Ireland: Central Bank Update 13 Mar 2014

Last Updated: 18 March 2014
Article by Darren Maher and Sharon Daly

Central Bank publishes Programme of Themed Reviews and Inspections for 2014

The Central Bank has recently published its planned series of themed reviews and inspections for 2014.

The main themes include examinations of the following key areas:

  • Consumer Protection – SME lending, advertising requirements, provision of information on fees and charges, compliance with the Code of Conduct on Mortgage Arrears
  • Markets – outsourcing of activities by fund administrators, data integrity by regulatory returns, corporate governance of investment funds and fund managers, conduct of business for investment and stockbroking firms and client assets
  • Anti-Money Laundering Compliance – a review of the risk mitigation and control frameworks put in place by firms to manage their anti-money laundering risk

In addition to the planned series of inspections, the Central Bank states that it will also continue to conduct additional reactive inspections on key issues and themes as they arise.

To view the press release in full, please click here.

Central Bank Enforcement Priorities 2014

The Central Bank has recently published its enforcement priorities for 2014, highlighting areas of significant importance and concern to it. For the first time, the Central Bank has identified certain priority areas by industry sector.

Priority areas for 2014 include:

(1) Banking and Insurance:

  • Prudential requirements
  • Systems & controls

(2) Consumer Protection:

  • Code of Conduct for Mortgage Arrears
  • Prudential requirements for retail intermediaries and debt management firms
  • Professional indemnity insurance
  • Firms which fail to engage appropriately with the Central Bank

(3) All Sectors:

  • Fitness and probity obligations of the Central Bank Reform Act 2010
  • Anti-Money Laundering (AML) / Counter Terrorism Financing (CTF) compliance

Areas of continuing priority for the Central Bank across almost all industry sectors include, most notably, prudential requirements and systems and controls. Compliance with key prudential requirements is of paramount importance to the Central Bank in order to ensure the financial soundness of regulated financial service providers. Breaches of these requirements are viewed by the Central Bank as unacceptable. The Central Bank views the existence and proper functioning of a firm's systems and controls as being fundamental to ensuring compliance with its regulatory requirements.

To view the press release in full, please click here.

Revised Corporate Governance Code

On 23 December 2013, the Central Bank published a revised Corporate Governance Code for Credit Institutions and Insurance Undertakings. The revised Code comes into effect on 1 January 2015 and incorporates feedback received from key stakeholders following the Central Bank's recent public consultation (CP 69). The Code imposes minimum statutory requirements on how credit institutions and insurance undertakings licensed or authorised by the Central Bank (including reinsurers but excluding captives) should organise the governance of their institutions.

The Code imposes some additional requirements on High Impact institutions so as to ensure that appropriate and robust corporate governance frameworks are in place and implemented to reflect the risk and nature of those institutions.

Some of the main changes introduced by the revised Code are as follows:

  • Institutions will be required to appoint a Chief Risk Officer (CRO) and a new section has been introduced outlining the role and responsibilities of the CRO. The risk committee will be made up of a majority of non-executive or independent non-executive directors, one of whom must be the Chairman of the committee
  • Risk and audit committees are required to have a minimum of three members
  • Institutions will be required to introduce a diversity policy for board membership
  • The Chairman can now hold the role of Chairman in other credit institutions and / or (re)insurance undertakings within the group, subject to prior approval by the Central Bank

Institutions are reminded that they will continue to be subject to the requirements of the existing Code until 1 January 2015. In addition to the revised Code, the Central Bank has also published the submissions received to the public consultation, as well as the Feedback Statement document which can be found on the Central Bank's website.

To view the revised Code in full, please click here.

ERRATA on Central Bank Guidelines on Preparing for Solvency II - Submission of Information

The Central Bank has published an ERRATA amending its Guidelines on Preparing for Solvency II with regard to the submission of information to National Competent Authorities. These changes correspond to the recent amendments made by EIOPA to its Guidelines on the Submission of Information to National Competent Authorities.

Please click here to view the ERRATA document in full.

Guideline for Life Insurance Undertakings, Non-Life Insurance Undertakings and Reinsurance Undertakings – Compliance Statements

The Guideline for Life Insurance Undertakings, Non-Life Insurance Undertakings and Reinsurance Undertakings – Compliance Statements has been published by the Central Bank. The Guideline prescribes the manner in which (re)insurance undertakings are required to comply with the obligation in the notice, previously served on (re)insurance undertakings, to submit a compliance statement to the Central Bank. The compliance statement is comprised of the relevant form(s) outlined in the Guideline and includes the compliance statement relating to the Corporate Governance Code for Credit Institutions and Insurance Undertakings 2010 and the Corporate Governance Code for Captive Insurance Undertakings and Captive Reinsurance Undertakings 2011. The compliance statement must be submitted on an annual basis and the compliance period to which the undertaking's submission should relate is the undertaking's most recently concluded financial year end. The submission date should be the date on which the undertaking submits its annual return to the Central Bank.

