The Central Bank has fined Waystone Fund Management €393,512 for breaching requirements of the European Union (Alternative Investment Fund Managers) Regulations 2013 between May 2018 and August 2020.
These regulations require alternative investment fund managers to comply with key requirements aimed at safeguarding investors.
WFM has admitted the prescribed contraventions.
This is the Central Bank's 157th enforcement outcome to date, bringing the total fines imposed by the regulator to over €406m.
The Central Bank said the breaches were as a result of WFM's failings 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 October 2018. WFM appointed an Investment Manager and delegated the investment management of the fund to the Investment Manager.
Between October 2018 and February 2019, the Investment Manager invested €17.7m on behalf of the Fund in illiquid, hard to value private assets
In November 2019, during the annual audit of the Fund, serious concerns were identified by the auditor in relation to the investment in these private assets and the reliability of their valuation.
In order to address these concerns, WFM took steps to seek the return of the funds invested in the private assets by the Investment Manager.
Despite numerous attempts between December 2019 and July 2020 to recover the funds, the Fund was suspended in August 2020 with €10.2m of it sassets 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. Following a settlement being reached, investors recovered their initial investment in the private assets.
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 failed to conduct adequate due diligence and monitor delegated activity, as well as identify and manage conflicts of interest.
It also failed to ensure adequate risk management systems were in place and failed to ensure that appropriate and consistent procedures were established to allow for the proper valuation of the Fund’s assets.
WFM also did not disclose a description of valuation procedures and pricing methodology to investors prior to investment, while it did not notify the Central Bank of potential breaches of the AIFM Regulations, failed to act in the best interests of investors and failed to treat all investors fairly.
The Central Bank said it had 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 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," Ms Cunningham said.
"WFM’s failure to conduct adequate due diligence, identify conflicts of interest and put in place adequate risk management structures and appropriate fund valuation procedures exposed the Fund and its investors to significant risks, which in this case crystallised in a loss to the Fund," she explained.
"Treating investors fairly and acting in their best interests is at the heart of fund management regulation and effective compliance with the regulatory requirements placed on fund management companies is key to ensuring the protection of investors," she said.
"This enforcement action reflects the seriousness with which the Central Bank views WFM’s regulatory failures and the continued focus of the Central Bank on compliance with investor protection requirements," she added.
