On 1 December, Matheson LLP published an Insight regarding the Committee Stage review of the Central Bank (Individual Accountability Framework) Bill 2022 (the "Bill") by the Committee on Finance, Public Expenditure and Reform, and Taoiseach (the "Committee"). As explained in that Insight, the consideration of the Bill did not complete on 30 November. The reconvened session took place on 7 December and this Insight considers the details of that session. As with the first Committee meeting, the Government amendments were presented and approved with no objection. The majority of the discussion related to the operation of certain sections and clarifications in respect of same. A number of key points are worth noting and these are set out below.
Regarding next steps, with the completion of the Committee Stage, the Bill now moves to Report Stage in the Dáil. The Minister for Finance, Paschal Donohoe (the "Minister") at the conclusion of the Committee meeting explained, that while he hoped that the Report Stage would take place next week, this had not yet been confirmed. In any event, he advised that even if the Bill went to Report Stage next week it would not be in a position to go to the Seanad until the New Year. As a result, it will be January before we see the legislation approved by the Houses of the Oireachtas.
Key points to note:
Planning to commit a prescribed contravention under Section 44
Deputy Doherty inquired whether persons who plan to commit a contravention would be caught by the legislation. He gave the example of an whistle-blower making a disclosure to the Central Bank of Ireland (the "Central Bank") regarding a PCF holder who has been discussing and planning a contravention.
The Minister advised that it would depend on how advanced that planning was and whether the act of planning constitutes a breach of the conduct standards. If the intentionality is at a point at which it can be shown to be a breach of the conduct standards, if it is material, the act of planning should constitute a breach. He expects the phrase "the suspected commission" used in this section would mean they would be subject to the Bill. The Minister went on to articulate that the conduct standards require individuals to act honestly and having regard to the legitimate interests of the regulated financial service provider ("RFSP"), its staff, customers and other persons with whom it engages. The case could strongly be made that the person planning to commit a contravention is not acting with honestly and integrity.
Deputy Doherty queried if it would be enough to just intend to commit the offence. The Minister advised yes, but caveated that there has to be proof that the planning occurred.
Ability to require additional individuals to attend inquiry under Section 45
Deputy Doherty queried whether the inquiry captured by this section would be able to require other individuals (witnesses etc.) to appear before it and where in the Bill does it provide for notice of this. The Minister advised that this is not captured by the Bill but rather by Section 33(b)(a) of the Central Bank Act 1942 and related sections.
Use of the term "balance of probabilities" in Section 46
Deputy Doherty queried whether the use of the term "balance of probabilities" in this section is standard in relation to these kinds of matters. The Minister confirmed that it is a civil law standard, that the Central Bank shall have regard to the balance of probabilities and in so doing should have regard to all relevant matters including the final investigation report, any submissions produced or provided in relation to the draft investigation report and related matters.
Sanctions where an individual frustrates the investigation under Section 48
Deputy Doherty queried if there was provision within the Bill to increase the sanction against an individual who does not cooperate with the investigation or who actively frustrates the investigation.
The Minister advised that the amendment to Section 33AR of the Central Bank Act 1942, captured within Section 48 of the Bill, addresses this in two ways. They include:
- how quickly, effectively and completely the person brought the prescribed contravention to the attention of the relevant entity is relevant – the Minister explained that the "the lack of so doing is as relevant an issue as doing".
- regarding cooperation, the "degree" of cooperation is what is relevant. Therefore the absence of cooperation, the Minister stated, "would absolutely be a relevant factor in how the Central Bank would act". Additionally, a lack of, or a low level of co-operation, is encapsulated in the term "degree".
Deputy Doherty however sought to distinguish someone who actively frustrates the process from someone who does not cooperate. The Minister stated that he was confident that this was captured by this provision and that it has been drafted in such a way so that the performance of the person engaging with the inquiry is relevant to the sanction that they receive.
Concern regarding the use of agreements provided for by Section 52
Deputy Doherty explained that he was not totally opposed to the provision but had concerns regarding its application. He stated that he could see a situation arising where the Central Bank, aware that a contravention is being committed but conscious of a long drawn out process which could be involved in pursuing it, might just intervene, ask the individual to stop what they are doing, telling them that they won't hold them to account, their name won't be published and nothing more happens about it. The Deputy believes that this provision allows for that to happen, particularly in the context of minor contraventions. In the Deputy's opinion this section should only be used in exceptional circumstances but there is no limitation in the application of the section and that is his concern.
The Minister responded saying he believes that it is "exceedingly unlikely" that the Central Bank would enter into such an agreement where they believed the contraventions were of a serious level but he stated that he understood the issue the Deputy was raising and agreed that he would look at the drafting of this section before Report Stage to see if it needs to be made more explicit.
Deputy Gerald Nash followed on from this point asking how such arrangements would be recorded and reported. The Minister explained that he did not believe that they would be publicly acknowledged as there hasn't been an admission of wrong doing.
Amendment Proposed by Deputy Nash regarding the role of the High Court in the confirmation of decisions - Section 53
Deputy Nash proposed an amendment (amendment 56) which would delete that part of Section 53 which deals with the circumstances in which the High Court can refuse to confirm a decision based on an error in law. The proposed amendment would substitute this requirement with a specific requirement that the High Court would confirm the decision unless it was satisfied that there was an error or admission in the record of the decision such that the confirmation of the decision would be unjust.
