Central Bank of Ireland fines Sarasin for four investment breaches
05 October 2021 Ireland
Image: luzitanija
The Central Bank of Ireland (CBI) has reprimanded and fined Sarasin Funds Management Ireland (SFMIL) €385,000 (£327,685) for four breaches of investment funds regulations which occurred between 25 May 2017 and 2 March 2018, during the merger of two separate funds.
While conducting merger of the two funds, which were managed by SFMIL’s appointed investment manager, SFMIL deliberately breached certain investment concentration restrictions which it is obliged to comply with under relevant fund regulations, the CBI found.
SFMIL is authorised by the CBI as a UCITS fund management company and is managed by a board of non-executive directors.
On finalising its investigation, CBI concluded that SFMIL was not consistently receiving all delegate reports and other information mandated under its own procedures to oversee its delegates.
In relation to an advertent breach, both the exception control mechanism and the escalation control mechanism failed. The non-executive board only learned of this advertent breach of investment restrictions eight weeks later, on 1 September 2017.
At the time, the non-executive board confirmed during its quarterly board meetings that it had received certain delegate reports which it had not in fact received, the CBI said.
The designated director for monitoring compliance went on sabbatical leave from 1 June 2017 until 27 September 2017, leaving SFMIL with no alternate designated director for monitoring compliance in place until 17 August 2017.
“The non-executive board was aware of the potential difficulties in transferring some of the assets from one fund to another and therefore should have been aware that this could expose SFMIL to regulatory and investment risks”, the CBI says.
“SFMIL failed to tailor its oversight and monitoring programme appropriately in respect of the merger and in particular did not follow up with the investment manager as to the progress of the merger at any point between its approval and completion.”
“Investment concentration restrictions in question mitigate risk to investors by reducing exposure to the possible failure of a single investment.”
The CBI added: “Notwithstanding the delegation of investment management services to the investment manager, SFMIL is at all times responsible for compliance with its regulatory obligations, either through its own actions or those of its delegates.”
The Central Bank determined the appropriate fine for SFMIL to be €550,000, which was then reduced by 30 per cent to €385,000, in accordance with the settlement discount scheme provided for in the CBI’s administrative sanctions procedure.
Seána Cunningham, director of enforcement and anti-money laundering at the CBI, comments: “The Central Bank expects boards and designated directors to proactively challenge the activities and scrutinise the actions taken by their delegates, to be able to adequately oversee and monitor their delegates at all times, and to tailor their governance, oversight and monitoring programme appropriately when risks arise. SFMIL failed in this regard.
“SFMIL did not seek updates from its delegate on the progression of the merger of two funds, despite the merger’s attendant risks. It is a particularly troubling finding of this investigation that the board had confirmed on a number of occasions that it had received certain delegate reports when in fact it had not. This falls well below the level of challenge and scrutiny required of SFMIL to meet its regulatory obligations.”
She concludes: “Effective compliance with the regulatory requirements placed on fund management companies is key to ensuring good governance, effective management and good organisation for the protection of investors, the integrity of the market and to promote systemic stability.”
While conducting merger of the two funds, which were managed by SFMIL’s appointed investment manager, SFMIL deliberately breached certain investment concentration restrictions which it is obliged to comply with under relevant fund regulations, the CBI found.
SFMIL is authorised by the CBI as a UCITS fund management company and is managed by a board of non-executive directors.
On finalising its investigation, CBI concluded that SFMIL was not consistently receiving all delegate reports and other information mandated under its own procedures to oversee its delegates.
In relation to an advertent breach, both the exception control mechanism and the escalation control mechanism failed. The non-executive board only learned of this advertent breach of investment restrictions eight weeks later, on 1 September 2017.
At the time, the non-executive board confirmed during its quarterly board meetings that it had received certain delegate reports which it had not in fact received, the CBI said.
The designated director for monitoring compliance went on sabbatical leave from 1 June 2017 until 27 September 2017, leaving SFMIL with no alternate designated director for monitoring compliance in place until 17 August 2017.
“The non-executive board was aware of the potential difficulties in transferring some of the assets from one fund to another and therefore should have been aware that this could expose SFMIL to regulatory and investment risks”, the CBI says.
“SFMIL failed to tailor its oversight and monitoring programme appropriately in respect of the merger and in particular did not follow up with the investment manager as to the progress of the merger at any point between its approval and completion.”
“Investment concentration restrictions in question mitigate risk to investors by reducing exposure to the possible failure of a single investment.”
The CBI added: “Notwithstanding the delegation of investment management services to the investment manager, SFMIL is at all times responsible for compliance with its regulatory obligations, either through its own actions or those of its delegates.”
The Central Bank determined the appropriate fine for SFMIL to be €550,000, which was then reduced by 30 per cent to €385,000, in accordance with the settlement discount scheme provided for in the CBI’s administrative sanctions procedure.
Seána Cunningham, director of enforcement and anti-money laundering at the CBI, comments: “The Central Bank expects boards and designated directors to proactively challenge the activities and scrutinise the actions taken by their delegates, to be able to adequately oversee and monitor their delegates at all times, and to tailor their governance, oversight and monitoring programme appropriately when risks arise. SFMIL failed in this regard.
“SFMIL did not seek updates from its delegate on the progression of the merger of two funds, despite the merger’s attendant risks. It is a particularly troubling finding of this investigation that the board had confirmed on a number of occasions that it had received certain delegate reports when in fact it had not. This falls well below the level of challenge and scrutiny required of SFMIL to meet its regulatory obligations.”
She concludes: “Effective compliance with the regulatory requirements placed on fund management companies is key to ensuring good governance, effective management and good organisation for the protection of investors, the integrity of the market and to promote systemic stability.”
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