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| Financial Law Update | Back to article summary. |
| New fitness and probity regime | ||
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| The Irish Financial Regulator has recently published a new standardised process for approving the recruitment and appointment of senior persons in the firms regulated by it. This new process will change the way that regulated firms conduct themselves in recruiting and appointing individuals to a range of positions within their organisations, including chief executives, directors, executive-level managers, partners and compliance officers. Joe Beashel examines the steps in this "Fitness and Probity" process and what is required from regulated companies during the recruitment process. | ||
After a lengthy consultation process the Irish Financial Regulator recently published its new standardised process for approving the appointment of senior persons to firms regulated by it. These so called "Fitness and Probity" requirements will impact on recruitment and appointment procedures of regulated firms for a range of positions, so called "approved persons". Approved Persons include all directors (including alternate and shadow directors), chief executives, all managers at executive board level, and partners (in the case of entities established as a partnership). The requirements also extend to some managers below executive level including, for example, compliance officers, and others might be included on a case by case basis.
The Financial Regulator has published Guidance on its Fitness and Probity requirements and on Completion of the Individual Questionnaire and they have indicated that it will review firms' recruitment procedures for evidence of compliance during on-site visits. Existing directors or managers will not have to complete the new IQ tests but will have to submit one where they are appointed to new positions within the firm. The fact that an IQ must be completed for a new position is something to which firms will have adjust their procedures to meet this requirement. Foreign directors who have been approved to act as directors by other EU/EEA financial regulators will not be excused from having to complete some sections of the IQ, but will need to indicate the name of the authority of their authorisation. This exemption will also apply to directors from third countries where the process of approval is the same as for EU/EEA countries. In the case of managers operating in the Irish branch of firms from another EU State, the fitness and probity test of the regulator of that State will apply. Effect on RECRUITMENT/SELECTION PROCESSFirst Step-Recruitment/SelectionMost, if not all firms already cater for consideration of "fit and proper" obligations in their recruitment or selection procedures, at least implicitly. Firms will seek to ensure, for example, that a person is suitably qualified to do the job for which they are being recruited and that they are honest and trustworthy. The Financial Regulator expects that the recruitment process of each firm, however formal or informal it may be, would normally cover the following: consideration of the duties and responsibilities of the post to be filled a selection/appointment process that matches the selected person to the requirements of the post verification of qualifications, experience, references and membership of professional bodies some probity checks, including relevant websites (e.g. Revenue Commissioners) in relation to Directors of larger institutions, how the institution determined that the individual would be a strategic and effective fit with the other members of the Board and that they have suitable relevant experience. The Financial Regulator recognised that the realities of recruitment vary from one firm to another. For example, in small family firms family members may be appointed as directors or managers. What is less clear, however, is how these requirements are to be complied with when a firm consists only of a board of directors and no Human Resources staff exist. Second Step-Completion of IQ by proposed person Once a person has been selected by a firm, that person will be required to complete the IQ. Most of the requirements contained in the new IQ are broadly similar to those already in place, however, some of them will significantly increase the burden imposed on directors. These include, for example, the requirement of a person who is or has been residing outside the state for more than six months to provide a clearance letter/certificate from the police authorities of that jurisdiction. The information is required for a period of ten years, however, where a person has a conviction dating beyond ten years that should also be notified. It seems that only minor incidents in a person's history do not disqualify or impede such person from the proposed appointment. The Regulator clearly stated that the conviction on indictment within the last ten years of a financial/tax offence will be regarded as an indication that a person is not proper and will bar a person from holding a position as an approved person. In case of any minor incidents, the Financial Regulator may seek explanation from the firm regarding this appointment. Directors will have to acknowledge that they are aware of their responsibilities arising not only from Companies Acts but also from various other applicable legislation, regulations, codes and guidance notes and guidelines, and confirm their intention to ensure that the company of which they are directors will be run in compliance with the same. Third Step-Verification of Information by Firm Firms will then be required to carry out checks on the information to ensure its accuracy. In most cases, this is likely to take the form of obtaining references from former employers, and confirming the validity of professional qualifications or membership of professional associations. In addition, it may be necessary for firms to require a proposed director to give permission to carry out all necessary tax, police or credit agencies checks. Fourth Step-Determination by Financial Regulator When firms are ready to make an appointment, they will forward the completed IQ to the Financial Regulator, with their confirmation in writing that they are satisfied that the proposed person is fit and proper. The Financial Regulator may pursue its own enquiries but it will endeavour to reach a decision as soon as possible. Fifth step - Post authorisation requirements If there is any material change at any time to the information provided in the IQ, such change should be provided to the Financial Regulator immediately. ConclusionsThis new regime will impose some more formal structure around the recruitment and selection process for senior positions in regulated firms. The ultimate aim of both firms and the Financial Regulator is to ensure that the best people are hired for senior positions and as such both firms and the Financial Regulator have a vested interest in working to ensure that the new process works smoothly. |
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Joe Beashel is a partner in the Banking and Financial Services Department at Matheson Ormsby Prentice and is Head of the firm's Regulatory Risk Management and Compliance Group. He can be contacted by phone: +353 1 619 9000 or by email: joe.beashel@mop.ie |
