The Central Bank (Supervision and Enforcement) Act 2013 (the Act) was enacted and signed into law on 11 July 2013 after originally being introduced to Dail Eireann in 2011. The Act was subsequently commenced on 1 August 2013. The Act provides for a number of increased investigative and enforcement powers for the Central Bank of Ireland (the Bank) while also supplementing existing whistleblowing provisions.
The Act introduces a number of new criminal offences and fines that may apply to a regulated financial service provider (RFSP), person or organisation holding themselves out to be a RFSP or any employee of the above. The Act also creates a system that allows non-EU banks to set up a branch in Ireland.
The Act will be of particular importance to the boards of directors of RFSPs whose organisations are the primary subject of the Act.
Power of the Bank to gather information and the Bank's authorised officers
Under Part 3 of the Act, the Bank has an extensive power to gather information, records and other documents that will enable it to perform its functions under financial services legislation. This is an extensive power and also allows the Bank to set out conditions as to time periods for the provision of the information and the form the information should take.
The Act consolidates the powers of the Bank’s authorised officers which were previously contained in Part 5 of the Central Bank Reform Act 2010 and also includes some additional powers. Examples of the powers include:
- Search and inspect premises;
- Inspect records provided or found in the course of inspecting premises;
- Summon individuals to provide information or records; and
- Require a person to provide an explanation of a decision, course of action, system or practice.
It is a criminal offence to breach this Part of the Act. When a person is summarily convicted under this Part, they are liable to a Class A fine (a fine not exceeding €5,000) or a maximum 12 months imprisonment. This is increased significantly where there is a conviction on indictment, with a possible fine of €250,000 or 5 years imprisonment.
In addition to the Criminal Justice Act 2011 protections for whistle-blowers, this Act provides protection to those making protected disclosures.
There is extensive support for those making the disclosures to competent authorities. Section 40 of the Act contains protection from civil liability for persons making protected disclosures provided the disclosure is not false or misleading. The Bank must not disclose the name of the person making the disclosure without their consent unless disclosure is required for an effective investigation of the matter.
In addition, there is protection for the employee from penalisation by their employer after making a protected disclosure. An employer found guilty of penalising an employee will be liable to a Class A fine or 12 months imprisonment on summary conviction or a fine of €250,000 or 2 years imprisonment if convicted on indictment.
The Act also allows individuals who make protected disclosures to take action in the courts against any other person who intimidates, injures, discriminates or threatens them as a result of the protected disclosure.
The power of the Bank to give directions and make regulations
Under Parts 7 and 8 of the Act, the Bank can give Directions and make Regulations applicable to RFSPs.
Part 7 concerns the Bank’s power to give Directions to RFSPs where the Bank feels that it is in the interests of the proper and effective regulation of RFSPs. There are a number of grounds on which Directions can be given:
- The RFSP is unable, or likely to be unable, to meet its obligations to its creditors;
- The RFSP is not, or is unlikely to be, in a position to maintain adequate capital;
- The RFSP is failing to comply or is likely to fail to comply, with a requirement imposed by financial services legislation;
- The RFSP is jeopardising monies or other property held by it on behalf of customers or is jeopardising the rights and interests of customers;
- There are possible grounds for revoking or not renewing the RFSP’s authorisation.
The Direction can order the RFSP to suspend an activity for no more than 12 months, dispose of assets and liabilities, raise and maintain capital or modify business practices, systems and controls. However the RFSP can apply to the High Court to have the direction set aside within 14 days.
Part 8 of the Act concerns the Bank’s ability to make regulations for the proper and effective regulation of RFSPs. The Bank can make up to 25 different types of regulations as listed at section 48(2) of the Act. Before making such regulations, the Bank must consult with the Minister for Finance by providing the Minister with a draft of any proposed regulations. Section 50 of the Act states that the Bank must ensure any requirements are “effective and proportionate having regard to the nature, scale and complexity of the activities” of the RFSP to whom the regulations apply.
Section 52 of the Act allows the Bank to apply to the Court for an order restraining the activities of a person where they are contravening a provision of financial services legislation. Alternatively, if a person refuses to or fails to do an act required under financial services legislation, the Court may make an order requiring that person to do so. The Bank can apply ex parte for such orders and these can be granted if the Court feels it is necessary to preserve records and information.
Section 54(2) outlines the restitution orders that can be made by the High Court under the Act. Such orders can be made by the High Court, on the application of the Bank, where the High Court is satisfied that as a result of the contravention or offence:
- a person has been unjustly enriched; or
- a person has suffered loss or other adverse effect.
The High Court can then make the order to the extent that the person has been unjustly enriched or to the extent of the loss or adverse effect.
This Act is seen as a necessary step to provide a sound regulatory framework for the financial services sector in Ireland. The Act increases the ability of the Bank to regulate, supervise and act against RFSPs.