Irish residents who sell their services as directors to international investment funds will have to cut back on the number of boards they sit on if the Central Bank decides they are taking on too much work.
Ireland’s success in establishing itself as a hub for the global funds industry has created a lucrative business for local lawyers, accountants and consultants who are hired by fund managers based in New York or London to sit as directors of the management companies that oversee the funds.
Funds based in Ireland have to have a board of directors overseeing their operations and at least two directors have to be Irish residents. The directors are meant to represent the interests of the funds’ shareholders, usually pension funds and institutional fund managers.
The annual income is around €20,000 plus per directorship. It is common for individuals to sit on multiple boards because some funds are sub-divided into separate standalone companies.
The Central Bank has identified 13 individuals who between them have 652 directorships. Such a welter of directorships, averaging out at about 50 each, raises questions about those directors’ ability to properly scrutinise the risks those funds take on, particularly if the individuals are also holding down full-time jobs as lawyers or accountants.
"We will be putting pressure on those individuals and we will use the full range of our supervisory tools and regulatory powers where necessary," Gareth Murphy, head of markets supervision at the Central Bank, said on Wednesday.
The central bank is not putting a cap on the number of directorships that one person can hold but it will monitor directors who work more than 2,000 hours a year and have seats on at least 20 boards.
“It’s not a target but it does mean you are on our radar screen,” Murphy said. “We will look more closely at what you are up to and it is very likely that authorisation as a fund director will take longer.”
There are over 2,000 people working as funds directors in Ireland for major money managers such as BlackRock, Pimco and Invesco. The number of funds domiciled in Ireland has jumped by over 50 percent to 5,897 in ten years, attracted by the country's low tax base and business-friendly laws.
Last year, the central bank said it would relax a requirement that funds have to have two Irish resident directors out of concern that there were not enough people with the right skills to fill the roles. But after consulting with industry, the central bank has decided to retain the rule.
“The size of the population, over 2,000 active directors, and the depth of experience was one of the reasons to retain the requirement,” Mr Murphy said.
Ireland's success in attracting investment funds and financial vehicle corporations, which are used by companies to repackage debt, has made it the third biggest shadow banking market in the euro zone behind Luxembourg and the Netherlands, with approximately €2.9 trillion of assets, according to data from the European Central Bank (ECB).
Shadow banks provide financing services, but are not regulated as tightly as mainstream banks. Financial vehicle corporations, which are largely based in the International Financial Services Centre (IFSC), have to report their assets and liabilities to the ECB. But there are other special purpose vehicles, which number between 600 and 700, that do not currently have to report.
With the Financial Stability Board (FSB), a panel made up of central bankers, finance officials and top regulators from the world’s largest economies, as well as Europe’s top financial risk watchdog, the European Systemic Risk Board (ESRB), looking for more information about shadow banks, the central bank is considering requiring these entities to also start reporting data to it.
“Given the shifting focus of international bodies like the FSB and ESRB, it is likely that other parts of the IFSC will be drawn into the regulatory reporting net,” Mr Murphy said.
- Reuters
