Ireland: Regulatory Investigations Unit Brochure - May 2017


Since the global financial crisis, both international and domestic financial services sectors have seen ever increasing levels of regulation and inspection and more intrusive and robust regulatory interventions.

This has been evidenced in Ireland, for example, by the introduction of new fitness and probity requirements for certain executives under the Central Bank Reform Act 2010 (including the power to investigate certain executives and suspend or prohibit them from carrying out their functions) and by the increased supervisory and sanctioning powers given to the Central Bank of Ireland (the "Central Bank") under the Central Bank (Supervision and Enforcement) Act 2013 (the "2013 Act"). The 2013 Act doubled the maximum fines (from Euro 5 million to Euro 10 million or 10% of turnover for firms – whichever the greater, and from Euro 500k to Euro 1 million for individuals) which the Central Bank could impose if a negative finding was made against a regulated entity or an individual involved in the entity's management, under the Central Bank's Administrative Sanctions Procedure. As at 31 December 2016, the Central Bank had concluded over 100 settlements with regulated entities and individuals involved in their management under its Administrative Sanctions Procedure and imposed over Euro 44 million in fines.1

To assist firms and their management in addressing enforcement related matters, Dillon Eustace has established a dedicated Regulatory Investigations Unit made up of experienced financial services and former Central Bank Enforcement lawyers and litigators. This Unit advises regulated entities and those involved in their management on how to deal with the increasingly robust investigations which are being carried out by regulatory bodies including, the Central Bank, the Registrar of Credit Unions, the Office of the Director of Corporate Enforcement (the "ODCE") and the Chartered Accountants Regulatory Board, to name but a few. Our team, in particular, is experienced in dealing with the following:

  • all aspects of Central Bank's Administrative Sanctions Procedure, including the investigation phase, settlements and referrals to Inquiry;
  • attending Central Bank interviews, including those where compulsory powers have been used;
  • acting for clients in respect of appeals from decisions of the Central Bank to the Irish Financial Services Appeals Tribunal;
  • - advising clients in relation to fitness and probity investigations by the Central Bank;
  • - representing companies and individual executives dealing with the ODCE; and
  • - acting on behalf of various financial service providers in relation to complaints made against them to the Financial Services Ombudsman.

Dillon Eustace is one of Ireland's leading law firms focusing on financial services, banking and capital markets, insurance regulation, corporate and M&A, insolvency, litigation and dispute resolution, real estate and taxation. Headquartered in Dublin, the firm acts for many regulated financial services firms, particularly MiFID entities, life and general insurers, investment funds and their service providers and many others. The firm's other offices are in Tokyo (2000), New York (2009) and Cayman Islands (2012).

1. The Central Bank's Administrative Sanctions Procedure

The Central Bank's Administrative Sanctions Procedure (the "ASP") empowers the Central Bank to impose a range of sanctions on regulated financial service providers ("RFSPs") and/or individuals concerned in their management ("Individuals"), where it has reasonable grounds to suspect that a "prescribed contravention" (i.e. a regulatory breach) is being or has been committed by an RFSP and/or by an Individual.

The legislative framework governing the Central Bank's ASP regime is found in Part IIIC of the Central Bank Act 1942, as amended (the "1942 Act") and in the Inquiry Guidelines (the "Guidelines") issued by the Central Bank pursuant to the 1942 Act. The Central Bank has also issued an "Outline of the Administrative Sanctions Procedure" (the "Outline") detailing how the ASP works in practice, including a high level description of its investigation and settlement processes. Section 33AO(1) of the 1942 Act provides that: "whenever the Bank suspects on reasonable grounds that a regulated financial service provider is committing or has committed a prescribed contravention, it may hold an inquiry to determine whether or not the financial service provider is committing or has committed a contravention" (emphasis added).

Section 33AO(2) of the 1942 Act provides that: "whenever the Bank suspects on reasonable grounds that a person concerned in the management of a regulated financial service provider is participating or has participated in the commission of a prescribed contravention by the financial service provider, it may hold an inquiry to determine whether or not that person is participating or has participated in the contravention." (emphasis added).

The term "inquiry" is defined in Section 33AN of the 1942 Act as: "an inquiry held under Section 33AO or Section 33AR, and includes such an inquiry begun by the former Regulatory Authority and continued by the Bank".

Section 33AP of the 1942 Act provides that, before holding an Inquiry under Section 33AO, the Central Bank shall give notice in writing of the proposed Inquiry to the RFSP or Individual and the notice must specify the grounds on which the Central Bank's suspicions are based; and specify a date, time and place at which the Central Bank will hold the Inquiry; and invite the RFSP or Individual either to attend the Inquiry or to make written submissions about the matter to which the Inquiry relates.

