On 30 November, the Committee on Finance, Public Expenditure and Reform, and Taoiseach (the "Committee") sat to consider the Central Bank (Individual Accountability Framework) Bill 2022 (the "Bill"). While the Committee sat for in excess of three hours, only half of the Bill's provisions were considered. The Committee will need to sit again to consider the remainder of the Bill. There is no indication as of yet as to when this will occur, however the Committee agreed that every effort should be made to "facilitate a speedy new date". We will monitor this and update clients in due course but given this development, the Bill may not complete all legislative stages before year end, as had been the Government's hope.
In terms of what was considered on 30 November, a number of key points are worth noting and are set out below:
1. List of PCFs
The Minister for Finance, Paschal Donohoe (the "Minister") explained that the Central Bank of Ireland (the "Central Bank") is "not looking to expand the roles covered by the current PCF list".
2. Section 6 - Common Conduct Standards ("CCS") and the Additional Conduct Standards ("ACC")
Deputy Doherty described this as the "meatiest part of SEAR legislation".
He inquired as to how the Central Bank is going to gain confidence that an individual has experience for a role. The Minister responded that there will be "training and support in place for persons to demonstrate ability to perform function".
3. Section 6 - Significant Influence
On the term "significant influence" included in Section 53(c)(2), Deputy Doherty inquired as to who is captured by this. The Minister explained that the majority of individuals in those roles will hold PCF roles.
Deputy Doherty provided an example of a breach of ACS by a Chief Risk Officer and asked if the accountability stops with him/her or so, or can it go up the chain, if others were aware? The Minister explained that if there has been a failure to comply with regulatory standards by those individuals up the chain then they would be subject to this legislation. The Minister then went on to say that we need to be careful to avoid a scenario where it is all the responsibility of the most junior person, that they are always the ones being held accountability.
4. Section 6 -Training
Deputy Doherty inquired about the obligation for training to be provided and whether the Central Bank has looked at how it will be provided. The Minister responded saying that one of the positive consequences of the effort been involved in getting this legislation to this point is that this training is already being provided within banks and within companies which will be involved and particularly by legal firms and there have been many different seminars already, regarding how the Bill will be implemented. He anticipates that this work will take "an awful lot of next year to do".
He explained that there will be detailed guidance provided by the Central Bank but that a lot of focus will need to be placed on making sure there is sufficient awareness amongst staff regarding their heightened and legal responsibilities. He confirmed that the obligation sits with the firms themselves to provide the training and not the Central Bank, to make sure individuals have access to the courses and the training they need.
He said "if there is any message to come out of this exchange" it is that "employers, those who will be charged with overseeing this legislation within in their companies, have a solemn duty to make sure that those who are working for them have access across next year to training that will be needed to make sure this legislation is implemented."
5. Section 6 - Timeline on the Central Bank Guidance
Deputy Doherty asked when the guidance can be expected. The Minister explained that the Central Bank will engage in consultation on the guidance once the legislation has been enacted and that guidelines will then be published 6 months after the consultation. Assuming the legislation is passed before the Christmas recess, the Minister suggested the date of the middle of next year for issuance of the guidance.
6. Section 6 – Amendment - Section 53 (1)(d) "Nothing in this Part requires a person – to do anything that might tend to incriminate the person".
Deputy Doherty explained that he had a real issue with this clause. The Minister responded confirming that this is a well-established principle of civil and criminal law and a constitutional right.
7. If this legislation was in place during the 2008 financial crash, what would its impact have been?
This was a question posed by Deputy Durkan. The Minister responded that we now have the F&P Regime in place and the levels of capital which the banks now hold deal with the consequences of risk developing in a way which might affect their balance sheets and our economy – "I do believe that we have very, very strong safeguards in place that give us the best chance against the risks that we currently know about".
In respect of the Bill itself, the Minister described it as a "very valuable piece of legislation" but that it is not a guarantee that there won't be difficulties in the future but he stated that with the passage of the Bill we will have the "final tool that we need to give us the best chance of dealing with the risks we are aware of, that have happened to us in the past and hold individuals and entities accountable in the future for issues that may develop in the future."
8. Section 13 Amendments - SSM
The Minister explained that these amendments are required to take account of the role of the ECB in the approval of PCF roles by those entities captured by the SSM. Deputy Doherty asked if this is the only involvement of the ECB when it comes to the Bill and can the Central Bank impose the rest of the legislation on those individuals and entities captured under the SSM? The Minister confirmed that he was correct.
