[council] Board resolution and rationale on reserve fund replenishment

[Marika Konings]

Dear All,

As discussed during today’s wrap up session, please find below the Board resolution and rationale in relation to the reserve fund replenishment strategy.

Best regards,

Marika

================

https://www.icann.org/resources/board-material/resolutions-2018-10-25-en#2.f
•  Reserve Fund Replenishment Strategy

Whereas, the Board confirmed by previous decision (resolutions 2018.02.04.09 – 2018.02.04.10) that the target level of the ICANN Reserve Fund should be at a minimum equivalent to 12 months of operating expenses.

Whereas, the current level of the Reserve Fund is approximately of US$70 million as of 30 June 2018, reflecting a shortfall compared to the minimum target level of approximately US$68 million.

Whereas, ICANN organization posted for public comment a proposed strategy to replenish the Reserve Fund and the Board took all comments submitted into account to determine the final Reserve Fund replenishment strategy.

Whereas, the proposed replenishment strategy entails allocating to the Reserve Fund: (i) annual operational excess of funding over expenses for a total of US$32 million over an eight-year period; and (ii) US$36 million of new gTLD auction proceeds.

Resolved (2018.10.25.22), the Board directs the President and CEO, or his designee(s), to take all actions necessary to increase the Reserve Fund through annual excesses from the operating fund of ICANN organization by a total amount of US$32 million over a period of seven to eight years, starting with FY19.

Resolved (2018.10.25.23), the Board directs the President and CEO, or his designee(s), to take all actions necessary to allocate US$36 million of auction proceeds to the Reserve Fund, as soon as technically feasible.

Rationale for Resolutions 2018.10.25.22 – 2018.10.25.23

Based on its fiduciary duties and considering the significant growth and risk profile that ICANN has seen since the creation of its Reserve Fund, the Board determined that the Reserve Fund required to be reviewed, especially in light of the significant drop in its level.

The Board conducted an evaluation of the Rationale and Target level for the Reserve Fund, which was based on the public comments received on a first consultation paper. As a result, an updated ICANN Investment Policy was approved by the Board to include: (a) an updated Reserve Fund Rationale; and (b) a confirmation that the Reserve Fund Target Level will be set at a minimum of 12 months of Operating Expenses (See resolution https://features.icann.org/confirmation-reserve-fund-target-level).

Once the Target Level was confirmed, the Board outlined a proposed strategy to replenish the Reserve Fund from its current level to its updated minimum Target Level, which was the subject of a second public comment process.

The comments received provided for a wide range of views on the sources of funds and extent of use of such sources for the purpose of replenishment. Relative to the annual excess allocation, most comments received on this aspect suggested a higher allocation than the one proposed. On the allocation of auction proceeds, some comments suggested a lower allocation and others a higher allocation to the Reserve Fund. All comments but one indicated that no increase to ICANN fees should be considered. Also, the use of New gTLD Program funds for purpose of replenishment was not retained in the final proposed strategy due to the continued existence of risks associated with the program. Based on comments received, a final proposed replenishment strategy was drafted, which reflects a higher annual excess allocation than proposed, and is now submitted for Board approval and implementation.

The remaining auction proceeds continue to be segregated and are not intended to be used for day-to-day operations. The Board will review the CCWG recommendations for a disbursement mechanism, as approved by the chartering organizations, and will then make a decision on the mechanism by which available proceeds should be disbursed, for implementation by ICANN org. At all times, the Board will continue to make all decisions in furtherance of ICANN's mission, under consideration of its duty of care and its fiduciary responsibility.

This action is in the public interest and is consistent with ICANN's mission as it is important to ensure stability of ICANN organization in the way of an adequately funded Reserve Fund in case use of a Reserve Fund becomes necessary.

This action will have a positive financial impact on ICANN and will enable ICANN to support its financial stability and sustainability. It will not have any impact on the security, stability or resiliency of the domain name system.

This is an Organizational Administrative function that has already been subject to public comment as set forth above.

Marika Konings
Vice President, Policy Development Support – GNSO, Internet Corporation for Assigned Names and Numbers (ICANN)
Email: marika.konings at icann.org<mailto:marika.konings at icann.org>

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