Address by Director of Markets Supervision Gareth Murphy at the IFIA Annual Conference

18 June 2014 Speech

Good afternoon ladies and gentlemen. I would like to extend my thanks to IFIA for their kind invitation to speak at this year’s annual conference.

Today, I would like to cover three issues:

  • the key drivers for the global funds industry in the coming decades;
  • the international influences on local funds regulation and supervision; and
  • the Central Bank of Ireland’s current areas of focus.

A. Global funds industry in 21st century

Let’s start at thirty thousand feet thinking about the direction of the global funds industry in the coming decades.

Demographic trends

My first point centres on key demographic trends. People are living longer and therefore they need to save more for retirement.

Also, this demand for pensions saving is not just confined to the first world. With higher birth rates and increased longevity, populations in developing nations are growing. And these populations are becoming more financially sophisticated and using a wider array of financial products. This trend of so-called ‘financial deepening’ means that in due course asset management products will become increasingly relevant to the needs of a larger part of the global population.

Recently, it has been predicted that the global asset management industry could increase in size from its current level of $87trn to over $450trn by 2020.1


The second key driver of the asset management industry is the increased role of technology. You will have all seen how the mobile handset in your pocket has changed over the last ten years. Equally we can anticipate that in terms of (i) distribution, (ii) transactions processing and (iii) information management, the effects of technology on the asset management industry will become more and more apparent in the coming years.

And since technology firms are able to reach younger age-groups, in particular, the possibilities of a marriage between the significant asset management firms and the trusted household names in mobile technology industry are fascinating.

Indeed, I see developments in technology presenting significant possibilities for users of financial services but also, no doubt, new challenges for financial regulators.


Of course, the picture which I am trying to sketch of the future would not be complete if I did not refer to the potential effects of further changes in regulation in the coming years.

Whether this is:

  1. the designation of non-bank, non-insurance, global systemically important financial institutions, or
  2. the extension of the EU passport to non-EU AIFMs, or
  3. the delineation certain UCITS products as being overly complex.

we should expect some changes in these areas in the coming years.

As well as that, we might hope for some improvements in the global regulatory architecture that may lead to a more harmonised approach to regulation globally. Indeed, there has been active debate as to whether financial regulation issues should be included the US-EU Transatlantic Trade Investment Partnership.

Unknown unknowns...

Lastly, I have to remind you that unexpected things do happen. The combined effects of globalisation, technology, increased complexity and fragmented regulation should give us pause for thought when we consider the future.

B. International regulatory architecture

Let me spend some time talking about the international regulatory and supervisory architecture. More and more, the activities of the Central Bank are being influenced by international bodies.

In this regard, it is important that I take time to mention the work of the European Securities and Market Authority (ESMA) and the role of the IOSCO and the FSB 2.

European Securities and Markets Authority (ESMA)

ESMA’s mandate is very much focused on:

  • effective supervisory practices,
  • a consistent application of European Union law, and
  • building of a common supervisory culture amongst European national competent authorities

ESMA has a range of tools to enable it to go about this work.

  1. No doubt, the so called “convergence tools” of Guidelines, Q&As, Opinions and Discussion Papers will be familiar to you all at this stage.
  2. In addition to these, ESMA conducts so-called 'mapping exercises' where it gathers information on how national competent authorities do their work with a view to building a common understanding of practices in different jurisdictions.
  3. Over the last year ESMA has changed the way it goes about doing peer reviews. In the past, peer reviews tended to be more desk-based exercises akin to these mapping exercises. More recently, ESMA has taken its peer review work one stage further by singling out a number of jurisdictions for closer scrutiny through on-site inspections.
  4. ESMA has powers to launch Breach of Union Law (BoUL) proceedings against competent authorities that do not properly apply EU law. I believe that it is only a matter of time before these powers are actually used. (I might add, as an aside that such powers are not confined to ESMA. The European Commission, of course, may also initiate infringement proceedings against jurisdictions that do not apply European Union law. We’ve seen in other fields, outside of financial regulation, that the European Commission does use these powers.)

I would also expect ESMA to increase its role, in the coming years, in the areas of (i) regulatory policy-formation and (ii) data management.

