COVID-19: Fitness and Probity requirements
As the COVID-19 pandemic continues to impact businesses and individuals the Central Bank has provided some welcome guidance on processing PCF vacancies at this time. Temporary vacancies may occur where staff become unwell and permanent vacancies are also opening up as staff move around the sector, which remains operational due to the sector being classified as an essential service.
General background to the Fitness and Probity regime
People in senior positions in regulated financial services providers must be competent, capable, honest, ethical and of integrity. They must also be financially sound. These requirements emanate from the Central Bank Reform Act 2010 and the Central Bank of Ireland's Fitness and Probity Standards.
Pre-approval controlled functions (PCFs) are key senior roles within regulated financial services providers. The persons occupying these roles must be pre-approved for their role by the Central Bank, this involves completing an individual questionnaire (IQ) and submitting it to the regulator. These requirements allow the Central Bank to perform a "gatekeeper" role, ensuring that only fit and proper individuals can enter in to positions of importance and influence in the financial services sector.
There have been a number of settlements under the Administrative Sanctions Procedure in respect of failings by firms in respect of obligations under the fitness and probity regime. In addition, the regulator can, and does, interview candidates proposed for PCF roles. Providing support to senior individuals as part of this process is becoming increasingly common and practical issues, such as whether a candidate should attend an interview with legal representation, involves balancing a number of constitutional rights with the regulator's expectations of senior executives. The most recent figures indicate that the Central Bank has refused a number of applications for PCF roles and 86 applications for senior positions have been withdrawn in the face of challenge by the regulator.
In terms of firm's own positions during the pre-approval process, the Central Bank's priorities for 2020, announced before the impact of COVID-19 was felt in Europe, as well as the Central Bank's 'Dear CEO' letter of 8 April 2019, indicate that the regulator is emphasising the onus on firms to conduct their own due diligence on individuals and the obligation on individuals to provide full and truthful information in their IQ.
Amendments to the fitness and probity regime are also being developed to allow the Central Bank to publish details of persons whose applications for PCF roles have been refused. These proposals will form a package of amendments which the regulator has proposed in order to enhance individual accountability. The package also includes conduct standards for all staff of financial services providers and a Senior Executive Accountability Regime.
COVID-19 and Temporary Vacancies
The Central Bank has stated that where a PCF role holder is unable to work due to illness or if a firm cannot fill a PCF role due to COVID-19, the firm can appoint another suitable individual for a limited period. The Statutory Regulations1 issued under the Fitness and Probity regime has always included a shorter process under which individuals could temporarily perform pre-approved controlled functions, under arrangements agreed in writing with the Central Bank. However, that process has generally been reserved for individual exceptional circumstances. The Central Bank's latest guidelines takes a more general pragmatic approach in the light of the pandemic.
The Central Bank's latest guidance will require the prior agreement of the regulator and the steps to be taken are:
- The firm should refer to its succession and contingency plan to identify a suitable individual to fulfill the temporary vacancy.
- The firm should contact the Central Bank outlining that they wish to make a temporary appointment to a PCF role. This contact must outline the circumstances leading to the necessity to make a temporary appointment and must confirm that the firm is satisfied on reasonable grounds that the candidate complies with the Fitness and Probity Standards.
- This aspect of the application will require due diligence on the candidate, including an assessment of the time commitments involved with the PCF role alongside other roles that the candidate may continue to be responsible for.
- Confirmation should also be provided that the person has agreed to abide by the F&P standards and will continue to do so while appointed to the PCF role.
- The duration of the temporary appointment should also be outlined, which should not normally exceed 3 months.
- There is no requirement for the candidate to submit an IQ in respect of this kind of temporary appointment. The Central Bank will indicate if it agrees to the temporary appointment in writing and the firm should keep the situation under review, informing the Central Bank of any changes.
COVID-19 and Permanent Vacancies
The Central Bank has reminded firms that they may not appoint a person to a permanent PCF role without Central Bank pre-approval. Firms must continue to comply with their obligations under the fitness and probity regime throughout the pandemic. These obligations include the ongoing requirement to review the compliance of CF and PCF holders with the fitness and probity standards. Firms should note their obligation to notify the Central Bank without delay of the resignation of a PCF holder.
Current Application Procedures
Certain roles require the applicant to submit to Garda vetting and to provide a Garda Vetting Invitation Form. This form is usually submitted in hardcopy and this continues to be required. However, the Central Bank has required that such firms also be sent in softcopy by email to ensure that staff can access the information remotely and process the application as much as possible.
The Central Bank has stated that it is exploring the conduct of interviews with PCF applicants remotely, clearly indicating that the regulator will continue its vigilance as a gatekeeper to the financial services sector during the pandemic. A&L Goodbody lawyers are helping clients to respond to the broad range of legal issues now impacting their business. Our website is updated on an ongoing basis and hosts a hub of legal issues arising from COVID-19 across all of our practice areas, which are free to access.
For further information please contact Dario Dagostino, Financial Regulation Partner or Sinéad Prunty Financial Regulation Knowledge Lawyer or any member of the A&L Goodbody Financial Regulation team.
Date published: 13 May 2020
1 Regulation 11 of SI No. 437/2011, Central Bank Reform Act 2010 (Sections 20 and 22) Regulations 2011.