The Central Bank has fined a unit of fund manager Waystone close to €400,000 and reprimanded it for a number of breaches of regulations tied to safeguarding investors.
The regulator hit Waystone Fund Management (IE) Limited (WFM) with a €393,512 penalty for breaching requirements of the European Union (Alternative Investment Fund Managers) Regulations 2013, it said in an emailed statement. The breaches, which took place between May 2018 and August 2020, were tied to Waystone’s “failings in relation to due diligence, conflicts of interest, delegate oversight, risk management, valuation procedures, treating investors fairly and acting in their best interests,” it added.
WFM has admitted to the “contraventions,” the Central Bank said. Waystone did not immediately comment.
“WFM managed a fund, the investment strategy of which included investing in illiquid, difficult to value, private assets, having had limited experience with a strategy or asset class of this type in the past,” Central Bank director of enforcement and anti-money laundering Seana Cunningham said. “WFM failed to ensure that the investment manager it appointed was qualified and capable to manage such a strategy and failed to conduct adequate oversight of this delegate once appointed. Furthermore, WFM did not have adequate knowledge and understanding of the investments to enable it to monitor the associated risks effectively. Delegating activities does not reduce a fund management company’s ultimate responsibility for compliance with its regulatory obligations,” she added.
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The breaches relate to a fund which the unit was alternative investment fund manager and had in turn delegated management of the fund to an investment manager. That manager spent €17.7 million in loan notes that were “illiquid” and “hard to value.” In November 2019, the auditor of the fund raised “serious concerns” in relation to an investment in the loan notes and the reliability of their valuation.
Ultimately, the fund was suspended in August 2020 with investors losing about €10.2 million. WFM was later party to a settlement reached with the fund’s investors which saw them recover their initial investment in the Notes.
A central bank investigation found WFM failed to conduct adequate due diligence and monitor delegated activity, identify and manage conflicts of interest, ensure adequate risk management systems were in place, ensure there were appropriate procedures to value the fund, disclose a description of valuation procedures, notify potential breaches of the AIFM regulations, act in the best interests of investors and to treat all investors fairly, it said.
While the central bank initially set a fine of €562,160, that was cut by 30 per cent. WFM has accepted the sanctions, which will be confirmed by the High Court, it added.
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