1 | arthur cox
Group Briefing
August 2013
FINANCial regulatory
The Central Bank
(Supervision and
Enforcement) Act 2013
The Central Bank (Supervision and
Enforcement) Act 2013 (the 2013 Act) was
signed into law by the President on 11 July
2013. The Minister for Finance has signed
a commencement order (S.I. No. 287/2013)
which designated 1 August 2013 as the
date on which the 2013 Act (with the
exception of section 721) came into effect.
Sub-Committee on Finance in April 2013,
and completed its passage through the
Houses of the Oireachtas in July 2013.
BACKGROUND
The Central Bank (Supervision and
Enforcement) Bill 2011 (the Bill) was
originally published in July 2011 with
the aim of reinforcing the regulatory
powers of the Central Bank of Ireland
(the CBI) to supervise providers of
financial services, and to enforce
financial services legislation, in line
with the EU/IMF Programme of Financial
Support for Ireland which required
the introduction of “legislation for the
enhancement of financial regulation,
expanding the supervisory and enforcement
powers of the Central Bank”.
management firms
This Briefing summarises the key
provisions of the 2013 Act.
KEY PROVISIONS OF THE 2013 ACT
A new regulatory regime for debt
This document contains a general
summary of developments and is not
a complete or definitive statement of
the law. Specific legal advice should
be obtained where appropriate.
In April 2012 the Government
published a provisional list of proposed
amendments to the Bill, followed by
a Consultation Paper on proposed
Committee Stage amendments (the
April 2012 Consultation). The Bill was
eventually presented to the Dáil’s Select
The power granted to the Financial Services
Ombudsman to name certain financial services
providers in its annual report.
1
As part of the April 2012 Consultation,
the prospect of introducing a regulatory
regime for debt management firms was
raised and, under Part 10 of the 2013
Act, such firms (which, to date, have
fallen outside the scope of the existing
regulatory regime) will now be subject to
regulation by the CBI under the Central
Bank Act 1997. Debt management firms
are those who advise on the discharge of
debts and budgeting and negotiate with a
person’s creditors2. Such firms must now
be authorised by the CBI to provide their
services however a transitional provision
has been included whereby providers
of debt management services will be
regarded as being authorised (until formal
authorisation is granted or refused)
provided that they have applied for
authorisation before 1 November 2013.
Certain persons including MABS, NAMA, the
Insolvency Service of Ireland and otherwise-licenced
entities such as banks, building societies, credit
unions and friendly societies will not be regarded as
‘debt management firms’.
2
2 | arthur cox
FINANCial regulatory
The Central Bank (Supervision and
Enforcement) Act 2013
On 2 July 2013 the CBI asked persons
and firms providing debt management
services to notify the CBI of their
intention to seek authorisation to speed
up the authorisation process. The CBI
also published its ‘Consultation on the
Authorisation Requirements and Standards
for Debt Management Firms and the
Amendment of the Minimum Competency
Code 2011’ on 30 July 2013 (with a
closing date of 30 September 2013).
Supervision/information-gathering by the CBI
»» Reports: under the 2013 Act the CBI
may issue a notice in writing to a
regulated financial services provider
(a Regulated Provider) requiring it
to furnish a report on any matter
specified by the CBI in that notice3.
The Regulated Provider must
nominate an appropriately skilled
person (a Reviewer) to prepare the
report (if the Regulated Provider
does not nominate a Reviewer, the
CBI may do so instead) and the CBI
may publish practical guidelines
for both Regulated Providers and
Reviewers. The CBI will not be
bound by the report and a Regulated
Provider who adopts a course of
action recommended in such a report
cannot assume that the CBI will
endorse or approve of such a course
of action. It is an offence for a person
to obstruct or impede a Reviewer, or
provide him with false or misleading
information. Such an offence may
result, on summary conviction, to
a ‘class A fine’ (a fine not exceeding
€5,000) or imprisonment for a term
not exceeding 12 months or both,
or on conviction on indictment, to
a fine not exceeding €250,000 or
imprisonment for a term not more
than 5 years or both.
