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February 2021

The Matheson Fitness & Probity Handbook

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CONTENTS

Page No

1 IntroductiontotheHandbook..................................................................................................................................1

2 ResourceMaterials..................................................................................................................................................22.1 Part 3 of the 2010 Act............................................................................................................................22.2 Regulations............................................................................................................................................22.3 Central Bank materials..........................................................................................................................2

3 BackgroundtoFitnessandProbityandwhereitstandstoday................................................................................33.1 PCFs and CFs – Part 3 of the 2010 Act and the Regulations.............................................................43.2 Identification of CFs and PCFs..............................................................................................................4

4 PCFRoles...................................................................................................................................44.1 What roles are PCF roles.................................................................................................44.2 Appointment of a PCF.....................................................................................................54.3 The Assessment Process for PCFs....................................................................................54.4 Refusal and Withdrawal of PCFs.......................................................................................5

5 CFs...........................................................................................................................................65.1 Where a CF is suspected of not being fit and proper.........................................................................7

5.1.1 CF Investigations.......................................................................................................................75.1.2 Suspension Notices...................................................................................................................95.1.3 Prohibition Notices.................................................................................................................. 10

5.2 SSM Requirements.............................................................................................................................. 13

6 TheStandards....................................................................................................................................................... 146.1 Competent and capable...................................................................................................................... 146.2 Honest, ethical and to act with integrity........................................................................................... 146.3 Financial Soundness............................................................................................................................ 15

6.4 Exceptions............................................................................................................................................ 15

7 TheGuidance......................................................................................................................................................... 167.1 Application of the Code....................................................................................................................... 167.2 Identifying CFs and PCFs.................................................................................................................... 167.3 Outsourcing.......................................................................................................................................... 167.4 Approval process for PCFs.................................................................................................................. 177.5 Standard of fitness and probity appropriate for a CF....................................................................... 177.6 Additional due diligence for CF1, CF2 and PCFs............................................................................... 187.7 Failure to comply with the Code......................................................................................................... 187.8 Continuing nature of the obligation................................................................................................... 18

8 ReportontheBehaviourandCultureoftheIrishRetailBanks..............................................................................208.1 What we know about the IAF - analysis of the Report.....................................................................20

8.1.1 Enhancements to the Fitness and Probity Regime....................................................................208.1.2 Unified Enforcement Process..................................................................................................20

8.2 The Government’s role and implementation timeline...................................................................... 21

9 CentralBanksDearCEOLetters............................................................................................................................22

9.1 April 2019.............................................................................................................................................22

9.2 November 2020...................................................................................................................................22

10 NewPCFroles........................................................................................................................... 23

10.1 Chief Information Officer............................................................................................... 23

10.2 Head of Material Business Line...................................................................................... 23

10.3 Head of Market Risk..................................................................................................... 2410.4 Split of PCF-39 Designated Person....................................................................................................2410.5 Next Steps............................................................................................................................................24

11 RecentEnforcementCases....................................................................................................................................2511.1 Appian Asset Management.................................................................................................................2511.2 Merrion Stockbrokers Limited............................................................................................................2511.3 Mr. Michael Kearns..............................................................................................................................2511.4 Mr. Rory O’Connor................................................................................................................................2511.5 Mr. Juerg von Geitz...............................................................................................................................26

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FITNESSANDPROBITYHANDBOOK

“The Central Bank’s vision for the fitness and probity regime is that regulated firms and individuals who work in these firms are committed to high standards of competence, integrity and honesty, and are held to account when they fall below these standards. This is an ideal that should resonate with you all, and indeed with the wider public”.

SeanaCunningham,DirectorofEnforcementandAnti-MoneyLaunderingattheCentralBankofIreland,17May2019

1 IntroductiontotheHandbook

Sinceits introduction,theCentralBankof Ireland’s(the“Central Bank”)fitnessandprobityregime(the“Regime”)hasaddedsignificant layersofcomplianceobligations tohuman resourceandcompliance teamswithinRegulatedFinancialServiceProviders(“Firms”).

WhentheRegimewasfirstintroduced,MathesonpublishedahardcopyFitnessandProbityHandbooktoassistclientsinnavigatingthenewrequirements.10yearshavenowpassedandtheRegimeremainsanareaofhighpriorityfortheCentralBank.Inthelightofthis,wehaveupdatedtheoriginalhandbooktoaccountfortheinterveningyearsandhavemovedittoanonlineplatformforeaseofreferenceandupdating(the“Handbook”).

ThisonlineHandbookisintendedasaresourceforthoserequiredtodealwiththeRegimebybringingtogether,inasimple,easy-to-usevolume,linkstoalltherelevantlegalinstrumentsandCentralBankdocuments(whichtogethermakeuptheRegime),alongwithMatheson’sowncommentaryandguidance,whereappropriate.

WewillupdatetheHandbookasandwhenthelawdevelopsinthisarea,particularlyinrelationtotheforthcomingintroductionoftheSEARregime,andwewillensurethatthetextisupdatedastheruleschange.WehopeitbecomesyourgotoresourceonallmattersrelatingtotheRegime.

Darren MaherPartner

T +35312322398

E darren.maher@matheson.com

Joe BeashelPartner

T +35312322101

E joe.beashel@matheson.com

Louise DobbynPartner

T +35312322094

E louise.dobbyn@matheson.com

Grainne CallananPartner

T +35312322050

E grainne.callanan@matheson.com

Claire ScannellProfessionalSupportLawyer

T +35312322287

E claire.scannell@matheson.com

Thismaterialisprovidedforgeneralinformationpurposesonlyanddoesnotpurporttocovereveryaspectofthethemesandsubjectmatterdiscussed,nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter. For detailed and specificprofessionaladvice,pleasecontactanymemberofourFinancialInstitutionsGroup.

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2 ResourceMaterials

WehaveincludedlinkstosomeofthekeylegislativeandregulatorymaterialsrelevanttotheRegimebelow.Thesematerialsarereferredtothroughoutthisdocument:

2.1 Part3ofthe2010Act:

InrespectofPart3oftheCentralBankReformAct2010(the“2010 Act”),wehaveincludedtwolinks.

▪ Part3ofthe2010Act.ThislinkbringsyoutoPart3ofthe2010ActontheOireachtaswebsite,asitwasenactedin2010.

▪ Part3ofthe2010Act.ThislinkbringsyoutotherevisedversionofPart3ofthe2010Act,publishedbytheLawReformCommission(the“LRC”).ThisconsolidatedversionreflectsalltheamendmentsmadetoPart3ofthe2010Actsinceitsenactment.Atthetimeofwriting,thelatestversionwasdatedasatJuly2018.

TounderstandmoreabouttheLRC’srevisedacts,pleaseclickhere.

Wherewehavelinkedothersectionsofthe2010Act,wehaveusedtheLRC’sversion(wherepossible)toshowthemostuptodatepicture.

2.2 Regulations:

▪ CentralBankReformAct2010(Sections20and22)(Amendment)Regulations2011

▪ CentralBankReformAct2010(Sections20and22)Regulations2011

2.3 CentralBankmaterials:

▪ Lists of Controlled Functions and Pre-approval Controlled Functions prepared by the Central Bank -CFsandPCFs

▪ FitnessandProbityStandards(CodeissuedunderSection50ofthe2010Act)

▪ CentralBank’sGuidanceonFitnessandProbityStandards

▪ CentralBank’sOnlineIndividualQuestionnaire

▪ CentralBank“UserGuide”oncompletingtheOnlineIndividualQuestionnaire

▪ CentralBankReportontheBehaviourandCultureoftheIrishRetailBanksJuly2018

▪ DearCEOLetteronFitnessandProbitydated8April2019

▪ CentralBankAdditionstotheListofPCFsdated9October2020

▪ DearCEOLetteronFitness&Probitydated17November2020

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3 Backgroundtofitnessandprobityandwhereitstandstoday

Thedecisionsandactionsofhigh-rankingindividualswithinFirmscanhaveafar-reachingeffect,notonlyonthebusinessofthatinstitutionbutalsoonthestabilityofthefinancialsectorasawhole.Itwasforthisreasonthat followinghisappointmentasDeputyGovernorat theCentralBank1 in January2010,MatthewElderfieldidentifiedtheabsenceofastatutorybasisfortheapprovalofkeypersonsinthefinancialservicesindustryasasignificantweaknessinIreland’sregulatoryinfrastructure.

ThethenMinisterforFinance,thelateBrianLenihan,addressedthisweaknessintheintroductionoftheCentralBankReformBill2010(the“Bill”),notingthatthenewpowerscontainedintheBillwouldenabletheCentralBanktoensurethefitnessandprobityofkeyoffice-holderswithinFirms.

TheBillbecamelawon17July2010withthe2010ActbringingtheRegimeintoeffect.Thekeyprovisionsinclude:

▪ Part3ofthe2010Actwhichcreatesthesystemfortheregulationofpersonsperforming“controlled functions” (“CF”) or “pre-approval controlled functions” (“PCF”) within Firms (with the exception ofcreditunions);

▪ Sections20and22ofthe2010ActgivetheCentralBankthepowertoprescribecertainfunctionsasCFs/PCFs,andsetoutcertainconditionsthatmustbesatisfiedinorderforafunctiontobeprescribedassuch;

▪ Section50ofthe2010ActempowerstheCentralBanktoissueacodeestablishingtheRegime;and

▪ severalsectionswhichgivetheCentralBankpower,toensuretheefficacyofthenewregime.

Afterthe2010Actwasintroduced,theCentralBankissuedthefollowingdocumentstosupplementthelegislativeframeworkalreadyinplace:

▪ asetofstatutoryinstruments(S.I.No.437of2011),(S.I.No.615of2011),(S.I.No.394of2014),(S.I.No.545of2015)and(S.I.No410of2020)whichidentifyCFsandPCFs(the“Regulations”);

▪ aCodeonFitnessandProbityStandards(the“Code”).TheCodespecifiestheStandardsofFitnessandProbity(the“Standards”),withwhichallpersonsperformingCFsandPCFsmust,ataminimum,complywith(seebelow).TheCode,likethe2010ActandtheRegulations,hastheforceoflaw;and

▪ asetofnon-statutoryguidanceontheapplicationoftheStandards(the“Guidance”).

The introductionof theRegimeoveradecadeagohas requiredFirmstochangehowtheyappoint theirkeypersonnel, as well as to making changes to systems and procedures to ensure and monitor compliance.However,thecurrentviewoftheCentralBankisthatnotenoughhasbeendone.Thisisevidencedinrecentcommunications from the Central Bank such as the Dear CEO Letter from April 2019 and November 2020(detailedbelow) and the recent enforcementaction takenagainst the formerCFOofRSA Ireland InsuranceDAC(“RSA”)(detailedbelow).WiththeproposedintroductionofanenhancedRegimeaspartoftheIndividualAccountability Framework (“IAF”), Firmsneed tobe moremindful thanever of compliance withfitness andprobityrequirements.

1 Pursuanttosection23(2)oftheCentralBankAct1942,theCommissionoftheCentralBankdecidedtochangethetitleof“HeadofFinancialRegulation”[and“HeadofCentralBanking”]to“DeputyGovernor”,asannouncedinIrisOifigiúil13May2011.

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ThelayoutofthisHandbookfollowsthechronologicaldevelopmentoftheRegime,setoutabove,addressingeachareainturn.However,westressthatwhendealingwithanyaspectoftheRegime,aFirmmusthaveregardtothe2010Act,theRegulations,theStandardsandtheGuidanceandshouldnotreadanysectioninisolationoftheotherstoensurethefullviewisachieved2.

3.1 PCFs and CFs – Part 3 of the 2010 Act and the Regulations

Asoutlinedabove,sections20and22ofPart3ofthe2010ActallowstheCentralBanktoprescribebothCFsandPCFsthroughtheintroductionofregulations.Regulationstothiseffectwerefirstintroducedon1September2011bywayofS.I.No.437of2011,whichweresubsequentlyamendedbyS.I.No.615of2011,S.I.No.545of2015,S.I.No394of2014andS.I.No410of2020.

