Central Bank of Ireland – Supervision and Enforcement Priorities 2021

The Central Bank of Ireland has delivered an illuminating outline of the supervision and enforcement priorities for 2021. These priorities inform regulated firms on what to expect from their supervisory engagements in the year to come. The priorities, delivered by Seána Cunningham, Director of Enforcement and Anti-Money Laundering are detailed below.

Supervisory Priorities

Culture, Diversity and Inclusion

Culture and conduct remains a priority for the Central Bank. It is interesting to note that the Central Bank is actively monitoring the culture of regulated firms in all engagements. This appears to cover day to day engagements with the regulator, regulatory inspections, conduct and attitudes during remediation and enforcement processes. The Central Bank is obtaining insights in to the prevailing attitudes and behaviours at regulated firms through all of these touch points. These insights are feeding in to the Central Bank's new behaviour and culture framework, which is currently under development.  

Diversity and Inclusion (D&I) has been a notable area of focus for the regulator over recent years.  The basis for this approach has been that diverse institutions with inclusive environments deliver better outcomes on risk management, problem solving and decision making, all of which ultimately lead to better outcomes for firms' consumers and clients. 
The Central Bank expects financial services providers, in the short term, to prioritise D&I from the top down. Boards are expected to have a comprehensive discussion on D&I issues at least annually. Senior leaders should provide clarity of direction on the firm's D&I goals and how those goals align with the direction of the business. In the medium to long term firms are expected to demonstrate diversity of candidates in Pre-Approval Controlled Functions (PCF), to manage their talent pipeline appropriately and to include D&I considerations in succession plans.

The Central Bank will continue to measure and assess D&I strategies in 2021 through a specialist team conducting inspections in this area. Some colour was provided on what good looks like in this space. For example, firms are told they will benefit from taking an honest look at how they measure up on diversity and inclusion and should actively monitor and track progress towards their D&I goals. Change should be modelled by senior leaders in their own behaviour.

Fitness and Probity

The Central Bank has been particularly active in the fitness and probity space with a Dear CEO letter and several new roles added to the regime in 2020. The 2021 Priorities indicate that the Central Bank will continue its efforts, particularly in relation to making sure firms understand and embed their obligations. The Central Bank continues its work with the Department of Finance on the development of the Individual Accountability Framework, which includes a Senior Executive Accountability Regime, conduct standards for employees and further reforms to the Fitness and Probity regime. 

It is interesting to note that the Central Bank stated that firms that have the fundamentals of the fitness and probity obligations in place now will be well placed to implement what is to come under the Individual Accountability Framework, which is expected this year. Firms should focus on understanding the fitness and probity obligations, supporting PCF applications and evidencing how they are satisfied as to the candidate's fitness and probity, performing ongoing due diligence on incumbents and demonstrating compliance to the Central Bank.

For the second year running the Central Bank has indicated the importance of taking care to submit a complete and honest Individual Questionnaire for PCF applicants. The Central Bank flagged that it intends to issue further guidance on the PCF interviews to help firms and candidates to understand the process. 

Enforcement Priorities

The Central Bank provided some interesting context to their enforcement activities with an outline of how enforcement is evolving to meet technological developments, a changing business environment and the complexity of financial products by diversifying in to digital forensics, data analytics and artificial intelligence. 

It was also interesting to note comments that the Central Bank is not a 'zero tolerance' regulator with enforcement action being used for the most serious of breaches in order to deter misconduct and promote compliance. Useful context was provided on how the Central Bank considers initiating enforcement actions and how sanctions are considered, with emphasis on early identification, rectification and redress where appropriate, and good engagement with the regulator, all feeding in to the decision making process as to whether enforcement steps will be taken. 

Anti-money Laundering

Anti-money laundering is high on the European and domestic regulatory agenda with a recognition of the need to address divergent application of the AML framework at an EU level. Although the remit, model and operation of an EU-supervisor remains to be seen there is an expectation that we will see a harmonised rulebook and EU supervisor before too long. For 2021 the Central Bank will continue risk-based and intelligence led inspections adapted for the new working environment, across sectors and with a particular focus on Virtual Asset Service Providers and firms performing activities listed under Schedule 2 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010. 

MLROs should focus on keeping risk assessments under regular review to ensure they respond to evolving risks.  This is underpinned by a sound understanding of the risks. Transaction monitoring and suspicious transaction reports will continue to be a focus alongside governance of outsourcing and staff training. The importance of remaining up to date on developments and regulatory guidance was also emphasised, with changes to 2019 Industry Guidance being anticipated as a result of 5AMLD.

These supervisory and enforcement priorities will feed in to compliance and regulatory risk management strategies of regulated firms and provide a guide to supervisory activity for the coming year.

The Central Bank's expectations emphasise the importance for firms of adopting the right approach through all of your engagements with the regulator.  This covers, for example, conduct during preparation for regulatory inspections, when complying with statutory information requests or even informal contact during supervisory engagements and before or during enforcement investigations - not just when engaging on supervisory conclusions or when responding formally to suspected prescribed contraventions in an enforcement investigation.  

For more information please contact, Dario Dagostino, Mark Devane, Partners, Financial Regulation and Regulatory Risks and Investigations or Sinéad Prunty, Financial Regulation and Investigations Knowledge Lawyer.  

Date published: 2 March 2021