Undertakings are reminded to use the compliance statement prescribed in the revised Guideline to comply with their obligations. The compliance certificates previously available online or in paper form are now redundant.

Please click here to view the Guideline in full.

Revised Auditor Protocol

The Central Bank has published a revised Auditor Protocol between the Central Bank and auditors of regulated financial service providers following completion of the annual review process. The Protocol originally became effective in 2012 and applied to firms rated as High Impact under the PRISM regulatory risk model.

The Protocol provides a framework between the Central Bank and auditors for exchanging information on a timely basis with the aim of enhancing both regulatory and statutory audit processes.

Some of the key changes made to the Protocol following the review process include the following:

  • The scope of the Protocol was extended to all meetings between auditors and the Central Bank including meetings in relation to non-High Impact firms
  • The Protocol was updated to reflect recent changes in legislation in the form of the provision in Section 58 of the Central Bank (Supervision and Enforcement) Act, 2013 relating to the limitation of liability in the reporting of certain matters

The revised Protocol became effective on 1 January 2014.

To view the Protocol in full, please click here.

Letter to Appointed Actuaries

On 12 December 2013, Mark Burke, Head of Life Insurance Supervision in the Central Bank, issued a letter addressed to Appointed Actuaries. The letter relates to end 2013 valuations of life assurance undertakings and addresses the following:

  • The future investment rate specified at Section 7(8) of Annex IV to the European Communities (Life Assurance) Framework Regulations 1994
  • The resilience test to be applied
  • The yield on variable interest investments to be used in valuing liabilities

To view the letter in full, please click here.

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The Central Bank has published the outcome of a themed inspection into sales incentives paid to direct employees of life insurance companies subject to the rules of the Consumer Protection Code 2012.

A number of risks were identified by the Central Bank that may encourage short term sales behaviours which may not be in the best interest of consumers, including the following:

  • Incentives paid fully or largely on the achievement of sales volumes or sales targets
  • Insufficient emphasis placed on linking quality measures and behaviours to incentive payments such as the individual's compliance record, the number of complaints upheld against them, performance management results, relevant education and training achievements or any measurement of customer satisfaction
  • Insufficient use of penalties or deterrents against poor sales practices other than 'clawing back' the initial commission earned on the product sale

Firms must ensure that sufficient weighting is given to quality assurance factors in order to prioritise good behaviours and are required to utilise deterrents against poor sales-related behaviours and to discourage a short-term sales mindset through appropriate use of their claw back policy. Regular sales quality monitoring must be carried out to ensure that any instances of poor sales-related behaviours are captured and addressed.

Following the inspection, the Central Bank is requesting all insurance firms to review their remuneration arrangements and to take any necessary remedial action during 2014.

To view the letter to industry in full, please click here.

Insurance Statistics 2012

The Central Bank has published the Insurance Statistics 2012.

To view, please click here.

Intermediary Times

The Central Bank of Ireland has published its first 2014 edition of the Intermediary Times.

The edition includes information on the following:

  • Pensions sales process themed inspection – update
  • Investor Compensation Company Limited (ICCL) direct debit facility
  • The new acquiring transaction notification form for firms authorised under the Investment Intermediaries Act, 1995 (as amended)

To view the full text of the Intermediary Times, please click here

New Acquiring Transaction Notification Form

The Central Bank has published a revised Acquiring Transaction Notification Form for firms authorised under the Investment Intermediaries Act, 1995 (as amended). Going forward, the revised Form must be used to provide prior notification to the Central Bank regarding a proposed acquisition of, or increase in, a direct or indirect qualifying holding in respect of firms which hold authorisations as Investment Business Firms.

To view the revised Notification Form, please click here.

Letter to High Impact and Selected Med-High Impact Non-Life Companies re reports underlying SAOs

The Central Bank has issued a letter to the CEO of High Impact and Selected Med-High Impact Non-Life Companies regarding the content of reports supporting the Statement of Actuarial Opinion. A number of areas have been identified by the Central Bank where it would be beneficial for firms to include additional detail in the report as follows:

  • The methodologies used to calculate the Unearned Premium Reserve (UPR)
  • The calculation of the Additional Unexpired Risk Reserve (AURR)
  • The calculation of a provision for Unallocated Loss Adjustment Expenses (ULAE), also known as a Claims Handling Expense (CHE) provision
  • Actual versus Expected (AvE) Analysis
  • Periodic Payment Orders  
  • Claims Inflation
  • Court Awards
  • Post Balance Sheet events; and
  • Any other key areas of uncertainty identified during the review.

To view the letter in full, please click here.

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.

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