The Bank has greater control over persons carrying out key positions within financial service providers. It may direct that a person should not be appointed or may require their removal or suspension. It or the institution must be satisfied that the person is a fit and proper person to hold the role.
A so-called control function is one where the person is likely to exercise significant influence on the conduct of affairs of the provider. The regulatory scheme seeks to control, monitor and ensure compliance with their obligations.
Where a person is involved in a provision of advice or assistance to customers in the course of a financial service or deals with or has control over customer’s property, there is a control function.
Certain control functions are subject to pre-approval if the role has a significant influence on the conduct of the financial services provider. The following key roles (amongst others) are subject to prior approval, namely directors, chief executive or secretary and persons reporting directly to them.
Persons performing control functions must comply with fitness and probity standards set out in the codes. The Bank may require information regarding the proposed appointee.
The head of financial regulation may investigate the conduct of persons carrying out control functions if there are reasons to suspect their fitness or probity. This may arise where
- the person does not have the necessary experience qualifications or skills,
- does not comply with the applicable standards on the code on fitness and probity,
- has engaged in serious misconduct,
- has provided false and misleading statements to the regulators,
- has failed to provide information when required
- has failed to comply with notices
- is guilty of any money-laundering, fraud or dishonesty offences.
A notice may be served on officers or employees requiring them to appear to give evidence relating to a matter or to produce a document. They may be required to answer questions and furnish documents.
A person who is being investigated may be suspended. This may be done, if the head of financial regulation considers it necessary to prevent potential damage to the financial system and protect its user. The suspension notice gives notice and requires the person addressed to show cause within five days why the suspension should not be confirmed. It must be confirmed or lapses after 20 days. If it confirmed it may last for three months, subject to further extensions for three months.
Following an investigation, the head of financial regulation may if he forms the opinion that the person is not a fit and proper to perform the control function may issue a prohibition notice that prevents him from performing that role for the periods specified or indefinitely. The person concerned must be given the opportunity to make representations in relation to the order as are necessary to do justice.
The Fitness and Probity Regime and the fitness and probity requirements apply to regulated financial service providers since December 2011. 46 senior control positions are prescribed, pre-approval controlled functions in relation to regulated service providers. The prior approval of the Central Bank is required before an individual can be appointed to such a position.
The individual must complete a questionnaire, which is endorsed by the relevant provider and submitted for assessment.
The Central Bank is a competent authority since 2014 for the European Central Bank in relation to the management board of significant credit institutions and new credit institutions and credit institutions (regulated by the ECB) applying for authorisation.
The EBA publishes guidelines for assessment of the suitability of members of management boards and key function provider.
The Fitness and Probity Regime was applied to credit unions from 1 August 2013. The position of manager and chair of the board are prescribed preapproval control functions in the case of the credit union. Accordingly, the approval of the Central Bank is required before an individual may be appointed to such a position.
Pre-approved control functions include
- the Executive and Non-Executive Directors,
- Chairman of the Board,
- Chairman of the Audit, Risk, Remuneration and Nomination Committee,
- Chief Executive,
- sole trader, members of the partnership,
- Head of Finance,
- Internal Audit,
- Chief Risk Officer,
- Head of Compliance with responsibility for Money Laundering;
- branch managers of other EEA branch,
- Head of Retail,
- Chief Operating Officer (generally).
- Head of Underwriting,
- Investment Claims and
- Actuarial functions.
- Head of Treasury,
- Credit, Asset and Liability Management.
In the stock exchange:-
- Head of Traded Markets,
- Head of International Primary Markets,
- Head of Regulation,
- Head of Operations.
In investment firms:-
- branch managers in Ireland,
- Head of Trading,
- Chief Investment Officer,
- Head of Investment,
- Head of Client Asset Oversight.
In investment intermediaries and collective investment schemes:-
- Branch Managers in Ireland,
- Head of Transfer Agency
- Head of Accounting (Valuations),
- Head of Trustee Services,
- Head of Custody Services.
