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How should regulated firms manage Pre-Approval Controlled Functions (PCFs) vacancies at this time?
As Regulated Financial Service Providers (“RFSPs”) navigate their way through the unchartered waters of this Covid-19 pandemic they are relying on supervisory authorities at national and European levels to provide direction and in some cases, regulatory forbearance, on certain regulatory obligations. On a daily basis we are seeing statements from these authorities which are helping to map a path through the challenges being created by Covid-19. One of the most recent statements which RFSPs should be aware of is that from the Central Bank of Ireland (“Central Bank”) in respect of Preapproved Control Functions (“PCFs”).
“How should regulated firms manage PCFs vacancies at this time?”
The Central Bank in its Covid-19 Regulated Firms FAQ, which forms part of the Central Bank’s Covid-19 Hub, has added an additional question and answer to the existing FAQ list - “how should regulated firms manage Pre-Approval Controlled Functions (PCFs) vacancies at this time?”
The response provided by the Central Bank to the question is comprehensive.
It provides for two potential situations:
- if a PCF role holder is unable to perform their role due to illness; or
- if a RFSP cannot fill a permanent PCF role vacancy due to COVID-19.
Where either occur, the RFSP can seek to have another suitable individual perform that role for a limited period (the suggestion is that such period would be no more than three months).
However, in line with Regulation 11 of the Central Bank Reform Act, 2010 (Sections 20 and 22) Regulations, 2011, the RFSP must seek the prior agreement of the Central Bank.
Steps to be followed
The following are the steps which must be followed where a RFSP is seeking to rely on this exemption:
- the RFSP should refer to its succession and contingency plan in the first instance and identify a suitable individual to perform the PCF role;
- following this, the RFSP should contact the Central Bank to state that they wish to make a temporary appointment. When communicating with the Central Bank, the RFSP should:
- outline the specifics of the circumstances that have given rise to the need for the temporary appointment;
- provide confirmation that the RFSP is satisfied on reasonable grounds that the person complies with the Fitness and Probity (“F&P”) Standards. When doing so the RFSP must have regard, as it would with any PCF appointment, to the existing time commitments and other roles that the proposed temporary officer may already be performing;
- provide confirmation that the person has agreed to abide by the F&P Standards and will continue to do so whilst performing the PCF role; and
- outline the period of time for which the appointment is requested (as mentioned above, three months seems to be the outer limit the Central Bank will consider here).
- notably, no Individual Questionnaire is required to be submitted in respect of an application for the appointment of a temporary officer.
Central Bank’s role
Once in receipt of the above, the Central Bank will then consider the request, and if in light of the exceptional circumstances, it is in agreement, a letter will issue to the RFSP regarding the appointment.
Post the issuing of the letter, the Central Bank advises RFSPs to keep the situation under review and inform the Central Bank of any changes in respect of the appointment.
Other PCF vacancies
The Central Bank stresses that these appointments are temporary in their nature and that a RFSP “must not appoint a person to perform a PCF role on an ongoing basis unless the Central Bank has approved the appointment of the person to perform the function in accordance with its pre-approval process”. Consequently, should a RFSP decide that the temporary officer should become the permanent officer, the usual PCF approval process should be undertaken to give effect to that.
As part of the Central Bank’s PCF approval toolkit, it will sometimes call candidates to interview. In the FAQ document, the Central Bank explains that, as a result of Covid-19, they are utilising various interview formats such as video conferencing and phone interviews in place of face to face interviews. We have already seen examples of this occurring.
Interestingly, the Central Bank uses this FAQ on PCFs as an opportunity to reiterate that RFSPs must continue to comply with their F&P statutory obligations and ensure that individuals performing Controlled Functions, including PCF, roles comply with the F&P Standards. This builds on the continued emphasis being placed on F&P by the Central Bank in recent times.
Given the number of queries which we are seeing from RFSPs in this space, this step by step guidance is very welcome and will ensure that there is consistency in approach across all supervisory teams. In addition, not requiring temporary appointees to complete the IQ, greatly reduces the administrative burden on RFSPs at a time where they are already stretched. It is important for RFSPs to recognise that this is a very limited exception to the normal rules and not in any sense a relaxation of the general approach to PCF approvals.
Having said that, the approach set out by the Central Bank is practical and reasonable, given the circumstances. We would advise firms to now look to their succession and continuity plans to ensure that they are appropriate in light of the Central Bank identifying that they are the first point of reference in this process.
Should you require any assistance in respect of the above, please do not hesitate to contact your usual Matheson contact.