• The Central Bank (Individual Accountability Framework) Act 2023 was signed into law on 9 March 2023 (the “Act”). The Act amends several pieces of legislation relating to the Central Bank of Ireland’s (“Central Bank”) administrative sanctions procedure (“ASP”). Key amendments to the ASP include: (i) the removal of the so-called “participation link”; (ii) the introduction of new and extended sanctioning powers; (iii) updates to certain elements of the ASP procedure; (iv) updates to the terminology involved in the Central Bank’s existing ASP procedures; (v) two new settlement procedures; and (vi) clarifications in relation to appeals processes and confirmation processes.
• Following the publication of the Act, the Central Bank launched a consultation in summer 2023, proposing various updates to its ASP guidance, including: (i) updates to reflect the Act’s provisions; (ii) factors that the Central Bank will consider when imposing sanctions; (iii) clarifications on when the Central Bank would enter into No Admissions Settlements; and (iv) clarifications on when the Central Bank might publish the results of settlements and investigations. It is expected that the Central Bank will publish the results of this consultation in Q4 2023.

Introduction

The Central Bank (Individual Accountability Framework) Act 2023 was signed into law on 9 March 2023 (the “Act”).¹ The Act amends several existing pieces of legislation and is amongst the most significant pieces of legislation impacting the powers of the Central Bank of Ireland (“Central Bank”) in recent years. The key objectives of the Act are: (i) to improve the management of risk in regulated financial service providers; and (ii) consumer protection. The Act has four distinct pillars:

1. A new Senior Executive Accountability Regime (“SEAR”).
2. Enhancements to the Central Bank’s existing fitness and probity regime.
3. New conduct standards for regulated financial service providers (“RFSPs”) and their staff.
4. Enhanced Central Bank enforcement powers, including updates to the Central Bank’s enforcement powers under the Administrative Sanctions Procedure (“ASP”).

Pillars 1-3 are analysed in a separate OnPoint.²

Following the publication of the Act, the Central Bank launched a consultation from 22 June – 14 September 2023 in relation to amendments to its existing ASP³ to: (i) reflect the provisions of the Act in the Central Bank’s ASP guidance; (ii) include certain enhancements and clarifications to the Central Bank’s ASP processes; and (iii) consolidate the Central Bank ASP guidance into one, single document (the “Consultation”).⁴ The Central Bank is expected to publish its feedback statement in respect of the Consultation before year-end.

This OnPoint summarises the provisions of the Act and the Consultation, the latter of which is subject to feedback from the Central Bank.

Timeline and Application

The amendments to the ASP will apply to: (i) investigations commenced on or after 19 April 2023; (ii) existing investigations still ongoing on the date of the publication of the final guidelines issued under the Consultation; and (iii) in cases where a Notice of Inquiry (document commencing an inquiry) was issued after 19 April 2023.⁵

Highlights of Key Enhancements to the ASP

Individual Application

The Act removes the so-called “participation link” between the conduct of an individual and an RFSP’s wrongdoing, which required the Central Bank to first prove that an RFSP breached financial services legislation before pursuing an individual that may have participated in this breach.

The Act provides that individuals may be pursued for a failure to take reasonable steps to ensure that the affairs of the RFSP are “conducted so as to avoid contravention by it of its obligations under financial services legislation”.⁶

Sanctions

1. Direction Imposing a Condition
   
   This new sanction allows the Central Bank to impose such conditions on an individual in their performance of any controlled function(s) as the Central Bank considers appropriate.⁷ It remains unclear what the practical implications of imposing such a sanction will be. For example, it is unclear how a RFSP might consider a condition as part of a fitness and probity assessment of an individual.
2. Disqualifications
   
   The Act modifies the existing disqualification sanction to make it more flexible. The Central Bank may now impose more targeted disqualification sanctions, such that an individual may be disqualified from performing any controlled function, a particular controlled function, or specified parts of a controlled function.⁸

The Consultation includes a non-exhaustive list of factors the Central Bank will consider when imposing sanctions, detailed further below. For the first time, the Consultation also outlines the Central Bank’s process for determining monetary penalties for firms and individuals.⁹

Standard of Proof

The Act codifies the standard of proof for enforcement actions as being the civil standard, (i.e., on the balance of probabilities).¹⁰

Process and Responsible Authorised Officer Role

The Act introduces the concept of a Notice of Investigation, which will constitute the formal notification to the subject of the commencement of an ASP investigation (replacing what is currently referred to as the Investigation Letter). Following an investigation, a decision will be made to hold an inquiry (or not). The Consultation clarifies that the Central Bank’s Enforcement division/its legal representatives will present cases at inquiries by leading evidence, examining witnesses and making submissions.¹¹

The Act introduces the role of a responsible authorised officer within the Central Bank, who must be appointed on the commencement of an ASP investigation. This person will be responsible for an investigation and keeping the subject informed as to the progress of an investigation.¹²

The Act also introduces provisions in respect of inquiry member appointments, to be selected from a panel established by the Minister for Finance.¹³

Reasons for Discontinuance

The Act provides that the Central Bank must give reasons for the discontinuance of an investigation. One of the prescribed reasons for the discontinuance of an investigation may include a lack of resources on the part of the Central Bank.

Settlements

The Act introduces two new ASP settlement types: Undisputed Facts Settlements (available at any time until the completion of an investigation) and Investigation Report Settlements (only available after an investigation is completed).¹⁴

The Consultation reiterates the general policy of the Central Bank to require admissions prior to settlement in almost all cases.15 The Consultation includes a list of non-exhaustive factors that indicate a lack of suitability for a No Admissions Settlement (i.e., whether the behaviour was egregious, deterrence value etc.).

