On 9 February 2015 the Central Bank of Ireland published a statement of enforcement priorities for 2015. This is its fifth annual statement of areas on which it intends to focus in order to deter breaches of regulatory requirements and to promote high compliance standards within all regulated firms.
Cross-sectoral enforcement priorities
Unlike previous years, the Central Bank has provided additional context as to why certain areas have been selected. The areas relevant to all financial sectors are as follows:
- Compliance with prudential requirements. The Central Bank notes a particular emphasis on prudential requirements for credit unions, large exposure rules for credit institutions, and prudential requirements applying to reserving, capital adequacy, insurance and retail intermediaries.
- Systems and controls. The statement emphasises the importance of robust systems and controls not only relating to compliance with regulatory requirements but also the roles they have to play in reinforcing a firm's compliance 'culture'.
- Provision of timely, complete and accurate information to the Central Bank. The Central Bank imposed a number of enforcement penalties last year relating to incomplete or inaccurate regulatory reporting. In the latest statement it emphasises the importance of accurate regulatory reporting to effective supervision.
- Appropriate governance and oversight of outsourced activities. Again, last year the Central Bank took enforcement action in cases in which the performance of outsourcing arrangements was a key issue. The latest statement emphasises the critical importance of ensuring that all regulatory requirements are complied with, and appropriate governance is in place relating to, any outsourcing arrangements. This is particularly important as regulated firms continue to outsource functions to reduce costs.
- Anti-Money Laundering/Counter Terrorism Financing compliance. This has been a particular focus in the Central Bank's enforcement priorities for a number of years and has been the subject of both themed inspections and enforcement cases, having been a key element of the Central Bank's published programme of themed reviews and inspections for 2014.
- Fitness and Probity obligations. Regulated firms' obligations under the fitness and probity regime set out in the Central Bank Reform Act 2010, such as the framework for assessing the suitability of individuals performing 'controlled functions', have also featured previously as enforcement priorities.
Sector-specific enforcement priorities
In addition to these core priorities, the Central Bank has also published a list of sector-specific enforcement priority areas. These relate to markets (compliance with MiFID, conduct of business rules and client asset requirements); credit unions (focussing on governance issues); and consumer protection (specifically compliance with the Code of Conduct on Mortgage Arrears, suitability of sales and the fair treatment of customers).
Focus on consumer protection
The reference to the fair treatment of customers comes shortly after the Central Bank's separate publication on 6 February entitled"Consumer Protection – Outlook Report". This outlines key principles expected of all regulated firms in putting the consumer first. It includes a new "5 C's" framework focussing on a firm's 'culture', 'consumer confidence', regulatory 'challenge' of industry's culture, and 'compliance'.
These consumer themes are similar to the UK Financial Conduct Authority's consultations and other work on 'treating customers fairly'. Regulated firms across all sectors can expect to be required to explain how their governance, systems and culture are consistent with these principles in their ongoing engagements with the Central Bank whether relating to day to day supervisory matters or in the context of possible enforcement action.
Skilled persons' reports
Both the new enforcement priorities and the emphasis on consumer protection outline areas in which regulated firms may also expect to see the Central Bank use its new powers under the Central Bank (Supervision and Enforcement) Act 2013 to require firms to commission 'skilled persons reports' (as discussed in our previous article). Firms should expect this power to be used not only when enforcement action is anticipated or commenced but also at the 'preventative' stage (to reduce identified compliance risks) and the 'diagnostic' stage (to identify, assess and measure potential regulatory risks