On 22 September 2021, the Central Bank published a Notice of Intention (the Notice) to amend the Pre-Approval Controlled Functions (PCF) list.
In short, the proposed changes will:
1. expand PCF-16 (Branch Manager of branches in other EEA countries) to include branch managers in non-EEA countries
2. introduce a stand-alone PCF of Independent Non-Executive Director (INED)
3. introduce a stand-alone PCF of Head of Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT)
4. remove PCF-31 (Head of Investment)
With the exception of the removal of PCF-31 (which is relevant to investment firms only), the proposed amendments to the PCF list will be applicable to all Irish Regulated Financial Service Providers (RFSPs) other than credit unions.
The proposals support the Central Bank's implementation of two key areas of upcoming legislative reform: i) the Individual Accountability Framework (IAF) and ii) the EU's new AML/CFT legislative package.
The Individual Accountability Framework (IAF)
The IAF is designed to deliver heightened individual accountability in the financial system and impacts individuals and firms in a variety of ways dependent on a firm's regulatory permissions and the individual's level of responsibility. Under the current proposals, PCF holders in all RFSPs will be subject to additional conduct standards whilst PCF holders in the most systematically important firms will be subject to the highest level of responsibility, falling within the Senior Executive Accountability Regime (SEAR).
The proposed expansion of the current PCF-16 to third country branches and the creation of a new INED PCF is a further step in the Central Bank's alignment of the scope of the fitness and probity regime with the intended scope and operation of the Central Bank's new IAF, including SEAR. Whilst INEDs as directors already comprise pre-approved controlled functions, the separation of a designation of INED as compared with other non-executives is consistent with a greater emphasis under the IAF on requiring the scope and nature of roles and responsibilities to be clear for different senior individuals, including board members with differing roles. For more information, see our detailed Individual Accountability Framework and SEAR Guide.
EU's AML/CFT legislative package
On July 20 2021, the European Commission presented a package of legislative proposals to strengthen the EU's AML/CTF rules. The Central Bank acknowledges the increasing importance of the role of individuals with responsibility for AML and CFT by introducing a dedicated AML/CFT PCF role.
The proposals in detail
1. Expansion of PCF-16
The Central Bank considers an expansion of PCF-16 to include managers of branches of Irish RFSPs in non-EEA countries to be necessary given the number and size of branches of RFSPs outside of the EEA. The amendment will apply the pre-approval procedure of Section 23 of the Central Bank Reform Act 2010 to all branch managers of RFSPs outside Ireland. "The Central Bank considers this amendment warranted on the basis of the level of control and autonomy that such individuals may have."
RFSPs now captured by the expansion of PCF-16 (i.e. branches outside of the EEA) will be required to review their assessment under Section 21 of the Central Bank Reform Act 2010 in respect of individuals in situ and submit confirmation of such assessment to the Central Bank.
2. New PCF for INEDs
The Central Bank proposes to divide PCF-2 (Non-Executive Director) into two categories:
PCF-2A Non-Executive Director
PCF-2B Independent Non-Executive Director
According to the Notice, this proposal is made "in the interest of greater clarity" and given the importance that the Central Bank attaches to the role of INEDs in particular as "an integral component of the board of an RFSP and a fundamental safeguard within a RFSP’s governance framework".
All existing PCF-2’s will be re-designated as PCF-2A. RFSPs will then need to notify the Central Bank which individuals are INEDs and should be designated as PCF-2B, and to confirm that they have undertaken the relevant due diligence to assess independence.
3. New PCF for Head of AML/CFT
It is the Central Bank’s view that it is necessary to replace PCF-15 with a dedicated role for AML/CFT given "the increasing importance of the role of individuals with responsibility for Anti-Money Laundering and Counter Terrorist Financing, and the number of appointments of individuals to carry out this role in its own right (as opposed to within the remit of the role of Head of Compliance)".
PCF-12 Head of Compliance will remain unchanged
PCF-15 Head of Compliance with responsibility for AML/CFT legislation will be removed
A new PCF-52 Head of AML/CFT will be introduced
Where an RFSP determines that it is appropriate for a PCF-15 individual to be re-designated as PCF-52 (or to be designated as both PCF-12 and PCF-52), the RFSP will be required to notify the Central Bank.
In all other cases, an RFSP should review its functions and determine whether any would satisfy the criteria to be a PCF-52 . Where it is determined by the RFSP that this role does exist, the RFSP will be required to review its fitness and probity assessment in respect of individuals in situ and submit confirmation of such assessments to the Central Bank.
4. Removal of PCF-31 Head of Investment (investment firms only)
PCF-31 will be removed on the basis that it is already covered by PCF-30 Chief Investment Officer. RFSPs will not be required to take any action to effect this change and all individuals who are PCF-31 will automatically be re-designated as PCF-30.
Once these regulations come into effect, a period of 6 weeks will be provided to submit any in-situ confirmations. The full application process will apply to any new appointment to the amended PCFs after the regulations come into effect.