On 14 November 2019, the Central Bank of Ireland (the “Central Bank”) launched its Administrative Sanctions Guidance (the “Guidance”), accompanied by a key-note speech by Derville Rowland, the Director General of Financial Conduct. The speech and the Guidance mark a continuation of the Central Bank’s demands for high standards, a trend prominent in recent industry guidance including the Industry Letter on Closet Indexing (the “Industry Letter”), the oversight requirements contained in the Fund Management Companies – Delegate Oversight Consultation Paper (“CP86”) and the changes to the Fitness and Probity Regime.
The Central Bank states that its aim is to increase transparency and create a safer culture for investors. Simply co-operating with the Central Bank in the course of investigative procedures will not result in an easier enforcement process.
The Guidance comes hot on the heels of other publications by the Central Bank where it seeks to redefine its standards and improve transparency for investors.
In July 2018, the Central Bank published the Industry Letter, which highlighted areas of poor governance and control by boards and identified transparency issues, stressing the importance of full disclosure of the investment policy in the interests of investors. This was followed by Martina Kelly’s speech in October 2018 on the implementation of CP86 and, in particular, delegate oversight requirements. Ms. Kelly stressed that the effectiveness of fund management companies should be improved to further protect investors.
The Central Bank is also intending to begin to focus on individual accountability in addition to overall compliance within firms through the proposed introduction of the Senior Executive Accountability Regime (“SEAR”). The proposed SEAR regime will be similar to the Senior Managers and Certification Regime (“SMCR”) that is already in place in the UK. It seeks to ensure clearer responsibility and accountability by placing obligations on firms and senior individuals within firms to set out clearly where responsibility and decision making lies for a firm’s business. While it is important to note that the concept of individual responsibility is not new to the Central Bank as a form of this was introduced under the fitness and probity regime, the SEAR regime is wider reaching. Initially the proposed SEAR regime will focus on the banking and insurance industries but there is no reason to believe that the Central Bank will not apply this to financial services firms in due course.
The most recent guidance which demonstrates the promotion of the styled ‘culture of compliance’ was released by the Central Bank in April 2019. The Central Bank Industry Letter on the obligations of firms under the Fitness and Probity Regime (the “F&P Letter”) highlighted the lack of compliance by certain firms with regards their obligations, and noted that there were particular failures in providing for the ongoing nature of fitness and probity requirements, and in reporting issues to the Central Bank. These elements–ongoing co-operation and self-reporting of breaches– are among those placed at the forefront in the Guidance.
Key Points to Note
The aim of the Central Bank is to increase transparency and safeguard monetary and financial stability. Within enforcement, the Central Bank looks to provide a credible deterrent and facilitate a change in the culture of investment firms. The Central Bank has stated that it may choose to ignore outcomes in previous, similar cases in order to provide a deterrent effect in the form of a significant sanction.
The Central Bank has stressed that each case will be decided on its own facts. The nature, seriousness and impact of the breach will be taken into account. However, as mentioned above, the degree of relevance of previous, similar (comparator) cases will vary. The entity’s previous record will be considered, as will its conduct.
The conduct required from the regulated individual or firm can be split into three expectations of the Central Bank:
Co-operation: The Central Bank expects co-operation in an open manner at all times. An expected level of co-operation and provision of complete disclosure is only deemed as a neutral factor by the Central Bank in any enforcement proceedings. Only exemplary co-operation is treated as mitigating.
Self-reporting: Only early self-reporting which is full, frank and made at the earliest possible opportunity will be treated as a mitigating factor in enforcement proceedings. Basic and adequate self-reporting is only a neutral factor in this respect.
- Redemption: Remediation to investors and consumers injured by any breach is expected by the Central Bank. When considering sanctions, only exemplary remediation will be treated as a mitigating factor–which requires going above and beyond what the Central Bank expects.
While the Guidance is welcomed by the industry, and is expected to provide clarity on the Central Bank’s approach to enforcement, it marks another step on the Central Bank’s path to raise the standards of the industry and promote a more self-sufficient form of regulation.
This trend has been visible in the Central Bank’s publications of the previous two years and in its statements in respect of the Central Bank’s expectations in regards to the importance of transparency, of full disclosure, of co-operation and self-reporting. Firms can expect this approach from the Central Bank to continue for the foreseeable future whereby the Central Bank will seek to place the onus on firms in respect of compliance with the Central Bank’s requirements.
The Guidance seeks to promote a culture of compliance, where merely doing what is expected is not enough to set a firm in good standing with the Central Bank with regards to sanctions. In every aspect of conduct–co-operation, self-reporting and remediation–the firm must show that it has gone above and beyond the Central Bank’s expectations.