  1. ESMA clearly has a role providing advice during the European legislators so as to improve the quality of new European securities and markets rules. Three and a half years into its existence, ESMA is now seen as a credible and valuable party advising the European legislators.
  2. The extensive financial reform proposals of the last five years have generated significant demands on industry to provide data to regulators who must collect and process it. Given developments with AIFMD, EMIR and MiFID II, in particular, it is now widely recognised that duplicating data systems 28 times across the EU is costly and wasteful for regulators and for industry. Therefore, ESMA is widely acknowledged as having a valuable role which may range from harmonising data templates to being a central hub for the collection of the data. In both of these areas, I would continue to see the Central Bank of Ireland taking a leading role in debates on these issues amongst the 28 national competent authorities which are represented at ESMA.

Lastly, I will remind you that a number of reviews have taken place towards the end of last year which looked at the working of the European System of Financial Supervision (ESFS) and, in particular, the European Supervisory Authorities (ESAs). We might anticipate that it may lead to some discreet changes in the regulations of ESMA in the coming year or two with a view to making ESMA more effective and consequently this may increase the profile of ESMA at national level.


Let me say something briefly about IOSCO because it is the key global standard-setter for the securities and markets industry. It has three key objectives, namely:

  • Investor protection
  • Market integrity
  • Financial stability

IOSCO articulates those objectives through various different media such as reports, advices to various international committees and a variety of recommendations.

Membership of IOSCO requires being a signatory to the IOSCO MMOU which brings a range of obligations concerned with co-operation and information-sharing. Being accepted as an IOSCO MMOU signatory is a key test of a jurisdictions' stature as a top-tier securities and markets location.

Lastly, IOSCO has set down 38 principles which are intended to guide jurisdictions in the regulation and supervision of securities markets and investment firms. Jurisdictions are regularly assessed by IMF teams against these principles. The IMF recently published their assessment of Ireland's compliance with the 38 IOSCO principles and the report was very positive 3.

C. Funds policy, authorisation and supervision at the Central Bank of Ireland

Funds Policy

Let me now spend some time talking about the Central Bank's work in fund policy, authorisation and supervision.

You are all aware that we have been busy working on two new rulebooks over the last two years - in relation to AIFMD and UCITS. These have also been accompanied with various Q&A guidance. Though the new UCITS rulebook has not been published yet, I would like to thank those of you who responded to the Central Bank's consultation on this new rule book. There will be tweaks but one should not expect significant policy changes.

AIFMD to a large degree has changed the funds landscape in Europe. In Ireland, it has brought new types of fund vehicles into the AIF net, such as Exempt Unit Trusts, and this will have implications for investors in these vehicles, for their managers and, of course, for us at the Central Bank.

My colleagues in funds policy have spent considerable time teasing out various interpretative issues arising from AIFMD in the area of depository rules, remuneration and governance, in particular. In many of these cases, I expect that ESMA will provide the necessary clarity so that there is a level playing-field in Europe but there may be some areas where the Central Bank will have to provide its own guidance.

Most of you will be aware that the Central Bank has done quite an extensive piece of work on the possibility that funds could originate loans and we have been a thought-leader on this subject in Europe for the last year. All going well, I expect that the Central Bank will consult on a new chapter to the AIF rule-book specifically dealing with AIFs that may originate loans by the end of July.

Lastly, many of you will also be aware that the Central Bank is providing extensive advice to the Department of Finance on a new ICAV regime, which is a funds vehicle that is more tax efficient for US investors. We expect to be able to process ICAV authorisations within two weeks of the enactment of the ICAV legislation.

Funds Authorisation

In terms of our work in funds authorisation at the Central Bank, we have spent quite a degree of time and resources working to remove the paper from our authorisation process. Those of you who are submitting fund applications will soon see a dramatically different authorisation process. It will be an electronic process with an online interface with the Central Bank. The turnaround times will be at least as good if not faster than before because of the efficiencies of the process.

We have taken a number of steps out of the process that we thought were redundant and, critically, from the point of view of my colleagues in funds supervision, this new platform will allow us to build a repository of authorisation data which can be combined with the data that we collect from our regular online regulatory returns. This will allow the Central Bank to supervise the large population of Irish funds more effectively and more efficiently by spotting outliers and identifying prospectus breaches - both of which are critical to effective funds supervision. We will also have a stronger capability at identifying key trends so that we can be a leading voice in key European (and international) policy debates.

