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6Th Annual Fund Governance Review 6TH ANNUAL FUND GOVERNANCE REVIEW 1 EXECUTIVE SUMMARY 3 BREXIT – ARE YOU READY? 4 A DIVERSITY OF PERSPECTIVE 5 CHANGES TO AML REQUIREMENTS 7 NAVIGATING GDPR 8 U.S. PARTNERSHIP REPRESENTATIVE 9 THE CENTRAL BANK OF IRELAND’S ENHANCEMENTS TO THE LOAN ORIGINATING FUND RULES 10 WHAT’S NEW AT DMS? 18 CAYMAN ISLANDS REGULATORY UPDATE 20 DMS INVESTMENT FUNDS SUMMIT 2019 DMSGOVERNANCE.COM FUND GOVERNANCE REVIEW 1 EXECUTIVE SUMMARY EXECUTIVE SUMMARY We are pleased to present our annual Fund Governance Review. As 2018 came to an end, it was clear that it had been quite a challenging year for investors and managers. Rising interest rates, slowing growth and political turbulence all contributed to a volatile time for the financial markets. From a regulatory perspective, Brexit continued to be a dominating influence throughout 2018 and with negotiations still ongoing, the uncertainty continues as we move into early 2019, with firms still unsure of the outcome they must prepare for. We also saw many other significant regulatory developments such as the Cayman Islands AML and MLRO requirements, the U.S. Partnership Representative requirement and GDPR in Europe. DMS welcomes the transparency that these new regulations bring to the industry, and as the worldwide leader in fund governance, risk ANNE STORIE and compliance, we work closely with our clients as they are affected by CHIEF EXECUTIVE these changes to help them meet the challenges they face. OFFICER Another significant theme of discussion over the past year has been boardroom diversity. Institutional investors are becoming increasingly aware of the value that diversity can bring to the boardroom and are taking into consideration board diversity as a factor for evaluating investment. DMS welcomes and supports this meaningful shift towards a more diverse board composition. DMS has continued its growth during 2018 with the expansion of the New York office, both in terms of service offering and talent. This included the launch of DMS Capital Solutions and an increase in offerings from our U.S. Regulatory Compliance Services. In Ireland, we were pleased to announce the launch of our Aviation Corporate Services. Our continued success and growth in 2018 reflects our ability to remain a consistent and trusted service provider, offering clients expertise and depth of knowledge against a backdrop of uncertainty and change. We look forward to 2019, to further growth and the expansion of new service offerings designed to meet the needs of our clients. DMSGOVERNANCE.COM FUND GOVERNANCE REVIEW 3 BREXIT – ARE YOU READY? BREXIT – ARE YOU READY? With the deadline of Friday, 29 March fast approaching, Gateway Hubs, DMS teams in Ireland and Luxembourg businesses must now prepare for the possible effects continue to assist firms who wish to take advantage of the of both a “deal” and a “no-deal” Brexit. This level of marketing passport. Both Ireland and Luxembourg have an uncertainty means that businesses face crucial challenges already well-established fund industry, their geographical in the coming months as they consider the implications of proximity to the U.K. is a clear advantage. Furthermore, a range of possible scenarios. both jurisdictions have a significant standing within the E.U., favourable taxation regimes and treaties, and a Questions abound as to how the U.K. will continue to fit comprehensive legal and regulatory landscape. into the Alternative Investment Fund Manager Directive (AIFMD), the Undertaking for Collective Investment in What is clear, however, is that firms must ensure they are Transferable Securities (UCITS) regulatory environment prepared for Britain’s departure from the European Union, and the Markets in Financial Instruments Directive (MiFID). whatever the exit scenario may be. While the decision to leave the E.U. had immediate political and economic consequences, the effects of changes to the legal and regulatory environment will be seen more gradually. Significantly, the Central Bank of Ireland (“CBI”) has asked Irish firms with a particular exposure to the U.K. for an update regarding their contingency plans for the various possible scenarios where the U.K. is no longer part of the EU, including a “hard Brexit”. Over the past year DMS has assisted many firms in mapping-out their individual Brexit strategies and worked with them to draft contingency plans to help put in place a solid strategy to navigate Brexit. DMS’ dedicated teams have advised investors and managers looking for pan- European marketing and distribution solutions. As EU DMSGOVERNANCE.COM 4 FUND GOVERNANCE REVIEW A DIVERSITY OF PERSPECTIVE A DIVERSITY OF PERSPECTIVE Throughout 2018 there has been much dialogue on 100 Women in Finance, a global network of professionals the