»» Information-gathering: the CBI has
been provided with wide-ranging
powers to require persons (both
regulated and unregulated) to
provide information, records,
The CBI must, before providing the notice, consider
other powers available to it, the Regulated Provider’s
knowledge, experience, expertise and resources,
the cost implications (and benefit) to the Regulated
Provider of providing the report.
3
forecasts, plans, accounts and other
documents to the CBI where this is
viewed by the CBI as necessary for
the performance of its functions
under financial services legislation.
There are protections in place in the
2013 Act for privileged legal material.
»» Authorised officers: the 2013 Act
creates the role of ‘authorised officer’
(this can be an officer or employee of
the CBI, or another suitably qualified
person) who will have the power
to enter premises (pursuant to a
warrant or with occupier consent) if
it believes that the premises is used
by one of a wide range of persons
(not limited to Regulated Providers)4
or is a premises at which business
records are kept. An authorised
officer will have the power to
search, require the provision of
records, summon persons to provide
information and explanations,
inspect records, make copies of
records, retain records, secure records
and secure premises. The authorised
officer may also attend any meeting
relating to the Regulated Provider’s
business that it considers necessary
in connection with the performance
of its functions, or those of the
CBI; such attendance will not, in
any circumstances, result in any
limitation on the powers of the
authorised officer or the CBI. It is
an offence for a person to obstruct
or impede an authorised officer or
not to comply with a requirement
of the authorised officer, with such
an offence leading to, on summary
conviction, a ‘class A fine’ (a fine not
exceeding €5,000) or imprisonment
for a term not exceeding 12 months
or both, or conviction on indictment,
a fine not exceeding €250,000 or
imprisonment for a term not more
than 5 years or both. There are
protections in place in the 2013 Act
for privileged legal material.
This includes applicants for authorisation, persons
who may have possession or control of information
relating to financial services, officers and employees
(current and former) of Regulated Providers, and
administrators, special managers, examiners,
receivers, liquidators or official assignees of
Regulated Providers.
4
»» Information from auditors: section
35 of the 2013 Act, first proposed as
part of the April 2012 Consultation,
now enables the CBI to require (by
written notice) that an auditor to a
Regulated Provider provide the CBI
with a statement as to the extent to
which the Regulated Provider has
complied with its obligations under
any financial services legislation
specified by the CBI in the notice.
The notice must be given by the CBI
at least 3 months before the auditor’s
report on the Regulated Provider’s
accounts is to be given to the CBI.
The CBI may make regulations
prescribing the types of obligations
that it can specify in a notice to
an auditor, which will be limited
to questions of administrative or
accounting procedures, internal
control mechanisms and risk
management, organisational
structure and governance.
Protection of Whistleblowers
The 2013 Act protects persons who, in
good faith, disclose information to the CBI
that they reasonably believe will show
the commission (or likely commission)
of an offence under financial services
legislation, a ‘prescribed contravention’
(actual or likely) or the likelihood of
evidence in relation to the foregoing
being deliberately concealed or destroyed.
However, for a disclosure to be ‘protected’
by the 2013 Act, it cannot be made
anonymously. The 2013 Act also requires
persons performing ‘pre-approval controlled
function’s’ (PCFs) to make such disclosures
where they believe that such disclosures
will be of material assistance to the CBI
(however where a person performing
a PCF fails to do so on the grounds that
it will incriminate him/her or that
information has already been disclosed
to the CBI by someone else, that will
constitute a ‘reasonable excuse’ for a failure
to disclose). The 2013 Act provides
whistleblowers with protection from civil
liability where they make a protected
disclosure, and employees who make
protected disclosures also benefit from
protection. Persons who victimise those
who have made protected disclosures
may have liability in tort to those persons.
3 | arthur cox
FINANCial regulatory
The Central Bank (Supervision and
Enforcement) Act 2013
Enforcement
»» Administrative Sanctions: the 2013 Act
amends the Central Bank Act of 1942
as regards to the maximum penalties
that may be imposed under the CBI’s
‘Administrative Sanctions Regime’ on
Regulated Providers. For firms, the
maximum monetary penalty has
been increased from €5 million to
€10 million or 10% of turnover (in
the last complete financial year) and
for individuals the maximum penalty
has been doubled from €0.5 million
to €1 million. Further, where the
CBI finds that a regulated financial
services provider has committed a
‘prescribed contravention’ it is now open
to the CBI to suspend the Regulated
Provider’s authorisation for 12
months, or revoke it entirely.