3.2 Identification of CFs and PCFs

Schedule1andSchedule2oftheRegulationsidentifycertainstaffandofficeholderswithinFirmsasperformingCFsandPCFs, respectively. In total,54seniorpositionshavebeen identifiedasPCFs forwhichCentralBankapproval isrequiredpriortoacandidate’sappointment.11categoriesofstaffhavebeenidentifiedasCFsandthoughCFappointmentsarenotsubjecttopre-approvalbytheCentralBank,individualsinCFswhofailtomeettherequiredstandardsoffitnessandprobitycanbetemporarilyorpermanentlyremovedfromsuchpositionsorcanbeprohibitedfromtakingupsuchpositionsinfuture.3

PersonsperformingPCFsareapprovedbytheCentralBankonaninstitution-specificbasis.Therefore,apreviousapprovalinrespectofoneFirmwillnotofitselfenableapersontoperformaPCFforanother.4

TheRegulationsprovidethatitisthenatureofaperson’srolewithinaFirmandwhetherotherswithintheorganisationareaccustomedtoact inaccordancewiththatperson’s instruction,whichshouldbethekeyconsiderationsindeterminingwhetherapersonperformsaPCF.Whetherornotanytitle,oranyparticulartitle,isusedinrelationtothepersonconcernedwillnotberelevantifthepersondoesinfactperformaPCFrole.Itshouldalsobenotedthatanyreferenceto“directors”intheRegulationsincludesshadowdirectorsandalternateorsubstitutedirectors.5

TheRegulationsdonot limitCFsto functionsperformedwithin Ireland.Accordingly,wheresomeoneperformsaCForPCFoutsideIreland,butonbehalfofaFirmthatisauthorised,licensedorregisteredintheState,theywillbesubjecttothesamerules(includingpriorapprovaloftheCentralBankinthecaseofPCFs).However,theRegulationsdoprovidethatwheretheperformanceofafunctionisoutsourcedbywrittenagreement,toanentitywhichisregulatedeitherbytheCentralBankorbyacomparableregulatoryauthorityinanotherjurisdiction,thatfunctionwillnotbetakentobeaCForaPCF.6

IntheeventofatemporaryofficerbeingappointedtoaparticularPCF,thatpersonwillnotbetakenasresponsibleforthatPCF,providedhe/shehasbeenappointedonatemporarybasiswiththepriorwrittenagreementoftheCentralBank.7

Temporary PCFs vacancies in the COVID-19 Crisis

The COVID-19 pandemic has created an unusual situation in which there is a real possibility of an individualperformingaPCFrolebeingtemporarilyunabletofulfiltheirroleduetoillnessorrequiredisolation.ThereisalsoapossibilitythatandFirmmaynotbeabletofillacurrentlyvacantPCFroleduetothepandemic.

Toaddressthisissue,theCentralBankinitsCovid-19RegulatedFirmsFAQ,whichformspartoftheCentralBank’sCovid-19Hub,hasaddedanadditionalquestionandanswertotheexistingFAQlist-“howshouldregulatedFirmsmanagePre-ApprovalControlledFunctions(PCFs)vacanciesatthistime?”notingthatifaPCFroleholderisunabletoperformtheirroleduetoillnessorifaFirmcannotfillapermanentPCFrolevacancyduetoCOVID-19,theFIRMcanseektheapprovaloftheCentralBanktohaveanothersuitableindividualperformthatroleforalimitedperiod.

WhenappointingatemporaryPCFaFirmshould:

1 refertoitssuccessionandcontingencyplaninthefirstinstanceandidentifyasuitableindividualtoperformthePCFrole;and

2 contacttheCentralBankstatingthattheywishtomakeatemporaryappointment.WhencontactingtheCentralBankFirmsshould:■ outlinethespecificsofthecircumstancesthathavegivenrisetotheneedforthetemporaryappointment;■ provideconfirmationthattheFirmissatisfiedonreasonablegroundsthatthepersoncomplieswithand

hasagreedtoabidebytheStandardswhilstperformingthePCFrole;and■ outlinetheperiodoftimeforwhichtheappointmentisrequested.

ForfurtherinformationonthispleaserefertoMatheson’sInsightsarticleonsameavailablehere

2 Forexample,whendecidingtoappointaPCF,aFirmshouldreviewtherelevantsectionsintheRegulationsinconjunctionwiththeStandardsandtheGuidancetoensurethecorrectstepsarefollowedandcomplianceachievedwiththeCentralBank’sexpectations.

3 SINo437of2011(asamended),Schedules1and24 Regulation12,SINo437of2011(asamended)5 Regulations7,8and9,.SINo437of2011(asamended)6 Regulation11A,SINo437of2011(asamended).Itshouldbenoted,however,thatapersonbenefitingfromthisexclusionmaystillbesubjectto

aninvestigation,suspensionorprohibitionnoticeunderPart3ofthe2010Act7 Regulations11,SINo437of2011(asamended).

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4 PCFRoles

4.1 What roles are PCF roles?

Ingeneralterms,inordertobedesignatedasaPCF,afunctionmustenableapersontoexercisesignificantinfluenceintermsofhowtheaffairsofaFirmareconducted.8

ThelegislationalsoallowstheCentralBanktodesignatefunctionsasbeingPCFsbyreferencetofactorssuchaswhetherthepersonperformingthefunctionisanofficerofthecompanyortheChiefExecutive,orwhethertheyreportdirectlytoanofficerofthecompanyortheChiefExecutive.9Insuchcases,theCentralBankmustalsobesatisfiedthatthedesignationofthefunctionasaPCFis:(i)warrantedonthebasisofthesizeorcomplexityoftheFirmoritsbusiness;and(ii)necessaryorprudentinordertoverifytheFirm’scompliancewithitsobligations.

WhereaFirmisabodycorporateofaprescribedclass,itwillbetakenthatanofficerofthecompanyortheChiefExecutive,10personswhoholdofficesorpositionsinwhichtheyreportdirectlytoanofficerofthecompanyortheChiefExecutive,11exercisesignificantinfluenceintermsofhowitsaffairsareconducted.Similarly,allmembersofapartnershipwhichisaFirmofaprescribedclasswillbetakentoexercisesignificantinfluenceontheconductofitsaffairs12andwhereanaturalpersonisaFirmofaprescribedclass,thatpersonwillbetakentoexercisethelevelofinfluencenecessarytodesignatetheirfunctionasaPCF.13

Asidefromdesignationbywayofregulations,theCentralBankmayalsodeclareafunctiontobeaPCFbywayofwrittennoticeservedonaFirm.14Inordertodoso,thefunctionmustnotalreadyhavebeendesignatedaPCF,thepersonperformingthefunctionmustbeconcernedinthemanagementoftheFirmandtheremustbenootherpersonwhoperformsaPCFintheFirm.

4.2 Appointment of a PCF

Crucially,aFirmcannotappointanindividualtoperformaPCFwithouttheCentralBankhavingfirstapprovedthatpersonfortherole.15

This pre-approval requirement adds an extra and potentially onerous stage to the recruitment process, aspotentialcandidateswillneedtobeidentifiedtotheCentralBanksothattheiradherencetostandardsoffitnessandprobitycanbeassessed.

4.3 The Assessment Process for PCFs

Aspartoftheprocessbywhichacandidate’sfitnessandprobityisassessed,theCentralBankisentitledtorequest certain documents or information, or seek answers to specific questions16. On the strength of thissectionofthe2010Act,theCentralBankhasputinplacespecificstepsinrelationtoapprovalofPCFs,seebelow–“Approval Process for PCFs”.Anysuchrequestwillbemadebywayofnotice inwriting,whichmay

8 Section22(2)9 Section22(3)10 Section22(4)(a)(i)(ii)and(iii)11 Section22(4)(iv)(I)12 Section22(4)(b)13 Section22(4)(c)14 Section22(8)15 Section23(1)16 Section23(2)

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beaddressed toeither thecandidatedirectlyor toanofficeroremployeeof theFirmproposing toappointthecandidate.Inaddition,theCentralBankmayrequestthateitherthecandidateconcerned,oranofficeroremployeeoftheFirm,presentthemselvesforinterviewinconnectionwiththematter.

4.4 Refusal and Withdrawal of PCFs

TheCentralBankcan refuse toapproveaproposedappointmentwhere it isof theview that thecandidatedoesnotmeettherequisitestandardoffitnessandprobity.17Equally,theCentralBankmayrefusetoapproveanappointmentwhereitisunabletodecide,onthebasisofavailableinformation,whetherapersonissuitablyfitandproper18,orincircumstanceswherearequestforinformation,documentsoraninterviewhasnotbeencompliedwith.19

IftheCentralBankdecidestorefuseapprovalthiswillprohibitthecandidatefrombeingappointedtothatPCFrole.However,arefusalcanbeappealedusingtheappealprocesssetoutinPartVIIAoftheCentralBankAct1942(the“1942Act”).20Todate,theCentralBank21has“refused a number of applications”,accordingtoDervilleRowland,DeputyGovernoroftheCentralBank.It isofnotethatapreviousrefusalmustbedisclosedintheIndividualQuestionnaire(“IQ”)whenanindividualisseekingapprovalinrespectofanotherPCFrole.

InitsresponsetotheLRCIssuesPaperon“RegulatoryEnforcementandCorporateOffences”theCentralBanksuggested that itshouldbegiven thepower topublishdetailsof refusals toapprove theappointmentofanindividualtoapre-approvalcontrolledfunction,inordertofurtherstrengthenitsgatekeeperroleandincreasetransparency.ThiswasraisedagainintheCentralBank’sIAFproposal.

TheCentralBankinits2019DearCEOletter,highlightedthemarkedincreaseinthenumberofPCFapplicationsreferredtofitnessandprobityspecialists in itsEnforcementDirectorateduetoconcernsraisedatthe initialinterviewstage.

ThenumberofPCFapplicationwithdrawalshasalsobeen increasing in recentyears. In2016, therewere5withdrawals,increasingto8in2017andto18in2018,(asofyettherearenoavailablefiguresfor2019).Todate,atotalof86applicationsforseniorpositionshavebeenwithdrawnwheretheCentralBankhaschallengedtheapplicant.TheCentralBankhasremarkedthatthehighlevelofwithdrawalsarerelativetothenumberofrefusalsissuedonceaFirmoranapplicantbecomesawarethattheCentralBankhasconcernswiththePCFapplication.

17 Section23(5)(a)18 Section23(5)(b)19 Section23(6)(a)20 Section23(7)21 DervilleRowland-TheRoleofFinancialConductRegulationand2020

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5 CFs

AfunctioncanonlybedesignatedasaCFifitrelatestotheprovisionofafinancialservice.Inaddition,oneofthefollowingcriteriamustalsobemet22:

1. thefunctionmustbelikelytoenableapersontoexercisesignificantinfluenceonhowtheaffairsofaFirmareconducted;

2. thefunctionmustberelatedtoeitherensuring,controllingormonitoringthecomplianceofaFirmwithitsrelevantobligations;or

3. thefunctionmustbelikelytoinvolveapersonintheprovisionofafinancialservicebyaFirm.Thisinvolvementcanbeinanyofthefollowingways:

■ givingadviceorassistancetocustomersofaFirm;

■ dealinginorhavingcontroloverpropertyofacustomerofaFirmtowhomafinancialserviceisprovided;or

■ dealinginorwithpropertyonbehalfoftheFirmorprovidinginstructionsordirectionsinthisregard.

