The Central Bank of Ireland (the "CBI") has recently published a Prohibition Notice in relation to an individual who was formerly a partner in a firm which was authorised under the Investment Intermediaries Act 1995 and under the European Communities (Insurance Mediation) Regulations 2005 (the "Individual"). The Prohibition Notice prohibits the Individual from performing any controlled function in any regulated financial service provider indefinitely.
This is the sixth Prohibition Notice to be issued by the CBI. Notably, it is the first time that the CBI has exercised its discretion to publish a Prohibition Notice (albeit with some redactions). Up to now, the CBI has only published brief statements on its website giving high level details of Prohibition Notices it has issued.
The Prohibition Notice related to the fact that the Individual had misappropriated funds from a client. The Prohibition Notice was issued after the Individual signed a Statement of Undisputed Facts, concerning the matters set out below.
A client had given the Individual two cheques in the amounts of €2,961 and €28,750 to forward to J&E Davy, trading as Davy, for the purposes of paying this money into the client's personal pension and his spouse's pension. On the instruction of the Individual, the client had left the cheque for €28,750 blank. The Individual altered the name on the cheque for €2,961 so that the Individual was the payee rather than Davy and inserted his own name on the blank cheque. The Individual then lodged both cheques to his personal account.
The CBI commenced a fitness and probity investigation under section 25 of the Central Bank Reform Act 2010 (the "2010 Act"), after becoming aware of an allegation that the Individual had misappropriated funds from a client, via its whistle-blower desk.
Fitness and Probity Investigations
The CBI can commence a fitness and probity investigation where it has reason to suspect a person's fitness and probity to perform the relevant controlled function and in the circumstances an investigation is warranted into the person's fitness and probity.
The CBI is not required to carry out an investigation into a person's fitness and probity if there are "undisputed facts" that in the reasonable opinion of the CBI make it unnecessary to carry out an investigation and the relevant person and any regulated financial service provider concerned have been afforded a reasonable opportunity to make submissions on the matter. The CBI's "Guidance on Investigations Under Part 3 of the Central Bank Reform Act 2010" notes that this will only occur i.e. issuing a Prohibition Notice without an investigation, "in exceptional circumstances".
If the CBI concludes that the person does not have the fitness and probity as is appropriate to perform a particular controlled function ("CF"), part of a CF or any CF then it may issue a Prohibition Notice. The Prohibition Notice can forbid the person from carrying out all or part of the CF, or from carrying out any CF, unless specified conditions are met. The Prohibition Notice can be for either a defined period or last indefinitely.
Notable features of this case
- The Prohibition Notice was issued on the basis of "undisputed facts": usually a Prohibition Notice is issued following the completion of a fitness and probity investigation as referred to above. In this case, although a formal fitness and probity investigation was commenced by the CBI, it was subsequently discontinued. This was because the Individual had signed a "Statement of Undisputed Facts" in which he confirmed that he had altered the client's cheques and lodged each cheque to his personal bank account. The CBI therefore considered that "...there were such undisputed facts as to render the continuation of the Investigation unnecessary."
- The misconduct was found to have fallen at the higher end of the seriousness scale: the CBI noted that the Individual only admitted his involvement in the unauthorised transactions when the client became aware of the discrepancy in the balance of his Davy account and confronted the Individual about it. The CBI noted that one of the most important functions of an investment business firm or insurance intermediary is the protection of client assets and the Individual failed to protect them.
- Mitigating features:
the CBI said the fact that the Individual had repaid the monies in
full to the client, plus an additional amount by way of
compensation for subsequent tax relief plus potential interest and
penalties payable by the client to the Revenue Commissioners, was a
mitigating factor which could "be taken into account to
The CBI found however that the extent of the individual's cooperation during the process was not a material mitigating factor. While it acknowledged that the Individual signed a Statement of Undisputed Facts it noted that the CBI had extended the Individual "significant latitude" in permitting him to make submissions following the expiry of a number of deadlines.
The CBI noted that two medical reports relating to the Individual had been received by it as part of a submission by the Individual's solicitors for a more limited period of prohibition to be imposed, but found that they did not excuse the Individual's actions or the fact that he did not admit to those actions until they were uncovered some months later.
- CBI exercised its discretion to publish a Prohibition Notice: this is the first time that the CBI has exercised its direction under the 2010 Act to publish a Prohibition Notice. Up until now it has only issued brief factual statements about Prohibition Notices which it has issued and has only given high level background detail to the case.
This is the third Prohibition Notice which the CBI has published in the last year. The other two Prohibition Notices have also prohibited the relevant individuals from performing any controlled function in any regulated entity for an indefinite period. The decision of the CBI to publish the Prohibition Notice in this case is also interesting, and perhaps represents a move by it to show the actions it is taking to hold individuals to account.
The CBI also imposed substantial fines and lengthy periods of disqualifications on two individuals last year under its Administrative Sanctions Procedure and recently recommended that an Individual Accountability Framework should be introduced.
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