Central Bank of Ireland raises expectations for delegated governance

“The review forms part of the Central Bank's ongoing supervisory focus on FMC effectiveness and provides important insight into the standards it expects Irish authorised FMCs to meet when overseeing delegated functions”, said Conor Durkin, Dublin-based financial services expert at Pinsent Masons.

Started in 2025, the review examined delegation practices across the Irish funds industry through a combination of sector-wide data collection, qualitative surveys, desk-based assessments and on-site inspections. 

The Central Bank analysed delegation arrangements across a broad cross-section of the industry, including approximately 40 FMCs in its desk-based review and 21 FMCs through on-site inspections, covering a substantial proportion of Irish fund assets under management. 

Durkin said: “The report signals that delegation will remain an area of supervisory focus. The Central Bank expects FMCs to review the findings, assess their existing frameworks against the supervisory expectations set out in the report and identify any gaps requiring remediation.”

The Central Bank found that, in general, FMCs operating delegation models have implemented effective governance structures, oversight frameworks and control environments. Its report on its findings (20-page / 269KB PDF) recognises that most firms understand the importance of maintaining robust governance, risk management and decision-making processes when discharging their responsibilities to investors and meeting regulatory requirements. 

However, the Central Bank also identified weaknesses at a number of firms and highlighted areas where enhancements are required. These included concerns relating to board independence, over-reliance on group structures, resourcing constraints, contingency planning and access to timely management information. 

While the Central Bank concluded that FMCs generally comply with regulatory requirements and meet supervisory expectations, a small number of firms have been required to implement remediation programmes to address identified deficiencies. 

Areas requiring improvement, according to the Central Bank, include a strengthening of board independence where group influence is overly significant, ensuring designated persons are of sufficient seniority, and have sufficient capacity and resources available to them. The institution also highlighted the need to reduce over-reliance on group-level committees and decision-making structures as well as for improvements in adopting more formalised governance frameworks supported by documented policies, procedures and entity-specific risk statements.

The review found that delegated portfolio management activities are generally subject to effective oversight.

However, the Central Bank identified examples where FMCs could not demonstrate sufficient autonomy in overseeing delegated portfolio managers, lacked structured monitoring procedures and documented performance standards, or had not established adequate contingency arrangements to address the failure or replacement of a portfolio manager.

Risk management frameworks across the sector were generally assessed as robust, with most FMCs retaining responsibility for core risk management activities and maintaining appropriate oversight mechanisms. 

The Central Bank noted, however, that some firms need to strengthen governance and oversight where risk management activities are supported by delegates. It also highlighted concerns where FMCs were overly dependent on delegate reporting and lacked direct access to real-time data needed to challenge and assess risks independently. 

The report acknowledged that FMCs generally maintain established delegate oversight frameworks and monitoring processes. However, areas of concern were identified, such as reliance on group-level due diligence processes without sufficient independent assessment by the FMC and limited participation of local FMC personnel in oversight committees. In addition, the report highlighted instances of insufficient involvement of designated persons and operational risk functions in delegate oversight activities.

The effectiveness of data governance and data availability emerged as a recurring theme throughout the review.

The Central Bank observed that firms with direct access to timely, accurate and comprehensive data were generally better positioned to oversee delegates and manage risks effectively. However, other firms were found to have fragmented data systems and inadequate contingency plans for data interruption or loss, with others relying too heavily on delegates for elements of investment restriction and control monitoring.

“FMCs should review their delegation arrangements carefully, with particular attention to governance structures, board effectiveness, resource adequacy, contingency planning, delegate oversight and data capabilities,” said Durkin. “Firms that can demonstrate independent oversight, effective challenge and access to robust management information will be best placed to meet the Central Bank's evolving supervisory expectations. FMCs are expected to establish a time-bound action plan before the end of 2026 to address any deficiencies in their operational, governance and resourcing arrangements relating to delegation.”

The review comes ahead of the Central Bank's planned examination of the FMC framework. This will consider potential enhancements to governance requirements, simplification of existing guidance, reforms to the pre-approval controlled function (PCF) framework and the possible future application of aspects of the individual accountability framework and senior executive accountability regime (SEAR) to the funds sector.