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Industry Updates
The Revision of the Inquiry Guidelines
16 Apr 2014
As part of the regularisation and enhancement of the Central Bank of Irelands ("CBI's") enforcement powers under the Central Bank and Financial Services Authority Act 2004, a new Part IIIC of the Central Bank Act 1942 (the "Act") was introduced. This provides a framework within which the CBI may invoke its powers to investigate and sanction parties for breaches of the rules (the "Administrative Sanction Procedure") and fleshes out the CBI's powers.
The CBI published an Outline of the Administrative Sanction Procedure in 2005, together with Inquiry Guidelines ("Guidelines"). These Guidelines were updated in late 2013, after the CBI had sought submissions from industry on the proposed and/or required changes.
There are two important points to note about the Guidelines. First, the introduction expressly states that the Guidelines may be departed from where necessary ("in appropriate circumstances"). Secondly, the CBI has yet to invoke its power to activate its powers of inquiry. Every investigation brought under the Administrative Sanction Procedure to date has concluded in a settlement before an inquiry commenced.
The Guidelines, however, provide insight regarding the CBI's thinking as to how an inquiry will be conducted.
The Financial Services Regulatory Enforcement Group in Maples' Dublin office made submissions to the CBI in relation to the revision of the Guidelines. Some of the proposals were taken on board; others were not. The key points to note from the Revised Procedures are as follows:
(a) The CBI continues to reserve the right to disapply the Guidelines where it considers that the Guidelines are not appropriate to an individual case, providing that any departure from the Guidelines would have to be justified and the resulting inquiry would still have to comply with procedural fairness. It is doubtful whether the CBI would be entitled under the Act to depart from the Guidelines.
(b) The CBI reserves the right to appoint single-member inquiries, but it has been confirmed that this will only occur where this is appropriate by reference to the nature, scale and complexity of the case.
(c) The CBI has confirmed that no member of the inquiry will have had any prior involvement with the matters which are the subject of the inquiry, whether internal CBI appointees or external members.
(d) The CBI has conceded that regulated entities will be informed of the identities of the inquiry members at the Notice of Inquiry stage, to allow the bringing of any challenge to an inquiry member at an early stage.
(e) The CBI has confirmed that multi-member inquiries will typically have an odd number of members, to avoid the possibility of tied votes.
(f) Any information provided by the Enforcement Section of the CBI to the inquiry under Section 2.11 of the Guidelines will also be made available to the regulated entity.
(g) The CBI confirmed that an inquiry would not be bound by the strict rules of evidence, but was bound by the rules of procedural fairness. The CBI acknowledged that this includes the right to make submissions and cross-examine witnesses. However, it should be noted that any dis-application of the rules of evidence may, depending on the context, result in a breach of constitutionally guaranteed fair procedures.
(h) The CBI has conceded that a stenographer is to be provided for all inquiry hearings and not just for the taking of oral evidence.
(i) Witnesses to the inquiry will be called by the inquiry, not by the regulated entity. Although the regulated entity will be afforded an opportunity to inform the inquiry of any witness it may wish to call, there is no automatic right to call a witness. Equally, there is no automatic right to have an oral hearing or evidence.
(j) The CBI confirmed that an inquiry is considered to be complete (for the purposes of reaching a settlement agreement with the regulated entity) when the inquiry members issue their written findings.
(k) It was noted that in calculating any monetary penalty to be paid by a regulated entity, the inquiry should have regard to any costs of the inquiry or the CBI, in order to ensure that the combined amount does not cause the regulated entity to cease trading or (if a sole trader) be declared bankrupt.
(l) It was argued that where a regulated entity offered to admit a contravention during an inquiry (in without prejudice settlement meetings) but agreement could not be reached with the CBI on sanctions, the timing and fact of this offer should be taken into account by the inquiry when determining any sanction to be imposed by it (this is similar to the "Calderbank" procedure in civil proceedings). The CBI, however, did not favour such a proposal. The CBI maintains that if a regulated entity is willing to concede a contravention, it should do openly before the inquiry, and that the without prejudice negotiation proposal should not be disclosed to the inquiry if and when it comes to impose a sanction.
