The importance of effective governance practices, by Tony Rogan, Chief Risk Officer, SS&C GlobeOp, Ireland.
European regulators expect fund management companies doing business in the EU to have effective governance practices. Effective governance means having an active management team that has a firm grasp of its business, and engaged directors who are diligently exercising their oversight responsibilities. In Ireland, these principles are captured in the Fund Management Companies (FMC) Guidance issued by the Central Bank of Ireland (CBI), usually referred to as “the Guidance,” or “CP86”.
The Guidance is not just idealistic philosophising — it is a directive to the industry. The CBI is currently conducting onsite compliance inspections, looking for tangible evidence of compliance and documentation – something many firms may struggle to deliver.
The scope of the Guidance presents challenges. At the highest level, the directive calls for FMCs and boards of investment companies to demonstrate effectiveness on three core principles: governance, compliance and oversight. The Guidance applies to boards of directors of investment companies, including ICAVs, UCITS and AIF management companies, as well as firms and funds governed by AIFMD. CP86 encompasses six vital managerial functions: investment management, fund risk management, operational risk management, regulatory compliance, capital and financial management, and distribution.
Senior-level governance, compliance and oversight of these core functions aren’t unreasonable requirements for firms tasked with managing third-party investments, but the need to demonstrate compliance might still prove difficult. The Guidance draws on multiple functions across a variety of departments and firms holding this information in a series of spreadsheets and scattered documents will struggle when called upon by the regulator. Ongoing monitoring activity across functions requires a dedicated and centralized system.
The system should provide a full audit trail showing which tasks have been completed, by whom and when. Such tracking should not only support fundamental compliance with the Guidance but also be instantly accessible to the regulator.
This system should be a central repository of fund and contact information. Firms should include a digital checklist of tasks to be completed, the timeframe for completion and an alert system to flag looming deadlines. The system should provide a full audit trail showing which tasks have been completed, by whom and when. Such tracking should not only support fundamental compliance with the Guidance but also be instantly accessible to the regulator.
Strong governance is undoubtedly in the fund industry’s best interest; few would argue otherwise. With CP86, the CBI has made clear what it considers to be good governance practices and the onus is on firms to demonstrate their compliance. Firms can dramatically reduce the associated administrative burden by deploying a dedicated central repository and task management system.
The SS&C GoCheck® platform is a web-based software solution that acts as a central repository for all CP86 related information. With the GoCheck governance module firms can manage their tasks and deadlines, record incidents, store meeting minutes, and produce oversight reports in an automated and controlled manner. To learn more about how firms are using technology to stay ahead of the CP86 compliance, read SS&C’s new whitepaper “Prove it! A Systematic Approach to CP86 Documentation and Compliance”.
SS&C is a leading innovator in technology-powered solutions and operational services for the global investment management industry, with particular expertise in the full range of alternative investments, including hedge funds, private equity, funds of funds, real estate, real assets and direct investments. We are also the industry’s largest global fund administrator. SS&C serves a worldwide clientele with a network spanning the major financial and commercial centers of North America, Europe, Asia and Australia.