A number of new additions to the Central Bank's list of pre-approval controlled functions will require action from affected financial services providers before 16 November 2020. New rules, imposed on 5 October 2020, mean there are now a total of 54 pre-approval controlled functions under the Central Bank's Fitness and Probity regime.
New PCF role of Chief Information Officer
All regulated financial services providers (RFSPs), except credit unions, are affected by the inclusion of the role of Chief Information Officer (PCF-49). This role will apply, in most circumstances, to the most senior individual who is responsible for IT. The Central Bank have stated that this new role is being introduced due to the increasing importance of and reliance on IT in the provision of financial services.
This follows a significant regulatory focus on IT risk with, for example, new Guidelines from the European Banking Authority1 and sanctions being imposed by the Central Bank and third country regulators in respect of IT related issues affecting customers.
The Central Bank's guidance makes clear that a role does not have to be created where one did not previously exist or where it is not justified by the size or complexity of the business. However, the Central Bank expects RFSPs to have a Chief Information Officer if they have a PRISM rating of High or Medium High or where IT is a key enabler or core element of the business model.
For example, a Chief Information Officer role is applicable to an institution where the size, nature and complexity of the institution warrants such a role and where the failure of the institution's ICT would have an adverse effect on the provision of critical services to an RFSP's customer base, the ability of the firm to meet its regulatory obligations or the overall stability of the financial system in Ireland.
Two new PCF roles for Banks
Specifically for banks, the Head of Material Business Line (PCF-50) is introduced. Guidance issued by the Central Bank states that a material business line is one that either has gross total assets of €10 billion or more or accounts for more than 10% or more of the bank's gross revenue.
The decision on whether a business line is material will be based on the annual financial statements or other documents approved by the Board and submitted to the Central Bank, for example strategic plans and Internal Capital Adequacy Assessment Processes.
The Head of Material Business Line role includes Balance Sheet and Profit and Loss management and other business lines that would be considered capable of having an impact on the safety and soundness of the credit institution due to the commercial or strategic importance of that business line. Such a role would usually be a senior one with a direct reporting line to the CEO. In addition to existing business lines, it will be important to assess on an ongoing basis the potential relevance of emerging and evolving business lines.
Also specifically for banks is the new role of Head of Market Risk (PCF-51), although not necessarily a role that exists in certain institutions. This role will apply only to banks where the market risk as reported in quarterly regulatory returns amounts to €500 million of market risk weighted assets (including credit valuation adjustment) or €100 billion of notional derivatives traded.
A person may fulfil criteria for more than one PCF role, in which case, s/he should be approved by the Central Bank in respect of each role. Individuals who are already pre-approved in respect of their role as Head of Retail Sales or Head of Treasury will not be required to apply for pre-approval as Head of Material Business Line.
There are no changes to the existing specific categories of PCF roles for Insurance, the Stock Exchange, Investment Firms, Investment Intermediaries / Collective Investment Schemes, Payment Institutions, Retail Credit Firms and Financial Service Providers established outside Ireland.
Further amendments to the Central Bank's Fitness and Probity regime are anticipated as part of the regulator's Individual Accountability Framework. The proposed amendments being considered will enable the Central Bank to investigate people who previously held PCF roles and to publish details where the Central Bank refuses to approve applicants to PCF roles.
It is also anticipated that there will be conduct standards imposed on all staff at RFSPs and the removal of legal hurdles to the Central Bank when it is pursuing individuals concerned in the management of RFSPs in respect of regulatory contraventions through the Administrative Sanctions Procedure. Most significantly, the Central Bank proposes to implement a Senior Executive Accountability Regime requiring senior executives to ensure their areas of responsibility are controlled effectively and comply with regulatory requirements.
Where individuals are performing the newly-introduced PCF roles on 5 October 2020, pre-approval is not required for continuing in the role. However, RFSPs will be required to review the fitness and probity of such individuals and must submit confirmation of this assessment by 16 November 2020. If the person performing the role changes then the new applicant must be pre-approved by the Central Bank.