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| Financial Law Update | Back to article summary. |
| Central Bank Reform Bill - Establishment of the Central Bank commission and a new 'controlled function' regime | ||
| Joe Beashel |
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| On 30 March 2010 the Minister for Finance, Mr Brian Lenihan, published the Central Bank Reform Bill 2010 which will give effect to the decision made some time ago to merge the functions of the Central Bank and the Irish Financial Services Regulatory Authority to create a single, fully-integrated Central Bank with a unitary Board to be called 'the Central Bank Commission' writes Joe Beashel | ||
On 30 March 2010 the Minister for Finance, Mr Brian Lenihan, published the Central Bank Reform Bill 2010 (the 'Bill'). The Bill will give effect to the decision made some time ago to merge the functions of the Central Bank and the Irish Financial Services Regulatory Authority to create a single, fully-integrated Central Bank with a unitary Board to be called 'the Central Bank Commission' (the 'Commission').
The publication of the Bill follows the release of a report by the Comptroller and Auditor General ('CAG') Mr John Buckley, in which he outlined the shortcomings of the Financial Regulator’s response to the financial market crisis. The report states that the Regulator acknowledged, in retrospect, that 'the actions it took were insufficient and were not taken early enough' and that new measures are required to make regulation 'more accountable'. Mr Lenihan welcomed the report, saying the Bill would address the problems identified by the CAG and respond as appropriate to his recommendations. Once the Bill is enacted, the existing Boards of the Financial Regulator and the Central Bank will be dissolved and most of their existing functions merged into the new structure. This merger is designed to address concerns that a lack of a coherent approach to monitoring systemic risks at a macro level was a key contributing factor to market failures. The Bill gives a legislative basis to the creation of two newly configured positions - a Head of Financial Regulation and a Head of Central Banking and the office holders are made ex-officio members of the Central Bank Commission. In addition to these structural reforms the Bill also provides for a new and detailed 'fitness and probity' regime by the introduction of the new role of a 'controlled function' in a regulated firm. Controlled Function In a bid to help restore confidence in the management of financial institutions, the Bill introduces a more stringent regulatory regime which will give the Commission the power to prescribe certain functions of regulated entities as 'controlled functions'. A regulated financial service provider will not be permitted to allow a person to perform a controlled function unless it is satisfied with the fitness and probity of that person. Certain controlled functions, such as an appointment as Director, Chief Executive, or Secretary will require prior-approval in writing by the Commission before the person can take up their position. The approval process can involve an interview with staff of the Commission itself. Any such appointment may be refused if the Commission is of the opinion that the person does not possess the relevant fitness and probity requirements. The Commission may also prescribe by regulation a controlled function as a 'pre-approval controlled function' if the function is one where a person exercises a significant influence on the conduct of a regulated financial service provider's affairs. This will allow the Commission to significantly expand the scope of the current 'fitness and probity' regime to layers beyond the board. If an appointment to act as a controlled function is refused, the decision may be appealed to the Irish Financial Services Appeals Tribunal and subsequently to the High Court. Suspension Notice The Bill introduces specific powers to investigate how the controlled functions are being carried out. If the Head of Financial Regulation (currently Mr Elderfield) is of the opinion that there is sufficient reason to suspect that a person is not a fit and proper person, and in the circumstances an investigation is warranted, a 'suspension notice' may be issued on the suspended person and on each regulated financial service provider for whom the suspended person performs a controlled function. A regulated financial service provider on whom a suspension notice is served will be required to immediately remove the suspended person from performing the particular controlled function concerned. The Bill lists several instances where such a notice may issue including:- if the person has participated in serious misconduct in relation to the business of a regulated financial service provider or if the person has provided information to the Commission, the Governor or the Head of Financial Regulation that the person knew or ought to have known was false or misleading. The suspended person and the regulated financial service provider concerned will be required to show cause, in writing, within 5 days after service of the notice, why the suspension order should not be confirmed. If the Head of Financial Regulation having considered any written submissions or oral evidence as the case may be, is satisfied that there is still reason to believe that the person is not of such fitness and probity as is appropriate to perform the relevant controlled function, may confirm the suspension notice. If the suspension notice is not confirmed it lapses 10 days after it was served. If it is confirmed, it has effect for 3 months after the aforementioned 10 day period. In order to assist the Head of Financial Regulation with his investigation as to the fitness and probity of the person concerned, a notice to relevant persons may be issued requiring them to furnish documentation or to appear before him to give evidence. Failure to do so will be an offence. Prohibition Notice After an investigation has been carried out as set out above, if the Commission or the Governor is of the opinion that a person is not of sufficient fitness and probity to perform a particular controlled function, then they may issue a 'prohibition notice', prohibiting the person concerned from carrying out the controlled function. Such a prohibition notice will apply for an initial 2 month period unless an application is made within that time to have the order confirmed by the High Court. Where a person fails to comply with a prohibition notice, an application may be made to the Court for an order confirming the prohibition notice. The Court may confirm the prohibition order where it is satisfied that a person does not fulfil the fit and proper requirements and may make an order prohibiting the person from carrying out a controlled function or such other order as the Court thinks fit. Penalties The Bill prescribes that it will be an offence for a person to provide false or misleading information to the Head of Financial Regulation or the Commission and if found guilty of such an offence will be liable on summary conviction, to a fine not exceeding €5,000 or imprisonment for a term not exceeding 12 months or both. If convicted on indictment a person will be liable to a fine or imprisonment for a term not exceeding 5 years or both. Also, a person who obstructs the Commission in carrying out an investigation will be guilty of an offence and will be liable on summary conviction, to a fine not exceeding €3,000 or to imprisonment for a term not exceeding 12 months, or to both. If convicted on indictment a person will be liable to a fine not exceeding €30,000 or to imprisonment for a term not exceeding five years, or to both. Next Steps & Conclusion A further Bill which is to be published in the autumn will contain additional new and enhanced regulatory powers and functions of the restructured Central Bank and a third Bill will consolidate all existing statutory arrangements. The significant new powers in respect of 'controlled functions' are more than just putting the fitness and probity will give the Commission the ability to prevent board members and possibly senior management from carrying out their roles in a regulated financial services firm in circumstances where such individuals have misled the Commission or been guilty of misconduct even if such conduct falls short of criminal behaviour. |
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Joe Beashel is a partner in the Asset Management and Investment Funds Group and Head of Regulatory Risk and Compliance Group at Matheson Ormsby Prentice and can be contacted on +353 1 232 2000 or by email: joe.beashel@mop.ie This material is not intended to provide, and does not constitute, legal or any other advice on any particular matter, and is provided for general information purposes only. Further information on Matheson Ormsby Prentice is available at www.mop.ie |