1.1 Investigation phase

The Central Bank's Outline explains that the Central Bank may commence an investigation where a concern arises that a prescribed contravention has been or is being committed. These concerns may arise in the normal course of work undertaken by one of the Central Bank's Supervisory Divisions, or from other sources. This investigation is conducted by the Central Bank's Enforcement Division.

The Outline explains that the purpose of the investigation is to gather sufficient information to enable the Central Bank to determine whether it has reasonable grounds to suspect that a prescribed contravention is/has been committed and whether to refer the matter to Inquiry or to take such action as is appropriate. In the course of its investigation the Central Bank may interview individuals who it considers may have information relevant to the suspected prescribed contravention. It can also avail of the extensive "compulsory" powers contained in the 2013 Act which include requiring persons to answer questions and to make declarations as to the truth of those answers.

The possible steps after the investigation phase are as follows:

  • Central Bank decides to take no further action;
  • Central Bank decides to take other supervisory action;
  • Central Bank decides to issue a Supervisory Warning;
  • parties agree to enter into a settlement agreement;
  • Central Bank decides to establish an Inquiry;
  • Central Bank decides to initiate a summary criminal prosecution; or
  • Central Bank refers matter to other authority or enforcement body.

The Outline notes that the Central Bank may discontinue an investigation and take no further action where the information gathered in its investigation leads it to conclude that no prescribed contravention was committed, or that the matter is very minor in nature, immediate remedial action has been taken and full co-operation has been provided, or the Central Bank considers resources could be more effectively directed to other uses and/or other relevant policy considerations apply.

In terms of supervisory action, the Central Bank notes that, notwithstanding any other action taken, it may decide that further action should be taken in relation to the supervision of the RFSP, including the issuing of directions or conditions.

A Supervisory Warning may be issued by the Central Bank where it has reasonable grounds to suspect a breach of statutory or regulatory requirements has occurred, but it believes that the matter does not warrant sanction under the ASP. The Outline states that Supervisory Warnings may be issued where full co-operation is received, the matter giving rise to concern is minor in nature, the problem was rectified immediately and considerations supporting another enforcement approach do not apply. The Outline document notes that if it proves necessary to issue a Supervisory Warning, that shall form part of the compliance record of the RFSP or Individual.

Interestingly, neither Section 33AO(1) (nor any other Section of Part IIIC of the 1942 Act) provides for an investigation procedure. It only provides for an "inquiry". Furthermore, whilst Section 33BD provides that the Central Bank may prescribe guidelines with respect to the conduct of Inquiries under Part IIIC, it makes no mention of prescribing guidelines with respect to the conduct of investigations.

1.2 Central Bank Inquiries

Under the 1942 Act, where the Central Bank "suspects on reasonable grounds" that a RFSP is committing or has committed a prescribed contravention and/or an Individual has participated in the prescribed contravention, it may hold an Inquiry to determine whether or not the RFSP/Individual is committing or has committed the contravention.

An Inquiry is a formal hearing, normally held in public, before members of the Inquiry made up of personnel from the Central Bank and/or external individuals who are not meant to have been involved in the investigation of the matters alleged. The Central Bank's website lists the individuals who currently comprise its Inquiry Panel and from which individual Inquiry Member(s) will be appointed for a particular case.

Before it holds such an Inquiry, the Central Bank is required to give notice in writing of the proposed Inquiry setting out the grounds upon which its suspicions are based, setting out the date, time and place at which the Inquiry will be held and inviting submissions/attendance at the Inquiry.

The 1942 Act provides that, at the conclusion of an Inquiry, the Central Bank shall make a finding as to whether the prescribed contravention was or is being committed and if it makes such a finding it can impose one or more of a series of sanctions including a caution or reprimand, a direction to pay a monetary penalty and directions to cease committing the contravention (for further information see paragraph 1.4 below).

As an alternative, if the RFSP/Individual acknowledges that it/he/she has committed or is committing the contravention then the Central Bank can, with the agreement of the RFSP/Individual, dispense with holding an Inquiry and proceed to impose a sanction under a settlement agreement, or to hold an Inquiry to determine what sanction, if any, should be imposed. It appears as though the latter option might be used where the RFSP/Individual has admitted the contravention(s), but is not in agreement with the sanction proposed by the Central Bank to resolve the matter at settlement.

1.3 Settlement Agreements

The 1942 Act also provides that where the Central Bank has a reasonable suspicion as outlined above it is entitled to enter into a settlement agreement in writing, to resolve the matter. It can do so once it has that reasonable suspicion and at any time before an Inquiry is completed.

