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Green Light Given to Central Bank Inquiry
The Central Bank of Ireland’s (the “CBI”) administrative sanctions procedure (the “ASP”) received a strong endorsement in a High Court judgment delivered in January. The judgment concerned a challenge brought by Michael Fingleton, the former chief executive of Irish Nationwide Building Society (“INBS”), aimed at overturning the CBI’s decision to conduct a formal hearing into the role played by Mr Fingleton in alleged regulatory breaches at INBS.
The decision to conduct the formal hearing was made by the CBI under the ASP, where the CBI may hold a formal hearing called an ‘Inquiry’ where it suspects on reasonable grounds that a regulated financial services provider ("RFSP") and / or a person concerned in its management has breached any requirement or law coming within the CBI’s remit, known as a ‘prescribed contravention’. The purpose of an Inquiry is to determine whether a contravention has occurred and to decide upon the appropriate sanction.
Following an investigation commencing in 2010 and a subsequent exchange of correspondence with the parties, the CBI issued a Notice of Inquiry on 9 July 2015 indicating its intention to hold an Inquiry into whether INBS had committed prescribed contraventions and whether certain persons concerned in its management (including Mr Fingleton) participated in those breaches. Significantly, this was the first such referral to an Inquiry by the CBI.
On 15 July 2015, the CBI reached a settlement with INBS, where INBS admitted to the prescribed contraventions and agreed to a €5 million fine. The CBI indicated its intention to proceed with the Inquiry in respect of the persons concerned in INBS’s management.
In September 2015, Mr Fingleton began judicial review proceedings in the High Court seeking to quash the Notice of Inquiry on a number of grounds.
It was argued on behalf of Mr Fingleton that as the relevant section of the Central Bank Act 1942 referred to a “person concerned in the management of a RFSP”, it was limited to a present tense definition. It was asserted that this could not apply to past management, such as Mr Fingleton. The court disagreed, stating that “the time at which the person concerned in the management of a RFSP must be so concerned is the time at which the RFSP commits the prescribed contravention in which the person concerned participated. Any other construction offends common sense and gives rise to absurd results”.
It was also argued that the CBI’s settlement with INBS “irretrievably prejudiced” Mr Fingleton’s defence before the Inquiry. The Court dismissed this saying that it did not follow that Mr Fingleton would be bound by any admissions made by INBS and that this would be a matter for the Inquiry. The Court also disagreed with complaints made by Mr Fingleton about delay. The Court accepted that the extensive investigation undertaken by the CBI since 2010 had been required to allow the CBI to form reasonable grounds for suspecting a prescribed contravention and there had been no resulting prejudice to Mr Fingleton. Mr Fingleton also asserted that he would not receive a fair hearing at the Inquiry as a result of prejudicial publicity. The Court rejected this argument, noting that the Inquiry would be composed of independent, impartial professionals.
In referring to a separate civil case being brought against him by INBS, Mr Fingleton protested that he would be required to “fight on two fronts”. The Court dismissed this grievance remarking that “the coincidental existence of civil proceedings” could not have “the effect of somehow granting him immunity against a statutory inquiry”. Similarly, the Court did not accept Mr Fingleton’s complaints about the financial hardship that would befall him in participating in the Inquiry, noting the level of remuneration he had received during his time at INBS. Finally, Mr Fingleton’s attempt to contend that the Inquiry would amount to an administration of justice by a body other than a court was not entertained by the Court as it effectively amounted to a challenge to the constitutionality of the legislation without observance of the special related technical legal requirements of such contests.
While an appeal has been filed by Mr Fingleton, this judgment currently stands as a strong endorsement of the ASP.