CP86 Compliance – Is a Plan B Required?

Author: Clerkin Lynch LLP

Date Published 24/11/2021

CP86 Compliance – Is a Plan B Required?

The boards of many Irish funds resolved earlier this year to restructure their operations from the self-managed or “SMIC” model to a separately managed model with a third-party management company being appointed. However, recent correspondence and a regulatory update from the Central Bank of Ireland (the “CBI”) may mean that the new strategy may need to be tweaked prior to implementation. Time for a Plan B?


The CBI completed a thematic review assessing how Fund Management Companies (“FMCs”) had implemented its updated related requirements and guidance in respect of their governance, management, control and resourcing (collectively “CP86”) in 2020 and issued a “Dear Chair” letter on 20th October 2020 on foot of this (the “October Letter”). This correspondence contained a detailed analysis of its findings and includes a list of actions required by boards in light of this. This included a specific obligation for the contents of the October Letter to be discussed and considered by boards, with an action plan to address related matters to be discussed and approved by each board by the end Q1 2021. In many cases fund boards determined to change from their existing self-managed model to appoint a management company and to use a third-party entity for this purpose. This latter option was favoured since the costs and workload of the investment manager creating their own structure were deemed not to be justified. In most cases it appears that boards were satisfied to approve the appointment of third-party FMCs operated by the service providers who had previously supplied them with designated persons (“DPs”) under the SMIC model – a strong endorsement of the quality of the services provided by the DPs to date.

Latest updates

The CBI is responsible for the ongoing supervision of FMCs and wrote to them earlier this year to remind them of their own responsibilities to ensure that they had the resources and operational capacity required to take account of any increase in the nature, scale and complexity of their funds under management. In addition, this required the FMCs to provide the CBI with details of their revised financial and business growth projections covering a period of two years, with their increased resourcing projections, for review by 24 September 2021.

This has been followed by the updating of the CBI’s UCITS Questions and Answers document with a new Q&A, ID 1101, which sets out the CBI’s expectations in relation to UCITS FMCs. This confirms that where new business results in a material increase in the nature, scale or complexity of a firm’s business, the CBI deems this to be a material change to the firm’s operating model which requires consultation with it in accordance with Regulation 107 of the Central Bank UCITS Regulations.

Implications and Next Steps

It will be interesting to see the level of additional substance the CBI will require for growing FMCs and the extent to which they will permit them to onboard business in such circumstances, or to permit funds to postpone their restructuring pending such a determination. Fund boards who have approved a restructuring would be advised to seek assurances from the FMC selected that they will be able to resource matters – and be approved to do so by the CBI. In the absence of this it would be advisable for SMIC boards to actively consider a “Plan B”.



Mark Browne

Partner of Asset Management and Funds