Though pre-approval in respect of appointment to CFs is not required, a Firm must not permit a person toperformaCFunlessitissatisfied,onreasonablegrounds,thatthepersonmeetstheStandardsandfurther,thatthepersonhasagreedtoabidebytheStandards.23

ItshouldbenotedthattheStandardsstillapplyincircumstanceswheretheCFisperformedfromalocationoutsidetheState(saveforwhereRegulation11A,S.I.No.437of2011(asamended)applies).24Equally,wherethefunctionisperformedinIrelandbutrelatestothebusinessoftheFirminanothercountry,theStandardsapplyinrespectofthepersonperformingthatfunction.25

5.1 Where a CF is suspected of not being fit and proper.

Asnotedpreviously, individualsperforming CFrolesarenotrequiredtobepreapprovedbytheCentralBankpriortotheirappointment.However,theCentralBankhasarangeofpowersavailabletoinvestigate,suspend,removeorprohibitindividualsfromperformingaCFroleinthefinancialservicesindustrywhereitsuspectsthattheindividual’sfitnessandprobityisnotuptotherequiredstandards.

Additionally,asexplainedabove,PCFsmustbepreapprovedbytheCentralBankprior to theirappointment.Throughoutthisapprovalprocess,theCentralBankhasthepowertoprobeandinvestigateanindividual’sfitnessandprobity.Ifanindividualfailstomeettherequiredstandardsatthispoint,theapplicationwillberefusedoranindividualmaywithdrawtheirapplicationpriortoarefusaldecisionbeinggiven.OnceaPCFhasbeenappointed,theCentralBankhasthesamepowerstoinvestigateandsanctionasithaswithCFs.

22 Section20(2)23 Section2124 Section20(4)(a)25 Section20(4)(c)

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5.1.1 CF Investigations

TheCentralBankcaninvestigatethefitnessandprobityofaperson26inthreecircumstances: ▪ whileapersonisperformingtheroleofaCF27;

▪ theCentralBankhasknowledgethatapersonistobeappointedtoaCFrolebyaFirm28;or

▪ theCentralBankhasreasontobelievethatapersonistobeappointedtoaCFrolebyaFirm29

iftheDeputyGovernoroftheCentralBankconsidersthereisreasontosuspectwhetherthepersonissuitablyfitandproper,or inanyothercircumstanceswarrantingsuchan investigation.30 InvestigationsarethereforeinitiatedandconductedbytheDeputyGovernor.The legislation provides that the reasons an individual’s fitness and probity can be questioned, include(i)asuspicionthatthepersondoesnothavethenecessaryexperience,qualificationsorskills,31or(ii)thattheyfail tomeet theparticular standardsprescribedby theCode.32Previousparticipation inseriousmisconductrelatingtothebusinessofaFirm,33orfailingtomakeadisclosuretotheCentralBankormakingadisclosureknowingittobefalseormisleadinginamaterialrespect34ortheprovisionoffalseormisleadinginformationtotheCentralBank(whetherdirectlyorthroughanotherperson),35willalsosuffice.

Inaddition,causingorseekingtocauseinformationrequestedbytheDeputyGovernorbywayofevidentiarynoticenottobeprovided,36orhavingbeenconvictedofcertainoffences,37willconstitutereasonstoquestionanindividual’sfitnessandprobity.

5.1.1.1 Evidentiary Notices

Aspartofaninvestigationintoanindividual’sfitnessandprobity,theDeputyGovernormayserveanevidentiarynoticeon the individualorFirmconcerned,oronanyotherpersonwhom it isbelievedmaybeable togiveevidenceorproducedocumentationrelatingtotheindividual’sfitnessandprobity.38Failuretocomplywiththetermsofanevidentiarynoticewithoutreasonableexcuseisanoffence,withthemaximumpenaltyonsummaryconvictionbeingafineof€5,000and/or12months’imprisonment.Convictiononindictmentcanattractafineand/oruptofiveyears’imprisonment.39Whereapersonhasbeenrequiredtoproduceadocumentortoprovideinformation,thelegislationstatesthattheywillhavea“reasonableexcuse”fornotdoingsoincircumstanceswheretheydonothavethedocumentorinformationsoughtandtheycannotbyanyreasonableeffortobtainit.40Equally,theywillhavea“reasonableexcuse”iftheycouldnotbecompelledtoproducethedocumentorinformationsoughtinacourtoflaw.41Itisstatedhowever,thattheseexamplesdonotservetolimitwhatwillbetakentobeareasonableexcuseandaccordingly,theremaybeothercircumstanceswhichwouldjustifynon-compliancewitharequesttoprovidedocumentsorinformationinaccordancewithanevidentiarynotice.

Whereapersonappearsbefore theDeputyGovernor incompliancewithanevidentiarynotice, itwillbeanoffenceforthatpersontorefuseorfailtogiveevidence,42ortorefuseorfailtoansweraquestionputtothem.43However,asabove,havinga“reasonableexcuse”fornotdoingsowillbeadefence.Anexamplegiveninthelegislationisthatapersonmaylegitimatelyrefuseorfailtoansweraquestionposedwheretheanswertothatquestionmighttendto incriminatethem.44Where it issoughttorelyonthe“reasonableexcuse”defence inrespectofafailuretoeithergiveevidenceortoansweraquestion,itwillbenecessaryforthepersonconcerned

26 Section25(2)27 ThisincludesaPCF28 ThisexcludesPCFs.29 ThisexcludesPCFs.30 Section2531 Section25(3)(a)32 Section25(3)(b)33 Section25(3)(c)34 Section43(2)(ca),CentralBankReformAct2010(No.23).35 Section25(3)(e)36 Section25(3)(f)37 Section25(3)(h)38 Section3239 Section4940 Section36(3)(a)41 Section36(3)(b)42 Section37(1)(a)43 Section37(1)(b)44 Section37(3)

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toprovideawrittenstatementtotheDeputyGovernorwhichsetsoutthedetailsofthatexcuse45Intheeventofproceedingsrelatedtotheperson’srefusalorfailuretogiveevidenceoransweraquestionposed,thisstatementwillnotbeadmissibleinevidenceagainstthem.46

5.1.1.2 Conduct of Investigations

Intermsofhowinvestigationsareconducted,Part3ofthe2010ActgivestheDeputyGovernoracertainlevelofproceduralautonomy,subjecttoanyregulationswhichtheCentralBankmayprescribe.47

However,thelegislationdoesspecificallyprovide,thattheDeputyGovernormayhearoralevidencewherethisisdeemednecessaryandthatpersonsgivingoralevidencemaybecross-examined.48Asnotedabove,theDeputyGovernormayissueevidentiarynoticesinrelationtoaninvestigationandsuchnoticescanrequireaperson’sattendancebeforetheDeputyGovernorforthepurposesofgivingevidenceorproducingdocuments.49Itshouldbenoted,however,thatanyevidenceprovidedtotheDeputyGovernorinrelationtoaninvestigation,andanyreportpreparedonthebasisofthisevidence,willbeabsolutelyprivileged.50

Thenormalprocedureisthatinvestigationswillbeconductedinprivate.51Despitethis,apersonappearinginaccordancewithanevidentiarynoticecanrequestthatthematter,oranypartofit,bedealtwithinpublic.52Inthisevent,theDeputyGovernorwilladheretothisrequestunlessthematterraisesissueswhich,inhisopinion,shouldbedealtwithinprivate.53AdecisionnottodealwiththematterinpublicmayalsobetakeniftheDeputyGovernorconsidersitnecessaryordesirabletodealwiththematterinprivate,soastoavoidthedisclosureof confidential information relating to either the business of any person or body, or to avoid the disclosureofconfidential informationconcerningtheexercisebytheCentralBankof itspowersor theperformanceofitsfunctions.54Intheabsenceofarequestthatevidencebegivenoradocumentbeproducedinpublic,theDeputyGovernormaystilldepartfromnormalprocedureanddirectthatthematterbedealtwithpublicly, incircumstanceswhereheissatisfiedthatitisdesirabletodosointhepublicinterest.55

Where evidence is to be given or a document is to be produced privately, the Deputy Governor may givedirectionsas to thepersonswhoareentitled tobepresent56andmayalsogivedirectionseither restrictingorpreventingthepublicationofsuchevidenceordocuments.57Afailuretocomplywithanysuchdirectionswillconstituteacriminaloffence58andcanattract,onsummaryconviction,afineofupto€5,000and/or12months’imprisonment,orwhereconvictionisonindictment,afineand/oruptofiveyears’imprisonment.59

Further,ifduringthecourseofaninvestigation,apersonrefusesorfailstoprovideinformationtotheDeputyGovernor,oriftheyrefuseorfailtoproduceadocumentorpresentthemselvesasrequiredbyanevidentiarynotice,itisopentotheDeputyGovernortocertifythismattertotheHighCourt.60FollowingcertificationtheHighCourtmay,afterhearinganywitnesseswhichmaybeproducedagainstoronbehalfofthepersonconcernedandanystatementofferedindefence,makeanorderorgivedirectionsasitseesfit.61Thiscouldentailanorderthatthepersonattendorre-attendbeforetheDeputyGovernor,orthatthepersonproducethedocumentorinformationsoughtoranswerthequestionposed.Conversely, theHighCourtcouldmakeanorderthat thepersonnotberequiredtodoanyoftheabove.

45 Section37(5)46 Section37(7)47 Section34(3)48 Section34(1)and(2)49 Section32(1)50 Section3851 Section35(1)52 Section35(2)53 Section35(2)(a)54 Section35(2)(b)55 Section35(3)56 Section35(4)(a)57 Section35(4)(b)58 Section35(6)59 Section4960 Section40(1)61 Section40(2)

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5.1.1.3 Preparation of a report following investigation

Followingconclusionofaninvestigationintoaperson’sfitnessandprobity,theDeputyGovernormustprepareareportwhichwillbeconsideredbytheCentralBankandtheGovernoroftheCentralBank.62AcopyofthisreportwillalsobeservedonboththeindividualandtheFirmconcerned63andtheymustbenotifiedoftheirrighttomakeawrittensubmissiontotheDeputyGovernorinrelationtothecontentsofthereport.64Noticeoftherighttomakeasubmissionmustalsospecifytheperiodwithinwhichasubmissionmaybemade.ThisperiodwillbeprescribedbytheDeputyGovernorbuttheminimumperiodallowableissevendays.

