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Central Bank of Ireland Letter on Fitness and Probity
AUTHOR(S): Tara Doyle, Michael Jackson, Dualta Counihan, Anne-Marie Bohan, Shay Lydon, Liam Collins, Philip Lovegrove, Elizabeth Grace, Oisin McClenaghan, Michelle Ridge, Barry O’Connor, Donal O’Byrne
PRACTICE AREA GROUP: Asset Management and Investment Funds
On 8 April 2019, the Central Bank of Ireland (“Central Bank”) announced that it had written to the management of all regulated financial services firms reminding them of their legal obligations under the Central Bank’s fitness and probity regime. In its letter, the Central Bank expresses its view that there is a lack of general awareness in the industry regarding the scope of the fitness and probity regime. The letter details specific issues that have arisen which firms must address to ensure that they comply with the Central Bank’s fitness and probity requirements, including the points set out below.
- Firms have ongoing obligations to ensure that they do not allow a person to perform a controlled function role unless they are “satisfied on reasonable grounds” that the person complies with the Central Bank’s fitness and probity requirements. The Central Bank has taken enforcement action against firms for failing to put in place, or failing to follow, proper systems and controls to ensure compliance with the fitness and probity regime.
- Firms must conduct due diligence on an ongoing basis to ensure employees in controlled functions continue to comply with the requirements.
- Firms should require those persons performing controlled function roles to undertake to notify the Central Bank of any changes in circumstance, which might be material to their fitness and probity.
- There is evidence some firms have identified fitness and probity concerns about an individual and have taken steps to address these, including suspension for dismissal, but have failed to report those concerns, or the steps taken by the firm, to the Central Bank.
- The Central Bank has observed a number of instances where individuals have not provided material information on their applications to the Central Bank for approval to senior roles. On occasion, applicants have failed to disclose material facts in their individual questionnaires (“IQs”) which are either known to proposing firms, or would have been known if proper due diligence of their proposed candidates had been conducted.
The Central Bank notes that, in the case of low or medium impact firms (according to the Central Bank’s PRISM rating system), approval of pre-approval controlled functions (“PCFs”) may be granted based on the IQ alone, but the Central Bank also retains a discretion to interview the applicant where it deems it necessary to do so. In the case of senior appointments at high and medium high impact firms, interviews will be conducted as a matter of course. Where, following the initial interview, there are concerns that merit further enquiry, the applicant will be invited to a second interview known as a “specific interview” involving the Central Bank’s specialist fitness and probity team in the Enforcement Directorate. The Central Bank has recently observed a marked increase in the number of applications referred to its fitness and probity specialists and an increase in the number of PCF applications withdrawn either during or subsequent to the “specific interview” process. This, the Central Bank believes, raises questions as to whether firms at all impact levels are conducting proper PCF due diligence before proposing individuals for senior roles.