The Guidelines, however, provide insight regarding the CBI's thinking as to how an inquiry will be conducted.
The Financial Services Regulatory Enforcement Group in Maples' Dublin office made submissions to the CBI in relation to the revision of the Guidelines. Some of the proposals were taken on board; others were not. The key points to note from the Revised Procedures are as follows:
(a) The CBI continues to reserve the right to disapply the Guidelines where it considers that the Guidelines are not appropriate to an individual case, providing that any departure from the Guidelines would have to be justified and the resulting inquiry would still have to comply with procedural fairness. It is doubtful whether the CBI would be entitled under the Act to depart from the Guidelines.
(b) The CBI reserves the right to appoint single-member inquiries, but it has been confirmed that this will only occur where this is appropriate by reference to the nature, scale and complexity of the case.
(c) The CBI has confirmed that no member of the inquiry will have had any prior involvement with the matters which are the subject of the inquiry, whether internal CBI appointees or external members.
(d) The CBI has conceded that regulated entities will be informed of the identities of the inquiry members at the Notice of Inquiry stage, to allow the bringing of any challenge to an inquiry member at an early stage.
(e) The CBI has confirmed that multi-member inquiries will typically have an odd number of members, to avoid the possibility of tied votes.
(f) Any information provided by the Enforcement Section of the CBI to the inquiry under Section 2.11 of the Guidelines will also be made available to the regulated entity.
(g) The CBI confirmed that an inquiry would not be bound by the strict rules of evidence, but was bound by the rules of procedural fairness. The CBI acknowledged that this includes the right to make submissions and cross-examine witnesses. However, it should be noted that any dis-application of the rules of evidence may, depending on the context, result in a breach of constitutionally guaranteed fair procedures.
(h) The CBI has conceded that a stenographer is to be provided for all inquiry hearings and not just for the taking of oral evidence.
(i) Witnesses to the inquiry will be called by the inquiry, not by the regulated entity. Although the regulated entity will be afforded an opportunity to inform the inquiry of any witness it may wish to call, there is no automatic right to call a witness. Equally, there is no automatic right to have an oral hearing or evidence.
(j) The CBI confirmed that an inquiry is considered to be complete (for the purposes of reaching a settlement agreement with the regulated entity) when the inquiry members issue their written findings.
(k) It was noted that in calculating any monetary penalty to be paid by a regulated entity, the inquiry should have regard to any costs of the inquiry or the CBI, in order to ensure that the combined amount does not cause the regulated entity to cease trading or (if a sole trader) be declared bankrupt.
(l) It was argued that where a regulated entity offered to admit a contravention during an inquiry (in without prejudice settlement meetings) but agreement could not be reached with the CBI on sanctions, the timing and fact of this offer should be taken into account by the inquiry when determining any sanction to be imposed by it (this is similar to the "Calderbank" procedure in civil proceedings). The CBI, however, did not favour such a proposal. The CBI maintains that if a regulated entity is willing to concede a contravention, it should do openly before the inquiry, and that the without prejudice negotiation proposal should not be disclosed to the inquiry if and when it comes to impose a sanction.
(m) The Guidelines provide that where a monetary penalty is imposed under Section 33AQ or 33AR of the Act, and where the contravention in question is also an offence, the regulated entity will not be liable to prosecution or punishment for that offence. Section 33AV deals with settlement agreements, and provides that the terms of a settlement agreement "may include terms under which that financial service provider or person accepts the imposition of sanctions of the kind referred to in section 33AQ" (emphasis added). The CBI refused to confirm that a firm which paid money under a settlement agreement under Section 33AV would benefit from protection under those provisions. This will be a very real concern for any regulated entity considering entering into a settlement agreement.
In summary therefore, the CBI has accepted Maples' submissions with regard to procedural elements (notice of inquiry members, composition of inquiry, stenographer). One would hope that a well-run inquiry would provide for these in any event. The CBI did not, however, concede on the more fundamental issues (e.g. double jeopardy, and the "Calderbank"-type admission). A key concern which may remain is the potential for "double jeopardy" even after settling with the CBI.
If you would like further information, please speak with your usual Maples and Calder contact.
If you would like further information, please speak with your usual Maples and Calder contact.
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