The 1942 Act says nothing as to the content of settlement agreements nor as to the settlement process, including discounts, publicity statements etc. Such matters are however addressed in the Outline.

The Central Bank's Outline states that it will not consider settlement until it has gathered sufficient factual information to understand the nature and gravity of the suspected prescribed contraventions and to allow it to make an assessment of the suitability or otherwise of the case for settlement. It also states that the settlement procedure may be considered by the Central Bank at any time from which full information has been received in response to questions raised in its Investigation Letter(s) in open correspondence, until the date the Inquiry makes a finding as to whether the RFSP/Individual has committed/participated in the commission of, a prescribed contravention.

If the Central Bank deems the case appropriate for settlement its current practice, as set out in its Outline, is that it can offer the RFSP/Individual a discount of up to 30% of the sanction it believes may otherwise be imposed at Inquiry, if the RFSP settles the case within the period specified by the Central Bank in a Settlement Letter. If the case is settled outside this period, but before a Notice of Inquiry issues, a discount of up to 10% is available. The Central Bank states that once the Notice of Inquiry is issued, no discount will be applied.

It is important to note that the Central Bank has stated that it will only enter into a settlement agreement where:

  • the RFSP admits the breaches or an Individual admits involvement in them;
  • where the RFSP demonstrates that it has acted promptly to take, what the Central Bank considers to be, the necessary remedial action to deal with its concerns; and
  • where the RFSP/Individual agrees to a public statement being issued detailing the name of the RFSP/Individual, the prescribed contraventions, the facts of the case and the sanctions imposed.

In most cases, a settlement agreement also involves the payment of a fine. This will be calculated taking into account the various sanctioning factors which are listed at paragraph 6.3 of the Outline and include the nature, seriousness and impact of the contravention, the conduct of the RFSP/Individual after the contravention and the previous record of the RFSP/Individual.

Every settlement is followed by a public statement on the Central Bank's website, which contains details about the settlement. In practically every instance it is reported in the Irish press and may in fact be disseminated by the Central Bank more widely, as according to the Central Bank's own publications, these are carried by media outlets giving European and global distribution, including traditional print outlets, online resource sites and financial and securities markets wire services (e.g. FT, Bloomberg, Reuters and NASDAQ).

Where a settlement agreement is reached this will be noted on the RFSP's compliance record and can influence a decision by the Central Bank to bring other ASPs at a later date. A settlement agreement entered into with an Individual may also be considered by the Central Bank in assessing a subsequent application by that person to perform a pre-approval controlled function under the Central Bank's Fitness and Probity Regime.

It is also of note that under the Fitness and Probity Regime applicable to directors/officers of RFSPs, where a member of the board or other senior officers were to seek to be approved as pre-approval controlled functions in other Irish regulated entities at a later date, they would be required to disclose to any proposed appointing company the fact that they were a director/ officer of a firm which had been sanctioned.

1.4 Sanctions

If a negative finding is made against a RFSP/Individual at Inquiry, the Central Bank has a range of sanctions available to it. These include the following (and are not mutually exclusive):

  • a financial penalty of up to Euro 10 million or 10% of the RFSP's annual turnover in the year before the finding was made (whichever is greater);
  • a financial penalty of up to Euro 1 million on an Individual;
  • the suspension or revocation of a RFSP's authorisation;
  • the disqualification of an Individual from being involved in the management of an RFSP, for a certain length of time.

The Central Bank tends to use the sanctions available at Inquiry as a benchmark for the type of sanctions which may be imposed at settlement.

As at 31 December 2016, the Central Bank had entered into over 100 settlements under its ASP with RFSPs/Individuals and imposed fines of over Euro 44 million. This does not include the fines of Euro 5 million each which it said it would have collected from Quinn Insurance Limited (Under Administration) and Irish Nationwide Building Society but for the exceptional circumstances of those cases. Eleven Individuals have also agreed to disqualifications ranging in length from 1 year to 10 years.

In 2016, 9 settlements were entered into and over Euro 12 million in fines were imposed on RFSPs/Individuals. This marks the highest annual figure for fines imposed to date under the ASP.

So far three cases have been referred to Inquiry, although only two Inquiries (relating to multiple individuals) are ongoing.2 These Inquiries relate to five individuals who were involved in the management of Irish Nationwide Building Society and two individuals who were concerned in the management of Quinn Insurance Limited (Under Administration).

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1 This figure does not include the fines of €5 million each which were imposed on Irish Nationwide Building Society in 2015 and on Quinn Insurance Limited (Under Administration) in 2013, which were waived/not collected for public interest reasons.

2 One of the cases which was referred to Inquiry concerning an insurance intermediary subsequently settled in June 2016 after the Notice of Inquiry was issued.

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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