The following briefing sets out some of the key points and amendments to the new Fitness and Probity Regime as discussed at the Central Bank of Ireland’s Information Session on 23 November 2011. Finalised Guidance has been published on the Central Bank website.
William Fry will publish a summary of the Finalised Guidance on our website in early course.
Amending Regulations (along with a consolidated version of the Regulations) and Amended Fitness and Probity Standards will be published by the Central Bank within the coming week.
1. Holders of Pre-Approval Control Functions (PCF) in a Regulated Financial Service Provider (RFSP) as at 1 December 2011
- A RFSP is still required to submit its list of existing PCF holders to the Central Bank for 31 December 2011, however, the requirement to confirm that the RFSP is satisfied that those individuals are ‘Fit and Proper’ on foot of the RFSP’s due diligence has been deferred to 31 March 2012. The Central Bank will take this deferred confirmation date into account in relation to any potential action in respect of PCFs
- The Central Bank considers that there is a clear delineation between PCF holders in situ at December 1 2011 and new recruits into PCFs, as regards the standard of due diligence required to be undertaken by the RFSP. The RFSP must exercise its own judgement on a case-by-case basis, e.g. by considering how long that individual has been employed or in office in the RFSP. By way of example, it was noted that it would be disproportionate to expect a RFSP to verify a reference in respect of a PCF holder who had been with that entity for a period of, say, twenty years
- Where an application for approval of a new PCF holder has been submitted to the Central Bank before 30 November 2011 and where approval has not been secured by 31 December 2011, that individual should be noted on the list of in-situ PCF holders, since he/she will be deemed a PCF holder in situ as at 1 December 2011 (on the assumption that the individual is approved in due course)
2. Outsourced Functions – Revised Position – ‘Bifurcated’ Approach
Outsourcing of PCFs
- Where a pre-approval controlled function is outsourced by an Irish RFSP to another regulated entity, that outsourced function is not subject to pre-approval and so there is no requirement to go through the IQ process
- Where a pre-approval controlled function is outsourced to an unregulated entity, the original ‘look through’ provisions will apply. This means that the individuals performing the PCF in the outsourced service provider entity will have to be identified in the service level agreement between the parties. The Irish RFSP will retain the responsibility of pre-approval of those individuals
Outsourcing of Controlled Functions (CF)
- Where a controlled function is outsourced by an Irish RFSP to a regulated entity, the Fitness and Probity Standards do not apply
- Where a controlled function is outsourced by an Irish RFSP to an unregulated entity, it is for the outsourced service provider to identify the individuals performing the controlled functions and to assess the fitness and probity of those individuals. The Irish RFSP is, however, still required to satisfy itself on reasonable grounds that the individuals performing its outsourced controlled functions are Fit and Proper. To this end, the Irish RFSP must obtain the outsourced service provider’s written confirmation that it has incorporated the Fit and Proper Standards into its own human resources regime, that its relevant individuals are compliant with the Fit and Proper Standards and that the individuals have agreed to abide by those standards
- A ‘regulated’ entity for this purpose is one which is subject to regulation by an authority which performs functions which are comparable to the functions performed by the Central Bank of Ireland.
3. PCF Exclusions and Additions
- PCF 9 – Company Secretarial The office of company secretary is no longer a PCF though the Central Bank position is that in certain organisations, the company secretary function may be captured under CF 1 (exercise of significant influence)
- PCF 9 (previously PCF-10) – Limited Partnerships in Investment Limited Partnerships are now excluded from PCF 9 (prev 10)
- PCFs 37and 38 Head of Transfer Agency and Head of Accounting Valuations (Previously PCF 38 and 39) – These PCFs will be applied to Part XIII fund companies as well as other fund entities.
- Irish branches of EEA entities (passporting into Ireland) or carrying on business on a freedom of services basis in Ireland will not be captured under the Fit and Proper regime
- Irish RFSPs passporting out of Ireland will be subject to the Fit and Proper regime, but the regime will apply only to the extent permissible by local laws in the jurisdictions into which the RFSP is passporting
5. Matrix Management Structures
- Designated functions being carried out by Group entities other than the Irish RFSP will be treated analogously to the outsourced functions (discussed above). By way of example, if the internal audit function vis-à-vis an Irish RFSP is being carried out by another Group entity which is regulated, the IQ process will not apply and the standards will not apply in respect of that function
6. Data Protection
Personal data controlled and/or processed by RFSPs in the context of the Fit and Proper regime should be retained as follows (subject to other legislative requirements):
- CF1, CF2 and PCFs – A minimum of 6 years after the data subject ceases to hold the relevant function
- CFs 3 -11 – A minimum of 2 years after the data subject ceases to hold the relevant function
Contributed by Louise Harrison and John Larkin.