On 1 September 2011, the Central Bank of Ireland (“Central Bank”) introduced a revised Fitness and Probity regime for all Central Bank regulated financial services providers (“Services Providers”), apart from credit unions.  Services Providers include banks, building societies, (re)insurers, MiFID firms, investment fund companies, fund management companies, fund administrators and custodians.  This replaces the existing Fitness and Probity regime which has applied to directors and senior personnel within Services Providers since 2006.  The main differences between the original Fitness and Probity regime and the new regime are:

• The new Fitness and Probity regime has been put on a comprehensive statutory footing pursuant to the Central Bank Reform Act 2010 (the “2010 Act”)
• The new Fitness and Probity regime will apply to all persons occupying what are described as “pre-approval controlled functions” (“PCFs”) or “controlled functions” (“CFs”) in a Service Provider.  Significantly, this will capture a much broader range of persons in Services Providers than was previously the case
• It will be an offence for a Service Provider to permit a person to perform a PCF or a CF function unless the Service Provider is satisfied on reasonable grounds that the person complies with the Fitness and Probity standards and the person has agreed to abide by the standards.  This will impose ongoing monitoring requirements on Services Providers with respect to PCFs/CFs
• The 2010 Act gives new powers to the Central Bank to investigate, suspend, remove or prohibit individuals from PCF/CF positions
• Failure to comply with the new standards will be an offence attracting penalties for both the Service Provider and the PCF/CF including pursuant to the Central Bank’s Administrative Sanctions Procedures

The revised Fitness and Probity regime is being introduced on a phased basis beginning on 1 December 2011 and will apply to all categories of PCFs/CFS by 1 December 2012.   All Services Providers will need to provide the Central Bank with confirmation in writing as to the fitness and probity of PCFs by 31 December 2011.  This will mean that all Services Providers will need to undertake an internal due diligence process with PCFs in order to be able to provide the necessary confirmations to the Central Bank in December 2011. 

Banks, building societies, (re)insurers and captive (re)insurers are already subject to corporate governance codes and it is anticipated that Services Providers in other sectors will be subject to sectoral corporate governance codes in the future.  These, together with the new Fitness and Probity regime and the further new powers and extended sanctions contemplated by the Central Bank (Supervision and Enforcement) Bill 2011 impose significant responsibilities on Services Providers and challenges to the Boards of Directors and HR departments of Services Providers.  For further information please see our Client Briefing Memorandum attached.

To view the Client Briefing Memorandum in full, please click the attached pdf.