From 1 December 2011 all persons occupying a pre-approval controlled function ("PCF") in a regulated financial service provider (other than credit unions) have been subject to the fitness and probity standards (the "Standards") issued by the Central Bank of Ireland (the "Central Bank") and the enforcement procedures as contained in Part III of the Central Bank Reform Act 2010 ("the Act").
The Head of Financial Regulation may conduct an investigation in relation to the fitness and probity of a person carrying out a PCF or a CF ("controlled function") (persons occupying a controlled function will also be subject to the Act and Standards on a phased basis) if the Head of Financial Regulation is of the opinion that (a) there is reason to suspect the person's fitness and probity to perform the relevant controlled functions, and (b) in the circumstances an investigation is warranted into the person's fitness and probity.
The Head of Financial Regulation has powers pursuant to the Act to issue Evidentiary Notices, Suspension Notices, and Prohibition Notices. There are penalties for non-compliance which are dealt with in detail below.
Evidentiary Notices
Section 32 of the Act provides that the Head of Financial Regulation can serve a notice called an Evidentiary Notice requiring that person:
- to appear before the Head of Financial Regulation to give evidence about a matter;
- to provide information to the Head of Financial Regulation; and
- to produce a document for examination,
if -
- the Head of Financial Regulation is investigating the person's fitness and probity under Chapter 3; or
- the Head of Financial Regulation believes on reasonable grounds that the person may be able to give evidence, or to produce a document, that relates to a matter concerning the fitness or probity of a person whose fitness and probity is being investigated under Chapter 3.
Therefore, the Head of Financial Regulation not only has the power to call the person whose fitness and probity is being investigated to give evidence and/or provide relevant documentation but he can also call anybody else who, he believes, may be able to give evidence or produce documents in relation to his investigation of a specific person's fitness and probity.
Evidence to be given or documents to be produced in compliance with an Evidentiary Notice are ordinarily given or produced in private. It is open to a party to request that compliance with the Evidentiary Notice be dealt with in public if certain conditions are met.
If the Head of Financial Regulation is satisfied that it is desirable in the public interest that certain matters be dealt with in public the Head of Financial Regulation can direct that accordingly.
A person commits an offence if, having been required to appear before the Head of Financial Regulation in compliance with an Evidentiary Notice, he fails to so appear without a reasonable excuse or without having been released from further attendance by the Head of Financial Regulation.
Failure to produce a document or provide information to the Head of Financial Regulation in compliance with the terms of an Evidentiary Notice is an offence unless the subject of the Evidentiary Notice has a "reasonable excuse". "Reasonable excuse" includes, but is not limited to, the fact that:
- the person does not have the document or information and cannot by any reasonable effort obtain it, or
- the person could not be compelled to produce the document in, or provide the information to, a court of law.
In compliance with an Evidentiary Notice a person appearing before the Head of Financial Regulation commits an offence if the person not having a reasonable excuse:
- refuses or fails to give evidence in compliance with the Evidentiary Notice, or
- refuses or fails to answer a question put to the person by the Head of Financial Regulation on cross-examination with the permission of the Head of Financial Regulation.
It is a reasonable excuse for a person to refuse or fail to answer a question if the answer might tend to incriminate the person.
The Head of Financial Regulation may hear oral evidence where he is satisfied that it is necessary to do so for the proper conduct of the investigation. The Head of Financial Regulation may permit a person giving oral evidence to be cross-examined. The Head of Financial Regulation shall determine the procedures for the conduct of proceedings in any investigation subject to any Regulations made by the Central Bank under Section 53(2) of the Act. No Regulations have been made under this Section to date.
Assistance of the High Court
The Head of Financial Regulation may apply to the High Court for assistance if a person fails:
- to produce a document to the Head of Financial Regulation in accordance with an Evidentiary Notice;
- to provide information to the Head of Financial Regulation;
- to attend before the Head of Financial Regulation in accordance with an Evidentiary Notice; or
- to answer a question put to him or her by the Head of Financial Regulation.
The High Court may make an order to give any direction it thinks fit. Without prejudice, the High Court may:
- order the person concerned to attend or re-attend before the Head of Financial Regulation or to produce a particular document, provide particular information or answer a particular question put to him or her by the Head of Financial Regulation; or
- order that the person concerned need not produce a particular document, provide particular information or answer a particular question put to him or her by the Head of Financial Regulation.
