On 25 January 2014 the Central Bank published its Programme of Themed Reviews and Inspections for 2014 (the 2014 Programme) and its Enforcement Priorities in 2014 (the 2014 Priorities).
The 2014 Programme and 2014 Priorities cover both a wide range of topics and a variety of types of regulated firms. As has been the case in previous years, the themes and priorities also cover both very general topics and very specific topics (with the latter presumably driven by concerns arising from the Central Bank's day-to-day supervisory activities).
THEMED REVIEWS AND INSPECTIONS
The Central Bank's programmes of themed reviews and inspections (published annually for the forthcoming calendar year) summarise reviews and inspections (desktop or on-site) that that the Central Bank intends to conduct. The list is not, however, exhaustive and the Central Bank will also conduct reactive inspections as issues arise.
The results of themed reviews and inspections often inform the development of, or updates to, codes of conduct; result in the issuance of letters to industry highlighting particular practices (whether positive practices, or practices requiring improvement) and recommending certain steps; and may also lead to administrative sanctions where breaches of regulatory requirements are identified.
The 2014 Programme
The 2014 Programme is divided into three key areas: consumer protection, market and anti-money laundering (AML) compliance:
Consumer Protection
Common themes between the 2014 Programme and its 2013 equivalent are:
- mortgage arrears: reviewing compliance with the Code of Conduct on Mortgage Arrears 2013 (the CCMA)
- fees and charges: assessing whether the information provided by investment and stockbroking firms to clients in relation to fees and charges is fair, clear and not misleading
- retail intermediaries: reviewing compliance by retail intermediaries with prudential requirements
- insurance intermediaries: reviewing compliance by insurance intermediaries with requirements in relation to professional indemnity insurance
New areas forming part of the consumer protection element of the 2014 Programme are:
- SME lending: inspecting lending to small and medium enterprises to both monitor compliance with the Code of Conduct on Business Lending to Small and Medium Enterprises 2012 (the SME Code) and to facilitate the review of the SME Code which the Central Bank intends to undertake during 2014
- advertising: reviewing compliance with advertising requirements in specific (but not yet specified) sectors
- debt management firms: following the introduction of a regulatory regime for debt management firms by the Central Bank (Supervision and Enforcement) Act 2013, inspecting those newly-authorised firms to assess compliance with the conditions of their authorisation
- new retail intermediaries: inspecting compliance by newly-authorised retail intermediaries with selected conduct of business obligations
- failure to engage: taking action against intermediaries who fail to engage appropriately with the Central Bank
Certain consumer protection-related topics which formed part of the Central Bank's equivalent 2013 programme but are not included in the 2014 Programme are as follows:
- remuneration and sales incentives: assessing how firms operating in the banking, insurance, investment and stockbroking sectors have structured staff remuneration and sales incentives to ensure that they meet regulatory requirements including those set out in the Consumer Protection Code 2012 (the CPC 2012)
- property insurance: examining how insurance companies handle the settlement and processing of property insurance claims having regard to the obligations contained in the CPC 2012
- moneylenders: reviewing moneylenders with a particular focus on the maximum annual percentage rate of charge and the maximum cost of credit that they are permitted to charge. The 2013 inspection in these areas resulted in an industry letter of 1 March 2013 in which the Central Bank outlined particular areas of concern relating to the moneylending industry, in particular relating to administrative errors, early repayment, assessing creditworthiness and advancing loans in full
- pension policies: reviewing the sale of pension policies by intermediaries
Markets
Common themes between the 2014 Programme and its 2013 equivalent are:
- outsourcing: assessing compliance by MiFID firms and fund custodians with outsourcing requirements. In 2013, the focus of themed outsourcing inspections had been on fund administrators and the risk to the valuation process where such administrators outsource some or all of the net asset value calculation process
- regulatory returns: examining the data contained in regulatory returns made by investment firms and fund service providers
- client assets: reviewing compliance by investment firms with client asset requirements
New focus areas forming part of the markets element of the 2014 Programme are:
- corporate governance: assessing the corporate governance arrangements of investment funds and fund managers
- conduct of business: assessing the arrangements of investment and stockbroking firms regarding the collection of data to satisfy the client categorisation and suitability requirements of MiFID
Certain markets-related topics which formed part of the Central Bank's equivalent 2013 programme but are not included in the 2014 Programme are as follows:
- post-authorisation application of business plans to delegating UCITS and non-UCITS managers: assessing the compliance of these firms' business models with the requirements set out in the Central Bank's UCITS and non-UCITS Notices
- pricing procedures: reviewing the arrangements on pricing certain hard-to-value assets within the client portfolios of fund and investment managers
AML compliance
Following on from the desktop inspections conducted by it in 2013, in 2014 the Central Bank will continue to focus on the area of AML by reviewing the risk mitigation and control frameworks that firms have put in place to manage their AML risk.
ENFORCEMENT PRIORITIES
The Central Bank has frequently reiterated the importance that the prospect of enforcement action plays in its risk-based regulatory framework (PRISM), both as a credible threat and as a deterrent.
In 2013 the Central Bank's enforcement priorities related to retail intermediaries, payment protection insurance, client asset requirements, prudential requirements, AML and counter terrorist financing (CTF), systems and controls, the timeliness and accuracy of information submitted to the Central Bank, errors and overcharging, payment services and the suitability requirements of the CPC 2012. The Central Bank entered into 16 settlement agreements with regulated entities in 2013, each relating to one or more of these priority areas, with aggregate total fines of €6,348,215 being imposed. The number of settlement agreements was the same number as reached in 2012, but the total fines figure was slightly higher in 2012 (€8,492,900).
The 2014 Priorities
The 2014 Priorities (the fourth set published by the Central Bank so far) include credit unions for the first time as the Central Bank's Administrative Sanctions Regime has applied to credit unions since 1 August 2013.
2013 focus areas such as payment protection insurance, errors and overcharging, payment services and the suitability requirements of the CPC 2012 are not specifically referred to in the 2014 Priorities, with the focus instead appearing to be on prudential requirements (large exposures in the case of investment firms, and reserves, liquidity, lending and investments in the case of credit unions) and on proper systems and controls. MiFID conduct of business rules and the submission of timely and accurate information to the Central Bank are also highlighted as key areas.
Debt management firms (and their compliance with prudential requirements) appear on the list for the first time following the introduction of the relevant regulatory regime on 1 August 2013 (referred to above) and, in the area of consumer protection, the CCMA continues to be a key focus.
For all key sectors (banking and insurance, markets, credit unions and consumer protection), the Central Bank has indicated that an enforcement focus will continue to be compliance with the fitness and probity obligations imposed by the Central Bank Reform Act 2010 and compliance with AML and CTF obligations. AML and CTF have been on the Central Bank's list of enforcement priorities since 2012 and, with FATF due to visit Ireland shortly, it seems certain that the Central Bank will initiate further enforcement actions in this area in the short term.
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