CP86 and Directors' Time Commitments

In September 2014, the Central Bank of Ireland (CBI) published CP86  “Consultation on Fund Management Company Effectiveness-Delegate Oversight”. While the consultative process was going on, the CBI also undertook a thematic review on the number of Directorships held by individuals on boards of investment funds and fund management companies. This led to the issuance of Central Bank “Guidance on Directors’ Time Commitments “ along with feedback on CP86 during the summer.

The process seems focussed on streamlining the workings of Boards and their effectiveness and providing guidance on best practice for corporate governance as it relates to Investment Funds and Fund Management Companies.

The managerial functions look set to be streamlined from 10 for UCITS and from 16 for AIFs to 6 retained Managerial Functions plus the role of Organisational effectiveness. The Managerial functions are likely to be Fund Risk Management, Operational Risk Management, Investment Management, Regulatory Compliance, Distribution and also Capital and Financial Management.

The CBI have indicated a preference that the Organisational Effectiveness role be performed by an Independent Director (Chair or Board Member). The CBI also have a leaning towards the Independent Director with responsibility for the Organisational Effectiveness role not to perform any of the 6 Managerial Functions.

The same person can perform both the fund risk management and operational risk management functions but the same person must not perform managerial functions in relation to risk management and investment management.

It is expected that the CBI will allow until 30 June 2016 for transitional arrangements so that existing Business Plans and Programmes of Activity are revised / updated.

In its feedback on CP86 the CBI say it “is of the view that documenting the rationale for Board composition is good practice which will instil the discipline of considering board composition in a systematic way”.

In the CBI’s “Guidance on Directors’ Time Commitments”, it is set out that a reasonable number of working hours is 2000 hours a year. This is based on a 9 hour day and 230 working days per year. The CBI has also set out an initial risk indicator by way of a joint test (a) holding more than 20 Directorships and (b) having an aggregate professional time commitment in excess of 2000 hours.

In addition the CBI has also set out that:

  • Directors and boards should agree a minimum time allocation for Board meeting attendance: including preparation, document review, as well as travel time. 
  • Sufficient time for ad hoc issues should be set aside as a buffer
  • Additional time should be allocated where a director is the Chairperson
  • Individuals with multiple directorships should consider the conflicts which may arise
  • In addition to the number of directorships, individuals should consider the additional time required to deal with the number of underlying sub funds as well as the complexity of individual funds and sub funds regarding both time commitment and necessary expertise required
  • Individuals should also take into account the number of different client relationships they have entered into when assessing time commitments
  • Directors should be fully aware of the regulatory and legal obligations of differing types of boards and legal structures prior to any board appointments
  • Membership of board committees should also be regarded as a separate role and should be included in any assessment of director time commitment and availability
  • Ultimate responsibility for compliance with all regulatory obligations rests with the Board and the individual directors. Extensive director commitments without sufficient awareness and consideration of the corresponding impact may lead to significant governance risk.
  • A designated person role for managerial functions should be considered separately to the role of director with a separate time allocation.
  • A separate letter of appointment should issue in respect of a designated person role for managerial functions

 

As the CBI develop the regulations as described above to issue a final publication by the end of the year there will be hurdles to be crossed which will certainly not be insurmountable. Riocht Capital can readily provide the solution of an Independent Director through Albert Prendiville with experience of risk and investment management through expertise garnered by managing money for over 25 years. Albert has also acted as Director and Designated Person to a number of UCITS and AIFs across a variety of strategies. See contact details below.

(AP September 2015)

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