The Central Bank (Supervision and Enforcement) Act 2013 (the “Act”) came into force on 1 August 2013.

On 11 July 2013, the Central Bank (Supervision and Enforcement) Act 2013 (the “Act”) was enacted and a commencement order was signed on 25 July 2013 giving effect to the Act as and from 1 August 2013.

The Act enhances the ability of the Central Bank of Ireland (the “Central Bank”) to regulate, supervise and take any necessary steps against regulated financial service providers (“RFSP”) and the related undertakings, including group companies and partnerships, that an RFSP may be a part of and which may not have been subject to a regulatory regime previously. As a result, the scope of this Act is extensive and unregulated entities must now consider their obligations under the Act where applicable. The key features of the Act are discussed below.

Whistle-Blower Regime

The Act introduces a whistle-blower regime with the aim of protecting those making reports to the Central Bank where they reasonably believe there has been a contravention of financial services legislation or that evidence of same may be concealed or destroyed. Such a disclosure will be deemed protected provided it is not made anonymously. The Act also provides for guidelines to be produced by the Central Bank in order to assist those considering the submission of a disclosure. A mandatory requirement for those carrying out pre-approval controlled functions to report prescribed contraventions of financial services regulation, subject only to limited exceptions, has also been provided for in the Act.

The Act affords protection for whistle-blowers in that they will not be liable in damages where they make a disclosure and their identities will be concealed.

Furthermore, protection of employees from penalisation is provided for where they make a bona fide disclosure in accordance with the Act. Any employer that penalises an employee for (i) making a protected disclosure, (ii) giving evidence in any proceedings under financial services legislation, or (iii) giving notice of an intention to carry out (i) or (ii), will be guilty of an offence. Such offences will attract, on summary conviction, a Class A fine, meaning one not exceeding €5,000, and/or imprisonment of not more than 12 months. Conviction on indictment will lead to a fine of not more than €250,000 and/or imprisonment of up to 2 years. Where an employee is dismissed from his/her job, the employee may also institute proceedings under the Unfair Dismissals Act 1977 to 2007 or recover damages under common law for wrongful dismissal.

Increased Penalties

The Act provides for an increase in the penalties attributable to RFSP and individuals where administrative sanctions are to be imposed following an offence. Previously, the monetary sanction applicable to a corporate entity amounted to €5 million with individuals being liable to pay up to €500,000. With the introduction of the Act the maximum penalties have now been increased to €10 million and €1 million respectively.

Third Country Branches

The introduction of the Act brings with it a new regime allowing branches of credit institutions, with head offices outside the European Economic Area, to apply to the Central Bank to set up a branch in Ireland. The Central Bank is permitted to grant authorisation to such entities where it can be shown that the applicant is subject to regulatory and administrative provisions in its home state that are similar to those imposed in Ireland. Applicants are also required to show that they have systems in place for the purposes of protecting deposits.

Power to Make Regulations

The Act enables the Central Bank to introduce new regulations for the purposes of ensuring the proper and effective control of RFSP.

Regulations may be issued on a wide range of topics including the (i) identification, monitoring and reporting of risks applicable to the RFSP, (ii) monitoring and recording by RFSP of the qualifications and training completed by their officers, employees etc., (iii) information to be provided to customers of the RFSP, and (iv) management of conflicts of interest.

Other Key Features of the Act

Some of the other key features of the Act include:

  1. Independent Expert Report

The Act allows the Central Bank to request the completion of a report, on any matter, by a skilled individual approved by, or nominated by, the Central Bank where it is considered necessary for the proper and effective regulation of the RFSP. In determining whether such a report is appropriate, the Act provides that the Central Bank shall take into account (i) whether it has other powers under the provisions of any financial services legislation that may be more appropriate in the circumstances, (ii) the knowledge and expertise available to the individual compiling the report, and (iii) the cost implications and benefit of the production of the report. The costs incurred compiling such a report for the Central Bank will be borne by the relevant RFSP.

  1. Enhanced Powers of Inspection, Investigation and Information Gathering

The Act’s enhancement of the Central Bank’s powers to inspect, investigate and gather information means the Central Bank now has the ability to enter premises and retain documentation where necessary.

Any person found to have obstructed or impeded the Central Bank’s efforts to exercise its powers to inspect, investigate or gather information without a reasonable excuse, or who has falsely presented themselves or been found to have provided information that the person knows to be false or misleading, will be guilty of an offence under the Act. Such offences carry a Class A fine and/or imprisonment for a period not exceeding 12 months (on summary conviction). Conviction on indictment attracts a fine of up to €250,000 and/or imprisonment for a term not exceeding 5 years

  1. Enforcement

The Act provides that where the Central Bank believes a person has engaged, or is about to engage, in conduct that contravenes financial services legislation, an ex parte application can be made to the High Court for an order restraining that person from engaging in such conduct. An order can also be obtained where a person has refused or failed, or is refusing or failing, to do something required under financial services legislation.

In addition, the Act provides that the Central Bank can apply to the High Court for a restitution order where a person is found to have been unjustly enriched or one or more people are found to have suffered loss or another adverse effect due to a prescribed contravention or offence. Where a person is convicted of an offence under financial services legislation, that person may be ordered to pay to the Central Bank the costs and expenses incurred during the investigation, detection or prosecution of the relevant offence.

  1. Redress

The Act provides for redress for those customers facing regular defaults by RFSP. Such regular defaults include:

  • the RFSP charging an amount to the customer that it is not entitled to charge;
  • the provision of a financial service to the customer that the customer has not agreed to;
  • the provision of a financial service that is not suitable for the customer at the time it was provided;
  • the RFSP providing the customer with inaccurate information that subsequently influences the customer in making a decision;
  • the failure of any systems or controls utilised by the RFSP; and
  • a prescribed contravention.

Where regular defaults occur, the Central Bank is empowered to direct the RFSP to provide the appropriate redress to the customer. Such redress will be outlined in the direction of the Central Bank and may include compensation. The Act stipulates that any redress must not exceed the amount of the loss suffered/anticipated to be suffered together with any applicable interest.

The duty imposed on the Financial Services Ombudsman (the “FSO”) to investigate any complaints it receives does not apply where the Central Bank has given a direction to a RFSP or is considering the issuance of such a direction.

  1. SO Reports

The Act amends the Central Bank Act 1942 to provide that the report produced by the FSO at the end of the financial year (or more frequently as may be required) detailing the complaints it receives and any emerging trends, may now disclose certain information relating to those RFSP which are the subject of complaint if it is in the public interest to do so. Such information includes (i) the name of the RFSP, (ii) the identity of any group the RFSP is a member of and the number of complaints substantiated in the preceding financial year.

  1. Auditor’s Report

Provision has now been made to allow the Central Bank to request an auditor to provide a written report on the compliance of a RFSP with obligations imposed by or under provisions of financial services legislation. A request for such a report will be provided to the relevant auditor by the Central Bank at least 3 months before the date on which the auditor’s report on the relevant RFSP’s accounts are due to be submitted to the Central Bank.

The Central Bank will determine what the written report is required to include and may specify the methodology to be used and whether recommendations are to form part of the report. No more than 2 months before the auditor’s report is due to be submitted to the Central Bank, auditors will be required to provide a statement to the Central Bank outlining the findings of its investigation.

The Act does not deal with mortgages, mortgage arrears or repossessions as these issues are dealt with separately under other legislation and Central Bank codes.