The Central Bank takes enforcement action against Waystone Fund Management (IE) Limited for breaches of the Alternative Investment Fund Managers Regulations

The Central Bank of Ireland (the Central Bank) has fined Waystone Fund Management (IE) Limited (WFM) €393,512 for breaching requirements of the European Union (Alternative Investment Fund Managers) Regulations 2013 (the AIFM Regulations) between May 2018 and August 2020.The AIFM Regulations require alternative investment fund managers to comply with key requirements aimed at safeguarding investors. The breaches arose from 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 (the Fund). 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 €17.7 million on behalf of the Fund in illiquid, hard to value private assets (the Loan Notes).

In November 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.

In order to address these concerns, WFM took steps to seek the return of the funds invested in the Loan Notes 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 €10.2 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.