The Central Bank of Ireland takes enforcement action against Waystone Fund Management (IE) Limited for breaches of the Alternative Investment Fund Managers Regulations.
The Central Bank of Ireland has reportedly fined Waystone Fund Management (IE) Limited (WFM) the sum of €393,512 for allegedly breaching requirements of the European Union (Alternative Investment Fund Managers) Regulations 2013 (the AIFM Regulations) between the time period of May 2018 and August 2020.
The AIFM Regulations require alternative investment fund managers to comply with key requirements “aimed at safeguarding investors.”
The breaches reportedly arose/resulted from WFM’s allege dfailings in relation to “due diligence, conflicts of interest, delegate oversight, risk management, valuation procedures, treating investors fairly and acting in their best interests.”
WFM was the Alternative Investment Fund Manager (AIFM) of a fund, which launched in Oct 2018.
WFM appointed an Investment Manager and delegated “the investment management of the Fund to the Investment Manager.”
Between the time period of October 2018 and February 2019, the Investment Manager invested €17.7 million on “behalf of the Fund in illiquid, hard to value private assets (the Loan Notes).”
In Nov 2019, during the annual audit of the Fund, “serious” concerns were identified by the auditor in relation to the “investment in the Loan Notes and the reliability of the valuation of the Loan Notes.”
To address these concerns, WFM took steps to seek the “return of the funds invested in the Loan Notes” by the Investment Manager.
Despite attempts between Dec 2019 and July 2020 to recover the funds, the Fund was suspended “in August 2020 with €10.2 million of the Fund’s assets still outstanding, resulting in a loss to the investors.”
WFM was later party to a settlement reached with the Fund’s investors relating to the “loss of their investment. Pursuant to the settlement reached, investors recovered their initial investment in the Loan Notes.”
The Central Bank was notified of the Fund’s suspension and “subsequently commenced an investigation.”
The investigation identified eight breaches of the AIFM Regulations and found that WFM breached the 2013 AIFM Regulations when it failed to:
- conduct adequate due diligence and monitor delegated activity
- identify and manage conflicts of interest
- ensure adequate risk management systems were in place
- ensure that appropriate and consistent procedures were established to
- allow for the proper valuation of the Fund’s assets
- disclose a description of valuation procedures and pricing methodology to investors prior to investment
- notify the Central Bank of potential breaches of the AIFM Regulations
- act in the best interests of investors
- treat all investors fairly.
WFM has admitted the “prescribed contraventions” and has agreed to the undisputed facts as set out in the Settlement Notice.
As part of the settlement agreement reached between the Central Bank and WFM, the Central Bank has determined “that sanctions comprising a reprimand and monetary penalty in the amount of €562,160 are warranted.”
The application of a 30% settlement scheme discount “brings the amount to €393,512. The sanctions have been accepted by WFM.”
The sanctions are subject to confirmation “by the High Court and will take not take effect unless confirmed.”
Seána Cunningham, the Central Bank’s Director of Enforcement and Anti-Money Laundering, said that the core objective of the AIFM Regulations is to ensure a high level of investor protection “by setting out a framework for the regulation of fund managers (AIFMs). AIFMs are responsible for ensuring effective compliance with the regulatory requirements placed on fund management companies in order to protect investors’ interests and to ensure their fair treatment. In this case, there was a wholesale failure by WFM to abide by these requirements.”
Furthermore, WFM did “not have adequate knowledge and understanding of the investments to enable it to monitor the associated risks effectively. Delegating activities does not reduce a fund management company’s ultimate responsibility for compliance with its regulatory obligations.”
This is the Central Bank’s 157th enforcement outcome to date, “bringing the total fines imposed by the Central Bank to over €406 million.”