In late December 2023, in addition to the publication of the updated Fitness and Probity Standards, the Central Bank of Ireland ("Central Bank") updated its Guidance on Fitness and Probity Standards ("Guidance").
The Guidance aims to assist Regulated Financial Service Provider ("RFSPs"), holding companies and individuals performing Controlled Functions ("CFs") (including Pre-Approval Controlled Functions ("PCFs")), in complying with enhancements to the Fitness and Probity ("F&P") regime introduced by the Individual Accountability Framework ("IAF"). In this Matheson Insight, we outline certain key updates made to the Guidance since the last publication in 2018.
As expected, the Guidance has been updated to include holding companies established in Ireland within the scope of the Guidance alongside RFSPs.
Part C of the Guidance (Section 12 to 18)
A new Part C has been added to the Guidance relating to CFs, the related certification process and underlying due diligence requirements:
Section 12: Certification Process
Section 12 of the Guidance relates to Section 21 of the Central Bank Reform Act 2010 ("Act") which provides that a RFSP/holding company shall not permit a person to perform a CF unless:
i. the RFSP/ holding company is satisfied on reasonable grounds that the person complies with any standard of fitness and probity issued pursuant to Section 50 of the Act;
ii. a certificate of compliance with standards of F&P, given by the RFSP/ holding company in accordance with Section 21, is in force in relation to the person; and
iii. the person has agreed in writing to comply with any such standard.
With regard to the completion of the certification process for CFs, Part C of the Guidance sets out an overview of the Central Bank's expectations and requirements as they relate to:
- the certification process;
- the identification of CFs;
- forming a view that a person is fit and proper;
- required frequency of completing the certification process in respect of all CFs;
- confirmation of agreement to comply with the F&P standards;
- the submission of data in relation to certification to the Central Bank;
- the retention of data in relation to certification; and
- due diligence underlying the certification process.
Responsibility for and compliance with the Certification process
In the Guidance, the Central Bank recognises that firms may wish to incorporate the certification process within existing processes and as such has not prescribed a format for certification. The Central Bank will however engage in periodic follow-up with RFSPs/holding companies regarding the appropriateness of and compliance with the certification process through ongoing supervisory engagement and/or thematic inspection.
The Guidance confirms that there should be one individual within a RFSP/ holding company with overall responsibility for completing the certification process. With regards to RFSPs subject to the Senior Executive Accountability Regime, it should be noted that this obligation is captured separately within the specific requirement to assign PR 2 (Responsibility for the firm’s performance of its obligations under the Fitness and Probity Regime under Part 3 of the 2010 Act) to an individual.
Due Diligence underlying the Certification Process
The Guidance confirms the Central Bank's expectations that RFSPs/ holding companies should consider the responsibilities of a specific CF and determine the specific competencies, and level of probity that should be expected of a person performing that specific CF.
Fitness – Due diligence to be undertaken by a RFSP / holding company to assess a person's fitness to perform a CF(s)
Section 14 of the Guidance provides that the Central Bank expects RFSPs / holding companies to undertake the following due diligence when assessing a person's fitness to perform, or continue to perform, a particular CF:
- evidence of compliance with the Minimum Competency Code, where relevant;
- where the CF requires a specific professional qualification, the RFSP/ holding company should satisfy itself that the person has that specific qualification(s);
- evidence of continuing professional development, where relevant;
- record of the interview and application;
- obtain references from former employers or other relevant persons;
- record of previous experience;
- record of previous experience gained outside of Ireland, where relevant;
- confirmation and assessment of concurrent responsibilities; and
- self-certification in writing that the person is capable of conducting the relevant function.
Probity – Due diligence to be undertaken by a RFSP / holding company to assess a person's probity to perform a CF(s)
Section 16 of the Guidance references Section 21 of the Act which provides that RFSPs / holding companies are required to undertake due diligence when assessing a person's probity. The RFSP / holding company should seek and obtain signed written confirmation from the person performing or proposing to perform a CF as to whether or not any of the circumstances set out in Section 4.1 and Section 5.2 inclusive of the F&P Standards apply to that person.
Due diligence for criminal offences
Section 17 of the Guidance provides that, pursuant to Section 4.1(g) of the F&P Standards, a conviction for a criminal offence will not automatically mean that the person fails to meet the standard of probity. The RFSP / holding company must ensure that it is satisfied, and therefore can certify, that a person is fit and proper having regard to any conviction for an offence, “.... which could be relevant to that person’s ability to perform the relevant function”.
Material changes or concerns regarding fitness and/or probity
Section 18 of the Guidance provides that in addition to the requirement for RFSPs / holding companies to obtain confirmation that a CF has agreed to comply with the F&P Standards under Section 21 of the Act, the RFSPs/ holding companies should require individuals performing CF roles to notify the RFSP / holding company of any material changes in respect of the initial due diligence carried out.
While there is no exhaustive list of the types of action that must be notified to the Central Bank these would include, for example, the issuing of a formal written warning, suspending/dismissing a person or reducing/recovering some of their remuneration as a result of issues relating to fitness and/or probity.
Conclusion
We will continue to consider the implications of the changes to the Guidance and will publish further updates on this topic in the coming weeks. We are also updating the Matheson Fitness & Probity Handbook to reflect the latest updates to the F&P Standards and accompanying Guidance.
For any queries on this Insight or any aspect of the IAF, please do not hesitate to contact to any member of our dedicated team or your usual Matheson contact.