CBI guidance on the new materiality threshold for PCF-16

The Central Bank of Ireland (Central Bank) has published an information note to provide additional information regarding the recent introduction of a materiality threshold to the pre-approval controlled function (PCF) role of branch manager of a branch established outside the State (PCF-16).

Background

In December 2023, as part of the implementation of the Individual Accountability Framework (IAF), the Central Bank Reform Act 2010 (Sections 20 and 22) (Amendment) Regulations 2023 (S.I. No. 663 of 2023) (Amending Regulations) were published. The Amending Regulations, which came into effect on 29 December 2023, prescribe three new PCF roles and amend the PCF-16 role.  

The PCF-16 role was amended by the introduction of a materiality threshold, whereby a branch manager of a branch established outside the State will be a PCF-16 role only in circumstances where the business arising from the branch amounts to 5% or more of the assets or revenues or gross written premium of the regulated financial service provider.

As we flagged in our previous update, it had not been clear what would happen in practice in terms of approval processes under the Fitness and Probity Regime if a firm falls below the new 5% materiality threshold by a minimal amount or for a short period of time, including in circumstances where the firm continuously falls above and below the threshold during a given year. These points of concern are addressed in the Central Bank’s information note.

Central Bank guidance on the materiality threshold

The Central Bank has provided the following guidance in relation to the new materiality threshold and the actions that firms should take:

  • The Central Bank intends that only managers of outgoing branches where the branch meets or exceeds the threshold will require pre-approval under the fitness and probity regime. The onus is on the firm to review the branch manager function to determine whether it satisfies the description of a PCF-16 role.
  • Firms should take a practical approach when considering whether or not the materiality threshold has been reached or exceeded and when determining the appropriate frequency of any related assessment. Firms should document such assessment, which must be made available to the Central Bank on request.
  • At the time that an individual is being considered for appointment to a PCF-16 role, the firm should carry out an assessment to establish if the branch meets or exceeds the threshold. If the threshold is met or exceeded at that time, then the role is a PCF-16 role and the new appointment should be submitted to the Central Bank for pre-approval, without delay. The full application process applies to any new appointment to a PCF-16 role where the branch meets or exceeds the threshold.
  • After an individual has been approved and is performing the PCF-16 role, that individual remains a PCF-16 until such time as they leave their role, even if there are fluctuations above and below the threshold post approval. This is in line with the approach for the Head of Material Business Line.
  • In relation to current in-situ roles:
  1. Where a firm determines that it is appropriate for an individual currently designated as PCF-16 to continue to be designated as PCF-16 based on the threshold being reached or exceeded, no further action is required and the existing PCF-16 role will remain in place.
  2. Where an individual is currently designated as PCF-16 and the branch falls below the threshold, the firm is required to end-date the PCF-16 role, by way of resignation, on the Central Bank Portal. The resignation date should correspond with the effective date of the Amending Regulations, i.e. 29 December 2023. The firm may select ‘Other’ as the reason for the resignation and provide the following rationale: “PCF role no longer required due to updates to the regulations on 29 December 2023”. This action should be completed by 29 March 2024.

Much of the IAF has come into operation, with the notable exception of the Senior Executive Accountability Regime (SEAR). The Central Bank published draft ‘SEAR Regulations’ in December 2023, at the same time the IAF Guidance was published, and we expect the final Regulations to be issued soon.

Visit our Individual Accountability Framework hub for further materials, including our 'IAF and SEAR Guide', and thought leadership on this important topic.

For further information on the Individual Accountability Framework and Fitness & Probity and how ALG can assist your business, please contact Dario Dagostino, Partner, Mark Devane, Partner, Patrick Brandt, Partner, Chloe Culleton, Partner, Sarah Lee, Senior Knowledge Lawyer, Duncan Inverarity, Partner, Noeleen Meehan, Partner, Michael Doyle, Partner, James Grennan, Partner, Laura Mulleady, Partner, Sinéad Lynch, Partner, Emma Martin, Of Counsel, Kerill O'Shaughnessy, Partner or your usual ALG contact.

Date: 27 February 2024