Report
Section 41 of the Act provides that after carrying out an investigation the Head of Financial Regulation shall prepare a report for consideration by the Central Bank and the Governor. The Head of Financial Regulation has to serve a copy of the report on each of the persons whose fitness and probity was the subject of the relevant investigation and any regulated financial service provider concerned and submissions can made to the Head of Financial Regulation on the report.
Suspension Notice
If a person's fitness and probity is, or has been, the subject of an investigation under Section 25 of the Act by the Head of Financial Regulation and he is satisfied that in the interests of proper regulation of a regulated financial service provider that the person did not perform the relevant controlled function or any controlled function he can issue what is referred to as a Suspension Notice. The Head of Financial Regulation must serve a copy of the Suspension Notice on various parties including the suspended person and the financial service provider.
The Head of Financial Regulation can impose on any regulated financial service provider concerned any terms and conditions relating to the enforcement of, or compliance with, the Suspension Notice that the Head of Financial Regulation thinks fit (including any condition as to the cessation, restriction or conduct of all or part of the business of the regulated financial service provider concerned until the regulated financial service provider complies with the notice).
A suspended person shall cease performing his functions as specified in the notice.
A Suspension Notice that has not been confirmed by the Head of Financial Regulation takes effect on its service on the regulated financial service provider for whom the suspended person performs the relevant controlled function, and ceases to have effect at the end of the tenth day after that service, unless within that period it is confirmed in accordance with Section 29 of the Act or, if before the end of that day, the Head of Financial Regulation revokes the notice.
Assistance of the High Court
The Head of Financial Regulation, having considered any written submissions made by the financial service provider or the suspended person is satisfied that:
- there is still reason to believe that the person is not of such fitness and probity as is appropriate to perform the relevant controlled function;
- in the circumstances an investigation is still warranted into the person's fitness and probity; and
- it is necessary in the interests of the proper regulation of the financial service provider that the person not perform the controlled function, or any controlled function, while the matter is investigated;
the Head of Financial Regulation may confirm the Suspension Notice.
A Suspension Notice that has been confirmed has effect for three months (unless sooner revoked) from the date upon which it would otherwise have ceased to have effect under Section 28(b) of the Act.
The Head of Financial Regulation may revoke a Suspension Notice at any time if certain conditions are met.
The Head of Financial Regulation may apply ex parte to the Court for an order directing the person or regulated financial service provider to comply with the Suspension Notice if they are failing to do so.
The Head of Financial Regulation may apply to the High Court on notice to a suspended person for an order extending the period of validity of the notice. If the Court is satisfied that there are sufficient grounds to extend the period of validity of the notice, the Court may extend the notice for such further period (but not longer than a further three months) as the Court orders.
Various considerations must be taken into account by the Court before making such an order as provided for in the Act.
Prohibition Notice
A "prohibited person" is a person forbidden by a Prohibition Notice to carry out a controlled function.
The Act provides that if the Central Bank or the Governor has reasonably formed the opinion that a person is not of such fitness and probity as is appropriate to perform a particular controlled function it may issue a notice in writing, referred to as a Prohibition Notice, forbidding the person to:-
- carry out the controlled function, or
- carry out the controlled function, otherwise than in accordance with a specified condition or conditions,
either for a specified period or indefinitely.
The Central Bank or the Governor shall not issue a Prohibition Notice in relation to a person unless:
- either:
- all of the following requirements have been satisfied:
- the Head of Financial Regulation has conducted an investigation into the person's fitness and probity in accordance with Chapter 3;
- Section 41 has been complied with in relation to that investigation and the report of it;
- the Central Bank or the Governor, as the case may be, has considered the report and any submissions made to the Head of Financial Regulation in relation to any matter in the report; or
- there are undisputed facts that in the reasonable opinion of
the Central Bank or the Governor render an investigation
unnecessary, and the person and any regulated financial service
provider concerned have been afforded a reasonable opportunity to
make a submission in relation to the matter.
- the person and the regulated financial service provider have been afforded such a hearing in relation to the proposed issue of the Prohibition Notice as is necessary to do justice in the circumstances, and
- the Central Bank or the Governor, as the case may be, is
satisfied that the issue of a Prohibition Notice is necessary in
the circumstances.
- all of the following requirements have been satisfied:
A number of the procedural matters relating to Suspension Notices are mirrored in the Prohibition Notices section of the Act such as service requirements and when the notice takes effect.
A Prohibition Notice ceases to have effect at the end of two months (or a shorter period specified in the notice) beginning on the day after it is first served if no application is made to the High Court within that period.