Client Asset Regime

Many of you will also be aware that we are spending quite a degree of time looking at the extension of our Client Asset Regime to subscription and redemption accounts for funds. The Central Bank is greatly concerned that there should be legal certainty over the ownership of these monies in the event of the failure of a funds service provider. Our work in this area confirms our view that a clear regulatory framework is necessary. Where the subscription and redemption accounts are not held by the depository of the fund, our general approach is that the Client Asset Regulations will apply to the operators of these accounts that we regulate.

Themed inspections

Last February we announced our themed inspections in Financial Regulation at the Central Bank. On this list were three themes of particular interest to the funds industry focussing on:

  • the quality of data received from regulatory returns
  • the use of outsourcing at fund service providers and managers, and
  • governance issues

We will communicate findings in relation to this work to industry stakeholders in due course.


In relation to our PRISM supervisory work over the last year or so, there are a number of findings which I would like to draw your attention to.

  1. we have some concerns over the oversight of delegates and outsourcers;
  2. we have drawn attention to insufficient overview of strategy and risk management frameworks at certain fund service providers;
  3. we have also identified a number of areas for improvement in the area of governance, focused on the management of conflict of interests, on the separation between certain executive roles and the need for more independent non-executive directors.

Governance in funds and fund management companies

Before I conclude, let me say something about the work we have done in corporate governance as I mentioned a little earlier that it was part of our themed supervisory work. It so happens that the IFIA code for funds and fund managers came into place in 2012. Given the elapse of time since then, it is appropriate that the Central Bank is reviewing the uptake of this code at this stage.

Many of you will be aware that we have engaged with certain directors who have a large number of directorships. The Central Bank is concerned that there is a concentration of directorships among a limited number of directors who have extensive directorial responsibilities in this jurisdiction (and perhaps elsewhere). The aim of this engagement is to challenge these directors in relation to their capacity to deliver on their directorial commitments and to manage their conflicts of interest. I have heard it said in certain quarters that there is an insufficient number of capable and experienced directors available. It is a view that I do not share. The Central Bank's work in this area will continue.

Lastly we are reviewing the capability of AIFMs to deliver on their requirements (as set out by AIFM Directive and the EU Commission Delegated Act) given that an extensive number of requirements are expected of the AIFM - a total of 169 in fact. At this stage, the focus of the Central Bank is very much on the AIFM applications which we are processing (which are currently around 65). This is currently very much a paper-based exercise, with extensive interactions between the asset managers, their law firms and the Central Bank. However, in due course when AIFMs are authorised, we will also do spot-checks to see if what we understood at the point of authorisation is actually happening on the ground. This will form part of the Central Bank's series of themed-inspections in 2015. I would expect that this inspection will be framed around four particular tests:

  • to what extent is the AIFM, particularly the board of the AIFM, in control of what it is expected to do?
  • to what extent has it got the capability to undertake these tasks?
  • does it have the capacity to actually do the work?
  • insofar as third parties, such as outsourcers and consultants are resources for the AIFM to what extent are potential conflicts of interest being managed?

There will also be other key questions which we will ask, such as, can the AIFM, particularly the board of the AIFM, exercise full control over all outsourcers at any time and is it adequately resourced at all times?


Let me pause there and remind you of my three key messages:

I see technology and demographics as being the key drivers for the funds industry in the coming decades. The likely growth of the funds industry is both a great opportunity for the real economy and a potential challenge for all who operate in the industry to make it work well.

I see the regulatory environment being driven more and more by bodies such as ESMA, IOSCO and the FSB. The Central Bank will continue to play a strong role and punch above its weight in the key policy debates.

Finally, the themes of outsourcing and governance in the funds industry will continue to be significant areas of supervisory focus at the Central Bank.

Thank You.


1 See Haldane (2014), “The age of asset management?” and PwC (2014), “Asset Management 2020, A Brave New World”.

2 International Organisation of Securities Commissions (IOSCO) and the Financial Stability Board (FSB)

3 See and