​Investor Money Requirements Overview

Investor Money Requirements Overview

Background to the new IMR regulation

In 2011, the Central Bank of Ireland (CBI) commissioned a task force to conduct a review of the regulatory regime for the safeguarding of client assets and investor monies. The review was to ensure that, in the event of any insolvency, client and investor monies would have the highest level of protection. This would also mean un-invested monies could be returned to investors without delay.

The review highlighted that there were a number of different models being operated on behalf of funds and investors within the funds industry and confirmed a need for restructuring. The review also focused on the form, scope and substance of the regime’s ability to streamline processes and thus make it easier for all to understand. The suggested changes were collated and published in the Client Asset Regulations and Guidance Consultation Paper (CP71).

In March 2015, following the receipt of responses to the CP71, the CBI published two new regulations which firms must comply with when holding or controlling client assets. These regulations are:

  • the Client Asset Regulations (CAR) and
  • Investor Money Regulations (IMR); including the Fund Asset Model

The fact that there are two separate regulations has been confusing for some clients operating in Ireland and it is important to note that only one of these regulations needs to be applied in the case of funds and they are not subject to both.

When must Investor Money Regulations be applied?

IMR applies to all Irish domiciled funds and, in addition, to any funds domiciled outside Ireland that have a service contract with a fund service provider (FSP) that is regulated by the Central Bank of Ireland. The regulatory change required comes into effect on 1st July 2016 having been extended from the original implementation date of 1st April 2016.

Although the CBI has made FSPs subject to the rules governing collection accounts for the first time, there are some additional provisions to be aware of:

  • Guidance to the IMR provides that IMR will not apply to money held in a collection account that is deemed to be an asset of the relevant fund. This is the so-called Fund Asset Model (FAM).
  • It is permissible to operate a FAM model and normal fund controls are expected to be in effect and overseen by the trustee/depository of the fund. Standards of care are the same for the FAM collection account as they are for any other assets of the fund.
  • In December 2015, in conjunction with the industry feedback the CBI published guidance clarifying that under FAM umbrella accounts could be opened in the name of the fund, the manager on behalf of the fund, or the depositary. Accounts being operated in this way are subject to fund asset requirements and not the full Investor Money Regulations.
  • The feedback from fund industry participants is that they are generally adopting the fund asset model but there are limited circumstances where a full IMR model has been adopted.

Are there significant changes for the funds industry?

The implementation of the Client Assets and Investor Monies regimes will see some significant operational changes within the funds industry in Ireland which will further help the protection of investor and fund monies. For some FSPs this may mean significant changes to current operational processes and for others less so. However, it is likely that all FSPs will need to accommodate some level of change to existing processes to meet the requirements of the legislation.

What does this mean for fund managers and clients in Ireland?

Where the industry standard fund asset model is in operation, going forward, each fund either domiciled in Ireland or serviced in Ireland will have a separate subscription/redemption account that will be in the name of the fund, Management Company or Depository.

Practically, for clients and fund managers, this will lead to:

  • The need to make changes to the fund’s prospectus to include wording changes required as a result of implementing IMR/FAM (e.g. changes to bank account details and disclosure of risks associated with both models etc.).
  • Establishment of a policy to govern the operation of an umbrella cash account by the fund management company of an umbrella fund, in conjunction with the depositary. The policy is required to be reviewed by both parties at least annually to strengthen controls and procedures necessary to address any difficulties which have been identified in the operation of the account. 

This new approach, when implemented by the funds industry in July 2016, should bring additional clarity and protection to investors when subscribing to and redeeming from funds that are either domiciled or serviced in Ireland.

Fearghal Woods, Senior Vice President, Northern Trust

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