1 | ARTHUR COX
Group Briefing
July 2015
On 31 March 2015, the Central
Bank published new regulations
and guidance relating to both the
client assets regime and the investor
monies regime. These regulations
and guidance stem from the Central
Bank’s consultation process last year,
CP 71 (Client Assets Regulations and
Guidance) and a series of meetings
between the Irish Funds Industry
Association (IFIA) and the Central
Bank, following which it was decided
that new regimes should be put in
place to deal with the safeguarding of
investor monies.
The Investor Money Regulations1 apply
to entities such as fund administrators,
custodians and management companies
of both UCITS and AIFs. The Client Asset
Regulations2 apply to investment firms
such as stockbrokers. The purpose of
this briefing is to focus on the Investor
Money Regulations. The Central Bank
also issued guidance to accompany the
Investor Money Regulations which
provides a useful explanation on how
the Investor Money Regulations should
be applied.
The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money
Regulations 2015 for Fund Service Providers
(the “Investor Monies Regulations”).
1
The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Client Asset
Regulations 2015 for Investment Firms.
2
ASSET MANAGEMENT &
INVESTMENT FUNDS
Investor Monies - Revised
Regulations and Guidelines
The purpose of the Investor Money
Regulations is to strengthen the
safeguards around investor monies by
requiring that fund service providers put
in place systems and controls which will
give added protection to investors whose
monies are held by them.
SCOPE OF THE REGULATIONS
The Investor Money Regulations apply
to ‘investor monies’. The definition of
investor monies identifies monies to
which an investor is beneficially entitled,
received from or on behalf of an investor
or held by the fund service provider
on behalf of an investor and includes
monies held by a nominee of the fund
service provider. Where investor monies
are mixed with monies that are not
investor monies, the Investor Money
Regulations apply to that part of the
monies that are investor monies.
provider to hold money from an investor
pending delivery to an investment fund
(subscriptions) or to hold money from
an investment fund pending delivery to
an investor (redemptions).
The date of commencement of the
Investor Money Regulations is 1 April
2016. Investment funds and their
investment managers will need to be
satisfied that the fund service providers
with which they deal have the necessary
structures and procedures in place to
meet the requirements of the Investor
Money Regulations.
CORE PRINCIPLES
There are a number of core principles on
which the new investor monies regime
is based.
1. Segregation
In order for the Investor Money
Regulations to apply, the investor
monies must be held by a fund service
provider, which means being lodged into
a collection account in a bank held in
the name of the fund service provider (or
nominee) and the fund service provider
has the capacity to effect transactions on
that collection account.
The fund service provider must ensure
that investor monies are held separately
from the fund service provider’s own
assets, i.e., held in a designated collection
account separate from monies forming
part of the fund service provider’s
business. Guidance on how a fund
service provider should hold investor
money is provided in the Investor
Money Regulations.
A collection account is an account
opened with a bank by a fund service
A fund service provider must put in
place an Investor Money Management
This document contains a general summary of developments and is not a complete or definitive statement of
the law. Specific legal advice should be obtained where appropriate.
2 | ARTHUR COX
Plan, which, among other things, sets out
the procedures it will follow on matters
relating to anti-money laundering and
dealing with mixed remittances. The
Investor Money Management Plan must
be produced within three months of the
date of commencement of the Investor
Money Regulations, i.e., 1 July 2016.
2. Designation and Registration
Investor monies must be clearly
identified in the fund service provider’s
internal records and in the records of
the bank with which the collection
account is held as being separate from
the fund service provider’s own assets.
A bank at which investor monies may
be held can be a bank authorised in the
EEA, Switzerland, Canada, Japan, United
States, Jersey, Guernsey, the Isle of Man,
Australia or New Zealand.
The words ‘collection account’ must be
stated in the account name. In advance
of opening a collection account with the
bank, the fund service provider must put
in place an agreement referred to as an
Investor Money Facilities Letter with the
bank. The terms of this letter are set out
in the Investor Money Regulations and
must state, among other things, that the
parties acknowledge that money in the
collection account is held by the fund
service provider in trust for the relevant
investors and that the bank shall hold
and record the money in the collection
account separate from the fund service
provider’s own money and the money
belonging to the bank.
3. Reconciliation
The fund service provider must keep
accurate books and records to enable it
at any time and without delay to provide
an accurate record of the investor monies
held by it for each investor and the total
amount in the collection account. The
fund service provider must conduct daily
and monthly reconciliations between
its internal records and the external
records of any third party holding
investor monies. A fund service provider
should keep records of all reconciliations
performed, the information upon which
the reconciliations are based, the person
or reconciliation computer system that
ASSET MANAGEMENT &
INVESTMENT FUNDS
INVESTOR MONIES - REVISED REGULATIONS
carried out such reconciliations and the
person who reviewed such reconciliations.
that is ultimately responsible for
safeguarding investor money.