5.1.2 Suspension Notices

Eitherduringorfollowinganinvestigation,theCentralBankmayissueasuspensionnoticepreventingthepersonunderinvestigationfromperformingtheirCF.65Inreachingadecisiononwhethertoissueanoticeofthiskind,the2010ActstatesthattheCentralBankwilltakeintoaccounttheneedtomaintainthestabilityofthefinancialsystemandtheneedtoprotectthosewhoavailoffinancialservices.66

IftheCentralBankisconsideringaninvestigationinrespectofapersonyettobeappointedtoaCF(seeabove),itwillasktheFirmconcernedtoconfirmwhetherornotitisactuallyconsideringtoappointtheperson,beforeitmovestoissueasuspensionnotice.67WhereconfirmationisprovidedthattheFirmisnotconsideringmakingtheappointment,theCentralBankwillonlyissueasuspensionnoticewhereitbelievesthattheappointmentwillbemaderegardless,orwhereitbelievesthatithasalreadybeenmade.68

Thetermsofasuspensionnotice(whichmustbeinwriting)willsetoutthegroundsuponwhichtheinvestigationisdeemednecessaryandwill specifywhether thenoticehas theeffectof suspending theperson from theperformanceofaparticularCF,anaspectofaparticularCForfromtheperformanceofallCFs.69ThenoticemustbeservednotonlyontheindividualconcernedbutalsooneachFirmforwhich,totheCentralBank’sknowledge,theindividualperformsaCF.Inaddition,thenoticemustbeservedonanyFirmwhichtheCentralBankbelievesisconsideringappointingtheindividualtoafunctionwithinthetermsofthenotice.70

5.1.2.1 Effect of a Suspension Notice

WhereaFirmreceivesasuspensionnotice,itmustimmediatelyprovideacopytothesuspendedperson(unlessit is impracticable todo so) and thencertify that it hasdoneso to theCentralBank.71 TheFirmmust alsoimmediately remove the individual concerned from performance of the function which is the subject of thenotice.72Iftheindividualhasnotyetbeenappointed,theFirmmustnotproceedtoappointthem.73Itshouldbenotedhowever,thatalthoughasuspensionnoticerequiresanindividualnottoperformaparticularfunction,ithasnoeffectonanycontractualarrangementbetweentheindividualandtheFirminrespectofremunerationorbenefits.Therefore,anindividual’sentitlementtoremunerationorbenefitswillcontinuetobegovernedbythetermsofthecontractualarrangementinplace.74

A suspension notice also allows the suspended person, or the Firm concerned, to demonstrate, within fivedaysof itsservice,whythenoticeshouldnotbeconfirmed75.ThoughsubmissionsarenotrequiredinorderfortheDeputyGovernortomakeadecision,submissionsmadeduringthetimeallowedmustbeconsidered.76Asubmissionmadeoutsideofthepermittedfive-dayperiodmaybeconsidered,wheretheDeputyGovernorissatisfiedtherewasgoodreasonwhy itcouldnothavebeenmadeduringtheperiodallowed,orwhere itsconsiderationisdeemednecessaryintheinterestsofjustice.77

62 Section41(1)63 Section41(2)64 Section41(5)65 Section26(1)66 Section26(2)67 Section26(3)68 Section26(3)69 Section26(4)70 Section26(5)71 Section26(7)72 Section27(a)73 Section27(b)74 Section27(4)75 Section26(9)76 Section29(1)77 Section29(3)

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AsuspensionnoticeiseffectivefromthedateofservicebutunlesssubsequentlyconfirmedbytheCentralBank,itwillexpireafteraperiodoftendays.78Itis,however,opentotheDeputyGovernortorevokethenoticeatanystagebeforeexpiration.ApersononwhomasuspensionnoticehasbeenservedcanrequestthattheDeputyGovernormakeadecisiononwhetherornottoconfirmthenoticebeforetheexpirationoftendaysfromservice.IfsucharequestismadeandifthatpersonprovidesmaterialwhichtheDeputyGovernorissatisfiedwillallowafairandproperdecisiontobemade,theDeputyGovernorisobligedtomakeallreasonableeffortstoensurethedecisionismadeassoonasreasonablypracticable.79

5.1.2.2 Confirmation of a Suspension Notice

TheDeputyGovernorcanconfirmasuspensionnoticeif,havingconsideredanywrittensubmissionsprovidedwithinthefivedayperiodpermitted,itisconsideredthatthereisstillreasontobelievetheindividualconcernedisnotsuitablyfitandproper,orifitisconsideredthataninvestigationintotheindividual’sfitnessandprobityisstillwarranted.80AsuspensionnoticecanalsobeconfirmedwheretheDeputyGovernorconsidersitnecessary,intheinterestsofproperregulation,topreventtheindividualfromperformingtheCFatissuewhilethematterisunderinvestigation.81

Aconfirmedsuspensionnoticewillremainineffectforaperiodofthreemonths,whichrunsfromtheexpirationoftheten-dayperiodfollowingservice.82TheDeputyGovernorcanhoweverapplytotheHighCourtforanorderextendingtheperiodofitsapplication,uptoamaximumofanadditionalthreemonths.83

5.1.2.3 Revocation of a Suspension Notice

TheDeputyGovernorcanrevokeasuspensionnoticeatanytimeifitisconsideredthatthereisnolongeranyreasontosuspectthefitnessandprobityoftheindividualconcerned.Revocationmayalsotakeplaceif,duringthecourseoftheinvestigation,theDeputyGovernornolongerconsidersitnecessaryintheinterestsofproperregulationthattheindividualconcernedbepreventedfromperformingtheCFatissue.84

5.1.2.4 Failure to comply with a Suspension Notice

FailuretocomplywithasuspensionnoticewillallowtheDeputyGovernortomakeanex parteapplicationtotheHighCourtforanorderdirectingtheindividualconcernedortheFirmtocomplywiththetermsofthenotice.85

5.1.3 Prohibition Notices

ApersonmaybeprohibitedfromcarryingoutaCFwheretheCentralBankortheGovernoroftheCentralBankhas,onreasonablegrounds,formedtheopinionthattheydonotmeettheappropriatestandardsoffitnessandprobity.AprohibitioncanbeabsoluteinprohibitingtheindividualconcernedfromcarryingouttheCFinanycircumstances,oritmaysimplyattachconditionstotheirperformanceoftheCF.

Thenoticeinwriting,whichsetsouttheprohibition,willstatewhethertheprohibitionistoapplyforaspecifiedperiodorwhetheritwillapplyindefinitely.ThisnoticewillalsostatewhethertheprohibitionwillapplyinrespectoftheperformanceofaparticularCF,anaspectofaparticularCForCFsgenerally.86

Thegroundsuponwhich theCentralBank,or theGovernorof theCentralBank,may form theview thatanindividualdoesnotmeettheapplicablestandardsoffitnessandprobityarebroadlythesameasthegroundsuponwhich theDeputyGovernorcansuspectaperson’sfitnessandprobity for thepurposeof initiatinganinvestigation87:

▪ thepersondoesnothavetheexperience,qualificationsorskillsnecessarytoproperlyandeffectivelyperformtheCFatissue,apartofthatCForCFsgenerally;

▪ thepersondoesnotmeetspecificstandardsprescribedbytheCentralBankinrespectoffitnessandprobity;

78 Section2879 Section26(10)80 Section29(1)(a)and(b)81 Section29(1)(c)82 Section29(4)83 Section3184 Section29(6)85 Section3086 Section43(1)87 Section43(2)

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▪ thepersonhasparticipatedinseriousmisconductinrelationtothebusinessofaFirm;

▪ thepersonhasfailedtomakeadisclosuretothebankorhasmadesuchadisclosureknowingittobefalseormisleadinginamaterialrespect;

▪ thepersonhasprovidedinformationtotheCentralBankwhichtheykneworoughttohaveknownwasfalseormisleading,whethertheprovisionofthisinformationwasdirect,indirectorthroughanotherperson;

▪ thepersonhascausedorsoughttocauseinformationrequestedbytheDeputyGovernorbywayofanevidentiarynoticenottobeprovided;

▪ thepersonhasfailedtocomplywithanevidentiarynoticeorasuspensionnotice;and

▪ thepersonhasbeenconvictedofanoffenceofmoney-laundering, terroristfinancingoranoffenceinvolvingfraud,dishonestyorbreachoftrust.

5.1.3.1 Issuing a Prohibition Notice

Aprohibitionnoticecanonlybeissuedincertaincircumstancesandwhencertainrequirementsaremet.

Firstly,aprohibitionnoticecanonlybeissuedwhereeachofthefollowingstepshavebeentaken:

▪ theDeputyGovernorhasconductedaninvestigationintotheperson’sfitnessandprobityandpreparedareportofthefindings,whichwasprovidedtothoseentitledtoreceiveit;and

▪ theCentralBank,or theGovernorof theCentralBank,considered this reportandanysubmissionsmadetotheDeputyGovernorduringtheperiodallowed.88

Secondly,aprohibitionnoticecanbeissuedwithoutaninvestigationintoaperson’sfitnessandprobity,providedthereareundisputedfactswhich,intheopinionoftheCentralBankortheGovernoroftheCentralBank,rendersaninvestigationunnecessary.89However,whereaprohibitionnoticeisbeingissuedwithoutaninvestigationintotheindividual’sfitnessandprobityhavingbeenconducted,theindividualconcernedandtheFirmmusthavebeenaffordedareasonableopportunitytomakeasubmissioninrelationtothematter.90

Therearetwofurtherrequirementswhichmustbesatisfiedbeforeaprohibitionnoticeisissued,regardlessofwhetherornotaninvestigationhastakenplacetheyinclude;(i)thatindividualandtheFirmconcernedmusthavebeenaffordedahearinginrelationtotheproposedissueofthenotice.91Thenatureofthishearingmustbesufficienttodojusticeinthecircumstances(ii)theCentralBank,ortheGovernoroftheCentralBank,mustbesatisfiedthatthecircumstancesnecessitatetheissueofaprohibitionnotice.92

5.1.3.2 Effect of a Prohibition Notice

AprohibitionnoticewilltakeeffectfromthetimeitisfirstservedoneithertheindividualconcernedortheFirmconcerned.93IftheCentralBankdoesnotsubsequentlyapplytohavethenoticeconfirmed,orintheabsenceofanagreementbetweentheCentralBankandtheindividualortheFirmregardingthenotice,itwillceasetobeeffectivetwomonthsfromthedayfollowingfirstservice.94Ifhowever,duringtheperiodofvalidityofthenotice,theCentralBankmakesanapplicationtotheHighCourtforitsconfirmation,theeffectofthisapplicationwillbetogivethenoticefulleffectuntilsuchtimeastheapplicationisdeterminedbytheCourtorwithdrawn.95

5.1.3.3 Agreement in relation to a Prohibition Notice

Onceaprohibitionnoticehasissued,itisopentotheindividualconcernedtoenterintoawrittenagreementwiththeCentralBankinrespectofthetermsofthenotice.96Iftheindividualis,atthetimeofthenotice,performingaCFonbehalfofFirm,thatFirmmayalsobepartytosuchanagreement.TheeffectoftheagreementistoconfirmthattheindividualwillcomplywiththetermsofthenoticeforanagreedperiodanditremovestheneedfortheCentralBanktomakeaHighCourtapplicationseekingtohavethenoticeconfirmed.97Rather,thetermsofthenoticewillbeeffectiveinthemanneragreedbythepartiesandthetwomonthexpirationperiodwillnotapply.

88 Section43(3)(a)(i)89 Section43(3)(a)(ii)90 Section43(3)(a)(ii)91 Section43(3)(b)92 Section43(3)(c)93 Section43(7)(a)94 Section43(7)95 Section43(7)(b)96 Section46(1)97 Section46(2)

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TheCentralBankmay,duringtheagreedperiod,decidetoterminatetheagreementifitconsidersthatthereisnolongeranyneedforthenoticetocontinueineffect.98Inordertoterminatetheagreement,writtennoticemustbeprovidedtotheindividualconcernedandtotheFirm,whereapplicable.Ifthetermsoftheagreementarebreachedduringtheagreement’slifetime,theCentralBankmayapplytotheHighCourtforanordertoenforcetheprohibitionnotice.99

5.1.3.4 Confirmation of a Prohibition Notice

Wherenoagreementhasbeenenteredintowiththepartiesconcerned,theCentralBankmaymakeanapplicationtotheHighCourttoconfirmtheprohibitionnotice.100Ifsuchanapplicationismadewiththeconsentoftheindividualconcerned,thenoticecanbeconfirmedwithouttheindividualbeingpresentincourt.Iftheindividualhasnotconsentedtotheapplication,ahearingwillbenecessary.Onceconfirmed,aprohibitionnoticehasthefulleffectofacourtorderandcanbeenforcedaccordingly.101

ThelegislationprovidesthattheHighCourtisunderaduty,insofarasispracticable,tohearanddetermineanapplicationtoconfirmaprohibitionnotice,withinthreemonthsfromthedatetheapplicationisfirstmade.102ItisopentotheHighCourttoorderthatahearingtakeplaceinprivate,incircumstanceswherethisisdeemednecessaryforreasonsofconfidentialityorcommercialsensitivity.Anorderofthiskindcanalsobemadesoastoavoidthedisclosureofconfidentialinformationrelatingtoeitherthebusinessofanypersonorbody,ortoavoidthedisclosureofconfidentialinformationconcerningtheexercisebytheCentralBankofitspowersortheperformanceofitsfunctions.103

Duringthecourseofthehearing,theHighCourtmaydecidetoconsiderevidencewhichwasnotpreviouslyadducedinrelationtothematterortohearargumentswhichwerenotpreviouslyadvancedtotheCentralBankor theGovernorof theCentralBank.104 Inorder todoso, theCourtmustbesatisfiedthat therearecogentreasonsjustifyingwhytheevidencewasnotpreviouslypresentedortheargumentswerenotpreviouslymade.TheCourtmustalsobesatisfiedthatitisjustandequitabletoconsidertheevidenceorhearthearguments,asthecasemaybe.

