The Central Bank of Ireland is set to remove the requirement that certain administration services for Irish funds must be carried out in Ireland, but proposes to use this as an opportunity to introduce a new and extensive range of rules relating to the use of external providers to carry out fund administration activities.
The minimum activities rules that have applied to Irish funds (both UCITS and non-UCITS) since 1995 require that key fund administration functions are carried out by the fund's administrator in Ireland. The Central Bank has, until now, considered this necessary to effectively supervise these functions. However, the pending introduction of EU cross-jurisdictional servicing capability (through the management company passport under UCITS IV) has compelled the Central Bank to reconsider this position. In addition, having dealt with many industry requests in this area, the Central Bank is cognisant of the fact that technology has advanced significantly in this area in recent years. The technical means are now available to effectively outsource fund administration services on an international scope, while retaining supervision and control.
Minimum Activities Rules Out, Outsourcing Rules In
The Central Bank's consultation paper (CP48) refers in its title to minimum activities and contains the proposal to remove the minimum activities rules which currently require that certain key fund administration activities are carried out in Ireland. A more significant element of the consultation paper however is the proposal to introduce outsourcing requirements for fund administrators (the "Outsourcing Requirements").
While the link seems quite tenuous, the Central Bank considers that the removal of the minimum activities rules and the introduction of the Outsourcing Requirements are connected by the need to ensure that the Central Bank can effectively supervise the functions of the fund administration firms. Firms that carry out non-Irish fund business only may query this logic as they were not caught by the minimum activities rules but will be subject to the new outsourcing regime.
Draft Outsourcing Requirements – Overview
The key areas covered by the Outsourcing Requirements are summarised below and considered in more detail in the table.
Scope - The Outsourcing Requirements are very broad in scope covering Irish and non-Irish funds and making no provision for non-material services to be exempt. Operational - A range of operational measures be put in place where outsourcing is proposed. Documents - A range of documents will need to be prepared and maintained. Outsource Provider - Requirements will apply to outsource providers engaged. Central Bank's Role - There will be an initial authorisation procedure and an ongoing supervisory role. Client Disclosure - Outsourcing arrangements must be disclosed to new and existing clients. Area
Covers all fund administration firms (including non-Irish funds business)
The Outsourcing Requirements relate to outsourcing of...