Reports were circulating during late May that both the Central Bank of Ireland (CBI) and the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg are to undertake checks on asset managers’ entities to ensure that such entities are not being operated as letterbox entities.
In a recent speech, Michael Hodson, Director of Asset Management and Investment Banking at the CBI, made reference to the use of secondments from UK staff into Irish established entities and stated:
“In the area of distribution of funds, we have seen proposals to use secondments of former UK staff into Irish entities. This can work, but only where, in the opinion of the Central Bank, there is sufficient management resource and organisational structure, and where no other risks are present, (such as, for example, conflicts of interest), so that overall the structure in relation to control and risk management satisfies the Central Bank. However, if the secondment is structured simply as a device to circumvent the EU rules then we will have no appetite to approve such arrangements. Indeed, we have not approved a number of arrangements which we saw as legalistic, technical or indeed even artificial attempts to do just that”.
It has also been reported that the CSSF would make site checks to asset managers local operations to check that such entities are properly staffed and are not acting as shell companies.
What firms should do: Where firms are seeking authorisation in other European jurisdictions as part of their Brexit planning, they should ensure that they comply with the local equivalent of the FCA’s “threshold conditions”.