The Consultation also includes detail on settlement scheme discounts that will apply to monetary penalties.¹⁶

Industry has asked for further detail regarding the operation of settlement scheme discounts and the circumstances in which a No Admissions Settlement may be appropriate in respect of enforcement action taken against individuals.¹⁷

Appeals

The Act provides that inquiry decisions may be appealed to the Irish Financial Services Appeals Tribunal (“IFSAT”) within 28 days of the notification of the inquiry decision.¹⁸

Confirmation and Publication

The Act provides that the following must be confirmed by the High Court before taking effect:

1. All inquiry decisions and related sanctions (as applicable).
2. Sanctions agreed through the Undisputed Facts Settlement Process and the Investigation Report Settlement Process.
3. IFSAT appeal decisions.

Such decisions will be confirmed unless the High Court is satisfied that (i) the inquiry members / IFSAT made a fundamental error of law; or (ii) that any sanction imposed is manifestly disproportionate.¹⁹

The sanctions agreed through the No Admissions Settlement Process are not required to be confirmed by the High Court before taking effect. Furthermore, the ASP Consultation provides that the Central Bank may publish a statement regarding the details of a settlement agreed under the Undisputed Facts process or Investigation Report process before the High Court provides confirmation as to the appropriateness of the sanction.20 Industry has queried the degree of detail that could be published in advance of such confirmation, and whether the publication could be prejudicial to the reputation of an RFSP or an individual. Industry has also called for the Central Bank to allow RFSPs or individuals to review such statements before publication, given the significant reputational damage that could be caused to an individual.²¹

Privilege and Confidentiality

The Act codifies the statutory power for the Central Bank to enter into disclosure agreements relating to privileged material. Disclosure agreements allow for a limited waiver of legal professional privilege to the Central Bank and any other person specified in the disclosure agreement. This limited waiver, however, does not constitute a waiver of privilege in relation to third parties.²²

The Act imposes new confidentiality obligations in respect of an investigation and the investigation report process. Industry has raised some potential challenges with these confidentiality requirements. For example, if a pre-approval controlled function (“PCF”) applicant is in the process of being investigated by the Central Bank but is also in the process of applying for approval for a PCF role, it is unclear whether an individual should disclose in his/her individual questionnaire that he/she is being investigated.²³

Sanctions - Where are we now?

A summary of the sanctions available under the updated ASP is included below.

Below is a non-exhaustive summary of the considerations the Central Bank must take into account when considering potential sanctions/the level of financial penalties that may be imposed on a subject.

1. Central Bank (Individual Accountability Framework) Act 2023 - available here.
2. Available here.
3. Central Bank of Ireland, Outline of the Administrative Sanctions Procedure, 2018 – available here; Central Bank of Ireland, Inquiry Guidelines prescribed pursuant to section 33BD of the Central Bank Act 1942, 2014 – available here; Central Bank of Ireland, ASP Sanctions Guidance, 2019 – available here.
4. Central Bank of Ireland, Consultation Paper 154 Consolidated Guidelines in respect of the Central Bank Administrative Sanctions Procedure Amended in connection with the Central Bank (Individual Accountability Framework) Act 2023 – available here.
5. Central Bank of Ireland, Consultation Paper 154 Consolidated Guidelines in respect of the Central Bank Administrative Sanctions Procedure Amended in connection with the Central Bank (Individual Accountability Framework) Act 2023 – Appendix 1 – Guidelines [Draft] page 5 – available here.
6. FN 1, Section 6, inserting Section 53B, Part 3A into the Central Bank Reform Act 2010.
7. FN 1, Section 46(b)(iv), amending Section 33AQ(3)(da) of the Central Bank Act, 1942.
8. FN 1, Section 46(b)(iv), amending Section 33AQ(3)(d) of the Central Bank Act, 1942.
9. FN 5, page 105, paragraph 46.
10. FN 1, Section 27(c), amending Section 43 of the Central Bank Reform Act 2010; FN1, Section 46, amending Section 33AQ(1) and (2) of the Central Bank Act, 1942.
11. FN 5, Appendix 1, page 34, paragraph 123.
12. FN 1, Section 43, inserting Section 33ANJ into the Central Bank Act, 1942.
13. FN 1, Section 69, inserting Section 33BI, Part IIID into the Central Bank Act, 1942.
14. FN 1, Section 47, amending Section 33AR of the Central Bank Act, 1942.
15. FN 5, page 9-10, paragraph 22. This point was also confirmed during a recent Central Bank speech – see: Central Bank of Ireland, Enhancements to the Central Bank’s Administrative Sanctions Procedure - Remarks by Seána Cunningham, Director of Enforcement & Anti-Money Laundering, 5 July 2023 – available here.
16. FN 5, page 67, paragraph 285.
17. Irish Funds Consultation Response to The Central Bank of Ireland’s Consultation Paper 154 of The Individual Accountability Framework – Consolidated Guidelines in respect of the Central Bank’s Administrative Sanctions Procedure.
18. FN 1, Section 53, amending Section 33AW of the Central Bank Act, 1942.
19. Ibid.
20. FN 5, page 62, paragraph 265.
21. FN 17.
22. FN 1, Section 82, inserting Section 34A, Part 3A into the Central Bank (Supervision and Enforcement) Act 2013.
23. FN 17.