“The importance of the role of the Designated Person in Fund Management Companies” - Director General, Financial Conduct, Derville Rowland

Remarks delivered at launch of Institute of Banking's Professional Certificate for Designated Persons in a fund management company

Introduction

Good morning ladies and gentlemen

It is a pleasure to be asked to join you at today’s launch of the “Professional Certificate for Designated Person’s in a fund management company” kindly organised by the Institute of Banking. The launch of this new and innovative programme is welcome and signifies the importance of the Irish funds sector in Ireland and the need for formalised structured training programmes to support the Irish funds industry.

It is positive and encouraging to note industry bodies and education providers coming together to develop and deliver new courses and certificates to help fill skill gaps in the market as evidenced by today’s launch.

My plan this morning is to address a number of topics relevant to the funds sector namely the fund management companies’ guidance, the importance of the role of the Designated Person and next steps from the Central Bank’s perspective.

In the past, I have spoken about our expectations of the Irish funds sector and our focus on ensuring firms are appropriately governed, well-run, operating to the highest standards and have effective risk management and control functions and effective cultures. And we recognise the number of positive steps in these areas, the sector has taken over the last number of years.

Today, the funds industry in Ireland is significant and continues to grow year-on-year. Assets under management in Irish domiciled funds have increased from €650 billion in 2008 to €3.3 trillion in 2021. The sector is projected to grow to over €5 trillion by 2025. These figures demonstrate the scale and global importance of the funds industry to the Irish economy.  

Furthermore, the funds industry employs over 17,000 people. This figure is projected to increase to 23,000, an increase of over 33%, by 2025. Upskilling and having people with the right knowledge, skill and expertise to fill these roles will be key to the continued success of the Irish funds industry. Training and education are essential to support the growth and future of this industry.

Fund Management companies guidance

With that in mind, I believe it would be worthwhile to take a step back and review when the fund management companies’ guidance framework was first introduced, why it was introduced and where we stand today.

The framework was introduced to ensure good governance, effective management and good organisation in fund management companies for the protection of investors, the integrity of the market and to promote systemic stability. It came about as a result of the continued growth in the Irish funds sector and the Central Bank’s need to consider whether our regulatory framework needed to be enhanced.

The framework sets out the Central Bank’s expectations in respect of the governance, management and oversight requirements and arrangements that are required to be put in place in fund management companies in particular with regard to organisational effectiveness, delegate oversight, resourcing and the performance of managerial functions.

In addition, the Central Bank have spoken consistently over the last few years on the importance of Irish fund management companies being able to fully demonstrate that they are in full control of all aspects of the business it is responsible for, irrespective of its level of delegation or its relationship with group entities.

Designated Person(s)

A key component of the fund management companies’ framework is the role of the Designated Person(s). It is a key strategic role and one of strong importance, with the individual acting as the line of management between a firm’s Board of Directors and its delegates. It is a significant responsibility therefore it is important the Designated Person(s) has the appropriate skills and expertise to carry out the role successfully.  

The Designated Person(s) is responsible for the monitoring and oversight of the managerial function assigned to them and in general, based in Ireland. They are also responsible for the management of the fund management company on an on-going basis. How much time and how many people are needed to fill these roles depends on the nature, scale and complexity of the fund/funds being managed.

The framework makes it clear that the running of the fund management company is not something that can be undertaken without dedicating the appropriate level of resources to that task. Furthermore it requires fund management companies to have sufficient resources and effective organisation to ensure that this is achieved. When applied properly, the framework and by extension the Designated Person, positions the Irish Fund sector well to meet the challenges of the sector.

Thematic review

You will be familiar with the in-depth thematic review of fund management companies that the Central Bank conducted in 2020.

While there were a number of positive elements flagged within the thematic findings, there were shortcomings found in relation to how some Designated Person(s) role holders discharged their roles. Deficiencies included the level of review and constructive challenge Designated Person(s) had in their engagements with delegates. In many cases, the Designated Person(s) did not have a sufficient time commitment allocated to their role and/or have sufficient support (local or otherwise) available to enable them to discharge their responsibilities appropriately. Overall, the failings identified demonstrate, within a certain cohort of firms, a lack of understanding by the Designated Person(s) of their role & responsibilities.

But significantly the thematic review findings show that the framework, when properly implemented, helps firms to ensure that their operational arrangements are robust and meet our expectations. Any lack of attention to issues that affect good governance is concerning, and highlights the importance of the Designated Person role in the broader governance of the sector.

Next steps

By way of next steps, all firms were required to conduct a review to consider the findings of the thematic review and to take immediate action via action plans to ensure that they meet our expectations by March. We are currently working with firms to assess their action plans. From the assessments conducted so far, we see encouraging signs that the step change we have sought is starting to taking place. However there is still a long way to go yet and we can also see some firms taking longer than others. These assessments will form part of our ongoing regulatory and supervisory engagement and we will continue to challenge firms where they remain below our expectations.

The Central Bank realises the challenge firms face now having to resource up and to recruit for senior roles. More qualified candidates will help with diversity and inclusion and, in due course, tenure issues we flagged in the thematic review. This is another reason why this initiative by Institute of Banking and Irish Funds is so important and so welcome by the Central Bank; the framework can work and we can see firms getting to where they need to be under it, this course can support all of that and the continued development and growth of this important sector of the securities market.

Conclusion

To summarise, It is very encouraging to see industry bodies and education providers coming together to develop and deliver new courses and certificates to help fill skill gaps in the market as evidenced by today’s launch. It is clear the Designated Person plays a fundamental role in the overall effective governance, management and oversight of fund management companies’. In this regard, this course is a very welcome and timely initiative for the Irish funds industry and will help ensure Designated Person(s) have the appropriate skills and expertise to carry out their role and responsibilities successfully. Best of luck to everyone doing the course and we wish the Institute of Banking well.