The recently-enacted Central Bank (Supervision and Enforcement) Act 2013 is expected to come into force soon. When it does, the Act will strengthen the regulatory framework and the enforcement powers of the Central Bank, increase the compliance obligations of regulated entities and their personnel and enhance consumer protection in financial services.
The Central Bank (Supervision and Enforcement) Act 2013, enacted on 11 July 2013, is a significant development in the regulatory framework for financial services in Ireland. When brought into force by a ministerial order (which is expected to be soon), the Act will apply to approximately 14,000 regulated financial entities: these include banks, insurance companies, financial intermediaries, investment firms, moneylenders and credit unions. The powers of the Central Bank of Ireland (the “Central Bank”) will be expanded in important ways.
This briefing describes the key points of the Act.
Reports to the Central Bank
Where the Central Bank is satisfied that certain criteria are met (such as other Central Bank powers not being sufficient for a particular purpose), the Central Bank may require a regulated entity to provide the Central Bank with a report into specified matters. The report must be prepared by a reviewer who is, for this purpose, independent of the entity to which the report relates. A separate section of the Act provides that the Central Bank may require an auditor of a regulated entity to provide a written report on the entity’s compliance with such legal or regulatory obligations as the Central Bank may specify.
Provision of Information
The Central Bank may require any of a wide range of persons (including a regulated entity but also unregulated persons) to provide records and other information to the Central Bank where the Central Bank believes that the information is necessary for the Central Bank’s performance of its functions. Protections are extended to information that is subject to legal privilege.
The Act updates and consolidates the powers of authorised officers of the Central Bank and the procedures for their appointment. The Act sets out the role and lists the powers of an authorised officer, including the power to enter and search premises (under warrant, in the case of a dwelling), require the production of documents and records, take copies of or seize documents and records and require a person to answer questions. Protections are extended to information that is subject to legal privilege. An authorised officer may attend any meeting relating to the business of a regulated entity if the authorised officer considers that it is necessary to attend the meeting in order to assist the Central Bank in performing its functions.
The Act prohibits the penalisation of a person by a regulated entity if that person has, in good faith, disclosed to the Central Bank or another appropriate person what the person making the disclosure believes is a contravention of a regulatory requirement or a legal obligation by the relevant entity. Such a person is also protected from civil liability for a making a qualifying disclosure. Significantly, in the case of a person performing a pre-approval controlled function, (e.g. a director, head of finance, head of risk etc.), the disclosure of a qualifying concern is not merely protected but also is required of that person: it seems that a failure to make a qualifying disclosure could trigger an administrative sanction against him or her. The right against selfincrimination is referenced as a potential defence for an officer who fails to make a required disclosure.
Customer Redress and Liability
The Act empowers the Central Bank to direct a regulated entity to undertake a programme of customer redress for problems that have been widespread or regular, such as overcharging or systems failures. The Act provides that a customer of a regulated entity may sue the entity for any breach of an obligation under financial services legislation by the regulated entity if that breach has caused loss or damage to the customer.
‘Remedial Stabilisation Power’
Where it is concerned about the commercial conduct, capitalisation, safety of customer assets etc of a regulated entity, the Central Bank may direct the entity to take specified remedial steps in order to regularise the regulated entity’s position and alleviate the matters of concern. The Central Bank’s powers in this regard are stabilising in nature, such as the power to direct the regulated entity to increase its capital, dispose of a specified asset or modify the entity’s systems and controls or business practices. Such a direction may be (and be designated as) a reorganising measure for the purposes the CIWUD Directive,1 thereby having effect throughout the EU.
The Act empowers the Central Bank to make regulations (ie orders having statutory effect) for the proper and effective regulation of financial service providers in a wide range of areas under the supervision of the Central Bank, including conduct of business and consumer protection.
‘Injunctions’, Restitution and Costs
The Central Bank is empowered to seek a High Court order to restrain a person from engaging in conduct that has involved, involves or would involve contravening a provision of financial services legislation.
The Court may also require a person who has been unjustly enriched by a breach of financial services legislation to return that gain or benefit. A person who is convicted of an offence under financial services legislation may be made to pay for the costs and expenses of the relevant investigation and prosecution proceedings.
Following an inquiry into the conduct of a regulated entity or of a person concerned in its management, the Central Bank is empowered, as additional measures, to suspend or revoke the authorisation of the relevant entity. The financial penalties that the Central Bank might impose are also increased (to €10m or 10% of turnover in the case of a company, and to €1m in the case of an individual).
‘Naming and Shaming’
The Central Bank is empowered to publicise to a greater extent the imposition of a sanction on a regulated entity (or a person concerned in its management), following an inquiry or the administrative sanctions procedure. The Financial Services Ombudsman may, in its public reports, include greater detail (including the name) of a regulated entity that has been the subject of qualifying complaints.
Branches of Non-EU Banks
The Act introduces a new system to allow a licensed bank from outside the EU apply to set up a branch in Ireland.
Notification of Charges
The Act increases some and decreases other timescales within which the Central Bank may act on a notification by a credit institution of a proposed charge or of a proposed increase in a charge to a customer. The Act also gives to a credit institution that is authorised after the Act comes into effect three years in which to notify the Central Bank of its relevant charges. It should be recalled that this notification obligation applies to every qualifying charge to a customer, and not merely to a consumer.
The Act repeals the 2008 modification of the Irish competition law rules applicable to the merger or acquisition of certain Irish credit institutions.
Deposit Guarantee Scheme
The Act empowers the Central Bank to make regulations specifying information that a credit institution is to gather and maintain relating to eligible deposits for the purposes of the Deposit Guarantee Scheme.
Debt Management Services
The Act introduces a regulatory regime for debt management and debt advice. A small number of firms had been operating such businesses outside the scope of financial services regulation which led to a lack of protection for the funds held on behalf of their customers. The new regime seeks to address those issues.