issue of women’s representation on boards and the in the finance and alternative investment industries was need for gender diversity at the board table, renewing launched in Ireland last year, with a key focus area of discussions on the broader aspects of diversity such as female board participation. In January 2018, the 30% experience, background, and tenure on the board. There is Club published a study of women in the financial services also evidence that institutional investors are now regularly industry in Ireland illustrating that only 37% of participating taking into consideration board diversity as a factor for firms’ talent pools were women. It was also found that firms evaluating investment to ensure that interests are aligned. with gender targets at employee level were more confident Boardroom diversity covers age, background, gender in their ability to develop, retain and attract female talent. and ethnic diversity, and also diversity in terms of skills, This lends weight to the initiative of creating and cultivating thinking, competencies, experiences, and careers. Depth an active pipeline of female participants and widening the of perspective leads to a better dynamic and manifests in scope in terms of candidate selection. better compliance and corporate governance. DMS believes that diversity and inclusion should be matters With this in mind it is evident that compiling a board with a at the forefront of any board selection. wide range of perspectives must be a conscious decision The Irish Funds Corporate Governance Code requires and flexibility needs to be considered when selecting the board to formally review its membership every three board members. A well-constructed board is able to years and following CP86 we are now seeing the review of draw upon its wide experiences in foreseeing challenges the fund board composition and skillset analysed at least and appraising risks. This diversity of perspective leads annually. These regulations are encouraging more boards to better risk management as the board can draw upon to be attuned to the value that diversity can bring and this its diverse set of skills and knowledge. In addition to the shift in attitude is very much welcomed by DMS. critical analysis that boardroom diversity can bring, it can also enhance corporate reputation, positively affecting board performance and making for better use of the skill base. DMSGOVERNANCE.COM FUND GOVERNANCE REVIEW 5 CHANGES TO AML REQUIREMENTS CHANGES TO AML REQUIREMENTS 2018 saw significant regulatory changes in regard to Previously the first Head of Compliance at the Cayman Anti-Money Laundering as the Cayman Islands Monetary Islands Monetary Authority and the Executive Director of Authority (“CIMA”) reaffirmed its position on AML/CFT the Secretariat for the Portfolio of Finance & Economics requirements. DMS has communicated CIMA’s updates in (now the Ministry of Financial Services), Don W. Ebanks an advisory capacity to its clients over the course of 2018. is widely recognized as a leading expert on AML/CFT matters in the Cayman Islands. His team of highly skilled The changes, which are summarized below, require all and experienced AML professionals based in the Cayman Cayman-domiciled funds to appoint natural persons, who Islands have assisted clients throughout 2018 to ensure are suitably qualified and experienced, as AML Compliance they meet the requirements of these CIMA regulations. Officer (“AMLCO”), Money Laundering Reporting Officer (“MLRO”) and as Deputy MLRO (“DMLRO”). • Each Appointee must have “adequate and appropriate knowledge and expertise” to fulfil their roles; • A documented risk assessment of the Appointee (including country risk) must be conducted; • A formalized agreement to be put in place setting out the responsibilities of each party; • The policies and procedures of the Appointee are subject to initial review and tested periodically; • Cayman Islands standards must be applied where the appointee is in a country which has lower standards. Don W. Ebanks, DMS Group Chief Risk Officer commented, “it is very helpful for CIMA to guide the financial services industry towards a clearer understanding of the details of the Anti-Money Laundering Regulations and we look forward to being joined in our work assisting asset managers in taking the necessary steps to ensure that Cayman based funds comply with these requirements.” DMSGOVERNANCE.COM FUND GOVERNANCE REVIEW 7 NAVIGATING GDPR NAVIGATING GDPR The General Data Protection Regulation (GDPR), which and immediate deletion of relevant information to the came into force last year, had a wide-reaching affect, appointment of a GDPR representative in the EU to ensure not only on marketing and sales efforts within Europe compliance. but also on any parties involved in
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