Irish Central Bank updates on CP86 review at INED conference

Out-Law News | 15 Oct 2019 | 5:03 pm | 2 min. read

Independent non-executive directors (INEDs) play a vital role in the governance of asset and wealth management firms, ensuring diversity of thought and holding the board and senior management to account, according to a director of the Central Bank of Ireland (CBI).

Michael Hodson, the CBI's director of asset management and investment banking, was speaking at an industry conference. He said that the role of an INED was to "bring something different" to board meetings, with "ask[ing] the hard questions" on the firm's strategic direction, culture and emerging risks at the core of the role.

From the perspective of the regulator, INEDs "must be able to demonstrate that they are satisfied that the fund management company for which they are responsible is operating as it should be", Hodson said. They can do this by challenging the executive team, ensuring that the necessary processes, policies and procedures to enable the firm to comply with its regulatory responsibilities have not only been put in place but are actually being carried out on a day-to-day basis.

Murray Niamh

Niamh Murray

Senior Associate

Firms should be ready to engage with the Central Bank should they be selected for an on-site inspection from November onwards.

Hodson said that an INED role was "a serious commitment which also carries a considerable level of responsibility".

"When it is done well, by committed and dedicated individuals, it has a significant positive impact on the firms they represent," he said.

INEDs who have held their role for a "considerable length of time" should ask themselves whether they could still be considered 'independent' or whether they had begun to "think like an executive instead of being a source of strength by providing robust challenge and independent counsel", he said. Diversity, as previously highlighted by the CBI, was also an important consideration, as this "reduc[es] the likelihood of groupthink" and improves decision-making, he said.

Asset management expert Niamh Murray of Pinsent Masons, the law firm behind Out-Law, said: "The remarks emphasise the importance the Central Bank places on the role of the INED in ensuring funds and fund management companies meet their obligations".

"The Central Bank's expectation is that INEDs be willing to robustly challenge the board and senior management, as and when necessary, to ensure that all necessary processes, policies and procedures are not only put in place, but are being fully implemented on a day to day basis," she said.

Hodson also used his speech to update attendees about the CBI's ongoing work on fund management company effectiveness (CP86), including timescales. The CBI is currently reviewing responses to a questionnaire it sent to over 300 UCITS management companies, AIFMs, self-managed UCITS and self-managed AIFs in scope, and expects to begin a series of on-site inspections at affected firms next month.

The CBI expects to complete these reviews by mid-2020, and to "communicate with industry in some form in the second half of next year", Hodson said. This could include further consultations, an industry letter setting out good or poor practices identified during the review or firm-specific action.

"Firms should be ready to engage with the Central Bank should they be selected for an on-site inspection from November onwards," said Niamh Murray. "Firms should bear in mind that additional guidance to be published by the CBI following conclusion of the review in mid-2020 may trigger further reviews of firms' organisational structures and effectiveness in the latter part of next year."