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CP86 & SMICs: "What have you done for the last 18 months?"

Updated: Dec 12, 2019

This could be one of the questions SMICs are asked from the word go as part of the CP86 review process currently being undertaken by the Central Bank of Ireland. 



And we expect SMIC answers will likely fall into one of three categories:

1. We have been doing a good job and now we want to do a better job.

2. We thought we had more time before we had to do this.

3. We took action 18-months ago and here's the evidence to demonstrate our compliance in full accordance with CP86.


SMICs who are now looking at increasing their resourcing model as a result of the CP86 on-site review process, should be prepared for a question by the Regulator which is; 'why now?'



Why now, when the new regime gave you an 18-month transition process?

You are well advised to have thoroughly prepared your answer for this exact question as the Central Bank's expectations would likely be that this was already in hand.





SMICs participating in the Central Bank's CP86 on-site review process, can also expect the following queries from the Regulator to show up as early as hour one: 

RESOURCES


For SMICs and Legacy ManCos that have resourcing models based on secondments such as:


1. third party investment managers

2. third party specialist service providers


These firms will likely find that the Regulator's focus is very much on resources.


Consider that new ManCos coming through the Irish authorisation process over the last 2 years have certainly seen higher levels of resources being required leaving a significant gap in how legacy firms would be operating in comparison to newly authorised firms.


It is reasonable to expect that Legacy ManCos and SMICs are expected to close the gap on their level of resourcing so all Irish authorised firms are operating at similar standards and doing so in time for the Regulator's on-site inspection.


Resourcing in particular should be given high priority while preparing for the CP86 review process.



TIMING


SMICs might expect that they will be given a transition period following a CP86 review allowing them sufficient time to revisit and increase their resources. However, it may not play out like this.


Instead of setting a line in the sand and giving all SMICs a timeframe by which they must increase their resources, it is possible that the Central Bank will approach this in a more phased basis.


In practice this could mean, when an existing SMIC approaches the CB with their request for fitness and probity clearance for a new director to replace one going on mat leave, or about to retire - this could prompt a review of resources. In turn, that could set the clock ticking for the SMIC to have to decide, and thus implement, a new stronger resourcing model that meets the Regulator's expectations.


This would likely impact the SMIC's degree of control


CONTROL


The above scenario would likely take timing out of the SMIC's control and possibly make things awkward for the SMIC. While a SMIC may think this requirement is years down the track, for example a director resigning, could prompt the process to commence far more quickly.


SMICS will be well advised, to begin thorough planning now to deal with the resourcing question.



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