Sector Specific II
In UCIT Self Managed Investment Companies or Management Companies:-
- Head of Transfer Agency,
- Head of Accounting Valuations,
- Designated Persons to whom a director may delegate the performance of management functions,
- Head of Investor Money Oversight,
In payment institutions,
- branch managers within the State;
In retail credit firms,
- Head of Credit,
In financial service providers outside Ireland,
- manager of the branch.
The general requirements apply to the insurance sector.
The controlled functions include persons-
- with the ability to exercise significant influence on the conduct of affairs of a regulated provider;
- ensuring controlling or monitoring compliance by a provider with obligations;
- giving advice to a customer of the provider;
- arranging financial services for a customer of the provider;
- assisting a customer in the making of a claim under an insurance or insurance contract;
- determining the outcome of a claim under a contract of insurance;
- managing or supervising of those persons in rolls in the above categories
- adjudicating on any complaint communicated to the provider by a customer;
- insurance and reinsurance intermediaries;
- dealing or having control over property of a customer;
- dealing in or with property on behalf of a regulated financial service provider.
Financial service providers must satisfy themselves on reasonable grounds that persons appointed to preapproved control functions and other control functions comply with the relevant standards. They must analyse the personal competence and probity of the person concerned. Draft guidance has been published in relation to matters to be considered on due diligence.
The requirements for fitness and probity require that the relevant person
- be competent, capable,
- act honestly, ethically and with integrity and
- be financially sound.
He must have the appropriate qualifications, professional and otherwise, experience and skill, either acquired through training or employment. He must be shown to have competence and proficiency to undertake the relevant function by performing the same role in another organisation or previous roles.
The standards in relation to honesty, ethicality and integrity look to past behaviour and events. Previous complaints will be taken into account including, disciplinary proceedings, professional restrictions, suspensions, offences.
Financial soundness requires that the person is not bankrupt or insolvent and his role is not adversely affected by being subject to an unsatisfied judgment debt or being an undischarged bankrupt.
Fitness implies relevant professional qualifications, an appropriate application and interview process, references and ensuring that the person does not have any inconsistent functions which cause a conflict of interest.
The probity standards include consideration of complaints and other matters affecting the person’s past conduct. This includes particular matters which have arisen, their seriousness, relevance to the circumstance and the length of time that has elapsed. Evidence of rehabilitation should be considered.
The firm should make reasonable enquiries of appropriate parties including former employers, regulatory authorities as appropriate.
Identification and Records
Organisations must identify persons undertaking pre-approved control functions and control functions. The relevant persons must be identified and records maintained.
The list of persons performing such functions must be submitted to the Central Bank. The return where appropriate must confirm that the provider is satisfied that the persons on the list comply with the requisite standards and that the relevant agreement has been obtained from the persons to comply with the standards. Sufficient information must be available so that the organisation can conclude that the person meets the requisite standards.
The obligation is a continuing one and is required to be reviewed from time to time. There must be procedures to manage compliance on an ongoing basis. Audits should be undertaken annually without any changes relevant to the standards. Investigations should be undertaken and appropriate remedial action and notification to the Central Bank in the event of noncompliance.
The Central Bank considers the approval process on the basis of online questionnaires. Interviews may be held with the persons who are proposed to hold prior approval control functions.
In the case of outsourcing of control functions, the persons concerned must comply with the standards. The regulated financial service provider remains responsible for compliance. The outsourcing arrangements should identify the relevant persons.
There is a less intensive regime in respect of persons already performing functions in a pre-control function outside the State.
If they take up a similar role in Ireland and agree to comply with standards, obtain confirmation from their own regulator that they can conduct functions in the jurisdiction, they are subject to a reduced regime.
The provisions do not apply to persons solely acting in accordance with a written script prescribing a course of action. This applies to
- a range of routine matters in relation to the provision of financial services, e.g. call centre;
- persons performing functions on a temporary basis (provided that the prior approval does not apply. Provided that they must comply with the standards)