There have been a number of recent developments regarding the Fitness and Probity regime, arising out of the implementation of the Individual Accountability Framework (IAF). Most recently, the Central Bank of Ireland (CBI) published two sets of Regulations (see below) to designate controlled functions (CF) and pre-approval controlled functions (PCF) for regulated financial service providers (RFSPs) and in-scope holdings companies. Both Regulations are effective from 29 December 2023.
Importantly, these Regulations also introduce the ‘materiality threshold’ for branch managers as flagged in the finalised IAF Guidance.
1. Independent Accountability Framework – New Regulations
Central Bank Reform Act 2010 (Sections 20 and 22) (Amendment) Regulations 2023 (S.I. No. 663 of 2023)
New PCF Roles
Head of Client Asset Oversight (Credit Institutions) (PCF-53)
Head of Material Business Line (Insurance Undertakings) (PCF-54)
Head of Material Business Line (Investment Firms) (PCF-55)
Amendment to PCF-16
The PCF role of Branch Manager of a branch established outside the State (PCF-16) has been 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.
In relation to PCF-16, it is not clear what will happen in practice in terms of compliance with fitness and probity requirements and approval processes if an RFSP falls below the new 5% materiality threshold by a minimal amount or for a short period of time, including in circumstances where the RFSP continuously falls above and below the threshold during a given year. For other PCF roles where quantitative thresholds have previously been set (e.g. Head of Material Business Lines for credit institutions) RFSPs in some instances have taken pragmatic views and sought approval where there is a real possibility that these thresholds would be met in the short term.
Amendments to the Section 4 requirements for conduct to be honest, ethical and to act with integrity, providing for the broadening of, and addition of, categories of prior conduct that may be material to an assessment of fitness and probity; these include e.g:
the issuing of proceedings, whether or not concluded, against the individual;
the individual being subject to remuneration clawbacks as a result of alleged wrongdoing; and
and the individual being subject to disciplinary proceedings.
Updated Fitness and Probity Guidance
The Guidance has been updated to include:
Details on the new certification process for individuals to be appointed to a CF role, including:
an acknowledgment that the CBI has not prescribed a format for ‘certification’; and
a suggestion that RFSPs may wish to incorporate the certification process as part of their ongoing performance monitoring).
New requirements for in-scope holding companies
The Appendices to the Guidance have been updated in relation to:
Sample due diligence checks;
The agreement of an employee to comply with the Guidance; and
In March 2023, the Central Bank (Individual Accountability Framework) Act 2023 (IAF Act) amended and replaced section 21 of the Central Bank Reform Act 2010 to provide that a RFSP shall not permit a person to perform a controlled function in relation to it unless a certificate of compliance with standards of fitness and probity, given by the RFSP in accordance with section 21, is in force in relation to the person.
The IAF Act empowered the CBI to make regulations as to the giving of the certificate of compliance, including prescribing the form and content of the certificate, the period of validity of the certificate and the adoption of related procedures, systems and checks by the RFSP. The Certification Regulations have been published by the CBI for this purpose.
Much of the IAF has come into operation, with the notable exception of the Senior Executive Accountability Regime (SEAR). The CBI 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.