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[PART 2] CBI CP86 Review - What are Legacy ManCos & SMICs likely to be facing?

Updated: Dec 12, 2019


Fitness & Probity for Irish Authorised firms


As the Central Bank begins reviewing the thousands of pages submitted to it for the desk-based review phase of its CP86 thematic review, we gaze a little down the road at what the possible outcomes of the CP86 thematic review might be.


In Part 2 of this blog mini-series, we look at three likely outcomes for Legacy ManCos and SMICs (i.e. those authorized more than prior to 2017 and operate a secondment model) – regardless of whether or not they receive an on-site visit from the Central Bank.


Free Lunch and Learn with Daniel Lawlor

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BEST CASE SCENARIO


Legacy ManCos/SMICs should plan on the basis that they will need to increase their resources to a level similar of recently authorised ManCos. I think that's a given. Having ManCos authorised under the same regimes, but with massively different resourcing simply by virtue of when they were authorised, is not credible.


A good outcome for ManCos and SMICs would be if they are given a specified transition period spanning 12+ months within which to put these resources in place. However, I wouldn't bet on this being the outcome. CP86 was 3 years in the making and came with an 18 month implementation period. So I don't think another lengthy transition period is likely.


A POSSIBLE OUTCOME THAT COULD HURT?


An outcome that would be pushy for legacy ManCos and SMICs would be a direction to immediately increase resources to a level commensurate with newly authorised ManCos.


For many, this would require a serious analysis of whether a secondment model remains viable and, if not, a fairly significant structural overhaul.


In this case, ManCos and SMICs will need to either hire resources or move to a third party ManCo. My money is on this outcome - or something similar that requires legacy ManCos and SMICs to increase resources in the near term.


As you can imagine, doing this at the same time as every other legacy ManCo and SMIC with a regulatory deadline ticking would be stressful at best. Expensive and likely significantly stressful at worst.

A POSSIBLE OUTCOME THAT WE WOULD PREFER NOT TO SEE


For legacy ManCos and SMICs an outcome we would rather avoid is one that would see the Central Bank embark on a rule-making process to set a minimum level of resources industry wide.


You could expect such a limit to be inflexible with no possibility of individual ManCos and SMICs being able to achieve a lower level of resources despite nature, scale and complexity considerations. This is possible and depends on what the Central Bank finds during its CP86 review. I feel it is more in the realms of being a last resort and is probably not that likely.


THE IMPORTANCE OF THE ORGANISATIONAL EFFECTIVENESS ROLE

Finally, a word to anyone performing the Organisational Effectiveness role for a legacy ManCo or SMIC. In a speech last year, the Regulator pointed out that legacy ManCos and SMICs should be mindful of the resource requirements being imposed on new ManCos. The Organisational Effectiveness role should carry out a detailed assessment of the arrangements and satisfy themselves that all of the firm's obligations are being met by designated persons on a day to day basis.


For me, this means that the Organisational Effectiveness role will be expected to explain (justify!) a legacy ManCo or SMIC's approach to resources to the Regulator. The speech is available here.


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If turning an on-site CP86 inspection into an opportunity to improve your relationship with the Financial Regulator is of interest to your ManCo and/or SMIC...


...we are holding an invite-only (your name has to be on the list to get in on the day) Breakfast Briefing, 9 October 2019 at Maples Law Firm in St. Stephen's Green. ManCos and SMICs are welcome to attend this complimentary session.




CBI CP86 Review Possible Outcomes




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