Assistance of the High Court
The Central Bank may publish a Prohibition Notice if, in the opinion of the Governor, it is necessary to do so in order to achieve the purposes of the Act.
A Prohibition Notice shall not continue for longer than is necessary to achieve its purposes and the Bank or the Governor shall not make an application to the High Court in relation to the Prohibition Notice unless satisfied that it is necessary that the notice continue for longer than two months to achieve its purposes.
The Head of Financial Regulation can apply ex parte to the High Court for an order directing the person or regulated financial service provider to comply with a Prohibition Notice.
The Central Bank may apply to the High Court for an order confirming a Prohibition Notice. This can be done ex parte. The High Court, insofar as it is practicable, should hear and determine an application under this Section within three months from the date on which the application is made. The High Court can order that the matter can be held otherwise than in public.
On an application under Section 45 of this Act:
- if the court is satisfied that there is a reasonable basis for the opinion of the Central Bank or the Governor, as the case may be, that the prohibited person concerned is not of such fitness and probity as is appropriate to perform the relevant controlled function may make an order confirming or varying the terms of the notice; and
- if the court is not satisfied as provided for in paragraph 1, the court may make an order setting aside the notice, an order remitting the matter to the Central Bank or the Governor for reconsideration in accordance with any directions by the court (whether or not the court also sets aside the notice), or the court can make an order to have effect indefinitely or for a particular period that the court thinks appropriate or until further order of the court.
The regulated financial service provider can agree in writing with the Central Bank or Governor that the person shall continue to comply with the Prohibition Notice for such period as is agreed between them. If there is contravention of this agreement the Central Bank can apply for an order and the Prohibition Notice can continue in effect.
Offences and penalties
The Central Bank can use information and evidence gathered by the Head of Financial Regulation in the course of an investigation under Chapter 3 or any documents or evidence placed before the High Court in the course of proceedings under Chapter 3 or 4, or any submissions made to the Head of Financial Regulation under Section 41 for the purposes of performing its statutory function of inquiry pursuant to Part III C of the Central Bank 1942 Act.
If any of the information provided or documents provided are false or misleading a person commits an offence.
A person guilty of an offence under Part III of the Act is liable:
- on summary conviction, to a fine not exceeding €5,000 or imprisonment for a term not exceeding 12 months or both, or
- on conviction on indictment, to a fine or imprisonment for a term not exceeding five years or both.
Financial service providers can also face a sanction under the Central Bank administrative sanction procedures contained in Part IIIC of the Central Bank Act 1942 (as amended). An offending individual may be subject to a fine of up to €500,000 and an offending service provider may be subject to a fine of up to €5 million. Under the Central Bank Supervision and Enforcement Bill 2011 it is proposed to increase these amounts to €1 million and the greater of €10 million or 10% of the previous year's turnover respectively. The Bill imposes obligations on persons occupying PCFs to make disclosures where they know or believe that a contravention of a financial services legislation has or may have been committed and a service provider may have its authorisation revoked, suspended and administrative sanction imposed upon it.
Conclusion
If the Head of Financial Regulation does decide to investigate the fitness and probity of persons carrying out a PCF or a CF, not only is it open to him to seek relevant documents and information from the person being investigated but he can also seek documents and information about that person from not only the regulated financial service provider but others who may have information relevant to the investigation. Such documents may not necessarily be limited to official documents and certainly the Act is drafted broadly so as to, encompass, conceivably, personal files of the person being investigated including his or her relevant emails and soft copy attachments, personal hard copy files, mobile phones records and SIMs, blackberries, diaries etc. Any request for documents by the Head of Financial Regulation as part of an investigation must be proportionate in nature and due process and fair procedures must be applied. A person being investigated should give consideration to whether any documents sought might attract legal professional privilege.
It should be noted that as part of an investigation the Head of Financial Regulation can pose questions to a person occupying a PCF regarding historical matters relevant to that person's fitness and probity. A person performing a PCF can be cross examined by the Head of Financial Regulation or his representative and although the Act anticipates that such questioning/document giving take place in private there are occasions when hearings can take place in public. There are various penalties provided for in the Act for non-compliance and the High Court can be engaged by the Head of Financial Regulation to assist with enforcement.
The powers of investigation and enforcement of the Head of Financial Regulation under the Act are extensive and sweeping. Undoubtedly, the Head of Financial Regulation will use his powers under the Act in 2012; however, to what extent and with what alacrity, force and severity - we will have to wait and see.
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.
