Ireland: Central Bank Of Ireland Revised Corporate Governance Code

Last Updated: 11 February 2014
Article by Nollaig Murphy, Dudley Solan, John Breslin, Paul Dobbyn and David Nolan

On 23 December 2013, the Central Bank of Ireland ("CBI") published a revised Corporate Governance Code for Credit Institutions and Insurance Undertakings (the "Code"). The Code applies to banks, and insurance and reinsurance undertakings licensed by the CBI ("Institutions"). The Code does not apply to captive insurance or reinsurance undertakings, nor to special purpose reinsurance vehicles. It sets out minimum statutory requirements on how the Institutions should organise their governance and imposes minimum core standards on their boards of directors with additional requirements imposed for certain designated institutions.

The Code comes into effect on 1 January 2015. In the meantime, Institutions continue to be governed by the existing CBI corporate governance code in effect since 1 January 2011 (the "Existing Code"). As with the Existing Code, the Code does not apply to foreign subsidiaries of an Institution (albeit that the CBI encourages those subsidiaries to adopt equivalent practices). The Code provides for continuity of legal or enforcement proceedings in being under the Existing Code where a provision of the Existing Code has been amended or deleted by the Code.

Principal Changes

The Code introduces a number of changes which significantly add to the compliance obligations on credit institutions, insurance and re-insurance undertakings. The principal changes are:

(a) The role of the board of directors has been significantly expanded to cover (in addition to prudential and ethical oversight, business strategy and management of risk and compliance) monitoring capital adequacy, ensuring an effective organisational structure for the institution and setting a remuneration framework in line with the institution's risk strategies.

(b) The Code reflects the risk-based approach of CBI regulation. There will be enhanced requirements imposed on "High Impact" Institutions (as opposed to "Major Institutions" under the Existing Code). High Impact Institutions are those which are perceived to be of systemic importance to the financial system. The Institution will have to disclose in its annual report that it is subject to the High Impact regime.

(c) The Code introduces a new officeholder entitled a "Chief Risk Officer".

(d) Specific criteria are introduced to assess whether a director is independent. These include obvious matters such as professional or personal connections with the Institution and its managers and also less obvious matters such as additional fees received by the director from the Institution. Many of the features of the Existing Code remain unchanged. Therefore the requirement to have independent non-executive directors, to have audit and risk committees, documenting compliance with the Code and the imposition of limits on directorships all continue to apply. The prohibition on the concentration on one individual of unfettered powers of discretion also continues to apply.

Further detailed changes include the following:

(a) The Chairman of Institutions, which are not High Impact Institutions and are subsidiaries of groups, may hold the role of Chairman in other Institutions within the group, subject to prior approval by the CBI.

(b) The CEO of Institutions, which are Medium-Low or Low Impact Institutions, may hold up to two additional posts as CEO of Institutions that are Medium-Low or Low Impact Institutions, subject to prior approval by the CBI.

(c) Institutions are to introduce a diversity policy for board membership.

(d) The audit committee and the risk committee are required to have at least one shared member. In addition, High Impact Institutions are also to have at least one shared member between the risk and remuneration committees.

(e) The risk and audit committees must have at least three members.

(f) The board of High Impact Institutions must review the performance of individual directors, when carrying out its annual review of the performance of the board itself. This review is to be documented.

(g) The board of High Impact Institutions must put in place a formal skills matrix.

(h) The minimum number of board meetings of High Impact institutions has been reduced from 11 to six per calendar year. Instead of meeting at least once per calendar month for 11 months of the year as per the Existing Code, the board must meet at least three times in every six months.

The Code as a Legislative Trigger

Part 3 of the Code seeks to provide a basis for the furnishing of information to the CBI. Its drafting is not altogether clear in some respects and at times seems incomplete. The Code provides that to the extent that it requires an Institution to furnish to the CBI information, and to submit to the CBI an annual compliance statement, these are to be taken as obligations also under the applicable legislation which requires Institutions to provide that information to the CBI. The "compliance statement" obligation includes reporting on the Institution's own breaches of the Code (if applicable). "Self-reporting" of breaches is a feature of the current regulatory landscape in this area.

The Code purports to be a notice for information respectively under Section 18 of the Central Bank Act 1971 ("CBA"), Section 41A of the Building Societies Act 1989 ("BSA") and Section 16 of the Insurance Act 1989 ("IA"). The CBA, BSA and IA envisage a statutory notice being used by the CBI to obtain specific information with regard to a particular institution. It is not altogether clear that the information referred to in the Code meets this requirement of specificity. Further, the BSA envisages the CBI obtaining information "by notice in writing served" on the building society.

Given that the BSA (at section 7) specifies precise modes of service or delivery of a notice under that Act none of which include general publication, it is difficult to see how the Code could be a valid notice under BSA. In addition it is a precondition to the service of a notice under the IA that the CBI "considers it necessary in order to satisfy [itself]" whether a particular undertaking is compliant with the Insurance Acts. It is not clear how that precondition is satisfied in the case of a generic publication such as the Code.

The obligation to furnish information and to submit to the CBI a "compliance statement" are each a distinct statutory obligation under the applicable legislation. That legislation sets out the statutory context in which an Institution is obliged to furnish information to the CBI and to submit a "compliance statement." The Code (like the Existing Code) purports to be a statutory basis for triggering those obligations. Given the very significant sanctions that could be imposed for breach of the Code, it is questionable whether the Code is a proper basis for the imposition of those statutory obligations. Those statutory obligations arise in the precise statutory context set out in the applicable legislation. One could question whether the Code – which is of general application – provides a sufficient statutory context for imposing these obligations.

Sanctions for Breach

A contravention of the Code may attract the administrative sanctions regime and other applicable statutory remedies (e.g. prosecution). Insofar as an Institution is required by the Code to report its own breaches, it may be that such reports would be inadmissible in any criminal proceedings against the Institution because they were provided under compulsion of statute. It should also be noted that section 44 of the Central Bank (Supervision and Enforcement) Act 2013 (the "2013 Act") provides that a breach by a financial service provider of financial services legislation is actionable by any customer who suffers loss as a result.

As with the Existing Code, the CBI has indicated that it considers that compliance with it is necessary to ensure compliance with particular statutory requirements that an Institution manages its business on a sound administrative basis. It is likely that a court would approach the CBI's conclusion with considerable deference. It follows, therefore, that a court may well conclude that a breach of the Code automatically constitutes a breach of those statutory provisions. If so, then the breach would appear to attract civil liability on the part of the Institution to any of its customers which suffered loss or damage as a result. However, proof that the breach caused loss or damage may well be difficult to establish in practice.

Conclusions

The Code represents a significant re-focus by the CBI on corporate governance. It seems intended to complement the existing "fit and proper" regime for those who run Institutions. The "fit and proper" requirement applies to individual officers and certain employees of an Institution.

The Code seeks to bolster that regime with provisions which ensure collective responsibility by executive and non-executive directors, and those in charge of audit, risk and compliance. The Code explicitly provides that where it is breached the CBI may refuse to allow an individual to be appointed to a "control" function or the removal of such a person from office.

Compliance with the Code is enforceable by reference to existing regulatory powers of the CBI where applicable (e.g. the administrative sanctions regime, criminal prosecution) and (potentially) under the new private right of action under the 2013 Act.

For further information please speak with your usual Maples and Calder contact.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nollaig Murphy
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions