22 October 2020

FT: Ireland fires warning shot to asset managers on delegation

Ireland’s financial regulator has warned asset managers to correct “significant shortcomings” in the governance of their Irish entities, a move that will raise questions about the viability of the delegation model at the heart of fund management. The Central Bank of Ireland, which regulates Ireland’s €3tn fund sector, said it had uncovered failings in Dublin-based asset managers’ staffing levels, oversight and risk management processes, despite the introduction of rules aimed at making the system more robust ahead of Brexit.

In a letter seen by the Financial Times, the central bank said that a “significant” proportion of the 358 fund management companies registered in Ireland had not fully complied with regulations that came into force three years ago. Financial conduct director-general Derville Rowland said that managers’ failure to comply with the rules was “unacceptable” and raised “serious concern” for the central bank.

The central bank’s assessment, which follows an 18-month review of fund managers’ local operations, comes at a critical point for Europe’s €17.7tn asset management industry, as policymakers consider whether to overhaul the delegation framework. Firms should also note that this is not a one-off review Derville Rowland In August the EU’s top financial regulator recommended sweeping changes to delegation, domiciling funds in back-office hubs such as Ireland and managing them from London or other investment centres.

Though the proposal has not been formally adopted, it is expected to be taken into consideration in the upcoming review of the EU’s asset management rule book. The letter from the central bank, which was sent to management company chairs on Tuesday, urged groups to “take immediate action to critically assess their operations” to ensure that they meet the rules, which seek to ensure asset managers’ outsourced operations do not pose risks to investors or market integrity. Fund managers’ use of delegation has come under heightened scrutiny since the Brexit vote. ..

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