Overview

The Central Bank (Supervision and Enforcement) Act 2013 was signed by the President on 11 July 2013 and the commencement order for the Act is expected to be signed within the next few days.

This Act further strengthens the regulatory framework for Irish financial services providers by clarifying and enhancing the powers of the Central Bank of Ireland (CBI) to allow it to monitor, supervise, query and investigate the conduct and activities of financial service providers and to impose sanctions as appropriate.

This legislation has also been welcomed by the ECB and the ECB issued an opinion on the draft legislation in September 2011.

Scope

The Act applies to all regulated financial services providers and in many cases extends to any related undertakings including group companies and partnerships of which a regulated financial services provider is a member and which themselves may not have previously been subject to financial services regulation legislation.

Main Provisions

The main provisions of the Act include:

  1. Independent expert report– the Act provides that the CBI may require, as part of the proper and effective regulation of financial service providers, a regulated financial service provider to engage an appropriately skilled person, to be approved, or in absence of agreement nominated, by the CBI but at the cost of the financial services provider, to prepare a report for the CBI on any matter that the CBI could require the provision of information under any financial services legislation.
  2. Information gathering powers– the CBI will have new general powers to require information from persons in such manner and form, and from such time to time, as the CBI may require. This effectively gives the CBI a new broad power to order period reports.
  3. Authorised officer regime– the CBI's authorised officer regime currently contained in Part 5 of the Central Bank Act 2010, which consolidated the CBI's authorised officers powers, will be re-enacted with some additional powers. In particular, authorised officers will have the power to summon persons to provide such information as the authorised officer may require and to explain decisions, a course of action or the content of records. A new court procedure allowing for the determination of claims of privilege is also to be introduced.
  4. Assurances from Auditors– The Act contains a provision to the effect that where the CBI considers it appropriate, the CBI can request that the auditor of a regulated financial services provider conducts an examination and prepares a report to the CBI outlining the extent to which the regulated financial services provider has complied with its obligations.
  5. Protection for persons reporting breaches– the Act provides for whistleblowing protection for a person who, in good faith, makes a disclosure regarding a possible or actual contravention of financial services legislation and a mandatory disclosure regime for those performing pre-approval controlled functions relating to any offence under, "prescribed contravention" of, or any other breach of financial services legislation;
  6. CBI power to give directions– the CBI may, in the interests of the proper and effective regulation of financial service providers, give directions in relation to the business of the provider such as suspension of the provision of services, disposal of assets etc. This is not a new power but the intention of the Act is to clarify and consolidate the scope of the CBI to give such orders.
  7. Customer protection– the Act provides that in circumstances where there has been widespread or regular relevant defaults by a regulated financial service provider and customers have suffered loss or damage as a result, the CBI may issue a direction requiring the financial service provider to make the appropriate redress to customers.
  8. CBI power to make regulations– the power to make new regulations is a central provision in the Act. This enables the CBI to issue new regulations for the proper and effective control of financial service providers.

    Examples of areas to be regulated include: procedures to identify, monitor and report risks, procedures relating to the administrative, auditing and reporting obligations of regulated financial service providers, provisions relating to information to be provided to customers (identification of risks, warnings in relation to volatility of prices, costs and charges etc).

  9. Enforcement powers– the Act provides that the CBI can apply to the High Court for (i) an order to restrain a party from engaging in conduct that contravenes financial services legislation and (ii) an order for restitution where a person has been unjustly enriched as a result of contravening financial services legislation.
  10. Extension of Part V of Central Bank Act to Debt Management Firms– debt management firms and bill payment firms are now falling within the remit of the regulatory regime due to amendments of Part V of the Central Bank Act 1997.
  11. Increase in penalties– under current legislation, the CBI can impose Administrative Sanctions of up to €5m per contravention on a regulated firm and up to €500,000 on persons involved in the management of that firm at Inquiry. The Act provides for an increase in the monetary penalties. For a corporate body, the maximum penalty will be increased to the greater of either €10m or 10% of the turnover of the corporate body for its last complete financial year before the finding is made. For an individual, the maximum penalty will be increased to €1m. The CBI will also have the power to suspend or revoke a regulated entity's authorisation following an Inquiry.
  12. Amendments to Consumer Credit Act 1995 – amendments include a provision whereby credit institutions must provide details to the CBI of all decisions to impose charges in connection with the provision of a service to a customer. However, new entrants to the Irish market shall be exempt from this requirement for an initial period of three years.

Comment

This Act is focused on empowering the CBI with the ability to take such steps as may be necessary to intervene, direct, regulate and if necessary, sanction financial service providers to ensure compliance with financial services legislation.

The Act both clarifies and enhances the CBI's ability to give orders, make regulations and request information in relation to financial services providers activities. As this Act impacts not only on regulated financial service providers but also on their related undertakings (which may themselves be unregulated), consideration must be given to the obligations that such previously unregulated entities may now be subjected to.

Attached is a link to the Bill as enacted.