The funds industry, where people manage massive amounts of money in a variety of ways, may be one of the most regulated industries in the world – with good reason.
With Ireland having established itself as a leader in the sector, home to 60 per cent of the exchange-traded funds market and over 1,000 firms, it’s imperative that it retains this good reputation. To do so, adherence to regulatory compliance is essential.
Why regulate?
The role of compliance is to comply with EU law, says Jorge Fernandez Revilla, partner and leader of investment management for KPMG in Ireland.
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“They decide what kind of investors can invest in each fund at a high level. There is an EU law for any fund that is going to be sold in the EU. That determines what kind of regulations are required for any type of investor.”
Regulatory compliance is the process of meeting the legal requirements relevant to your organisation and industry and jurisdiction, says Colum Lyons, CEO and founder, ID-Pal.
“For financially regulated businesses they include the laws that support Anti-Money Laundering (AML) and Know Your Customer (KYC) measures.
“Regulatory compliance safeguards funds by ensuring fund advisory firms adhere to general principles and prescriptive requirements. This maintains confidence in the ability of Ireland to be a centre of excellence for funds, minimise the risk of loss or misuse of client assets by investment firms; and in the event of insolvency, can enable the return of funds to clients.”
Mark Jordan, chief strategy officer, Skillnet Ireland, says one of the key areas of implementing regulatory changes is in ensuring the regulation or indeed the guidance is being followed and adhered to.
“The regulatory landscape continues to shift, and it is critically important that industry participants are monitoring and identifying changes. Once regulatory changes reach the public domain, there is an assumption that procedures are in place, and that companies have taken the required steps to ensure compliance.”
Ireland’s funds industry
Since the funds industry was established over 30 years ago in Ireland, it has carried a tradition of transparency and investor protection through a strong regulatory environment, says Michael Tuohy, partner and financial services audit lead at Mazars.
“There are many contributing factors to this. Our compliance with EU regulatory frameworks and the local supervisory role of the Central Bank of Ireland (CBI) are just two.
“In 2009, in response to the financial crisis, the European Securities and Markets Authority (ESMA) was created and began operation in January 2011. Their aim was to enhance investor protection, foster the integrity of financial markets and safeguard financial stability. The CBI has co-operated with ESMA since the foundation, which aided in advancing Ireland’s reputation as having a robust regulatory environment for funds to operate within.”
In 2011 Ireland was among the first countries in the EU to implement the Undertakings for Collective Investments in Transferable Securities IV Directive (UCITS IV).
“This is just one example of the Irish funds industry acclimatising to developments and adopting new regulatory requirements. When we look deeper at these requirements, liquidity and other prudential limits are essential to ensuring the health of funds so that risk limits are adhered to, and warning signs can become visible to funds with strong compliance functions.
“In addition, by consistently embracing new regulations it serves to ultimately protect the investor, which is of vital importance.”
Lyons says there is clearly a lot of interest in funds in Ireland.
“So, from a global perspective, we are doing something right and setting the standards to be followed.
“Not only in terms of the fund advisory firms but third-party providers vetted by these firms to enable them to be compliant. We are all part of the one ecosystem looking to place Ireland at the centre of the global fund map by having the best fund service providers, vendors and compliance frameworks in place.”
The future of funds in Ireland
Regulation is here to stay, and in the past decade we have seen more emphasis placed on how regulation can be used to better manage and inform risk – even in areas previously exempt such as synthetic and structured products, hedge funds and over-the-counter marketplaces, says Jordan.
Revilla says that it is essential that Ireland is seen as a market leader.
“That’s part of compliance – that effectively we are seen as a reputable domicile and at the forefront of the industry.
“There’s a great opportunity as a country.”