Public statement relating to Enforcement Action between the Central Bank of Ireland and Waystone Fund Management (IE) Limited (WFM)

• Date: 08 November 2024

Central Bank of Ireland

Administrative Sanctions Procedure

Settlement Notice

To: Waystone Fund Management (IE) Limited (WFM)

Date: 6 November 2024

Part 1. Action

1.1. For the reasons set out in this Settlement Notice, the Central Bank of Ireland is

publishing a statement concerning WFM, pursuant to Section 33BC(2) of the

Central Bank Act 1942 as amended (the 1942 Act), for contraventions of the

European Union (Alternative Investment Fund Managers) Regulations, 2013 [S.I.

No.257 of 2013] (the 2013 AIFM Regulations) between May 2018 and August

2020.

1.2. WFM has agreed to the facts in Part 2 (the Undisputed Facts) and admitted the

prescribed contraventions in Part 3 of this Settlement Notice, such that further

investigation is unnecessary.

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On this basis, the Central Bank has decided that it is

appropriate to impose the following sanctions:

 A reprimand, and

 A monetary penalty of €562,160 with the application of a 30% settlement scheme

discount bringing the amount to €393,512.

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Section 33AR(1)(a)(ii) of the 1942 Act: “where there are undisputed facts that in the reasonable opinion of the Bank render

an investigation unnecessary, suspects on reasonable grounds that a person is committing or has committed a prescribed

contravention…”

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1.3. WFM has agreed to these sanctions,

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however they will not take effect unless

confirmed by the High Court.

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1.4. Further detail on the contraventions and sanctions are set out in Parts 3 and 4 of this

Settlement Notice.

Summary of Reasons for the Central Bank’s Action

1.5. WFM is authorised as an alternative investment fund manager (AIFM) and is subject

to the requirements of the 2013 AIFM Regulations.

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Investor protection is a core

objective of those Regulations, which prescribe various requirements aimed at

safeguarding investors.

1.6. WFM delegated its investment management functions to a third party investment

manager (the Investment Manager). The delegation of certain investment

management functions is common in the global funds sector but importantly, the

AIFM retains ultimate responsibility and is required under law to ensure proper

oversight and control of any delegates.

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1.7. The matters that form the background to the Central Bank’s action relate to an

alternative investment fund (AIF)

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(the Fund) for which WFM was the AIFM. The

Fund targeted qualifying, informed investors and had a minimum subscription of

€100,000 (or its foreign currency equivalent). The Fund was authorised by the

Central Bank in May 2018 and launched in October 2018.

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In this case, WFM has also agreed to dispense with an Inquiry.

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Pursuant to Section 33 AWA of the 1942 Act.

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WFM is also auth orised as a UCITS management company. WFM was previously Montlake Management Limited. It

became part of the Waystone Grou p following an acqu isition in November 2 020, and changed its name on 1 February

2021.

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Regulation 21 (1)(f) of the 2013 AIFM Regulations.

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AIFs are not subject to EU rules on asset eligibility and concentration. However where authorised by the Central Bank,

an AIF must comply with the Central Bank’s AIF Rulebook which contains certain rules relating asset eligibility and

concentration. Retail Investor AIFs are subject to more stringent rules than Qualifying Investor AIFs, which are

designed for professional investors.

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1.8. Following the Fund’s authorisation in May 2018, WFM appointed an Investment

Manager to the Fund. WFM had previously appointed the same Investment

Manager to manage a UCITS.

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The investment strategy of the Fund included

investing in illiquid assets. Due to the pre-existing relationship between WFM and

the Investment Manager, WFM conducted limited due diligence on the Investment

Manager’s qualifications and capabilities when appointing it to the Fund. However,

from the limited due diligence carried out, the Investment Manager’s inexperience in

managing illiquid assets was objectively clear and should have been identified by

WFM.

1.9. Between the Fund’s launch in October 2018 and February 2019, the Investment

Manager invested €17.7 million (equating to 89% of the Fund’s assets) in two Loan

Notes, a type of illiquid, non-exchange traded instrument. Such investments were

within the investment strategy outlined in the Fund’s prospectus and were

described as being difficult to value with accuracy because there are no active

markets for such assets. The Loan Notes represented a new investment asset class

for WFM yet WFM did not update its valuation policies and procedures to take

account of these assets.

1.10. Following the initial investment, WFM was informed by the Investment Manager

that the issuer of the Loan Notes (the Issuer) was also the only source of a valuation

for the Loan Notes, creating a conflict of interest as the Issuer was potentially

incentivised to manipulate the valuations for the Loan Notes in order to maintain or

increase the Fund’s investment in the Loan Notes. The valuations provided by the

Issuer were in turn used to calculate the Net Asset Value (NAV) of the Fund, which

was relied upon by investors in the Fund to inform decisions concerning their

investment strategy.

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UCITS are primarily designed for retail investors and are subject to rules derived from EU law on liquidity, asset eligibility

and asset diversification. AIF is a broad term that encompasses all funds which are n ot UCITS. The Fund was a sub -fund

of an ICAV umbrella fund structure.