Investor Money Regulations
The Central Bank of Ireland (the “Central Bank”) has published Investor Money Regulations for Fund
Service Providers (the “Regulations”) and a related guidance document (the “Guidance”). These are
the long expected client asset rules for the investment fund industry. The Regulations will come into
effect on 1 April 2016.
The protection of client assets had come into sharp public focus in light of the high profile failure of
some investment firms and the regulatory oversight shortcomings which were identified in the process.
A review was initiated by the Central Bank in 2011, with an expert group assembled to analyse
existing structures and to recommend improvements. Since that time, client asset protection has
consistently featured on the list of Central Bank enforcement priorities and it will likely continue to be
an area of focus in the future.
The Central Bank used its powers contained in the Central Bank (Supervision and Enforcement) Act
2013 to introduce the Regulations as a statutory instrument, which is a form of legislation. Introducing
the investor money rules by way of legislation, rather than updating a code of conduct, demonstrates a
shift in the approach of the Central Bank to a more formal and legalistic regulatory system.
The Regulations are based on six investor money principles (the “Principles”). The Principles will
apply to fund service providers (“FSP”) operating “collection accounts” which hold “investor money”.
What is a Fund Service Provider?
A FSP is defined to include the traditional service providers for the industry including administrators,
custodians, transfer and registration agents. The definition also includes other entities such as
alternative investment fund managers (“AIFMs”) and UCITS management companies.
What is a Collection Account?
A collection account is an account opened in the name of the FSP or its nominee and includes the
term “collection account” in the account title. It can be a segregated account or a pooled account.
What is Investor Money?
Investor money is any money to which an investor is beneficially entitled, received from or held on
behalf of an investor (including money held by a nominee). It includes subscriptions received before
they pass to a fund, redemptions after they have been paid out of the fund and dividends which have
left a fund but have not yet been paid to investors.
When will the Regulations Apply?
A FSP will be deemed to hold investor money where pending subscription, redemption and distribution
amounts are lodged to a collection account, and the FSP has capacity to effect transactions on the
collection account.
What Needs to be Done?
The six Principles that apply are:

segregation;

designation;

reconciliation;

daily calculation;

risk management; and

investor money examination.
Detailed rules for each Principle are set out in the Regulations and Guidance.
In brief, the application of the Principles means that only investor money may be held in a collection
account, and investor money must be segregated from the FSP’s own money. Investor money which
is received must be deposited into a collection account without delay and in any event within one
working day. Money which is not investor money cannot be held in a collection account and must be
transferred out without delay. The reconciliation and daily calculation obligations will require each
FSP holding investor money to keep internal records of the investor money held, which must be
reconciled against the external records of the party with whom the investor monies are held, by the
end of the working day following that to which the reconciliation relates. If there is a shortfall in the
collection account, the FSP will be obliged to cover the shortfall from its own assets.
Certain of the functions associated with the operation of collection accounts, such as the daily
reconciliation and daily calculations may be outsourced by the FSP. In such case, the FSP will be
required to take reasonable steps to ensure the third party has appropriate processes, systems and
controls in place to ensure continuity in the effective performance of the relevant outsourced function.
There are also independent review obligations where reconciliation or daily calculation computer
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systems are used, with an obligation on the FSP to demonstrate the robustness of the relevant
systems and to have contingency measures in place should those systems fail.
Where a FSP holds investor money, its risk management obligations include the appointment of an
individual as Head of Investor Money Oversight (“HIMO”). The Guidance points to this position being
within the pre-approval controlled function (“PCF”) category. In the UK, where a similar requirement
applies, the appointee has typically been a part of the finance function within a FSP.
The Regulations also require each FSP to have an Investor Money Management Plan (“IMMP”). It is
expected to be a master document addressing the extensive governance, reporting and oversight
requirements and to be based on the FSP’s business model. The IMMP must be prepared within
three months of 1 April 2016.
An Investor Money Examination or “assurance report” (audit) must be undertaken by the firm’s auditor
annually and presented to the board and filed with the Central Bank. Where an FSP is permitted to
hold investor monies but does not do so, that FSP will still be required to have an annual external
audit report prepared, based on such procedures as the external auditor deems appropriate to
determine whether the auditor thinks the FSP held investor money during the period in question.
Next Steps

Firms need to examine their current operating models to see whether the Regulations apply.

It may be necessary to change operating model to ensure compliance with the Regulations.

The Regulations have not fully clarified some industry concerns and issues. Therefore, it may
be necessary to require clarification of individual issues with the Central Bank, which is
engaging with industry on the impact of the Regulations.

The role of the HIMO needs to be scoped.

The firm’s authorisation may need to be updated to allow it to hold investor money as it is not
unusual for firms to have a condition in their authorisation preventing them from holding client
assets.
How Matheson can Help

Assessing the impact of the Regulations for clients.

Preparing the Investor Money Management Plan.

Making submissions to the Central Bank to resolve areas of ambiguity.

Reviewing implementation plans to give an assurance to boards and senior management of
compliance with the Regulations.

Providing training on the Regulations.
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Please get in touch with your usual Asset Management and Investment Funds Group contact or any of
the contacts listed in this publication should you require further information in relation to the material
referred to in this update.
Full details of the Asset Management and Investment Funds Group, together with further updates,
articles and briefing notes written by members of the Asset Management and Investment Funds team,
can be accessed at www.matheson.com.
The material is provided for general information purposes only and does not purport to cover every
aspect of the themes and subject matter discussed, nor is it intended to provide, and does not
constitute, legal or any other advice on any particular matter. The information in this document is
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Copyright © Matheson
Matheson Publication May 2015
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