The Central Bank Reform Act 2010 gave the Central Bank of Ireland (“CBI”) the regulatory tools to designate as “Controlled Functions” those positions in regulated firms which are deemed sufficiently important on an ongoing basis such that, where a need arises, the CBI may investigate, suspend, remove permanently and/or prohibit an individual from carrying out a controlled function in a regulated financial service provider in the future.
Previously, there was not total consistency in the approach to the due diligence on persons occupying these roles, nor was there a composite statutory basis for the regime. The 2010 Act has created this. This has been followed by the roll-out of the new regime, which started on 1 September 2011.
The phased roll-out is broadly as follows:
- For existing and new staff in senior positions (i.e. “pre-approval controlled functions” – see below), the regime starts from 1 December 2011
- For new appointments to less senior roles (i.e. “controlled functions” but not those above) it starts from 1 March 2012
- It will apply to all roles which involve “controlled functions” (i.e. existing ones or new ones after the implementation of the new regime) from 1 December 2012
There is still on-going work in the CBI around its approach (e.g. in particular, in regard to customerfacing roles, where there had been a view that too broad a category of persons might fall under the requirements).
Fitness and Probity – “Controlled Functions”
A “Controlled Function” is a function in relation to the provision of a financial service (such as insurance undertaking activities) which is:
- Likely to enable the person responsible for its performance to exercise a significant influence on the conduct of the affairs of the undertaking
- Rrelated to ensuring, controlling or monitoring compliance by the undertaking with its relevant obligations
- Likely to involve the person responsible for its performance giving advice or assistance to a customer or dealing with the property of a customer
As well as the underlying legislation, the CBI has published Guidelines (currently draft) and Standards. These lay down duties relating to “Controlled Functions”.
The Standards set out conditions that staff must satisfy to perform controlled functions assigned to them. These include the obligation to be “competent and capable” of carrying out the controlled function, to act “honestly, ethically and with integrity” and to be “financially sound”. The 2010 Act makes CBI regulated undertakings directly responsible for ensuring that staff meet the Standards, both on initial engagement by the undertaking and throughout their careers. A person shall not be permitted to hold such a role if there are reasonable grounds for doubt of fitness or probity. Furthermore, these staff themselves must be made aware of the Standards and persons in controlled functions will have compliance with the Code within the terms of their employment or service contract.
A copy of sample wording which must form part of the contract of engagement with persons who are in controlled functions is set out in the guidance from the CBI (and as an Appendix below). Copies of the Standards and (draft) Guidelines are available at http://www.centralbank.ie/pressarea/ press-releases/Pages/CentralBankAnnouncesNewFitnessandProbityRegime01Sep.aspx
In carrying out due diligence on a prospective or current person engaged in a controlled function role, it is expect there will be a combination of self-certification by the relevant person, as well as active check undertaken by the insurance undertaking itself.
Fitness & Probity – “Pre-Approval Controlled Functions”
“Pre-approval Controlled Functions” are those positions in regulated institutions which require the prior approval of the CBI before appointing an individual to that role in the future. They are a sub-set within the broader area of “Controlled Functions” but rather than the undertaking being the “gate keeper”, as well as this, the CBI is required to pre-clear such persons.
In regard to insurance undertakings, these will include a person who holds or performs the duties of any of the following positions or offices:
- Executive or non executive director
- Chairman of the Board
- Chairman of the Board Committees
- CEO
- The office of company secretary
- Head of finance
- Head of compliance
- Head of internal audit
- Head of risk
- Head of AML/counter-terrorism
- Branch managers
- Head of retail sales
- Head of underwriting
- Head of investment
- Chief actuary
Individual Questionnaire Forms
When a firm chooses someone to be appointed to the role of director or manager or other “preapproval controlled function” that person must submit an Individual Questionnaire (“IQ”) to the Central Bank.
The IQ form elicits details of the proposed director or manager’s career including qualifications and experience. As part of the new “fit and proper” regime, the CBI is moving to an on-line IQ filing system however their approach to this is still for finalisation. There is also an expectation that senior preapproval controlled function appointments will involve a prior rigorous interview with representatives from the CBI.
Candidates are required to give their financial history as well as details regarding instances where their integrity or honesty was ever in question, whether on the part of a previous employer, a professional body, a civil or criminal court or the tax authorities. Where such instances arise, the firm will have to consider this information before making a final decision to appoint the person. If the firm is satisfied to proceed with the appointment, the reasons for this decision must be explained to the CBI.
The completed IQ will then be scrutinised and validated by the relevant department of the CBI. Once the firm has satisfied the CBI as to the credentials of the proposed person, the appointment can then proceed.
On-going duties – “controlled functions” and “pre-approval controlled functions”
It is important to be aware that an insurance undertaking cannot appoint persons to controlled functions until the appropriate due diligence on the proposed candidate has been completed (e.g. the HR function in sending out any contracts must be aware that employment or engagement can only happen when the full clearances have been received). It is also important to bear in mind that the onus on the undertaking is an on-going one to ensure persons in controlled functions are always “fit and proper”.
Registers should be kept of who fulfils the controlled function and pre-approval controlled function roles, as well as a system for recording and storing all information around the process.
Note: the contents of this memorandum are a broad summary only and should not be a substitute for legal/regulatory advice.
Contributed by Patricia Taylor, John Larkin and Maura Roe.