TheHighCourtcanconfirmaprohibitionnoticewhereitissatisfiedthattherearereasonablegroundsfortheopinionoftheCentralBank,ortheGovernoroftheCentralBank,thattheindividualconcerneddoesnotmeettheappropriatestandardsoffitnessandprobity.105AnordermaybemadeconfirmingtheoriginalprohibitionnoticeortheCourtmaymakeanordervaryingthetermsoftheoriginalprohibitionnoticesuchas,forexample,byattachingconditions.AdditionalorancillaryordersmayalsobemadeastheCourtseesfit.Anyordersmadeby theCourtwillstatewhether theyare tohave indefiniteeffect,orwhether theywill remain ineffect foraparticularperiodoftimeonly.Anordermayalsobestatedtobeeffectivependingsuchtimeasafurtherorderismade.

WheretheHighCourtisnotsatisfiedthattherearereasonablegroundsfortheCentralBankorGovernoroftheCentralBank’sopinionthattheindividualconcerneddoesnotmeettheappropriatestandardsoffitnessandprobity,theCourtmayorderthattheprohibitionnoticebesetasideand/orthatthematterberemittedtotheCentralBankortotheGovernoroftheCentralBank.106

Inthealternative,theCourtmaymakeanysuchorderasitthinksfit.WheretheCourtmakesanorderremittingthemattertotheCentralBank,thesameprocedureandcriteriaapplyinrespectofanyreconsiderationofthematterasapplytoitsconsiderationinthefirstinstance.

5.2 SSM Requirements

Firmswhoarecategorisedas“SignificantInstitutions”and“LessSignificantInstitutions”bytheEuropeanCentralBank(“ECB”)aresubjecttothefitnessandprobityregimeintroducedbytheSingleSupervisoryMechanism(“SSM”)RegulationandtheSSMFrameworkRegulation.

98 Section46(3)99 Section46(2)(c)100 Section45(1)101 Section45(9)102 Section45(2)103 Section45(3)104 Section45(4)105 Section45(5)(a)106 Section45(5)(b)

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With the introduction of the SSM, the ECB became the competent authority for the supervision of creditinstitutionsinIreland.

SignificantInstitutionsaresuperviseddirectlybytheECBandarenolongersupervisedforprudentialpurposesthough the Central Bank Framework for supervision called PRISM (Probability Risk and Impact System) butratherthroughtheECBsequivalentFramework.

InthecaseofLess-SignificantInstitutions,theCentralBanksupervisesthemdirectly,whiletheECBsupervisesthemindirectly.Inthesecases,theECB,whichhasultimateresponsibilityforthefunctioningoftheSSM,mayissueguidelinestoensureconsistentsupervisionoreventakeoverthedirectsupervisionofaninstitutionifitconsidersitnecessary.

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6 TheStandards

Part3ofthe2010ActprovidesthatapersonperformingaCFmusthavealeveloffitnessandprobityappropriatetotheperformanceofthatparticularfunction.Asnotedabove,theCode,issuedundersection50ofthe2010Act,setsouttheStandardswhichallpersonsperformingCFsorPCFsshall,ataminimum,complywith.

TheStandardsrequireapersontobe:

▪ competentandcapable;

▪ honest,ethicalandtoactwithintegrity;and

▪ financiallysound.

6.1 Competent and capable107

A person must have the qualifications, experience, competence and capacity appropriate to their function.This means that they should be able to demonstrate that they have relevant professional qualifications andcapabilityandthattheyhaveobtainedappropriatecompetenceandskillsthroughtrainingorthroughexperiencegainedduringtheiremployment.Theyshouldalsobeabletoshowcompetenceandproficiencytoundertakethefunctionthroughtheirperformanceofpreviousorcurrentsimilarfunctions.

Where a person performs (or has performed) similar functions in an institution that has received financialsupportfromtheState,anassessmentofwhethertheymeettheStandardsmustalsoinvolveconsiderationoftheirperformanceofthosefunctionsandtheextent,ifany,towhichthatperformancemayhavecontributedtothenecessityforfinancialsupportfromtheState.

Inaddition,apersonmusthaveasoundknowledgeofboththeirspecificresponsibilitiesandthebusinesstheyareengagedinasawhole,togetherwithaclearandcomprehensiveunderstandingoftherelevant legalandregulatoryenvironment.Anyotherresponsibilitieswhichtheyholdcannotimpairtheirabilitytodischargetheirdutiesandpersonalconflictsofinterestshouldnotariseintheperformanceoftheirfunctions.

Finally,whereapplicable,personsmustalsocomplywiththeMinimumCompetencyCodeissuedbytheCentralBank.

6.2 Honest, ethical and to act with integrity108

Apersonmustbeabletodemonstratethattheirabilitytoperformtherelevantfunctionisnotadverselyaffectedtoamaterialdegreebyfactorssuchaswhethertheyareorhavebeen:

▪ prohibitedfromcarryingonatradeinanyjurisdiction,orhadanyauthorisationorlicencerevokedonaninvoluntarybasis;

▪ thesubjectofanycomplaintmadetotheCentralBank,theOmbudsmanoranyequivalentbodyrelating

107 Section3oftheStandards108 Section4oftheStandards

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totheperformanceofanyregulatedactivity;

▪ subjecttoanydisciplinaryproceedings,orbeenissuedwithanywarningoradministrativesanction;

▪ dismissedoraskedtoresignanddidresign;

▪ adirectorofanycompanyinanyjurisdictionthatwasstruckofftheregisteronaninvoluntarybasis;

▪ disqualifiedorrestrictedfromactinginanyjurisdictionasadirectororinamanagerialcapacity;

▪ convictedofanoffenceofmoney laundering, terroristfinancingoranyotheroffencewhichmayberelevanttotheirabilitytoperformtherelevantfunction;

▪ thesubjectof afinding, judgementorordermadeagainst them involving fraud,misrepresentation,dishonestyorbreachoftrust;

▪ thesubjectofcurrentproceedingsinvolvingfraud,misrepresentation,dishonestyorbreachoftrust;

▪ thesubjectofanycivilpenaltyorenforcementactiontakenbyaregulatoryauthorityinanyjurisdiction;

▪ untruthfulorprovidedfalseormisleadinginformationtotheCentralBank,orbeenuncooperativeinanydealingswiththeCentralBank;

▪ investigated,disciplined,censured,suspendedorcriticisedbyaregulatoryorprofessionalbody,acourtortribunaloranysimilarbody,includingcircumstanceswhereanybusinessinwhichtheyheldapositionofresponsibilityorinfluencehasbeensoinvestigated,disciplined,censured,suspendedorcriticised;or

▪ found by the Central Bank (or any regulatory authority in any jurisdiction) to have perpetrated orparticipatedinanynegligent,deceitfulorotherwisediscreditablebusinessorprofessionalpractice.

6.3 Financial Soundness109

Apersonmustmanage their affairs in a soundandprudentmanner. In this regard, they shouldbeable todemonstrate that their role in a relevant function is not adversely affected to amaterial degreeby the factthattheydefaulteduponanypaymentsduearisingfromacompromiseorschemeofarrangementwiththeircreditors,orthattheymadeanassignmentforthebenefitoftheircreditors.Similarly,factorssuchaswhethertheyaresubjecttoanunsatisfiedjudgmentdebtorhavebeenthesubjectofabankruptcypetition,orbeenadjudicatedasbankruptinIrelandorelsewhere,orwhethertheyactedasdirectorofaninsolvententity,willalsobetakenintoconsideration.

6.4 Exceptions

TheStandardsdonotapplytoanypersonwhosefunctionissolelyconcernedwithactinginaccordancewithawrittensetofinstructionsintheformofascriptwhichprovidesforthatpersontogiveaprescribedreply,orfollowaprescribedcourseofaction,whereaparticularroutinematterisraised.ThisexcludestheapplicationoftheCodetocertaincallcentrestaff.

109 Section5oftheStandards

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7 TheGuidance

TheCentralBank’snon-statutoryGuidancerestatessomeoftheprovisionssetoutinthe2010ActandintheRegulations.Itisnotintendedtobecomprehensivehowever,anddoesnotoverrideanyofthelegalprovisionsdiscussedabove.TheCentralBankalsoreservestherighttoupdateandamendtheGuidanceasitseesfit.Nonetheless,theGuidancedoesprovideassistanceonhowFirmscancomplywiththeCode.110

7.1 Application of the Code

TheGuidancesetsoutthosepersonstowhomtheCodedoesnotapply.Excludedarepersonsoperatingtoasetofwritteninstructionsintheformofascriptandanypersonperformingafunctioninaseparatelegalentitywithinagroupstructure,whomayexercisesignificant influenceoverapersonperformingaCForPCFinanentityregulatedbytheCentralBank.Thisexemptiontypicallyexcludespersonswithfunctionalresponsibilityatgrouplevel.

Despitethesestatedexclusions,itshouldbenotedthatanypersonexemptfromtheCodewillremainboundbyPart3ofthe2010ActandtheCentralBank’sMinimumCompetencyCode,ifapplicable.111

7.2 Identifying CFs and PCFs

AFirm isnotnecessarily requiredtohaveallCFsorPCFs inexistence.112 InsettingouthowaFirmshouldidentifyaPCForCF,theGuidancereferstosection7oftheRegulationswhichoutlinesthatitisthenatureofthefunctionratherthanitstitlewhichwillidentifyaCForPCF.

InadditiontothosesetoutintheRegulations,asoutlinedabove,theCentralBankmaydeclareinwritingthataparticularfunctionistobeconsideredaPCF.TheGuidancesetsoutthecriteriawhichwillbeusedforthispurpose:

▪ thepersonwhoperformsthefunctionisconcernedwiththemanagementofthefirm;

▪ thefunctionisnotprescribedasaPCFintheRegulations;and

▪ nootherpersoninthefirmperformsaPCF.113

7.3 Outsourcing114

The Guidance restates the legislative provisions regarding outsourcing to an entity regulated in anotherjurisdictionbyanauthoritycomparabletotheCentralBank.

WhereaFirmoutsourcestheperformanceofaPCF,itwillnotberequiredtoobtainCentralBankapprovalinrespectofthepersonperformingthatfunction,providedthereisawrittenagreementinplaceandtheFirmtowhichthefunctionisbeingoutsourcedisregulatedbytheCentralBankoranequivalentauthorityinanother

109

110 Guidance,Section2111 Guidance,Section3112 Guidance,Section4.4113 Guidance,Section4.3114 Guidance,Section5

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jurisdiction.Itshouldbenotedhoweverthatalthoughthepre-approvalrequirementofsection23doesnotapply,apersonbenefittingfromthisexclusionmaystillbesubjecttoaninvestigation,suspensionorprohibitionnoticeunderPart3ofthe2010Act,thisalsoappliesthoseperformingCFroles.

WheretheperformanceofaPCFisoutsourcedtoanunregulatedentity,theFirmconcernedmustobtaintheapprovalof theCentralBankbeforeappointingtheunregulatedentity toperformthePCFon itsbehalf.ThewrittenoutsourcingagreementmustalsonamethepersonwithintheunregulatedentitywhowillberesponsibleforperformingthePCFandpersonsperformingaPCFundersuchanoutsourcingagreementmustcomplywiththeStandards.

