On 1 September 2011, the Central Bank of Ireland (the "Central Bank") published new fitness and probity standards (the "Standards") for a person performing a prescribed "controlled function" (a "CF") or a "pre-approved controlled function" (a "PCF") in entities in Ireland that are regulated by the Central Bank (including banks, insurance undertakings, investment firms, collective investment schemes and their service providers but excluding credit unions). The Standards, which will, on a phased basis from December 2011, apply to persons performing any prescribed function in such an organisation, are built on requirements of competence, capability, honesty, integrity and financial prudence. The Standards may be applied to credit unions at a future date.
Commencement
The Standards will be introduced as follows:
- from 1 December 2011, the Standards will apply to a person performing a PCF;
- from 1 March 2012, the Standards will apply to a person (other than a person performing a PCF) appointed to perform a CF (including offers of appointment and internal transfers of staff ); and
- from 1 December 2012, the Standards will apply to every person performing a CF (whenever appointed).
The Central Bank has also published draft Guidance on the Standards (the "Draft Guidance"). Comments on the Draft Guidance are invited, to be received by the Central Bank by 30 September 2011.
Relevant Functions
Each CF and PCF for these purposes is prescribed by the Central Bank Reform Act 2010 (Sections 20 and 22) Regulations 2011 (the "Regulations"). They include many descriptions of functions and persons with specific powers and do not rely exclusively on job titles or positions (although many PCFs in particular are described by reference to position). This is underlined by the Regulations which state that a person who is performing a particular function is to be taken to be responsible for the performance of that function even if he or she does not have the title that typically would be applied to a person who is doing so. The Regulations also emphasise the reality in many organisations and state that a person is to be regarded as performing a particular function if others in the organisation are accustomed to act in accordance with his or her directions in respect of relevant matters.
The Regulations also provide that:
- the approval of the Central Bank of the appointment of a person to perform a PCF applies only in respect of the regulated entity or entities named in the application for approval (there is no concept of a "general approval"); and
- the Central Bank may approve the performance of a PCF by a temporary or interim appointee, on a case by case basis.
Samples of the prescribed PCFs and CFs are set out at the end of this briefing.
The Standards and Draft Guidance
An entity that is regulated by the Central Bank must not permit a person to perform a CF or a PCF unless the entity is satisfied on reasonable grounds that the person meets the Standards. In this regard, an employer is responsible for ensuring that its staff meet the Standards, on entry to the financial services industry and throughout their careers. Therefore an employer is required to undertake due diligence to ensure that the Standards are met.
The Standards require a person performing a PCF or a CF:
- to be competent and capable;
- to be honest and ethical and to act with integrity;
- to be financially sound; and
- in providing any information to the Central Bank or to any regulated entity, to do so candidly and truthfully and in a manner that is full, fair and accurate in all respects and not misleading to the best of the person's knowledge.
More particularly, a relevant person must:
- have the necessary qualifications, experience, competence and capacity;
- have the necessary organisational knowledge;
- not have been refused an authorisation, licence, etc to carry on a business (in any country) or have been subject to any suspension or restriction, etc;
- have an acceptable disciplinary record in his or her business and professional life;
- not have been convicted of any relevant criminal offence; and
- manage his or her own financial affairs in a sound and prudent manner.
Practical Compliance
The Draft Guidance sets out the practical steps that a regulated entity will be expected to take to meet the Standards and the criteria against which the Central Bank will assess compliance with the Standards.
Such practical steps include:
- compiling and maintaining a list of persons in every PCF and CF (and, by 1 December 2011, providing the Central Bank with a list of those performing PCFs);
- obtaining the confirmation of a person who is to perform a PCF or a CF that he or she is familiar with the Standards and will comply with them;
- undertaking due diligence of fitness, competence and probity of those performing PCFs and CFs, including obtaining signed confirmations of relevant matters from the particular person;
- undertaking due diligence in respect of possible criminal records; and
- compiling and maintaining a register of relevant documents.
The Draft Guidance also considers PCFs and CFs in the context of outsourcing arrangements and in the provision of services on a branch basis and guides regulated entities in determining the particular standard of fitness that is appropriate to a PCF or CF and in assessing probity (including conflicts of interest).
Consumer-facing Personnel
A person who is performing a CF or a PCF and who, in doing so, is providing any of a number of services to consumers (such as advising on a retail financial product or arranging or offering to arrange a retail financial product for a consumer) must also satisfy the Central Bank's Minimum Competency Code 2011. The Minimum Competency Code requires relevant personnel and regulated entities to ensure that those performing the relevant functions are appropriately qualified and undergo continuing professional development and are competent to perform the consumer-facing function. Detailed competencies are set out for different retail financial products, eg life assurance, pensions, savings and investments, housing loans, etc.
Sanctions and Consequences
A failure by a person to comply, or to satisfy the Central Bank of his or her ability to comply, with the Standards may result in an application for appointment to a PCF being refused, to an investigation into the fitness and probity of a person performing a CF or the prohibition of a person performing either a PCF or a CF from continuing to do so. Administrative sanctions may also be invoked.
Prescribed Functions (Samples)
Pre-Approval Controlled Functions (PCFs) (Samples)
- director (executive or non-executive) (including an alternate or substitute)
- chair of the board or of any of a number of significant committees of the board (risk, audit, remuneration and nominations)
- chief executive
- secretary
in each case, of an Irish-incorporated company,
- if a partnership, every partner
- the head of each of the functions of finance, compliance, internal audit, risk and anti-money laundering compliance
- branch manager of a branch in any other EEA jurisdiction
- head of retail sales
Additional Pre-Approval Controlled Functions (PCFs) (Specific Sectors) (Samples)
- in respect of a credit institution, the heads of each of treasury, credit and asset and liability management
- in respect of an insurance or reinsurance undertaking (other than a captive or a special purpose reinsurance vehicle), the head of underwriting, the head of investment and the chief actuary
- in respect of an investment firm (under MiFID or the Investment Intermediaries Act 1995), the branch manager within Ireland, the head of trading, the chief investment officer and the head of investment
- in respect of certain collective investment scheme administrators and safekeepingservice providers, the branch manager within Ireland, the head of transfer agency, the head of accounting (valuations), the head of trustee services and the head of custody services
- in respect of a UCITS self-managed investment company or a UCITS management company or certain other management companies of investment companies, the head of transfer agency, the head of accounting (valuations) and any designated person to whom management functions are delegated
- in respect of a regulated financial service provider established outside Ireland in a non-EEA country, the manager of the branch in Ireland
Controlled Functions (CFs) (Samples)
- every function the performance of which is likely to enable the person to exercise a significant influence on the conduct of the affairs of the regulated entity
- a compliance-related function
- arranging or offering to arrange a service for a customer of a regulated financial service provider
- adjudicating on any customer complaint
- a function of advising a customer in respect of a regulated financial service
- a function of determining the outcome of an insurance or a reinsurance claim
- dealing in or having control over customer property
- dealing in or with property of the regulated entity
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
