CBI Thematic Review - Fund Management Companies’ Governance, Management & Effectiveness

The Central Bank of Ireland (CBI) recently published the outcome of its thematic review on the implementation of its framework for governance, management, and oversight in Fund Management Companies (FMCs). This comprehensive review provides valuable insights into the current state of governance practices within the sector and identifies key areas requiring improvement.

Key Findings

Overall, the review found that where the framework was correctly applied by firms, it ensured robust governance and oversight arrangements. However, a significant number of FMCs have not fully implemented the framework, with many only able to demonstrate limited changes since its introduction several years ago.

As a result of these findings, the CBI has requested that all FMCs critically assess themselves against the relevant requirements, as well as against the findings in the thematic review. This assessment and associated action plan must be agreed and approved by the Board by the end of Q1 2021.

Areas Requiring Improvement

The review identified several critical areas where fund management companies need to strengthen their governance and oversight practices:

1. Board Oversight and Challenge

Many firms showed insufficient evidence of active board oversight and challenge of management decisions. Boards must demonstrate that they're engaging meaningfully with the information presented to them and providing appropriate challenge to management proposals.

2. Risk Management Frameworks

Risk management frameworks were often not sufficiently developed or embedded in decision-making processes. Effective risk management should be integrated into all aspects of the firm's operations, not treated as a separate compliance exercise.

3. Management Information Quality

The quality and timeliness of management information provided to boards needed improvement. Boards require accurate, timely, and relevant information to discharge their duties effectively.

4. Compliance Monitoring

Compliance monitoring processes were not always robust enough to identify and address issues promptly. Firms should have proactive compliance monitoring programmes that identify potential issues before they become problems.

5. Operational Resilience

Business continuity and operational resilience plans required strengthening. Given the critical role that FMCs play in the financial system, robust continuity arrangements are essential.

The Path Forward

The CBI's expectations are clear: firms must take immediate action to address any deficiencies identified in the review. This includes:

• Conducting a comprehensive gap analysis against the CBI's expectations
• Developing detailed action plans with clear timelines and responsibilities
• Ensuring board approval and ongoing oversight of remediation efforts
• Implementing robust monitoring to track progress
• Embedding improvements into business-as-usual processes

Implications for the Sector

This thematic review signals the CBI's continued focus on governance and effective oversight within the fund management sector. Firms that haven't yet fully implemented the framework should treat this as a priority matter requiring immediate attention at board level.

The review also highlights the importance of demonstrating, rather than merely asserting, compliance with governance requirements. Documentation, evidence of board challenge, and clear decision-making trails are all essential components of effective governance.

Conclusion

For fund management companies, the message is clear: governance is not a tick-box exercise but a fundamental component of running a successful and compliant business. Firms that invest in strong governance frameworks will be better positioned to identify and manage risks, make sound decisions, and maintain the confidence of regulators and investors alike.

If you're interested in learning more about how we at calQrisk can help with governance, risk, and compliance in your organisation, please contact us.