Welcome to the Regulatory and Investigations Summer ezine
In this issue we look at the Central Bank's new enforcement strategy, the proposed extension of Freedom of Information legislation, the increased powers of the Ombudsman and more.
In this Issue
- Individuals to be held accountable in regulatory
plan
The Central Bank of Ireland has revealed in its "Strategic Plan 2013 to 2015" how it proposes to effectively regulate financial institutions in Ireland. - New FOI legislation to cover 70 more
bodies
The Central Bank of Ireland and NAMA are among a number of public bodies that may soon be required to release records under freedom of information legislation. - Ombudsman can now be proactive
From 1 May 2013, the Ombudsman can investigate a public body even where no complaint has been made.
INDIVIDUALS TO BE HELD ACCOUNTABLE IN REGULATORY PLAN
The Central Bank of Ireland has revealed in its "Strategic Plan 2013 – 2015" how it proposes to effectively regulate financial institutions in Ireland over the next three years. The plan indicates that the Central Bank intends to continue to protect consumers "through risk-based supervision underpinned by a credible threat of enforcement." The Central Bank has said it will continue to use its enforcement powers to the fullest extent. This means holding both individual employees and institutions accountable for regulatory non-compliance. The Central Bank says that if an individual is "at the core" of a suspected breach, they will be held accountable personally.
A range of administrative sanctions are available to the Bank where an individual has committed a regulatory breach. The most severe of these are suspension or removal of the individual from the institution. Criminal sanctions are also available. However, while individuals should ensure that they are fully aware of their statutory obligations, it is likely that the Central Bank will only prosecute an individual in cases involving very serious breaches.
New Legislation to increase fines and encourage whistle-blowers
The Central Bank expects legislation to be introduced in Autumn of this year enabling suspension of a firm for 12 months or the revocation of its ability to practise on foot of a regulatory breach. Financial penalties for breaches will double from €5 million to €10 million or 10% of turnover. The legislation will also provide protection for whistle blowers.
The plan for supervision and enforcement
The Central Bank's Strategic Plan reveals that it will continue to proactively supervise firms through its Probability Risk and Impact System (PRISM) framework. This means that it will continue to focus its attention primarily on "high impact" firms that are likely to have an influence on the stability of the financial system or the consumer. Themed inspections of smaller firms will also continue.
New Director of Enforcement, Derville Rowland, who replaced Peter Oakes on 11 April 2013, was critical of the failures by two firms who have entered into settlement agreements so far this year to have adequate and effective systems and controls in place to ensure compliance.
The firms in question were reprimanded and fined €65,000 and €90,000 for:
- a failure to comply with requirements contained in the Consumer Protection Code (2006) and the Handbook for Authorised Advisors and
- a failure to maintain insider lists in accordance with the Market Abuse Regulations (SI 342/2005).
It is noteworthy that this is the third settlement agreement arising from a breach of the Market Abuse Regulations and Market Abuse Rules. The first two settlements occurred in late 2012. This shows that the Central Bank is focusing attention on market abuse. Prior to 2012, the Irish Stock Exchange was responsible for monitoring compliance in this area, but it now falls within the competence of the Central Bank.
Risk management
Regulated firms and those who work for them should bear in mind the Central Bank's established approach, which is to take into account whether the firm self-reports the issue, the level of cooperation and the steps taken to remedy the breach, when penalising errant firms and individuals.
NEW FOI LEGISLATION TO COVER 70 MORE BODIES
The Central Bank of Ireland, NAMA and An Garda Siochana are among many additional bodies that will be opened to scrutiny under proposed new Freedom of Information legislation.
The Freedom of Information Bill 2012 is one of the Government's legislative priorities for this year.
The current Freedom of Information Acts give people a right of access to records held by many public bodies, including Government Departments, the HSE and Local Authorities.
While the current Freedom of Information Acts lists each of the bodies to which the Acts apply, the new Bill contains a general definition to capture all public bodies. It also contains a provision which allows other bodies in receipt of significant funding from the State to be included by way of Ministerial Order. In the event of a dispute arising as to whether a body comes within the remit of the Acts, the dispute shall be submitted to the Minster for Public Expenditure and Reform, whose determination shall be binding.
The Central Bank of Ireland is one body which, it is proposed, will be newly subject to the legislation. However, the legislation will apply to the Central Bank only in so far is the records are not subject to professional secrecy obligations under the European System of Central Banks (the "ESCB") Statute or EU Financial Services Directives.
A decision of the European Central Bank dated 4 March 2004 (ECB/2004/3) provides guidance on the type of information to which professional secrecy obligations attach and includes information, the disclosure of which "would undermine the protection of:
- the commercial interests of a natural or legal person, including intellectual property,
- court proceedings and legal advice,
- the purpose of inspections, investigations and audits."
In addition, "access to a document containing opinions for internal use as part of deliberations and preliminary consultations with the ECB or national central bank shall be refused even after the decision has been taken, unless there is an overriding public interest in disclosure."
The proposed legislation is therefore likely to have a minimal impact on the manner in which financial institutions deal with the Central Bank.
Although the Bill is a government priority, the Information Commissioner has said that her office is currently operating with a severe backlog of complaints and will be unable to cope if additional public bodies are added to those already subject to the Freedom of Information Acts. It remains to be seen whether the proposed amendments will have a significant impact in the absence of additional resources.
Please click here for a link to the Freedom of Information Bill 2012 Draft General Scheme.
OMBUDSMAN CAN NOW BE PROACTIVE
By Conor Lavelle
In a bid to increase the openness, transparency and accountability of the Irish administrative and political system, the Government has introduced the Ombudsman (Amendment) Act 2012, which took effect from 1 May 2013.
This Act increases the remit and powers of the Ombudsman, which is currently held by Emily O'Reilly. Among other things, it will allow the Ombudsman to initiate investigations of her own accord. The Office of the Ombudsman examines complaints from members of the public who feel they have been unfairly treated by certain public bodies.
The Ombudsman's Office may now investigate an additional 140 public bodies. A list of these bodies may be found at the following link.
The Act applies to the administrative function only of some of these bodies.
The Ombudsman now has power to:
- Initiate her own investigations;
- Apply to the Circuit Court for an Order directing compliance if a body fails to comply with a request for information or documentation;
- Refer a question of law arising out of an investigation to the High Court;
- Make recommendations to bodies as to how to conduct themselves.
While the Ombudsman cannot take any action for failure to comply, she may report the failure to the Oireachtas, resulting in possible adverse publicity for the body.
With more strategic investigations being a key priority in the Ombudsman's Statement of Strategy 2013 to 2015, it is important for bodies to be aware of their obligations in this area.
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.