9. Section 14 – decision to choose 6 years as the length of time for which an individual could have left a role and still be subject to investigation by the Central Bank
Deputy Doherty inquired as to the significance of the length of time of 6 years? The Minister explained that it was chosen to be consistent with the time window for the statute of limitations. Unhappy with this, the Deputy asked whether it had to be 6 years? He explained his rational stating that sometimes these issues will not come to light for a long time and so might not be captured in the time frame. The Minister clarified that the 6 years runs from the date of resignation from the relevant role and not from date of the occurrence of the alleged breach being investigated. However, the Minister explained that he will consider the broader point the Deputy had raised. Not giving a commitment to change the 6 year period but it is an important point which his department will consider.
Building on this point, Deputy Doherty posed another scenario to the Minister, that was, what if at the time the breach comes to light, the person is no longer working for the relevant entity and is in fact working abroad, what is the extra territorial reach of the legislation? The Minister explained that it was his own view that regardless of where the individual is resident they should come within the remit of the law, if the regulatory beach occurred in this jurisdiction. However, he said he would confirm this position before Report Stage.
10. Section 15 – Discontinuance of an investigation for reason of lack of resources
Deputy Doherty explained that the section allowing for the discontinuance of an investigation for reasons of lack of resources, was not acceptable. Explaining that we do not restrict the Gardaí from doing their job due to lack of resources, so why should it be different here. The Minister explained that in practice there is little doubt that if the Central Bank did believe a breach of law had occurred and they didn't have the resources to pursue it, that those resources would be made available to it. The Minister concluded the point by giving notice that he may consider this matter for change.
11. Section 16: Suspension Notices
The Minister took the Committee through the rationale for the proposed amendments relating to issuance of suspension notices in the situation where a person has been prohibited.
12. Section 19: Suspension Notices
The Minister explained that the appeal process in respect of Suspension Notices was to the Irish Financial Services Appeals Tribunal ("IFSAT"), explaining that this mechanism was required as a result of the outcome of Zalewski case. Deputy Doherty queried the function of IFSAT, its resources and its composition. The Minister provided some high level detail but agreed to provide the Committee with a note on the role and composition of IFSAT.
13. Holding Companies
Deputy Doherty asked why there are so many references to holding companies in the legislation. The Minister explained that the Central Bank believed it was necessary to place it on a more solid legal and statutory footing.
14. Section 37 – Amendments to the Administrative Sanctions Regime.
The Minister took the Committee through the amendments relating to the Administrative Sanctions Procedures in so far as it relates to the Central Bank's power to appoint "Authorised Officers" with powers exercisable in relation proscribed contraventions. This included the definition of authorised officer to mean a person appointed under section 24 of the 2013 Act, this has been included to support new sections inserted into the Bill to provide for fairness of procedures in the investigation process of the Central Bank on foot of the Supreme Court decision in Zalewski case. Additionally, more changes were required to ensure that all instances where the Central Bank has the power to appoint an Authorised Officer were captured.
15. Section 39 – Breaking the Participation Link
Deputy Doherty raised the point about replacing the concept of a person concerned in the management of a Regulated Financial Service Provider ("RFSP") with the concept of a person performing a controlled function in relation to the RFSP.
Deputy Doherty appeared to be seeking clarification as to whether there is a possibility that someone concerned in the management of a RFSP might not be a person performing a controlled function. A discussion then ensued as to whether there are members of the board who would not be deemed to hold a controlled function. The Minister explained that directors would be controlled functions.
Additionally, the Minister explained that if a lacuna was to be identified, the Central Bank can expand the list of PCFs via regulation but it was the Minister's believe that the list of roles was so broad as to capture any roles that could objectively be described as being senior within an organisation.
The example of a company secretary was particularly focussed upon. There was confusion as to the nature of the role of company secretary, with Deputy Doherty suggesting that the role sits on the board and the Minister believing it to fall within the definition of PCF1 – "ability to exercise significant influence on the conduct of affairs of a RFSP". The Minister also suggested that the role would be subject to the additional conduct standards. In the end the Minister agreed to come back to the Deputy on the matter.
16. Section 43 – Disclosure of Confidential Information from an Investigation
The Minister took the Committee through the main provisions relating to the disclosure of information from a report on an investigation, or submissions made in the course of an investigation. He explained that the obligation does not apply where information contained in the investigation report is disclosed to the person's legal representative. However, a person must keep information received in the course of the investigation confidential where the Central Bank has advised that it is confidential, unless authorised to do so by the Central Bank in writing or required to do so by law.
Deputy Doherty queried whether an individual could share a report with a union representative, stating that not being allowed to do so would be a breach of workers' rights.
In the end the Minister closed out the discussion by saying that both he and the Deputy had a difference of view on the matter and no further action or amendment was agreed upon.
For further information or advice in respect of the topics covered in this Insight, please contact any member of our dedicated SEAR / IAF expert team, or your usual Matheson contact.
Further general information can be found our Individual and SEAR website.