IfaCFisoutsourcedtoanunregulatedentity,theunregulatedentitymustbeabletoidentifytheindividualswhowillperformtheCFsandassesswhetherthosepersonsarecompliantwiththeStandards.Insuchcases,theoutsourcedserviceprovidershouldbeabletoprovidewrittenconfirmationtotheFirmthattheindividualsperformingCFsarecompliantwiththeStandardsandhaveagreedtobeboundbythem.

7.4 Approval process for PCFs115

Beforean individual canbeappointed toaPCF, theCentralBankmusthaveapproved their appointment inwriting.TheCentralBankwillexpectaFirmtohaveconductedtheirownduediligenceinrelationtoanappointeebeforeproposingthemforapproval.TheapprovalprocessinvolvesthesubmissionofanIQtotheCentralBank,whichisnowcompletedonline.

InmakingasubmissiontotheCentralBanktoappointaPCF,aFirmwillbeprovidedwithauseraccountallowingittologontotheCentralBank’sonlineIQsystem.IndividualaccountscanthenbycreatedbytheFirminrespectofeachPCF,enablingtheproposedcandidatestocompletetheirIQonline.

Forthemostpart,theCentralBankexpectsthattheapprovalsystemwillbebasedontheIQ.However,itmay,incertaincircumstances,requestfurtherinformationandifitconsidersitnecessary,itmayalsoseektoconductaninterviewwiththeproposedcandidate.116ThedecisiononwhetherornottointerviewaPCFwillbebasedonPRISM.ThisinvolvesananalysisoftheimpactoftheFirmontheIrishfinancialsystemandtheriskprobabilitythatthatentitywillfail.However,theCentralBankreservestherighttocallanyPCFforinterview,regardlessoftheFirm’simpactrating.

TheCentralBankanticipates thatapplicants for the rolesofChairman,CEO,FinanceDirectororChiefRiskOfficeratanyhigh-impactFirmwillalwaysbeinterviewed.TheCentralBankwillhoweverexpeditetheapplicationprocessforaPCFrolewheretheapplicantalreadyperformsthePCFrolewithinanotherEEAMemberState.

Ifaninterviewistobeconducted,theinterviewpanelislikelytobecomprisedofmembersoftheCentralBank’sRegulatoryTransactionandSupervisoryDirectoratesandmembersofthePolicyandRiskDirectorateand/ortheEnforcementDirectorate,asappropriate.

OffersofappointmenttoPCFsshouldonlybemadesubjecttoCentralBankapproval.TheperformanceofaPCFbyapersononatemporarybasismustbeapprovedinadvancebytheCentralBankandanyextensionofthetemporaryperiodmustalsobeapproved.

7.5 Standard of fitness and probity appropriate for a CF

ThestandardoffitnessandprobityrequiredofaparticularCFneedstobejudgedbytheFirmconcernedonasubjectivebasisandtheparticulardemandsofeachrolemustbeconsidered.Forthisreason,theGuidancedoesnotcategoricallysetouttheknowledgeorexpertisethatisrequiredinrespectofaparticularfunction.

Fitness117

In determining the fitness of an individual to perform a CF, the Firm should determine their qualifications,experienceandknowledge,amongstotherrelevantfactors.TheCentralBankthenexpectstheFirmtoperformduediligencetoassessaperson’sfitnesstoperformtheCF.Thisduediligenceshouldinclude:118

▪ evidenceofcompliancewiththeMinimumCompetencyCode;

▪ evidenceofprofessionalqualifications(wherethosequalificationsarerelevanttotheexerciseoftheCF).119

115 Guidance,Section8116 Guidance,Section9117 Guidance,Section14118 Guidance,Section15119 Guidance,Section15.2(ii)

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▪ evidenceofhavingmetcontinuingprofessionaldevelopmentrequirementswhererelevant;

▪ recordofinterviewandapplication;

▪ references;

▪ where the Firm is unable to obtain a reference it must record the attempts it has made to obtain thereference.ItmustthenrecordhowitwasabletosatisfyitselfthatthepersonwascompetenttoperformtheCFintheabsenceofareference.120

▪ recordofpreviousexperience;

▪ recordofexperienceobtainedoutsidetheState;and

▪ detailsofconcurrentresponsibilitiesincludingdirectorshipsandanyotheremployment.

“Probity”

Theprobityofanindividualrelatestohis/hercharacter.TheGuidancestatesthatitisonlywhenevidenceisavailable tosuggest thatapersonmightnotcomplywith the requiredstandardofprobity thataFirmmustinvestigatethisthoroughly.

TheGuidancesetsoutthattheCentralBankexpectstheFirmto,inter alia,conductthefollowingduediligence:121

▪ obtainwrittenconfirmationsfromthepersonastowhetheranyofthecircumstancessetoutinsection4.1(a)–(k)andsection5.2(a)–(e)oftheStandardsapplytothatperson(theseprovisionsrelatetopastconductandfinancialsoundness).TheGuidancesuggeststhatFirmsusethequestionsonthesemattersintheIQ(questions5.1-5.23)asatemplatefortheirduediligenceinthisregard;and

▪ whereapersonconfirmsthatoneormoreofthecircumstancessetoutaboveapplythatpersonmustbeabletodemonstratethathis/herabilitytoperformtheCFisnotadverselyaffectedtoamaterialdegreebythatmatter(s).

7.6 Additional due diligence for CF1, CF2 and PCFs122

The Guidance sets out the standard of additional due diligence that must be conducted on a person beingappointed to perform a CF1 (exercising significant influence), a CF2 (controlling or monitoring compliance)andPCFs.TheFirmmustinvestigatewhetherthepersonhasbeenthesubjectofasanctionundertheCentralBank’sadministrativesanctionsregimeoranyotherregulatoryaction.TheFirmshouldchecktheCompaniesRegistrationOfficerecordsforanyrestrictionsordisqualificationsandshouldcheckpublicallyavailablesourcestoascertainwhetherajudgmentdebthasbeenregisteredagainstthatperson.Duediligenceshouldalsobeconductedtoascertainwhetherthepersonhasanycriminalconvictionwhichcouldberelevanttohis/herabilitytoperformthefunction,suchasconvictionsforoffencesrelatingtodishonestyandfinancialcrime.123

For thepurposesofconductingduediligenceonproposedappointees, theGuidancesetsoutasampleduediligencegridatAppendix1andapro-formaagreementfortheemployeetosignpursuanttosection21(1)(b)ofthe2010Act.124

7.7 Failure to comply with the Code

WherethereisafailurebyapersontocomplywiththeCode,theCentralBankmay:

▪ inthecaseofaPCF,refusetoapprovesuchapersontoperformtherelevantfunction;

▪ conductaninvestigationintothefitnessandprobityoftheperson;or

▪ issue a prohibition notice under the 2010 Act which prohibits that person from acting in the relevantfunction.

120 Guidance,Section15.2(v)121 Guidance,Section17.2122 Guidance,Section18123 Guidance,Section19124 Guidance,pages52and53

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Firmsmaynotpermitanyperson toperformaCFunless theyaresatisfiedon reasonablegrounds that thepersoncomplieswiththeCodeandthatthepersonhasagreedtoabidebytheStandards.AfailuretocomplywiththeserequirementsmayexposetheFirmand/oritsmanagementtofinancialpenaltiesandothersanctions.

7.8 Continuing nature of the obligation

TheobligationonFirmstoensurecompliancewiththeStandardsisanongoingone.Forthisreason,thisobligationisnotsimplydischargedbyundertakingduediligenceuponcommencementoftheregimeorwhenapersonisfirstappointedtoaCForPCFrole.Toassistwithensuringcomplianceonanongoingbasis,personsinaCForPCFshouldberequiredtonotifytheFirmofanymaterialchangesfromwheninitialduediligencewascarriedout.

The Central Bank also recommends that Firms carry out an annual audit in respect of persons performingCFs.Suchanaudit should involveasking thesepersons toconfirmwhether theyareawareofanymaterialdevelopmentsinrelationtotheircompliancewiththeStandards.AninvestigationshouldbeundertakeniftheFirmhasanyconcernsregardingthefitnessandprobityofrelevantpersonsandtheCentralBankshouldbenotifiedwithoutdelay.

Aspartofasystemofongoingperformancemonitoring,theFirmshouldalso,at leastannually,askpersonsperformingCFstocertifythattheyareawareoftheStandardsandagreetocontinuetoabidebythem.

Ultimately,itistheFirm’sresponsibilitytodeterminewhatisappropriateinordertosatisfyitself,onreasonablegrounds,thataparticularpersonmeetstheStandards.Ineachcase,howaFirmcametobesatisfiedthatapersonmeets theStandardsshouldbe recordedanddocumented, to includedocumentingeachstep in thedecision-makingprocessandthereasoningbehinddecisionsmade.

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8 ReportontheBehaviourandCultureoftheIrishRetailBanks(the“Report”)

Oneof themost recentproposals in respectof reformof theRegimearose from theCentralBank’s reporton“BehaviourandCultureoftheIrishRetailBanks”,(the“Report”),whichwasmandatedbytheMinisterforFinanceandPublicExpenditureandReformfollowingthecompletionoftheCentralBank’sTrackerMortgageExamination.

ThereviewsandassessmentscarriedoutbytheCentralBankinpreparingfortheReportfocusedprimarilyonthefiveretailbanks’executiveleadershipteams,owingtotheimportanceoftheseteams“in driving effective cultures in which customer interests are adequately identified, discussed and taken into account”.Inlightofthefindingsofthesereviewsandassessments,andtheCentralBank’sownsupervisoryandregulatoryexperiences,theCentralBankproposedreformstoitscurrent“legal and policy framework”intheformoftheIAF.

8.1 What we know about the IAF - Analysis of the Report

AlthoughtheReportstemmedfromareviewofthefiveretailbanks,theCentralBankclarifiedintheReportthat“these reforms will apply more widely than to retail banks alone”.

TheReportsetsoutthefourpartsoftheCentralBank’sIAFproposal:

▪ ConductStandardswhichsetoutthebehaviourtheCentralBankexpectsofFirmsandtheindividualsworkingwithinthem;

▪ ASeniorExecutiveAccountabilityRegime(the“SEAR”)whichplacesobligationsoncertainFirmsandseniorindividualswithinthemtosetoutwhereresponsibilityanddecision-makingliesfortheirbusiness,toensurecleareraccountability.TheCentralBankhasproposedthat,inthefirstinstance,thiswillapplytocreditinstitutions,insuranceundertakingsandcertaininvestmentfirms;

▪ EnhancementstothecurrentRegime,whichwillincreasethefocusontheresponsibilityofFirmsbyrequiringFirmstoproactivelyassessindividualsinCFsonanongoingbasis;and

▪ Aunifiedenforcementprocess,whichwouldenabletheCentralBanktopursueindividualsdirectlyfortheirownmisconductratherthanhavingtolinkthemisconducttotheirparticipationinaregulatorybreachbytheirFirm.

TheinterconnectivitybetweentheIAFandtheRegimeisyettobefullydevelopedandarticulated.However,itisimportanttohaveanunderstandingofwhatislikelytoapply.ThiscontextwehavesetoutbelowthelikelyimpactsoftheenhancementstothecurrentRegimeandtheunifiedenforcementprocess.

8.1.1 Enhancements to the Regime

TheseenhancementsaredesignedtocomplementtheexistingRegime.Theenhancementsproposedare:

▪ acertificationregimewhichwouldrequireFirmstocertifyonannualbasisthatindividualsperformingCFsintheFirmarefitandpropertocarryouttheirfunctions(currentlyfirmsarerequiredtoaskthoseperformingtheCFstoconfirmtheirawarenessofandcompliancewiththeRegimeonanannualbasis);

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▪ givingtheCentralBankthepowertopublishdetailsofwhereithasrefusedtoapproveanindividual’sappointmenttoaPCFrole;and

▪ givingtheCentralBankthepowertoinvestigatethosewhoperformedCFsinthepast.

