New Risk-Based Supervision Framework

The Central Bank of Ireland (the "Central Bank") has launched its new risk-based supervision framework, PRISM (Probability Risk and Impact System). The framework establishes a new approach for supervisory engagement with regulated firms, including insurance companies.

According to the Central Bank, under the PRISM system:

  • The Central Bank's supervisory activities will be focused on the firms which are most significant and on the risks that pose the greatest threat to financial stability and consumers.
  • The system categorises all regulated firms into four separate impact categories, which are based on the level of damage a firm could cause to the financial system, economy and consumers were it to fail. Firms will be categorised by the Central Bank as high impact, medium-high impact, medium-low impact or low impact, which will determine the number of supervisors assigned and level of interaction with each firm.
  • The Central Bank will engage with firms at a level that corresponds to their impact category; the higher the impact, the higher the level of engagement. Engagement will involve reviews, inspections and meetings, and the frequency and level of engagement will be associated with the firms' impact rating.
  • All firms in the impact categories high, medium-high and medium-low will have their risks assessed across ten risk categories. According to the Central Bank, its supervisors will form judgements on the risks posed and will issue firms with a 'report card' with views on the risks.
  • Firms will also receive a 'to do list', outlining the actions that need to be taken to address any risks the Central Bank finds to be unacceptable. Firms will be required to take action to address these risks and bring them to an acceptable level.

The PRISM system has been implemented for all banks and insurance firms and will be introduced to all supervised firms by the end of June 2012.

Detailed information on the new regime is available here

Fitness and Probity Regime - Guidance Issued

You will recall from our Autumn newsletter ( click here) that the Central Bank has introduced a new fitness and probity regime. As previously discussed, the regime consists of the following:

  • The Central Bank Reform Act 2010 (Section 20 and 22) Regulations 2011 (SI 437 of 2011) (the "Regulations")
  • The Fitness and Probity Standards (the "Standards"); and
  • Draft Guidance on the Fitness and Probity Standards (the "Guidance").

Following much discussion in the market, on 23 November 2011 the Central Bank published final guidance to assist entities in meeting the requirements of the new regime. The final guidance replaces and supersedes the initial draft Guidance issued by the Central Bank and addresses various issues raised during the consultation process, with a particular focus on the area of outsourcing. The following important changes to the draft Guidance were noted:

  • Where outsourcing is to a regulated financial services provider, the requirements of the outsourcing firm in relation to "Pre-Approval Controlled Functions" ("PCFs") will not apply;
  • Where outsourcing is to an unregulated entity, the service level agreement ("SLA") must address issues of compliance with the requirements relating to both "Controlled Functions" ("CFs") and PCFs. If an SLA is already in place, the SLA must be updated to reflect the above requirements when it is next updated or within the next 12 months;
  • The company secretary function will no longer be classified as a PCF, however, if an individual in the position of company secretary exercises significant influence, he or she will be classified as a CF1; and
  • Branches of European Economic Area institutions operating in the State now fall outside the regime.

The Central Bank is due to publish revised Regulations and Standards clarifying the scope and application of the regime in due course.

The Standards became effective on 1 December 2011 for PCFs and firms were required to notify the Central Bank of each individual in the organisation in a PCF before 31 December 2011. Firms have until 31 March 2012 to fulfil their due diligence obligations under the regime in respect of PCFs and have until 31 December 2012 to fulfil their due diligence obligations in respect of CFs.

For further details on the Guidance please click here.

Insurance Compensation Fund – Contribution and Due Date Confirmed

As mentioned in the Autumn edition of our Insurance Newsletter ( click here), the Insurance (Amendment) Act 2011 (the "Act") imposed a levy of up to 2% on all non-life insurance premiums which is to be paid into the Insurance Compensation Fund (the "Fund").

The Central Bank has recently confirmed that the appropriate contribution to be paid to the Fund by each insurer (including insurers authorised in another Member State) is 2% of the gross premium income paid to that insurer in respect of all insured risks in Ireland (all policies covering risk located in Ireland).

The levy is payable on a quarterly basis and the initial period for which insurers will be obliged to pay the 2% levy is from 1 January 2012 to 31 March 2012, inclusive.

Insurers will be required to provide the Revenue Commissioners, by no later than 30 April 2012, with a written statement setting out the amount of gross premiums paid to it by policyholders during that period, together with payment of the appropriate contribution.

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.