Industry Updates

Fitness and Probity in the Central Bank of Ireland’s Crosshairs

Throughout 2019, the Central Bank of Ireland (the “Central Bank”) has been turning up the dial on the need for Regulated Financial Service Providers (“Firms”) to adhere to its fitness and probity (“F&P”) regime.

Published 16 Aug 2019
in Industry Updates

Funds & Investment Management

The Central Bank’s focus

Recent Central Bank communications on F&P include the following:

Central Bank Publication	Selected Central Bank Comment
References made in a range of speeches at industry events¹.	“The Central Bank continues to see significant shortcomings in compliance with F&P obligations and a lack of awareness in the industry regarding the scope of the F&P regime.”
Settlement agreements arising from enforcement actions taken against Firms for F&P failings.	“It is firms who have the ultimate responsibility for ensuring that the wider population of individuals working in financial services, namely those in controlled functions, are suitable. This is an obligation that firms have when appointing individuals to roles. It is also an ongoing obligation for firms to ensure individuals continue to meet the Standards.”
A “Dear CEO Letter” highlighting the Central Bank’s concerns on Firms’ understanding/ lack of awareness of their F&P legal obligations.	“Notwithstanding recent enforcement action, we continue to see significant shortcomings in Firms’ compliance with their fitness and probity obligations.”

The Central Bank’s Strategy Plan

This focus is aligned with the Central Bank’s Strategic Plan 2019-2021 which identifies “strengthening standards of governance and risk management” as a key priority.

SEAR and F&P Reform

There are also plans to enhance the F&P regime with forthcoming legislative changes under the Central Bank (Amendment) Bill 2019.

In addition, the Central Bank (Amendment) Bill 2019 aims to introduce an individual accountability regime for Firms’ senior management (the Senior Executive Accountability Regime or “SEAR”) and enhance the Central Bank’s administrative sanctions regime².

Huge Increase in F&P Applications

This comes at a time when more applications than ever before are being made to the Central Bank in relation to the approval of persons to be appointed to pre-approved control function (“PCF”) roles – in the first half of 2019 the Central Bank processed 1,137 applications, almost three times the amount in the same period in 2018.

In this context, it is imperative that Firms (across the spectrum, including fund companies operating a board-only delegation model, fund management companies with full operations and staff and MIFID firms) take full account of the F&P requirements and the Central Bank’s expectations and ensure that they are fully compliant and can demonstrate this.

Practical Measures to Consider

In the Dear CEO Letter, the Central Bank indicates that it expects Firms to review their F&P policies, procedures and practices and to take any necessary steps to address any shortcomings. Firms should be able to demonstrate how the issues raised in the Dear CEO Letter have been considered, and to explain and evidence any remedial actions taken.

This note does not propose to summarise the key obligations for Firms under the F&P regime, or the key findings of the Dear CEO Letter. While the Maples Group can assist with that separately, this note simply highlights that this is an increased area of regulatory focus and points out some practical measures Firms should consider, as follows:

Has your Firm put in place written policies and procedures to ensure compliance with the F&P regime?
Does your Firm comply with these requirements on an ongoing basis and can this be demonstrated?
Does your Firm receive annually (or more frequently) and hold on record confirmations of compliance with the F&P Standards (“Standards”) from persons performing controlled functions (“CFs”) and PCFs?
Does your Firm carry out a refresh of existing due diligence to support these confirmations?
Does your Firm have documented procedures for escalating breaches of the Standards to the board of directors and the Central Bank, as appropriate?
Are offers of employment made in line with the Standards?
Does your Firm have documented procedures for the appointment of PCFs and the necessary due diligence to be obtained?

How the Maples Group can help

We can assist Firms seeking to enhance their fitness and probity regimes in a range of ways, including the following:

Reviewing and revising existing F&P policies and procedures;
Documenting the initial steps to be taken at the appointment of PCFs/CFs and the ongoing monitoring and due diligence procedures;
Creation of annual and quarterly checklists in order to demonstrate and document ongoing monitoring;
Ongoing support and practical assistance in preparing and submitting individual questionnaires, conducting initial and annual due diligence and engagement with the Central Bank;
Screening of potential CF/PCF candidates; and
Support from our Employment Team on legal matters surrounding appointment or dismissals, as required.

We will be issuing further updates shortly on the proposed legislative changes to the F&P regime and the shift towards greater accountability and individual responsibility under SEAR.

If you would like further information, please liaise with your usual Maples Group contact or any of the contacts listed below.

^[1] As an example, see an Address by Mr Ed Sibley, Deputy Governor (Prudential Regulation) of the Central Bank of Ireland, to Insurance Ireland Annual Industry Lunch, 8 May 2019.

^[2]For further details, see The Senior Executive Accountability Regime: The Central Bank’s Expectations and Insights for Boards – Director General Derville Rowland, 2 May 2019.