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Woodford closure may mean tougher fund rules needed - Irish central bank

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By Reuters

By Huw Jones

LONDON (Reuters) – The closure of a British fund run by once-star money manager Neil Woodford may mean that stricter rules are needed to bolster the ability of funds to repay investors in times of stress, Ireland’s central bank said on Thursday.

Ireland’s funds sector is closely tied to Britain, with 200 UK-based asset managers running Irish domiciled funds holding about 750 billion euros (£642 billion) in assets. The ties are deepening as Ireland processes around 100 applications from UK-based firms for new hubs in Dublin to avoid Brexit-related disruption to customers.

The Woodford fund in Britain was suspended in June and later closed down because it could not offer daily redemptions to investors, a requirement under European Union rules.

Several hundred thousand investors are still trapped in the fund, which is now being investigated by Britain’s Financial Conduct Authority (FCA).

“Recent cases, including the Woodford case and others, have raised questions as to whether existing rules in respect of liquidity risk are sufficient,” Gerry Cross, director of financial regulation at the Central Bank of Ireland, told an Irish Funds conference in London.

“Are these cases simply examples of the rules not being well followed, or does the framework need enhancement?”

It was important there should be no “mismatch” between what customers expect and what funds can deliver regarding daily redemptions, particularly in times of stress, Cross said.

After what they saw as too little action by global regulators, the Bank of England and the FCA are expected to give an update next month on whether changes are needed to avoid such mismatches.

The FCA warned fund managers earlier this month to check that they are managing liquidity properly, even when they have delegated investment decisions to others.

Cross said that in light of the many Brexit-related licence applications, it was also essential that outsourcing by Irish domiciled funds of activities like stock-picking is “very well managed” by the funds

The central bank will conduct on-site inspections to see if its rules on fund governance are being implemented properly.

(Reporting by Huw Jones; Editing by Pravin Char)