The Central Bank (Individual Accountability Framework) Bill 2022 ("The Bill") was published in July 2022. At a recent Matheson event held on 1 September 2022, Oliver Gilvarry, Assistant Secretary in the Banking and Financial Stability Division of the Department of Finance, discussed key provisions of the Bill with Darren Maher, Partner and Head of the Financial Institutions Group and Niamh Mulholland, Partner in the Financial Institutions Group. Described by Darren Maher, as a "forward looking piece of legislation", a central theme of the discussion was how the Bill will provide a new framework to further embed compliance culture in the financial services sector in Ireland.
The discussion focussed in part on Part IV of the Bill which is of particular interest, as it proposes to enhance the current administrative sanctions procedure under the Central Bank Act 1942 together with the fitness and probity regime under the Central Bank Reform Act 2010. The panel discussed the catalyst for these proposed changes, including the decision of the Supreme Court in Zalewski (2021) and the impact for the Central Bank's investigative and enforcement powers.
The Zalewski Judgment – a catalyst for change
The recent decision of the Supreme Court in Zalewski, in particular the judgment of the Chief Justice, closely scrutinised the practices of the Workplace Relations Commission. The central issue in Zalewski was whether the operation of the WRC amounted to the administration of justice which, under Article 34.1 of the Constitution, must be administered in courts, in public and by judges. The WRC did not fail the test for constitutionality (set out in McDonald v Bord na gCon (1965)). O Donnell CJ found that whilst the WRC was certainly exercising powers and functions of a judicial nature, these powers and functions were limited and, as such, permitted under Article 37 of the Constitution.
Crucially, however, the Supreme Court found certain procedural aspects of the WRC's adjudication process were inconsistent with the Constitution namely (a) the requirement that hearings be held in private and (b) the absence of any provision or mechanism in the procedural framework for taking evidence on oath.
The Supreme Court emphasised that the functions and powers of the WRC (and any other quasi-judicial body exercising limited powers and functions of a judicial nature) must comply with fundamental Constitutional principles under Article 37. These principles include independence, impartiality, dispassionate application of the law, openness, and, above all, fairness. Compliance with these principles cannot be lower or less demanding than the justice administered in courts under Article 34. This decision has now shaped Part IV of the Central Bank Bill 2022.
Key changes proposed under the Bill
Perhaps the most fundamental change to the Central Bank's administrative sanction procedure (if the provisions of the Bill are enacted as initiated) will be that where there is a finding by the Central Bank following an inquiry, or an acknowledgement (admission) that a firm or relevant individual has committed a breach (a "prescribed contravention") of financial services requirements, the Central Bank will be required to make an application to the High Court for confirmation of the decision (including a decision on a sanction) "as soon as practicable" following the decision. The same requirement applies to decisions following an appeal.
The High Court will confirm a decision which was made following an inquiry (or a decision following an appeal) unless, either (a) there has been an error of law which is "manifest from the record of the decision and fundamental so as to deprive the decision of its basis", or (b) it is "manifestly disproportionate". If the High Court does not confirm the proposed sanction, it can substitute its own decision, or set aside the decision and remit the matter to the Central Bank (or IFSAT) together with its recommendation as to what aspects should be reconsidered.
If the firm or relevant individual acknowledges a prescribed contravention the Bank will have to make an application to the High Court to confirm the proposed sanction before it becomes effective. In this scenario, however, the only basis on which the High Court may decline to confirm the proposed sanction is if the High Court is satisfied that it is "manifestly disproportionate". If the High Court does not confirm the proposed sanction, the matter will be remitted to the Central Bank for its reconsideration, together with any recommendation as to what aspects should be reconsidered.
The Bill also proposes significant changes to enhance procedural fairness and constitutional protections. It envisages the separation of the investigative and decision making functions of the Central Bank, such that the team conducting the investigation will be prohibited from drawing conclusions or making recommendations for any sanction.
The Bill makes provision for inquiry members to be appointed by the Bank from a panel established by the Minister for Finance, in consultation with the Central Bank.
The Bill and the Legislative Process
The Bill is currently at the second stage on the Dail order paper (as of 14 September 2022) and therefore at a relatively early stage in the legislative process and so it will be possible in theory to contribute right up to the committee or in a more limited way the report stage.
However, there has been considerable deliberation around its provisions as described by Oliver Gilvarry at the Matheson event. The hope is that the Bill will be enacted into law by the end of this year or early 2023. The Bank will then have a period of time in which to adopt its guidelines and it is anticipated that the legislation will be in operation during the summer of 2023.
The new regime as influenced by the approach of the Supreme Court is not limited to cases involving the Central Bank. Similar adjustments are under consideration in relation to the Competition and Consumer Protection Commission and the Financial Services and Pensions Ombudsman. The obligation on the Bank to seek confirmation by the High Court is likely to survive the legislative process.