The finalised corporate governance code (the "Code") for the Irish funds industry was published today, 14 December 2011. The Code was prepared in response to an invitation to the Irish Funds Industry Association ("IFIA") by the Central Bank in April 2010 to formulate an appropriate code for Irish investment funds. Michael Jackson served as a member of the steering group established by the IFIA to develop the Code. A draft of the Code was circulated for comment on 13 June 2011 and the consultation closed on 24 June 2011. The finalised Code does not contain significant changes to the draft Code.
The Code will apply to Irish authorised investment funds and Irish authorised management companies. Although the Code is voluntary, its adoption is strongly recommended by the IFIA. It operates on a "comply or explain" basis so that, where the board of any company decides not to comply with any provision of the code, the reasons for non-compliance should be set out in its directors' report or on its website. The Code becomes effective from 1 January 2012 and a transitional period of 12 months will apply.
The Code represents a codification of existing practice combined with what is seen as best international practice. The vast majority of the requirements set out in the Code are therefore already being complied with by Irish authorised funds, but boards of funds and management companies will have to review the Code and consider whether to adopt it in full.
Composition of the Board
There are a number of new requirements in respect of the composition of the board. The board must have:
a minimum of three directors;
a majority of non-executive directors; and
at least one independent director.
The Code provides criteria to be considered in determining if a director is independent. Prior to the introduction of the Code, the only substantive requirement in this regard was that there be two Irish-resident directors (this requirement remains). While these directors tended to be independent of the fund promoter as a matter of practice, this was not a formal requirement. The requirement in the Code that at least two directors be "reasonably available to meet the Central Bank at short notice, if so required" is also likely to be met by having two Irish-resident directors.
The Code also requires that at least one director should be an employee of the promoter or investment manager, to ensure that there is a good balance of skills and expertise...