Financial Services Regulatory Enforcement Newsletter - Quarter 3 - Financial Services

Welcome to Maples and Calder's quarterly newsletter on financial services regulatory enforcement, where we provide you with updates on all hot regulatory and enforcement topics, from global trends to in depth advice on Irish-specific issues.

ENFORCEMENT ACTIONS - IRELAND

The Central Bank issued warning notices against three unauthorised investment firms during the third quarter of 2013. These warnings can be very damaging to the reputation of a firm and they have a knockon impact when applying for regulatory licences in other jurisdictions or when applying to be an approved person.

For further details please see: http://www.centralbank.ie/regulation/unauthorised-firms/pages/list-search-unath.aspx

There were two enforcement sanctions issued against Irish regulated entities during the third quarter of 2013. Of particular interest is that the Central Bank reprimanded, fined and disqualified a senior person for three years. The enactment of the Central Bank (Supervision and Enforcement) Act 2013 has given the Central Bank far reaching powers of enforcement. It is expected that the reprimanding of individuals will increase over the coming years as has happened in the UK by the Financial Conduct Authority ("FCA").

For further information please see: http://www.centralbank.ie/publications/Pages/settlement-agreements.aspx

The Central Bank's investigation of Custom House Capital was deferred in August 2013 pending the completion of an investigation by An Garda Síochána.

For further information please see: http://www.centralbank.ie/press-area/press-releases/Pages/UpdateonCustomHouseCapital.aspx

ENFORCEMENT ACTIONS - INTERNATIONAL

During quarter three, the UK FCA issued warning notices against a large number of firms acting without the necessary regulatory licence. Also in the UK, nine entities were fined (c. £50million), three people were banned from acting in significant influence roles, six people received personal fines between £28k and £597k and one person received a two year jail sentence.

For further details please see: http://www.fca.org.uk/news/list?ttypes=&yyear=2013&ssearch=

In international news, the US Securities and Exchange Commission has charged over 20 firms with violations of short-selling rules amounting to c. $15m.

LEGISLATIVE/REGULATORY ENFORCEMENT DEVELOPMENTS - IRELAND

Central Bank (Supervision and Enforcement) Act 2013

The Central Bank (Supervision and Enforcement) Act 2013 was signed into law on 11 July 2013 and came into effect on 1 August 2013.

Click here to read more: http://www.irishstatutebook.ie/pdf/2013/en.act.2013.0026.pdf

This quarter's featured article highlights some of the key aspects introduced in the Act.

Central Bank Reform Act 2010 (Commencement of Certain Provisions) Order 2013

Under this statutory instrument, signed in September 2013, the Central Bank is required to prepare a strategic plan and submit it to the Minister for Finance who will put it before the House of the Oireachtas. The strategic plan must specify: the objectives, nature and scope of the Central Bank's activities; its strategies and policies for achieving those objectives; targets and criteria for assessing its performance; and the uses for which it proposes to apply its resources.

Protected Disclosures Bill 2013

In July 2013 the Minister for Public Expenditure and Reform published the Protected Disclosure Bill 2013 which will protect whistleblowers on a cross sector basis.

Amongst the protections included in the Bill is possible compensation of up to five years' remuneration in the case of unfair dismissal for having made a protected disclosure.

For further details please see: http://www.oireachtas.ie/viewdoc.asp?DocID=23966&&CatID=59

The Central Bank (Supervision and Enforcement) Act 2013

Following your feedback to last quarter's newsletter this quarter's featured article is on the recently enacted Central Bank (Supervision and Enforcement) Act 2013 (''2013 Act'') which will fundamentally change the regulatory landscape in banking and financial services. It greatly enhances the powers of the Central Bank of Ireland ("CBI") in a number of respects. These include the following:

It gives the CBI the power to write rules in a broad range of areas including conduct of business, financial regulation systems and procedures and dealing with client assets. The CBI is not obliged to consult with persons other than the Minister for Finance before making these rules. Notwithstanding it is hoped that the CBI will engage in a robust consultation exercise with industry in advance of finalising these rules.

If a regulated entity breaches any of these new rules, and this causes loss to a customer, the customer can sue for damages on foot of a statutory right of action. This right is not confined to private customers. However it probably does not apply to counterparties.

Where a regulated entity has engaged in "widespread or regular" breaches of rules causing customer loss, the CBI can direct the entity to provide for a scheme of redress. This is, in effect, a form of "class-action" relief.

The CBI can direct a regulated entity to provide a report to the CBI (at the entity's cost), or an auditor's report, with regard to certain regulatory matters specified by the CBI.

Legal protections are provided for "whistleblowers". These do not extend, however, to anonymous disclosures.

The CBI's information-gathering and inspection powers are bolstered. Further these provisions impact significantly on the manner by which the privilege against self-incrimination and the entitlement to legal professional privilege may be claimed.

The CBI's powers to give directions to a regulated entity to restrict its business or cease to carry on business, and to obtain injunctions and restitution orders in support of its regulatory enforcement powers are strengthened and extended.

The powers of the Financial Services Ombudsman ("FSO") have been extended to include a power to "name and shame" regulated entities against whom three complaints have been substantiated in whole or in part by the FSO.

There are important new provisions dealing with the prosecution of criminal offences and the manner by which evidence (including expert evidence by an accountant or other industry expert) can be presented to a jury.

In summary, the 2013 Act represents a sea-change in the approach to banking and financial services regulation in Ireland. This seems clearly to be a response to the perceived (and now much criticised) "light-touch" style of regulation in place before the credit crunch. The new legislative framework envisages a pro-active approach by the CBI. Its arsenal of enforcement powers has been greatly strengthened and extended. It remains to be seen whether the CBI has the resources to employ these powers on the scale envisaged by the 2013 Act. What is clear, however, is the need for regulated entities actively to engage in any consultation exercise conducted by the CBI in advance of exercising its rule making powers. The introduction of a statutory right of action creates a significant area of regulatory exposure independent of the CBI's ability or inclination to exercise its new enforcement powers. It is vital that the industry embraces any opportunity presented to influence the content of the new regime.

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.