The Central Bank has fined Mercer Global Investments Management Limited (MGIM) €117,600 and reprimanded it for six breaches of investment fund regulations.
The breaches relate to a failure by MGIM to include important details in prospectuses and key investor information documents issued between July 1st 2011 and December 31st 2018 related to funds it managed.
Undertakings for the Collective Investment in Transferable Securities or UCITS is a regulatory framework underpinning the management and sale of mutual funds based in the EU.
MGIM provided management services for UCITS funds and as part of that role issued prospectuses and other information to investors.
Under UCITS regulations, certain information must be included in that documentation and kept up to date in order to inform investors.
However, MGIM has admitted that during the periods in question the prospectuses and key investor information documents for five sub-funds did not disclose that they relied upon a strategy of tracking an index.
They also didn’t provide the details of the index being tracked.
“Transparency around the investment policy or strategy of a fund is a critical element in investor protection,” said Seána Cunningham, the Central Bank’s Director of Enforcement and Anti-Money Laundering.
“Fund management companies such as MGIM are responsible for ensuring prospectuses and key investor information documents issued in respect of funds they manage contain information necessary for investors to be able to make informed decisions regarding the investments proposed to them.”
“The requirements for accurate prospectuses and key investor information documents are an essential part of the UCITS regulatory framework.”
As part of its regulatory role the Central Bank reviews prospectuses and supplements to them before giving them the green light.
But the regulator says in order to do this effectively it must receive accurate and complete information from the fund managers.
“Compliance with the regulatory requirements placed on fund management companies is key to ensuring good governance, the protection of investors, the integrity of the market and systemic stability,” Ms Cunningham said.
The case arose following a thematic review conducted by the Central Bank of 2,550 Irish authorised UCITS, after the European Securities and Markets Authority published research in 2016 highlighting the alleged practice of “closet indexing”.
This involves funds that are represented as being actively managed by fund managers actually being passively managed by following a benchmark or an index.
The Central Bank’s review found issues with the effectiveness of investor disclosure and as a result it began an enforcement investigation into six suspected breaches of the UCITS regulations by MGIM.
The Central Bank fined MGIM €168,000 for the breaches, but reduced it by 30% under its settlement management discount scheme.