Irish Central Bank tests for ‘fitness and probity’ clarified

The review was commissioned in the aftermath of the recent decision of the Irish Financial Services Appeals Tribunal in a court case between AB and the Central Bank of Ireland. That decision raised issues about the Central Bank’s handling of the F&P approval process including the fairness and transparency of the F&P interview process.

“The enhancements to the F&P regime recommended in this report will operate in conjunction with the recently implemented Individual Accountability Framework to improve accountability and clarity for financial firms,” said Lisa Carty, financial services expert at Pinsent Masons.

The report recommends a number of enhancements to the F&P regime across three areas: to clarify supervisory expectations, strengthen internal processes, and ensure fair and transparent procedures are embedded in those processes.

For instance, the report recommends that the Central Bank should provide greater clarity to regulated firms regarding its expectations in relation to the due diligence process for applicants to pre-approval-controlled function (PCF) roles. It further recommended that the Central Bank should consolidate the F&P standards and related materials in a single location, which would make it easier for firms to assess potential candidates and for candidates themselves to prepare for the F&P process. The report also recommended closer alignment with the best practices of other jurisdictions, such as the UK’s Financial Conduct Authority, for example by introducing objective criteria for assessing an individual’s fitness   and providing more detail on supervisory expectations for executive and independent directors.

In terms of internal governance, the F&P process at the Central Bank is currently fragmented across different units, and there is overlap between the supervisory and enforcement functions. It is recommended that the Central Bank establish a single unit in charge of F&P gatekeeping in line with the structure of other international regulators. This F&P unit should be organisationally segregated from the enforcement function, to ensure clear distinction between the two processes. It is also recommended that where an assessment moves towards a possible refusal, the management of the process is escalated to higher levels of seniority to acknowledge the impact of a negative decision on the applicant. A senior independent panel should be established to deal with complex cases.

The report also included a number of recommendations in respect of the fairness and transparency of the F&P interview process. For instance, the report sets out the view that a refusal is not and should not be perceived as a ‘ban’ from the financial services industry. Candidates that are not successful should receive clear feedback indicating which steps are needed to be successful in future applications.

The review also touches on the tone of interviews, stating that they should be conversational and non-confrontational, with a suggested time limit of 90 minutes. The record of an interview should be shared with candidates within a week, and candidates should be granted a further week to provide their own comments. It is acknowledged that providing interview feedback is important to give candidates a clear indication of the areas on which improvements are needed.

It was also recommended that the Central Bank increase the number of F&P interviews it carries out for PCF applicants in the funds sector as F&P interviews are less common in this sector and therefore being called for interview can create stigma for candidates.

As an element of internal management, it is also recommended that the Central Bank voluntarily commits to a timeline of 90 days to complete F&P assessments, which is in line with European guidelines. The report also recommends that the Central Bank regularly publishes the outcomes of its F&P assessments, including granular information about approvals, withdrawals, refusals - by sector and complexity of firms.

Carty said: “This report is particularly timely given the F&P enhancements already introduced under the Individual Accountability Framework. The increased transparency and predictability which would be introduced through the recommendations in this report would undoubtedly result in a more efficient and fairer F&P approval process for financial services firms. We await further statements from the Central Bank regarding its plans to address the detailed recommendations in this report.”