In response to the amendment, the Minister explained that the legal threshold for the confirmation by the High Court was set after very careful consideration in particular, in light of Supreme Court decision in the Zalewski decision. He went on to the say that it is not intended that the confirmation proceedings should constitute a new appeal on the facts of the case. It is a necessarily limited role as in the case of other processes, as it would otherwise be unduly cumbersome to operate. He further explained that "there is a long standing principle of curial deference shown by the High Court in reviewing decisions from expert administrative bodies". The legislature allows for expert adjudicative bodies who are expected to have specialist skills, competence and experience in the particular matters in which they have responsibility and the aim here is to allow the High Court to determine any errors of law by the Central Bank and the proportionality of the sanctions imposed. This is considered an appropriate change in the law to protect the rights of individuals in line with the requirements of the Zalewski decision. The Deputy made a few additional comments but ultimately withdrew the proposed amendment.
Publication of details relating to contraventions committed by individuals - Section 64
Deputy Doherty stated that he would like to ascertain the likelihood of the Central Bank publishing details of the sanctions that will be applied in relation to individuals and whether the Central Bank expects to continue in a similar vein to how they currently do in the context of RFSPs.
The Minister explained that he naturally could not speak on behalf of the Central Bank regarding what their intent would be, but given the amount of consultation that the Government has gone into with the Central Bank on this legislation over a number of years, this section has been drafted and included in the Bill with "my expectation that it will be used". As to how and how frequently it will be used, that is a matter for the Central Bank. By way of background, the Minister did explain that the Central Bank has, under the existing Fitness and Probity provisions, prohibited twelve individuals from performing one or more controlled function. Details of these prohibition notices have been published on the Central Bank's website where appropriate. He explained that "the fact that information has been published in the past, I hope will give confidence to the Committee that it would be used again in the future".
Amendment 52 - Separation of functions during an inquiry
The Minister explained that this amendment provides that the person who makes the decision to hold an inquiry shall not be involved in making submissions, leading evidence or examining witness on behalf of the Central Bank during that inquiry and that any restricted functions shall not be performed by a person making submissions, leading evidence or examining witness on behalf of the Central Bank.
The establishment of a panel under Section 69
Significant discussion was had in relation to the practical application of this provision. The following is a synopsis of what was discussed, questions were posed by Deputy Doherty and responded to by the Minister:
- Composition of the panel: 24 external members. No limit to numbers allowed on the panel;
- Experience expected of panel members: senior legal practitioner and industry experts;
- How will the panel interact with the existing panel: The Minister intends to appoint the current 24 members of the panel to a transitional panel;
- How long can individual serve on the panel: 4 years, can be renewed for one further term;
- Remuneration of the panel members: Only remunerated if appointed to an inquiry. If appointed, costs are €1000 per day for a legal chair and €850 per day per professional panel member;
- What would happen if a conflict arises between a panel member and a particular inquiry: The Minister made it clear that the Central Bank would not appoint an individual to a case where a conflict of interest was at play;
- Formation of an Inquiry: Chair and up to 2 panel members. Up to the Central Bank to determine what is appropriate.
In relation to the internal Central Bank members of the panel, the Minister explained that they will focus on the fitness and probity dimensions of the work. Deputy Doherty inquired as to the mix/balance of internal to external members of the panel. It was explained by the Minister that no such requirements are laid down. The Minister is to come back to the Deputy on the numbers of internal members on the panel.
Ongoing Fitness and Probity Investigations: Amendment 61
The Minister explained that this amendment deals with Fitness and Probity investigations which are already underway under the current legislation when the legislation is commenced. Such investigations are not impacted by the commencement of the Bill regarding the separation of functions, on foot of the Zalweski case. He further explained that this amendment was needed to protect the integrity of ongoing investigations and that the new requirements could not have retrospective effect.
Settlement discount scheme and payment of penalties by RFSP on behalf of individuals:
Deputy Doherty inquired as to whether the same provisions regarding the reduction of 30% of the ultimate penalty, in accordance with the settlement discount scheme provided for in the Central Bank’s Administrative Sanctions Procedure, would apply to individuals. The Minister confirmed that it will.
Deputy Doherty then asked if the RFSP can discharge the penalty on behalf of the individual. This was confirmed to be the case by the Minister, he further explained that he had been advised that to change this would take further legislative work. Deputy Doherty responded by saying he felt this situation was problematic and additionally flagged that it will be very hard for the Central Bank when determining the extent of the sanction when it is ultimately being discharged by the RFSP and not the individual.
Deputy Doherty raised the possibility of introducing, into the future, provision for an incentivised whistleblowing regime. He perceives that the lack of such a provision is a gap in the toolbox of the Central Bank. He referenced the current regime in the US as an example. The Minister explained that it was not something he had given any consideration to. He went on to say that his initial reaction to the proposal is "unease". He explained that he does not believe that "you should have to pay people for revealing a wrong doing or rewarding them for so doing…I would worry that offering financial reward for that could send out the wrong signal".
Deputy Doherty's response was that we already incentivise whistle-blowers through offering immunity for the "first mover" so why not allow for a monetary incentive? He said it is very hard to get information regarding the financial services sector and explained that in respect of all the recent breaches of financial services legislation, not once did a senior person in the sector come forward and provide information. Ultimately the Deputy acknowledged that it was a tangential point in the context of the Bill but worth considering going forward.
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.