monthly and semi-annual basis.
- • Determine how best to carry out the role of the OE as it is not just ‘one size fits all’ approach. Firms must ensure they demonstrate how their approach reflects the company structure according to its requirements as these differ across board and fund structure with a variance in risk profiles from fund-fund.
This will help the Central Bank to identify if CP86 needs any necessary changes or revisions.
It is encouraged that senior executives submit a statement of responsibilities, making it clear the duties for which they are accountable. Firms will be able to demonstrate compliance with the new regime and make it harder for individuals to argue that their role lay elsewhere of any wrongdoing.
Responsibility maps that document key management and government arrangements, ensuring those in senior positions are complying with the Fitness & Probity Regime (‘F&P’) and also ties in with the newly introduced SEAR. A better controlled environment can be instilled which means rather than just meeting a requirement, supervisors are driven to take into consideration good customer outcomes, instead of just meeting a requirement.
Reviewing performance and policies of the firm ensures that they are appropriate to the nature, scale and complexity of the firm and its regulatory obligations. Examining Senior executives performance so that they are coordinating and cooperating activities with honesty, care and diligence. This may include assessing their reporting and record-keeping routine and ensuring there is appropriate training for those individuals reviewing this process.
A review of job descriptions will need to be carried out and updated for each individual, as well as ensuring employment contracts are signed. Both must be reflective of the roles currently held by the individuals and it is critical that existing policies are examined to lay out appropriate procedures to deal with any failures/misconduct.
Making these incremental changes is key to developing and creating good culture within a firm. Implementing policies such as ‘Speak up policies’ will encourage employees to have the confidence to speak out about any issue(s) or misconduct. As a result, issues can be prevented and dealt with before they occur.
Timing and resources are essential to get right. All regulated firms should expect an onsite visit from the Central Bank and initiate preparation for this immediately. Firms waiting until they receive notification of an onsite visit will have limited time to get organised until the on-site visit occurs. To begin preparing, firms must be equipped with sufficient resources, place themselves in the minds of the regulator and focus on the key issues that are likely to be addressed. For example, carrying out due diligence from within the firm is a key starting point — investigating whether senior roles are filled appropriately to ensure they comply with F&P standards.
GECKO Governance can help those operating within the financial services industry by providing clients with definitive solutions for their compliance pain-points across a multitude of financial service areas on a global basis. We understand how stretched our clients and their compliance teams are which is why we offer GECKO’s Bespoke Consultancy Services. We have a track record in assisting clients in adhering to their regulatory requirements.
Get in touch with us if you require assistance with preparing and adhering to your regulatory requirements. [email protected]
About GECKO Governance
GECKO Governance provides a suite of Advisory, Consulting and Technology services to the crypto and asset management industries.
The company was founded in 2014 and built the first RegTech solution globally to integrate with Blockchain.
The team have over 120+ years combined financial & crypto compliance experience and are based at 3 global offices — New York, Ireland (HQ) and Sydney, Australia.
Our Advisory and Consulting business provides clients with definitive compliance solutions for their crypto and fund projects on a global basis.