On 1 September 2011, the Central Bank of Ireland (the “Central Bank”) published its new Standards of Fitness and Probity which will apply to all regulated financial service providers other than credit unions, including regulated funds and their Irish licensed service providers (the “Standards”). The Standards apply to individuals performing certain functions, as set out in S.I No. 437 of 2011, Central Bank Reform Act, 2010 (Sections 20 and 22) Regulations 2011 (the “Regulations”).
The new regime will be introduced on a phased basis (see below) to allow institutions adequate time to introduce the necessary internal controls and procedures to comply with the Regulations and Standards and follows from the existing powers of the Central Bank under the Central Bank Reform Act, 2010 to:
- approve or veto the appointment of people to certain positions;
- investigate and where appropriate remove or prohibit certain position holders; and
- set statutory standards of fitness and probity across the financial services industry.
Pre-Approval Controlled Functions
From 1 December, 2011 existing and new staff in Pre-Approval Controlled Functions (“PCFs”) will be subject to the Regulations and Standards.
Firms are required by 31 December 2011 to submit to the Central Bank:
- a list of the individuals in their organisation in PCFs as at 1 December 2011;
- a written confirmation from the Chief Executive Officer that he/she is satisfied that the persons on the list are compliant with the Standards; and
- confirmation that the firm has obtained each person’s written agreement to abide by the Standards.
The Regulations prescribe 42 senior positions as PCFs which require the Central Bank’s pre-approval before people can take up these positions. These positions include:
- Director (Executive and Non-Executive)
- Chairman of the audit committee, the risk committee, the remuneration committee and the nomination committee
- Chief Executive Officer
- If a partnership, every partner
- If the regulated financial service provider that is a natural person, that person
- Head of Finance
- Head of Compliance
- Head of Internal Audit
- Head of Risk
- Head of Compliance with responsibility for Anti-Money Laundering and Counter Terrorist Financing Legislation
- Branch Manager of branches in other EEA countries
- Head of Retail Sales
The Regulations also set out specific PCFs for particular sectors. For the investment funds industry, the relevant PCFs are:
In respect of Administrators and Custodians:
- Branch Managers within the State
- Head of Transfer Agency
- Head of Accounting (Valuations)
- Head of Trustee Services
- Head of Custody Services
In respect of a UCITS Self-Managed Investment Company, a Management Company within the meaning of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, a Management Company within the meaning of the Unit Trusts Act 1990 or Part XIII of the Companies Act 1990 or the Investment Funds, Companies and Miscellaneous Provisions Act 2005 or a General Partner within the meaning of the Investment Limited Partnerships Act 1994.
- Head of Transfer Agency
- Head of Accounting Valuations
- A Designated Person to whom a director of a UCITS self-managed investment company or management company may delegate the performance of management function.
From 1 March, 2012 new appointments to less senior positions called Controlled Functions (“CFs”) will be subject to the Regulations and Standards.
From 1 December 2012, the Regulations and Standards will apply to all staff in existing CFs. The Regulations also prescribe specific categories of staff as CFs, which are positions from which individuals can be temporarily or permanently removed or indeed prohibited from taking up in the future.
The Standards specify the Standards of Fitness and Probity with which all persons performing CFs or PCFs must, at a minimum, comply. A regulated financial service provider must not permit a person to perform a CF unless the regulated financial service provider is satisfied on reasonable grounds that the person complies with the Standards and the person has agreed to abide by the Standards (a signed statement to this effect by the person will be required).
The Standards set out conditions that staff must satisfy to perform the function assigned to them. The Standards, in summary, are that a person is required to be:
- competent and capable;
- honest, ethical and to act with integrity; and
- financially sound.
There is a specific obligation on employers to ensure that staff meet the Standards, both on entry to the financial services industry and throughout their careers. In doing so, employers are now required to carry out due diligence to ensure the Standards required are met.
The Central Bank also published Draft Guidance for industry indicating the type of due diligence that regulated financial service providers should carry out in relation to persons proposed for or holding PCFs or CFs. This Draft Guidance was open for consultation until 30 September 2011.