In light of the Central Bank of Ireland’s findings on the Organisational Effectiveness role in its CP86 ‘Dear CEO’ letter and my own experience working with OE Directors, here are my top tips on emerging best practices for OEDs:
1. 1-to-1s meetings with Designated Persons
The main purpose of the OE role is to identify improvements and drive through change. This is not necessarily as straightforward as it may seem given that the OED is non-executive and is not immersed in the business. One of the best ways to overcome this is to meet with those who are.
Meeting DPs on a 1-to-1 basis is important as they will be more inclined to open up on the issues they are facing in their roles than they might be in a group setting. These meetings should take place at least quarterly and are often timed to coincide with the regularly scheduled board meetings.
The purpose of the DP meetings is not to confirm that everything is working well but to critically assess where the firm could perform better.
It is not the OED’s job to oversee DPs and DPs do not report to the OED. Instead, the OED is there to support the DPs, to listen to the challenges they face and identify changes that would make things better.
OEDs need evidence that meetings with DPs took place. This means that the OED should keep a formal record of the meeting.
2. Make recommendations & follow through
Once the OED has identified possible improvements, she/he should not be shy about bringing them to the board for consideration, discussion, challenge, refinement and (hopefully) approval. The OED’s quarterly report to the board should include a specific section on recommendations. This does not mean that the OED should feel obliged to make recommendations for the sake of it – if the manco’s energy and resources are being directed to implementing an existing recommendation then sobeit. But having ‘Recommendations’ as a standing line item does mean that the OED is continually reminded of their role in critically assessing how the manco is operating.
3. Document regulatory obligations
In the original CP86 consultation, the OE role was proposed as one of the managerial functions with responsibility for oversight of specific regulatory obligations including conflicts of interest and personal transactions. The OE role morphed into a role to be carried out by an independent Chair or director but some of those regulatory obligations still fall to be overseen by the OED.
The OED should approach oversight of these obligations in basically the same way as the DPs do – frequent oversight, reporting from delegates and onward reporting to the board at quarterly board meetings with immediate escalation where warranted.
Per the Central Bank’s CP86 ‘Dear CEO’ letter, the OED should also provide:
Evidence that conflicts of interest and personal transactions are being considered by the OED; and
Detailed reporting to the board on an annual basis.
4. Own the ‘resources’ issue
It is abundantly clear that the Central Bank expects that the OED will be able to explain to it how the manco is adequately resourced. Further, the OED must gather and record evidence that substantiates her/his view. The OED should also ensure that the manco has resourcing plans that reflect the firm’s projected growth into the future.
Given that justifying internal resources falls squarely within the OED’s remind, the OED should take ownership of the resourcing issue. The OED should drive conversations on resourcing and test assumptions.
The bar has been set at a minimum of 3 Full Time Employees for the least complex mancos. The OED should be wary of proposals that seek work arounds or lesser resources – remember, it will be the OED who will be the one tasked with explaining to the Central Bank why that proposal was the right approach. This would not be an easy conversation given how clearly the Central Bank has set out its expectations.
Meet Daniel Lawlor:
As the former head of the Central Bank of Ireland’s Funds Policy Team and the Central Bank’s Project Lead on CP86, Daniel was involved in designing, drafting and implementing regulatory initiatives affecting the funds industry from 2010 to 2017. Investment Funds Lawyer for 9 years at William Fry, one of Ireland’s leading law firms.
Today, Daniel Lawlor is MD of Aquest; a boutique firm dedicated to improving your experience with the Financial Regulator.
Regulatory counsel, practically applied. Aquest was born out of a desire to inspire firms to find the most efficient path towards regulatory and compliance matters. Delivering training across the industry, we ran master classes, built an online-academy, and ran bespoke training on-site, for regulated firms all over Ireland. Nuts and bolts training has its place, however time and time again, we saw firms acquire a knowledge transfer, only to fall short at resolving how to practically apply it to their unique situation.
Today Aquest delivers regulatory counsel through Training & Advisory services for Irish Authorised firms.
You may connect with Daniel through the following sites: