IRELAND: Central Bank Publishes Consultation on Risk Assessment and Capital Planning for Fund Administrators

Monday January 4 2016

The Central Bank of Ireland has published a Consultation Paper (CP) on Risk Assessment and Capital Planning for Fund Administrators. The Central Bank proposes introducing a risk assessment and capital planning requirement for Fund Administrators authorised under the Investment Intermediaries Act, 1995 to reflect improvements in capital planning in recent years throughout the financial services sector. It is proposed that this requirement would be introduced by way of additional regulations to be inserted into Part 5 of the proposed Central Bank Investment Firm Regulations.

By introducing the new requirements by way of regulations combined with guidance, the Central Bank aims to facilitate the practice of capital planning in a manner that is proportionate to the business. The Proposed Regulations set out what must be done by all, while the Proposed Guidance sets out what may be appropriate for many firms while recognising that it is not describing what must be done by all. For some firms it will be sufficient to be able to explain why they decided not to do some of what is suggested in the Proposed Guidance. As is the current practice with respect to regulatory guidelines within the funds sector, the intention is that a Fund Administrator should either comply with all sections of the Proposed Guidance or be able to explain why a particular section is not applicable for that Fund Administrator and what alternative steps it is taking to ensure compliance with the relevant regulation.

The proposed new requirements would broadly align the capital planning requirements applicable to Fund Administrators to those already applying to MiFID investment firms in Ireland under the Capital Requirements Directive (‘CRDIV’) and Capital Requirements Regulation (‘CRR’). In this regard, CRDIV is transposed into Irish Law via the European Union (Capital Requirements) Regulations, 2014 (S.I. No. 158 of 2014) and those Regulations set out various requirements in relation to the proactive continuous assessment of risk and the level of capital to be held to meet such risks. In summary, CRDIV requirements include a requirement to:

• carry out an internal capital adequacy assessment process;
• assess, in that context, a number of specifically identified risks to the institution; and
• set aside capital to meet those risks based on the capital adequacy assessment undertaken.

Questions for Consideration

Whilst the Central Bank is consulting on all of the Proposed Regulations and Proposed Guidance, they would in particular welcome stakeholders’ views on the following questions:

• Regulation 98 of the Proposed Regulations proposes requiring Fund Administrators to have in place sound, effective and comprehensive strategies, processes and systems to identify and manage the risks that are applicable to the Fund Administrator and to assess whether the Fund Administrator has adequate own funds to cover those risks. This requirement encourages a risk-focused approach to capital and brings requirements in this area broadly in line with those applying to MiFID investment firms in Ireland. Do you agree with the approach proposed?
• Regulation 101 of the Proposed Regulations proposes a list of sources of risk and requires that a Fund Administrator must, at a minimum, assess whether each of the risks listed is relevant for its business and, if it is, the adequacy of the Fund Administrator’s existing measures to address that risk. The Proposed Guidance provides further detail on what might be covered when considering each risk and Central Bank expectations for management of these risks. Do you agree with the proposed list of sources of risk and the guidance provided? Are there any additional risks which should be included?

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