Central Bank issues ‘Dear Chair’ letter to Fund Management Companies

On 7 December 2022, the Central Bank of Ireland (the “CBI”) issued a ‘Dear Chair’ letter addressed to fund management companies (“FMCs”) entitled “Follow up on thematic review of fund management companies’ governance, management and effectiveness” (here). This ‘Dear Chair’ letter sets out the results of the CBI’s latest thematic review of the FMC sector and expectations for the sector going forward.


The ‘Dear Chair’ letter is the third industry letter issued by the CBI as part of a review of the sector’s compliance with the FMC regulatory framework which commenced in 2019. The first industry letter issued to FMCs in October 2020 (here) and required FMCs to assess their operational, resourcing and governance arrangements against all relevant rules and guidance. A further letter issued to the CEO of Irish Funds in December 2020 (here) clarifying the CBI’s resourcing expectations. In June 2022, the CBI conducted a follow-up survey to assess how FMC arrangements had developed.

‘Dear Chair’ letter

The ‘Dear Chair’ letter issued this month sets out key findings from the survey conducted in June 2022, highlighting both positive trends in the sector and areas where the CBI has identified room for improvement.

Key findings

The CBI highlights the following developments in the FMC sector:

  • there has been a “notable increase” in the resources available to FMCs and progress in areas such as CEO appointments, director time commitments and resourcing of managerial functions. The CBI notes that the sector has changed materially in terms of scale, structure and complexity and, while the CBI views many of these developments as positive, there has been a shift in the risk profile of the sector;
  • there has been a significant decrease in the number of FMCs operating in Ireland, despite sizeable growth in assets under management;
  • there has been a 90% decrease in the total number of self-managed investment companies (“SMICs”) operating in Ireland and this decrease has resulted in significant growth in FMCs providing services to third party funds. The CBI has previously stated that FMCs need to have the capacity to take on this additional business without compromising expected standards or reducing investor protection. This CBI expectation is reiterated in the ‘Dear Chair’ letter and the CBI confirms this will be a continued area of regulatory focus; and
  • there has been growth in the level and extent to which FMCs are providing MiFID services such as individual portfolio management. The CBI states that this is an area which it will examine in more detail in the coming period.

Areas for improvement

The CBI identifies the following areas where improvements may be required:

  • while the CBI notes that there has been a “significant uplift” in the number of FMCs with a dedicated CEO, the CBI reminds FMCs that all but the smallest FMCs should have a CEO appointed;
  • the CBI notes positive developments in the area of director time commitments with, on average, time committed by directors doubling since 2019. The CBI confirms that it will continue to monitor the number of directorships held and the CBI will challenge same where it deems the number of directorships to be excessive;
  • the CBI states that the average full-time employee or equivalent to full-time employee (“FTE”) has increased per firm, rising from 3.2 in 2019 to 10 in 2022. The CBI emphasises that the level of resourcing must be continuously monitored and should grow in line with the nature, scale and complexity of the business;
  • while the CBI notes that the number of independent non-executive directors (“INEDs”) with a tenure of greater than ten years has decreased, the CBI states that there are still a sizeable number of directors who continue to be classified as independent who have tenures of 10 years or more. The CBI expects that tenure and independence should continue to be considered as part of the organisational effectiveness director’s (“OED’s”) review of board composition and should form part of related reporting to the board. The CBI expects OED reviews to consider the appropriateness of the continued use of the INED designation where the INED is in place for a prolonged period of time and to set out an approach to ensure a regular rotation of board members. This review should be available to the CBI upon request; and
  • the CBI also highlights the significant gender imbalance at board level within FMCs and states that boards must consider diversity as part of ongoing internal governance reviews.

Next steps

The CBI states that while it recognises that progress has been made by the FMC sector over the past number of years “there is more work to be done”.  The CBI confirms that FMCs will continue to be challenged on their compliance with the regulatory framework, in particular, as and when their operations grow.

FMCs established in Ireland manage a significant number of investment funds that are distributed with a wide footprint, not only at a domestic level but also on a European and Global scale. As such, Irish FMCs must perform their duties to a high standard so that there is a high degree of confidence in the manner in which FMCs discharge these duties and thereby protect the interests of investors in host jurisdictions.

The findings from the FMC review will inform the CBI’s policy development. Work will continue within the CBI on identification of necessary changes to enhance and clarify certain aspects of the existing FMC requirements and Guidance.

FMCs should take note of the CBI expectation that the ‘Dear Chair’ letter be discussed by the board and any areas requiring improvement that directly relate to a firm be given due consideration to ensure robust and appropriate governance arrangements are in place.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.