8.1.2 Unified Enforcement Process

AssetoutintheReport,theCentralBankisoftheviewthatthecurrentenforcementprocessesinplacewouldnotprovideaneffectiveenforcementframeworkfortheIAF.Theunifiedenforcementprocess,whichwillapplytoallbreachesbyFirmsor individualsoffinancialservices legislation, recommends that the requirementof“participation”beremovedasahurdletoholdingindividualsaccountable.

Asitstands,underthecurrentAdministrativeSanctionsProcedure(“ASP”),theCentralBankmayonlypursuea“person concerned in the management” ofaFirmwhere(1)acasehasfirstbeenprovenagainsttheFirm,and(2)theCentralBankcanthenprovethattheindividualparticipatedinthebreach.

UndertheproposedIAF,theCentralBankhasrecommendedtheremovalofthecurrentparticipationrequirement,enablingittopursueindividualsdirectlyfortheirmisconductundertheASP,ratherthanonlywheretheyareproventohaveparticipatedinaFirm’swrongdoing.Theremovaloftheparticipationrequirementisessentialtoenhancingtheaccountabilityofindividualsforfailingtomaintainbasicstandardsofconduct,therebyunifyingtheenforcementprocess.

8.2 The Implementation Timeline

TheCentralBankexplainsintheReportthattheIAFwillhavetobeputonalegislativefooting,italsoacknowledgesthat“the design, implementation and operationalisation of such a framework would be a multi-year project.” Asitstands,theGovernmentisseekingtointroducetheIAFbywayofabillwhichwillamendthecurrentCentralBankActstoprovidefortheeffectiveimplementationoftheIAF.

On18June2019,theMinisterofFinanceandPublicExpenditureandReformsecuredtheapprovalofgovernmenttobegintheprocessofdraftingheadsoftheBillandexplainedthatitwashis“intention to bring forward draft heads of Bill towards the end of the year.”ItwasfurthercommunicatedbytheCentralBankthattheBillwouldgothroughapublicconsultationphasein2020.

Unfortunately, no progress has been made since these intentions were voiced but given the delays in theformation of a new government and the management of all things COVID-19 related, this is not surprising.However,theProgrammeforGovernmentreleasedinSeptember2020,listsaCentralBank(Amendment)BilltosupporttheadvancementofanimprovedcultureintheIrishfinancialsystemthroughgreateraccountabilityintheregulatedsector.Thisbillwasalsoidentifiedasundergoingpre-legilativescrutinyduringtheAutumn2020session.Todate,therehasbeennofurtherinformationprovidedbeyondthis.

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9 CentralBankDearCEOLetters

“Firmshave thefirst lineof responsibilityunder theFitnessandProbityRegime.Firmsmustensurepeoplesubjecttotheregimearefitandproper.Further,thisresponsibilitydoesnotendfollowingthehiringofstaff;youmustensurethatyourstaffarefitandproperonanon-goingbasis.WhereFirmsfallshort,theCentralBankwilltakeappropriateaction.”

9.1 Dear CEO Letter dated April 2019

As mentioned in the Background above, one of the most recent pronouncements by the Central Bank oncompliancewith theRegimecame inApril2019,when theCentralBank issued its ‘DearCEO’ letteron theRegime. IntheDearCEOLetter,theCentralBankstatedthat itcontinuestoseesignificantshortcomingsinFirms’compliancewiththeirfitnessandprobityobligations.

TheCentralBanknotedmultiplefailings.Inparticular,itnoted:

▪ thefailuretoprovidefortheongoingnatureoftheobligationincludingFirms’failingtocarryouteffectiveduediligencetoensurepersonsholdingaCFroleremain‘fitandproper’;

▪ thefailurebyFirmstoreportissuestotheCentralBankincludingwhenFirmshaveidentifiedfitnessandprobityconcernsaboutanindividualinaCFrole;

▪ theappointingofpersonstoPCFroleswithoutobtainingpriorCentralBankapproval;and

▪ the failureof applicants indisclosingmaterial factson their IQswhichhavebeensubmitted to theCentralBankandsubsequentfailuresofFirmstoadequatelyreviewthesequestionnaires.

Inlightofthis,theCentralBanksetoutitsexpectationsofFirms,whichinclude:

▪ thereviewofFirms’fitnessandprobitypolicies,proceduresandpractices;

▪ ensuringthatindividualsappointedundertheRegimearefitandproperbothattheapplicationstageandonanongoingbasis;and

▪ consideration of the issues raised in the Dear CEO Letter in conjunction with the guidance on theStandards issuedbyCentralBank,demonstrate the reviewprocessandexplainandevidencewhatactionshavebeentakenbytheFirmtoaddressanyshortcomings.

AswithmanycommunicationsfromtheCentralBankinrecenttimes,thecontentsoftheDearCEOLetterwastobebroughttotheboard’sattentionandanyactionsrequiredtobetakentorectifyshortcomingswastobecarriedout inconjunctionwiththeboard’soversight.ThisDearCEOLetterwillcontinuetoformpartof theCentralBank’ssupervisionoftheRegimeanditwouldbeprudentforFirmstotreatsameasanadditiontotheGuidance.

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9.2 Dear CEO Letter dated 17 November 2020

Followingonfromthe2019DearCEOLetter,theCentralBankconductedaseriesofthematiconsiteinspectionsacross a sample of firms in the insurance and banking sectors, assessing the level of compliance with theRegime.On17November2020,theCentralBankissuedaDearCEOletter(the“2020 Dear CEO Letter”)toFirmsfollowingtheconclusionoftheinspections,highlightingthekeyfindingsandobservationstogetherwithitsexpectationsofFirms.

TheCentralBank’sinspectionsfocusedonthefollowingareas:

▪ awarenessandunderstandingwithinFirmsoftheircomplianceobligations;

▪ initialandongoingduediligenceprocesses;

▪ oversightandcontrolwherePCFofCFroleshavebeenoutsourced;

▪ processesandchannelsforeffectiveengagementwiththeCentralBank;and

▪ roleofthecompliancefunctionwithregardtotheRegime.

TheCentralBanknotedtherewasawidedivergenceofstandardsintheimplementationoftheRegimeacrosstheFirmsinspected.Someofthekeyfindingsoftheinspectionswereinrelationto:

▪ Due Diligence:TheCentralBanknotedthatduediligencewasthemostconsistentareaofweaknessacrosstheFirmsinspected.TheinitialduediligenceundertakenbyFirmswasnotsufficientlyrobusttoevidencecompliancewiththerequirementsoftheStandards.Issuesidentifiedincluded;alackofevidenceofqualifications,referencechecksandsuitabilitysearches.Ongoingduediligenceprocesseswere highlighted as being particularly poor and often limited to an annual self-declaration with noongoingduediligencescreeningofanindividual’sfitnessandprobity.

▪ The Role of the Board in the Fitness and Probity Process: The Central Bank noted that the level ofawarenessbyBoardmembersoftheirfitnessandprobityobligationsinmanyFirmswaspoor,particularlyin relation to Board appointments. Issues included, lack of scrutiny of board, CEO involvement incandidatescreeningandinadequatesuccessionplans.InanumberofcasestherewasalsonoevidenceofBoardapproval,discussionorchallengeofproposedPCFappointments.

▪ Outsourcing of Roles subject to the Regime: InFirmswherePCForCFroleshadbeenoutsourcedtounregulated Outsource Service Providers (“OSPs”), the majority of Firms had not, as part of theirduediligenceobtained the requireddocumentationnormadeappropriate inquiriesas to theOSP’sprocessforassessingfitnessandprobity.Inaddition,FirmsdidnothaveaprocesswherebyoutsourcingarrangementswereanalysedtoverifywhetherPCForCFroleswerebeingperformed.

▪ Engagement with the Central Bank: The processes related to engagement with the Central Bank onfitnessandprobityissuesinthemajorityofFirmswerefoundtobeinadequate.TheCentralBanknotedthatthislackofengagementisareflectionofthepassiveapproachtakenbyFirmstotheirongoingduediligencerequirements.

▪ Role of the Compliance Function:Manyfirmswerefoundnottobeundertakingthenecessaryrobustcompliancetestingoftheirfitnessandprobityprocessesandprocedures.

TheCentralBankexpectsthatallfirmswilltakeappropriateactiontoaddresstheissuesoutlinedinthe2020DearCEOLetter.EvidenceofactionstakenmustbeavailabletobeprovidedtotheCentralBank,ifrequested.

TheCentralBank’sexpectationsinclude:

▪ Board Appointments: the same high standards be observed for board appointments as PCFappointments.

▪ IQs:IQssubmittedtotheCentralBankarerequiredtodeclarethattheFirmhascarriedoutallnecessarydue diligence enquiries and contain full and frank disclosure of all relevant information includingpotentiallyadverseinformation.TheCentralBanknotedthatnon-disclosure,particularly,wherethereisanapparentattempttomisleadmaycallintoquestiontheindividual’ssuitabilityforappointmentandtheFirm’sdecisiontoproposetheindividualinquestion.

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▪ Ongoing Due Diligence:Annualself-declarationsbyPCFandCFroleholdersistheminimumexpected.TheCentralBankexpectsanyconcernsregardingtheongoingfitnessandprobityofapersonperformingaCFroletobeinvestigatedandappropriateactiontakenwithoutdelay.

▪ Outsourcing of PCF/CF Roles:FirmsareremindedthatfitnessandprobityobligationsapplyirrespectiveofwhetherthePCForCFroleisperformedwithinthefirmoroutsourcedtoanunregulatedOSPandfirmsarerequiredtohaveappropriateprocessesandprocedurestoensurecompliance.

▪ Engagement with the Central Bank:TheCentralBankexpectsfirmstobeproactiveinidentifyingfitnessandprobityissuesaspartofitsongoingduediligenceandinreportingasappropriatetotheCentralBankwithoutdelay.

▪ Role of the Compliance Function:Firm’sfitnessandprobityprocessshouldbesubjecttocomprehensiveoversightbythecompliancefunctionandperiodicindependenttestingbytheinternalauditfunctiontoensureitisfitforpurpose.

TheCentralBanknoted itwill continue toengagewithfirms inassessing theircompliancewith theRegimeandwill initiatenecessarysupervisoryactionwhereweaknessesareidentified.Giventhatthis isthesecondcommunicationinquicksuccessiononthetopic,itisaclearindicationoftheprioritywhichtheCentralBankisplacingonfitnessandprobityandbyextension,culturewithinFirms.Firmshavenowbeenremindedtwiceoftheirobligationsandfailuretoensurecomliancewithsuchobligationwilllikelyleadtosupervisoryaction.

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10 AdditionalPCFRoles

On25February2020,theCentralBankissuedaNoticeofIntentionproposingthecreationofthreenewPCFrolesPCF-49Chief InformationOfficer (“CIO”),PCF-50HeadofMaterialBusinessLineandPCF-51HeadofMarketRiskandthesplittingofPCF-39DesignatedPersonintosixnewrolesalignedtothespecificmanagerialfunctions.

On9October2020,theCentralBankpublishedanupdateonitswebsitetoitsFebruary2020NoticeofIntentionnotingtheenactmentofanewstatutoryinstrumentS.I.410of2020(the“Amending Regulations”) amendingtheRegulationsintroducingthreenewPCFsroles:

▪ PCF-49CIO(underthe‘General’category);

▪ PCF-50HeadofMaterialBusinessLine(underthe‘Banking’category);and

▪ PCF-51HeadofMarketRisk(underthe‘Banking’category);

andsplittingPCF-39DesignatedPersonintosixPCFrolesalignedtothespecificmanagerialfunctionshighlightedin the Central Bank’s UCITS Regulations, AIF Rulebook and the Fund Management Companies Guidance asfollows:

▪ PCF-39ADesignatedPersonwithresponsibilityforCapitalandFinancialManagement;

▪ PCF-39BDesignatedPersonwithresponsibilityforOperationalRiskManagement;

▪ PCF-39CDesignatedPersonwithresponsibilityforFundRiskManagement;

▪ PCF-39DDesignatedPersonwithresponsibilityforInvestmentManagement;

▪ PCF-39EDesignatedPersonwithresponsibilityforDistribution;and

▪ PCF-39FDesignatedPersonwithresponsibilityforRegulatoryCompliance.

