In October 2010, the Central Bank Reform Act 2010 (the Act) set out for the first time, a new harmonised and statutory approach to the regulation of persons performing controlled functions in entities regulated by the Central Bank. Entities affected by these new provisions include financial institutions, insurance undertakings, investment firms and investment funds.
The Central Bank has now published details of how this new regulatory process is to be implemented and the standards which must be complied with by way of the following documents:
- The Central Bank Reform Act 2010 (Section 20 and 22) Regulations 2011 (SI 437 of 2011) (the Regulations);
- Fitness and Probity Standards (the Standards); and
- Draft Guidance on Fitness and Probity Standards (the Guidance).
The Regulations (which come into operation of 1 December 2011) prescribe certain controlled functions (a CF) and more senior pre-approval controlled functions (a PCF). Descriptions of a CF include advising in relation to the provision of a financial service, assisting a customer in making a claim under a contract of insurance and any function which is related to ensuring, controlling or monitoring of compliance by a regulated financial service provider of its relevant obligations.
A PCF relates to any person who holds or performs a particular role in a regulated entity including roles such as the chairman or executive director, head of finance or compliance. The Regulations contain a detailed list of relevant job titles but that list is not exhaustive. The Regulations also extend to persons who perform the relevant function but who may not hold the relevant title or office.
The Regulations also clarify that references to a director will include shadow directors and alternate or substitute directors.
Fitness and Probity Standards
The Standards are encapsulated in a code issued under Section 50 of the Central Bank Reform Act 2010. Regulated entities must ensure that all persons performing CFs and PCFs comply with, and have agreed to abide by, the Standards.
In accordance with the Standards, each person performing a CF must be: A. competent and capable; B. honest, ethical and act with integrity C. financially sound.
In order to satisfy the above requirements, the relevant person must:
- have the appropriate qualifications, experience, competency and understanding of the business of the financial service provider;
- 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 CB, Financial Ombudsman or equivalent body;
- not have been convicted of any criminal offence or adjudicated a bankrupt;
- not have been disqualified or restricted from acting as a director in any jurisdiction; and
- manage his/her 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:
- The Standards will apply to all persons in a PCF from 1 December 2011.
- The Standards will apply to all persons appointed to a CF after 1 March 2012 (i.e. new contracts of employment etc).
- The Standards will apply to all persons carrying out CFs from 1 December 2012.
The purpose of the Guidance is to assist regulated entities in complying with their obligations under the Act and to set out the steps of a due diligence which a regulated financial service provider would reasonably be expected to take to ensure that a person performing a CF is compliant with Standards. The Guidance includes steps and practical advice in relation to:
- identifying persons in CFs and PCFs;
- the approval process for PCFs;
- interviewing and offering appointments to PCFs;
- the due diligence to be carried out in order to assess a person's fitness to perform a CF; and
- due diligence for criminal offences.
The Central Bank has a wide range of powers available to it in the event that a person fails to comply with the Standards such as the power to investigate, suspend, remove or prohibit that individual from acting in a CF.
The Guidance is open to comment until Friday 30 September 2011. All documents can be accessed on the Central Bank website.