The Central Bank Reform Act 2010 (the “Act”) created for the first time a harmonised statutory system for the regulation of persons performing controlled functions in entities in Ireland regulated by the Central Bank including financial institutions and insurance undertakings.

The Central Bank has now published details on how this system is to be implemented by way of the following documents:

  • The Central Bank Reform Act 2010 (Section 20 and 22) Regulations 2011 (SI 437 of 2011) (the “Regulations”)
  • The Fitness and Probity Standards (the “Standards”); and
  • Draft Guidance on the Fitness and Probity Standards (the “Guidance”).

Part 3 of the Act provides that a person performing a controlled function must have a level of fitness and probity appropriate to the performance of that particular function. The Regulations, which come into operation on 1 December 2011, prescribe certain controlled functions (each a “CF”) and more senior pre-approval controlled functions (each a “PCF”). Descriptions of a CF include advising in relation to the provision of a financial service and any function which is related to ensuring, controlling or monitoring the compliance by a regulated entity of its relevant obligations. Examples of a PCF include directors (both executive and non-executive), chief executive, head of risk, head of compliance and head of compliance with responsibility for anti-money laundering and counter terrorist financing legislation.

Alongside the Regulations, the Central Bank has released the Standards for a person performing a CF or a PCF. The Standards, which apply to persons performing a CF or a PCF in such an organisation, are built on the requirement that each person performing these functions must be:

  • competent and capable;
  • honest, ethical and act with integrity; and
  • financially sound.

More particularly, to satisfy the Standards, the relevant person performing a PCF or a CF must:

  • have the necessary qualifications, experience, competence and capacity;
  • have the necessary organisational knowledge;
  • not have been prohibited or restricted, in any jurisdiction, from carrying on a business that requires a licence or authorisation;
  • not have been the subject of a complaint to the Central Bank, Financial Services Ombudsman or equivalent body;
  • not have been convicted of any relevant criminal offence; and
  • manage his or her own financial affairs in a sound and prudent manner.

The Standards will be introduced on a phased basis to allow institutions adequate time to introduce new internal controls and procedures as follows:

1 December 2011: The Standards will apply to persons occupying a PCF

1 March 2012: The Standards will apply to persons appointed to a CF (other than a PCF). This includes new offers of employment and internal transfers/promotions which may involve a CF.

1 December 2012: The Standards will apply to all persons occupying a CF. An entity that is regulated by the Central Bank must not permit a person to perform a CF or a PCF unless the entity is satisfied on reasonable grounds that the person meets and agrees to abide by the Standards. Accordingly, an employer is responsible for ensuring that its staff meet the Standards and is therefore required to undertake due diligence to ensure that the Standards are met.

To assist the entities in meeting the requirements of the new regime, the Central Bank published the Guidance, albeit in draft form. The Guidance sets out the practical steps that a regulated entity will be expected to take to meet the Standards and the criteria against which the Central Bank will assess compliance with the Standards. Such practical steps include, but are not limited to, the following:

  • compiling and maintaining a list of persons in every PCF and CF (and by 1 December 2011, providing the Central Bank with a list of those performing PCFs);
  • obtaining confirmation of a person who is to perform a PCF or a CF that he or she is familiar with the Standards and will comply with them;
  • undertaking due diligence in order to assess a person’s fitness to perform a CF; and
  • undertaking due diligence in respect of possible criminal records.

Comments on the Guidance were due with the Central Bank by Friday 30 September 2011 and a revised guidance is expected later this year.