4. Daily Calculation
The specific responsibilities of the Head
of Investor Money Oversight include,
among other things, ensuring that
potential or actual breaches relating
to the safeguarding of investor money
are reported in writing to the board
of the fund service provider and that
actual breaches are reported to the
Central Bank. The fund service provider
shall document in the Investor Money
Management Plan the material risks to
investor money held, including items
such as counterparty risk (including
jurisdiction and associated legal risks),
concentration risk, operational risk
(including risk of fraud), compliance
with investor mandates and outsourcing
and group arrangements.
The rules on daily calculations set out
in the Investor Money Regulations
are prescriptive. A daily calculation
must be carried out by the fund service
provider to ensure that the balance in
the collection account is equal to the
amount it should be holding on behalf
of investors. If there is a shortfall, this
must be met out of the fund service
provider’s own account. The Central
Bank expects a fund service provider
to notify it through the ONR system
when a shortfall (or surplus) requires
a material lodgement (or withdrawal)
of money by the fund service provider.
The fund service provider should also
explain in the notification the reason
for the transfer. Where there has been
a failure to perform a daily calculation,
the fund service provider must as soon
as possible inform the Central Bank
with an explanation of the reasons for
such a failure. In any event, the fund
service provider shall notify the Central
Bank within one working day of the
date on which the calculation should
have been performed.
5. Risk Management
The fund service provider must have an
appropriate risk management system
in place which may be incorporated
as part of the fund service provider’s
governance framework. This includes
the appointment of a Head of Investor
Money Oversight. The Head of Investor
Money Oversight is a new role which is
a Central Bank “pre-approval controlled
function”. This role should be carried out
by a director of the fund service provider
or a senior manager at the fund service
provider. The fund service provider
must ensure that the Head of Investor
Money Oversight has the necessary
resources, including staff that are
adequately trained with sufficient skill
and expertise to carry out the relevant
responsibilities set out in the Investor
Money Regulations, having regard to
the nature, scale and complexity of the
business. However, it is the board of
directors of the fund service provider
AND GUIDELINES
6. Investor Monies Examination
An external audit must be conducted
annually on the fund service provider’s
safeguarding of investor monies and
an annual assurance report from the
auditor must be submitted to the Central
Bank. The report should be submitted
online via the Central Bank’s ONR
within four months of the period end.
In relation to the assessment of the
Investor Money Management Plan, the
fund service provider should ensure
that the auditor reviews the processes
undertaken by the fund service provider
to assess the on-going appropriateness
of the Investor Money Management
Plan, including evidence of the steps
taken by the fund service provider to
test and maintain the Investor Money
Management Plan. The Central Bank
expects the fund service provider to
engage with the auditor to seek, at a
minimum, third party confirmations
for a representative sample of account
balances held in respect of investor
money, both at year-end and also on one
other randomly scheduled date during
the year.
NEXT STEPS
The responsibilities imposed on fund
service providers who hold investor
monies are prescriptive and structural
3 | ARTHUR COX
changes will be required within
fund service providers in order to be
compliant with the Investor Money
Regulations by 1 April 2016.
The Central Bank has made it clear that
contraventions of the investor monies
regime will attract penalties including
sanctions under the Central Bank’s
administrative sanctions procedures. It
should be noted that the Central Bank
announced that compliance with the
Investor Money Regulations will be the
subject of one of its themed inspections
in the near future.
ASSET MANAGEMENT &
INVESTMENT FUNDS
INVESTOR MONIES - REVISED REGULATIONS
AND GUIDELINES
4 | ARTHUR COX
ASSET MANAGEMENT &
INVESTMENT FUNDS
INVESTOR MONIES - REVISED REGULATIONS
AND GUIDELINES
KEY CONTACTS
If you have any queries on this briefing,
or require any further details on any
aspect of the ICAV, please do not hesitate
to contact a member of our team:
KEVIN MURPHY
PARTNER
SARAH CUNNIFF
PARTNER
+353 1 618 0515
kevin.murphy@arthurcox.com
+353 1 618 0508
sarah.cunniff@arthurcox.com
DARA HARRINGTON
PARTNER
ADRIAN MULRYAN
PARTNER
+353 1 618 0559
dara.harrington@arthurcox.com
+44 207 832 0201
adrian.mulryan@arthurcox.com
arthurcox.com
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