knowledge 20 May 2026 |

Thematic review of depositaries’ risk assessment obligations in respect of funds and FMCs

Overview

On 11 May 2026, the Central Bank of Ireland (CBI) issued a letter to chief executive officers and branch managers of depositaries setting out the findings of its thematic review of depositaries’ obligations to assess, both at appointment and on an ongoing basis, the risks associated with a fund and its fund management company (FMC).

The review also examined how depositaries identify and manage actual and potential conflicts of interest involving the fund, the FMC and relevant delegates as to preserve depositary independence.  

The CBI identified deficiencies in certain depositaries’ risk assessment and conflicts management controls and, in Appendix 1 to the letter, sets out non-exhaustive examples of good practice observed during the review.   

The letter must be brought to the attention of the board or management body of each depositary.

Key points from the review

The review focused on three areas:

• Client acceptance and onboarding.
• Due diligence processes.
• Depositary independence and conflicts of interest management.

The CBI’s central message is that a depositary’s onboarding and ongoing review processes should give it a sufficiently robust understanding of the fund’s investment objective and strategy, and of the FMC’s organisation, to design oversight procedures that are appropriate to the relevant risks. 

If that understanding is lacking, a depositary may accept business that falls outside its expertise, capacity, experience, processes or independence, or it may put in place oversight procedures that are not effective in practice. 

The CBI notes that these weaknesses lead to adverse investor outcomes, including inadequate valuation oversight and missed investment or borrowing restriction breaches. The letter also underlines that the effective identification and management of conflicts is essential to preserving the depositary’s independence and objectivity.

Observed good practice

The CBI indicates that onboarding should be supported by a documented risk assessment methodology that considers both the characteristics of the fund and the organisation of the FMC, with clear guidance on how risk ratings are applied. The CBI also identifies the following as examples of good practice:

• Oversight procedures tailored to the outcome of the assessment.
• A documented client acceptance process.
• A clear link between risk appetite and accepted business.
• Evidence of board or committee challenge.

Further examples include:

• Ensuring that the depositary agreement is signed only after the risk assessment has been completed.
• Establishing a documented business-as-usual handover before launch.
• Documenting information flows with the FMC.
• Embedding second and third-line review. 

For ongoing due diligence, the CBI expects risk assessments to be refreshed regularly, with the timing informed by the nature, scale and complexity of the fund and the FMC, and with input from periodic due diligence and day-to-day oversight issues such as breaches or errors. It also highlights documented due diligence procedures, clear roles and review timetables, appropriate use of onsite and desk-based reviews, four-eyes review, follow-up of outstanding items before sign-off, and structured procedures for the depositary report to unitholders.

On conflicts, the CBI identifies, as good practice, documented consideration of actual or potential conflicts at onboarding, together with effective conflicts policies, procedures and registers that are reviewed and reported to the local board or a relevant committee on an ongoing basis. 

Next steps

Each depositary should consider the terms of the letter in the context of its own firm’s risk assessment processes and oversight framework. For depositaries, the immediate priority is to ensure that onboarding, due diligence and conflicts frameworks are documented, evidence-based and aligned with the business the depositary is able to accept.

The letter will likely have implications for FMCs also as FMCs should expect continued focus from depositaries on organisational structure, information flows and responsiveness during onboarding and ongoing due diligence.

More broadly, the letter reflects the CBI’s expectation that risk assessment is a central element of an effective depositary oversight model.

How we can help

If you have any questions about the thematic review, please do not hesitate to contact us.