TheCentralBankhasintroducedthesenewPCFrolesduetothe(i)increasingimportanceofandrelianceonITwithinfirms;and(ii)thechanginglandscapeofthebankingsectorinIrelandduetoBrexit,includingtheentry/expansionofinvestmentbanks/broker-dealerfirmswithsignificantcapitalmarketsactivity.

OnthecreationofthenewPCFrolesoutlinedabove,theCentralBankstatedthatitisitsaimtocaptureagreaternumberofindividualsresponsiblefortheperformanceofkeyfunction’ssoastoensuretheyfallundertheremitoftheCentralBank’sRegime.Indoingso,theCentralBankensuresthatagreaternumberofindividualswillberequiredtoupholdfitandproperstandardsinrelationtotherelevantPCFrolewhichtheycarryoutwithintheirFirm.

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10.1 Chief Information Officer

ThecreationoftheroleofCIOisintendedtoprovidearesponsetothegrowingimportanceofITinthefinancialservicesindustry.ThehighlevelofrelianceonITinmodernbusinessstrategiesprovidesgreaterexposuretocertainrisksandapressingneedforsecurityriskmanagement.TheCentralBankacknowledgesandseekstocounteracttheserisksbyproposingthenewPCFroleofCIOwhoshallberesponsibleforallITmatters.TheCentralBankexpectsthattheCIO,alsopossiblyreferredtoas‘ChiefTechnologyOfficer’willbelikelytoapply,butisnotlimitedto,situationswhere:

▪ theFirmhasaPRISMimpactratingofHighorMediumHigh.

or

▪ ITisakeyenablerorcoreelementoftheFirm’sbusinessmodel.

10.2 Head of Material Business Line

ThenewPCFroleofHeadofMaterialBusinessLineisrelevanttocredit institutionsonlyandwouldtypicallybeheldbyanindividualtaskedwithreportingdirectlytotheCEO.AMaterialBusinessLineisdescribedbytheCentralBankasbeingonewhichsatisfieseitherofthefollowing:

▪ hasgrosstotalassetsequaltoorinexcessof€10billion;

or

▪ accountsfor10%ormoreofthecreditinstitutionsgrossrevenue.

10.3 Head of Market Risk

ThePCFroleofHeadofMarketRiskisonlyrelevanttocertaincreditinstitutions.Therolewillonlyapplywhereacreditinstitutionislinkedtoacertainlevelofmaterialrisk.Whetheramaterialriskexistsisdependentonwhetherthecreditinstitutionsatisfiesthefollowingcriteria:

▪ €500millionofmarketrisk(includingCreditValuationAdjustment)riskweightedassets;

or

▪ €100billionofnotionalderivativestraded.

10.4 Split of PCF-39 Designated Person

Theproposal to split thePCF-39 functionofDesignatedPersonwill allow for the creationof six new roles.ThesesixindividualsrolesareintendedtocoverseparatekeymanagementfunctionshighlightedintheCentralBank’sUCITSRegulations,AIFRulebookandtheFundManagementCompaniesGuidance.Thesefunctionsareasfollows:

▪ CapitalandFinancialManagement;

▪ OperationalRiskManagement;

▪ FundRiskManagement;

▪ InvestmentManagement;

▪ Distribution;and

▪ RegulatoryCompliance.

10.5 Next Steps

TheAmendingRegulationsbecameeffectiveon5October2020.InadditiontotheAmendingRegulations,theCentralBankpublishedanaccompanyingFAQdocumentdetailingnextstepsandclarificationsontheAmendingRegulations.

TheCentralBankhasclarifiedthatfirmsthatdonotcurrentlyhaveanindividualperformingoneofthenewPCFrolesarenotrequiredtocreateoneinordertocomplywithitsobligationsundertheRegime.Firmsare,however,requiredtoreviewtheirfunctionsanddeterminewhetheranywouldmeetthePCFrolesaslistedintheAmendingRegulations.

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TheCentralBankhasalsoclarifiedthatindividualswhooccupytwoPCFrolesmustbeapprovedbytheCentralBankinrespectoftheperformanceofeachPCFroleseparately.

Individuals in situ on 5 October in the roles of PCF-49, PCF-50 and PCF-51 were not required to seek theapprovaloftheCentralBanktocontinuetoperformoneofthenewPCFroles,however,FirmshadtoreviewtheirassessmentunderSection21ofthe2010ActinrespectofthoseindividualsandsubmitconfirmationofsuchanassessmenttotheCentralBankby16November2020.Similarly,individualsinsituon5OctoberinoneofthenewlysplitPCF-39roleswerenotberequiredtoseektheapprovaloftheCentralBanktocontinuetoperformoneofthenewPCFroles,however,firmshadtosubmitalistoftheindividualsperformingeachoftherolestotheCentralBankby16November2020.

IfanindividualholdinganyofthenewlycreatedPCFroleschangesafter5October2020,thenewindividualwillberequiredtoseektheCentralBank’spriorapprovalasaPCFinthenormalway.

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11 RecentEnforcementCases

ThefollowingisabriefaccountofsomeofthemostrecentenforcementcasesandnoticestakenbytheCentralBankagainstbothFirmsand individuals in respectofbreachesof theRegimeandgeneralmisconduct.ThedetailsofthenoticesarealwaysrecommendedreadingastheyspeaktotheviewoftheCentralBankandgivesinsightstoitsareasofpriorityandconcern.

11.1 Appian Asset Management

From2014-2015AppianAssetManagement(“Appian”)breachedsection21(a)ofthe2010ActbypermittinganemployeetoperformtwoCFswithoutsatisfyingitselfthattheemployeecompliedwiththeStandards.

AccordingtotheCentralBank’ssettlementagreementwithAppian,on13June2018,theCentralBankfinedAppian€443,000andreprimandeditforsignificantbreachesacrossthreeregulatoryregimes:clientasset,anti-moneylaundering,andfitnessandprobity.Appianadmittedtothebreaches.

Appian’s historic regulatory failures left it exposed to a cyber-fraud by a third party where, acting on theinstructionsofafraudsterimpersonatingaclient,itfacilitatedaseriesoftransactionsresultinginthelossof€650,000ofaclient’sfunds.Theclientwasfullyreimbursed.

TheCentralBankhad regard tosection33AS(1)of theCentralBankAct1942,andhad itnotbeen for thefinancialpositionofAppian,theCentralBankwouldhaveimposedafinancialpenaltyof€825,000.

TheCentralBank’senforcementinvestigationidentifiedthatthelossofclientfundswascausedbyAppian’sfailuresinthefollowingareas:

(i) ithaddefectivecontrolstoprotectclientassetsagainstfraud;

(ii) ithadinadequatepoliciesandprocedurestomonitortransactions,detectandreportmoneylaunderingandprovideitsstaffwithappropriatetraining;and

(iii) itfailedtoensurethatanemployee,performingarolethatmightexposeAppiantofinancial,consumerorregulatoryrisk,wasfitforthatrole.

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11.2 Merrion Stockbrokers Limited

The Central Bank’s settlement agreement with Merrion Stockbrokers Limited (“Merrion”) states that on 12December2017,theCentralBankfined€200,000andreprimandeditforabreachofsection21ofthe2010Act.Merrionadmittedthisbreach,whichwasidentifiedduringaCentralBankinspectionofMerrionin2016.

Under theFitnessandProbity regime, individualsperformingcertain influentialandcustomer facing roles inregulatedentitiesareconsideredtobeperformingcontrolled functions (‘CFs’).Themostsignificantof theserolesarepre-approvalcontrolledfunctions(‘PCFs’)inrespectofwhichCentralBankapprovalisrequiredpriortoappointment.

TheCentralBank’senforcement investigation identifiedthatMerrionfailedto introduceadequatesystemsorcontrolstoensurethatindividualsholdingCFsandPCFscompliedwiththeStandards.

ThebreachoccurredfromtheintroductionoftheFitnessandProbityRegimeon1December2011,andpersistedforover4years.Duringthisperiod,Merrionfailedto:

(i) Introduceadequatesystemsorprocedurestoensurecompliancewithitsobligationsundersection21ofthe2010Act;and

(ii) TakereasonablestepstosatisfyitselfthatitsCFsandPCFscompliedwiththeStandards.

Aprogrammeofcomplianceimprovementsbeganfollowingamanagementbuy-outandtheappointmentofanewBoardin late2014.FollowingtheCentralBank’s inspectionin2016,thecurrentBoardtookappropriatestepstoensurethattheinadequaciesinMerrion’sFitnessandProbitypoliciesandprocedureswereaddressed.

11.3 Mr. Michael Kearns

On 27 September 2019, the Central Bank issued a prohibition notice prohibiting Mr. Michael Kearns fromperforminganyCFsinanyFirmforaperiodof2years.MrKearnsactedasanExecutiveDirectorof“HomeCreditIrelandLimited”whichisauthorisedasaMoneylender.

AccordingtotheCentralBank’sProhibitionNotice,Mr.KearnshadfailedtoproperlydisclosetotheCentralBankthecircumstancesunderwhichhisformeremploymenthadceasedwhenhemadeanapplicationforaPCFpositioninHomeCreditIrelandLimited.

11.4 Mr. Rory O’ Connor

On9June2020,followingonfromtheCentralBank’s investigationofRSAIrelandDAC(“RSA”) in2018,theCentralBankreprimandedMr.RoryO’Connor,formerExecutiveDirectorandCFOofRSAanddisqualifiedhimfrombeingapersonconcernedinthemanagementofafirmforaperiodof8years4monthsandimposedafineof€70,000forhisadmittedparticipationinRSA’sfailuretomaintainsufficienttechnicalreservesfromFebruary2010toSeptember2013.

TheCentralBank’sinvestigationinrespectofMr.O’Connorfoundthat:

▪ heknowinglyandactivelyparticipatedinRSA’sfailuretomaintainsufficienttechnicalreservesthroughhisinvolvementintheunder-reservingoflargelossclaimreserveestimates;

▪ participated,alongwithcertainotherindividuals,inundocumentedmeetingsduringwhichcertainlargelossclaimreserveestimatesweredeliberatelyandwrongfullyunder-reserved;

▪ gaveinstructionsandtransmittedinformationrelatingtothoseclaimswithinRSAknowingthemtobeunderreserved;and

▪ concealedtheunder-reservingbyknowinglyprovidinginaccurateandmisleadingfinancialinformationtotheCentralBankinhisroleasCFO.

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11.5 Mr. Juerg von Geitz

On16July2020,theCentralBankpublishedaProhibitionNoticeprohibitingMr.JuergvonGeitz,anExecutiveDirectorofTheMortgageDepartmentLimited,anauthorisedmortgageintermediaryfromperforminganyCFinanyfirmforaperiodoftenyearsfrom5July2019.

Mr.vonGeitz’sprohibitionarosefrom:

▪ the provision of several misleading answers in his IQ to the Central Bank in application for a PCFpositioninTheMortgageDepartmentLimited;and

▪ hisfailuretocooperatewiththeCentralBank’ssubsequentinvestigation.

Thismaterialisprovidedforgeneralinformationpurposesonlyanddoesnotpurporttocovereveryaspectofthethemesandsubjectmatterdiscussed,norisitintendedtoprovide,anddoesnotconstituteorcomprise,legaloranyotheradviceonanyparticularmatter.Fordetailedandspecificprofessionaladvice,pleasecontactanymemberofourFinancialInstitutionsGroup.

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