The Central Bank has now published its Finalised Guidance on the new Fitness and Probity regime, effective 1 December 2011, and the amending Regulations have been enacted to give effect to the changes to the original standards and draft guidelines. We summarise below the key changes reflected in the Finalised Guidance.

Exemptions:

In addition to the original exemption for those working in adherence to a set of written instructions, the so-called “call centre exemption”, there are now 3 further exemptions. These cover:

• A person performing a controlled function (“CF”) or pre-approval controlled function (“PCF”) on behalf of an EEA regulated financial services provider which provides services in Ireland on a cross border or branch basis
• A person within a group structure of companies, who may exercise significant influence over a CF or PCF function in an Irish regulated financial services provider. The so-called “matrix management exemption”
• A person who performs a CF or PCF on behalf of an Irish regulated financial services provider under a formal written outsourcing agreement

Outsourcing:

Outsourcing covers the performance of a CF or PCF on behalf of a regulated financial services provider (“RFSP”) by a regulated or unregulated service provider.

As per the exemptions listed above, the fitness and probity standards do not apply where the outsourcing of the CF or PCF is pursuant to a written agreement and carried out by a regulated Irish, EEA, non-EEA entity. In such instances the appropriate regulatory authority must fulfil a comparable role to the Central Bank.

Where a PCF is outsourced to an unregulated entity, the written agreement must identify those individuals who will perform the outsourced PCF and the RFSP remains responsible for obtaining the Central Bank’s prior written approval for such appointments.

With regard to a CF, the unregulated entity must identify those who will perform the CFs and assess their compliance with the Fitness and Probity standards. However, the RFSP must still satisfy itself on reasonable grounds that those performing the outsourced functions are fit and proper. To this end, the RFSP should obtain written confirmation from the outsourced provider of the procedures in place to ensure that the relevant individuals comply with and agree to abide by the Fitness and Probity standards. These procedures should form part of the outsourced provider’s human resources policies. Any agreements in place between the outsourced provider and the RFSP should be updated within 12 months to reflect the Fitness and Probity standards.

Due Diligence:

Whilst RFSPs are still required to submit their list of PCFs as of 1 December 2011 by 31 December 2011, the deadline to confirm, in writing, that the prescribed due diligence has been carried out has been extended to 31 March 2012.

Where an application for approval of a new PCF holder has been submitted to the Central Bank before 30 November 2011 and approval has not been secured by 31 December 2011, that person is to be considered an existing PCF as at 1 December 2011 (on the assumption that the individual is approved in due course).

With regard to the standard of due diligence to be carried out, given the differing nature of every RFSP, the Central Bank has noted that each firm must exercise its own judgment with regard to the relevant matters to be taken into account to determine whether a person is fit and proper to carry out a controlled function. Whilst some of the due diligence requirements have been reduced, a firm must still satisfy itself on reasonable grounds that the CF complies with the Fitness and Probity standards and obtain the written agreement of the CF to abide by those standards.

Per the revised guidance, a retail financial services firm should use “reasonable efforts” to obtain references from the previous employers of any new CF recruits and record all steps taken to procure them, in the event that a reference is unavailable. For those CFs and PCFs in situ as at 1 December 2011, where they have performed the role for at least the previous year, there is no requirement to obtain a reference.

PCF Exclusions and Additions:

The position of company secretary (formerly PCF 9) is no longer a PCF though, in certain institutions it may be captured under CF 1, in that there may be an ability to exercise significant influence over the institution.

Limited Partners, within the meaning of section 3 of the Investment Limited Partnerships Act 1994, in a RFSP established as a partnership are excluded from PCF 9 (formerly PCF10).

The PCFs of Head of Transfer Agency (PCF 37) and Head of Accounting Valuations (PCF 38) will be applied to fund companies within the meaning of Part XIII of the Companies Act 1990 as well as other fund entities.

Data Retention:

Personal data controlled and/or processed by RFSPs in the context of the Fit and Proper Regime should be retained as follows:

PCFs, CF1 and CF2 – for a minimum of 6 years after the data subject ceases to hold the relevant function.
CFs3 – 11 – for a minimum of 2 years after the data subject ceases to hold the relevant function.

Some Further Clarifications from the Central Bank:

The Central Bank has also noted the following:

• All applications from 1 December 2011 onwards, will be processed under the new regime
• 2 individuals may be designated as responsible for one PCF role in a RFSP
• An individual is designated a PCF under the new regime even if only part of their time is dedicated to that PCF function
• Where a person is to leave a PCF, the Central Bank must be informed in writing
• An FAQ document will issue in Q1 2012

Contributed by John Larkin