»» Customer redress: the 2013 Act gives
the CBI power, where there have been
“widespread or regular relevant defaults”
by a Regulated Provider which have
resulted (or will result) in customers
suffering loss or damage, to direct
the Regulated Provider to make
appropriate redress. The types of
default in respect of which redress may
be directed can include overcharging,
the provision of unsuitable
products, the provision of inaccurate
information, systems or controls
failures or ‘prescribed contraventions’.
The 2013 Act also gives customers
who suffer loss or damage as a result
of a breach by Regulated Providers
of financial services legislation (for
example, the European Communities
(Markets in Financial Instruments)
Regulations 2007 (as amended)) a right
of action for damages.
»» Directions: the 2013 Act gives wideranging powers to the CBI to give
written directions to a Regulated
Provider where it is satisfied that
certain circumstances apply
including the Regulated Provider
being, or being likely to become:
(a) unable to meet its obligations
to its customers or, (b) unable to
maintain adequate capital or other
resources or the Regulated Provider
failing to comply with a condition or
requirement under financial services
legislation. Such written directions
may require the Regulated Provider
to take a variety of steps including
suspending certain activities for up to
12 months, disposing of certain assets
or liabilities, raising and maintaining
capital or other financial resources
or modifying systems, controls or
business practices. The Regulated
Provider will have the right to
apply to the High Court to have the
direction set aside. Equally, the CBI
will have the right to apply to the
High Court for an order requiring the
Regulated Provider to comply with
a direction. If a direction is designed
to preserve or restore the financial
position of a credit institution within
the meaning of the Credit Institutions
Winding-Up Directive (Directive
2001/24/EC), and if it could affect the
rights of third parties, the CBI may
declare (in the direction) that it is
made with such intention, meaning
that it will have EU-wide recognition.
»» Regulations: the 2013 Act also gives the
CBI power to make an extremely broad
range of regulations for the “proper
and effective regulation” of Regulated
Providers, subject to an obligation
to consult in advance with the
Minister for Finance (and, in certain
circumstances, the Minister for Jobs,
Enterprise and Innovation) together
with such other persons as the CBI
considers appropriate. The matters
in respect of which the CBI can make
such regulations include procedural
and administrative matters, resources,
customer contact, seeking information
from customers, conflicts of interest,
advancing credit (including conditions
and processes), safeguarding client
money and client assets, dealing with
customers in financial difficulties,
addressing errors, resolving disputes
and keeping records.
»» Orders: the CBI may apply to the
High Court for an order restraining
a person from engaging in conduct
which would contravene financial
services legislation. It may also apply
to the High Court for a restitution
order in respect of a person who
has been sanctioned for a ‘prescribed
contravention’, sanctioned under the
Prospectus Regulations5, Market
Abuse Regulations6 or Transparency
Regulations7, or otherwise convicted
of an offence under financial services
law, and whom the CBI believes has
been unjustly enriched as a result of
the original offence.
Key amendments to other financial
services legislation
»» Central Bank Act 1942: Financial Services
Ombudsman (FSO): the FSO is to be
given power to name, in its annual
report, Regulated Providers in respect
of whom at least 3 substantiated, or
partially substantiated, complaints
have been made to the FSO during
the previous financial year. No
commencement date for this particular
section had been announced at the
date of this Briefing.
»» Central Bank Act 1971: Third
Country Branches: this amendment
(introduced at Seanad stage) provides
for an authorisation regime for nonEU credit institutions who wish to
operate a branch in Ireland.
»» Consumer Credit Act 1995 (CCA):
the amendments to section 149 of
the CCA (which deals with charges)
alter the time periods within which
the CBI provides directions relating
to charges to credit institutions.
Further, a new credit institution
will now not have to comply with
the requirement to notify customer
charges to the CBI until 3 years after
it has commenced business.
»» Investor Compensation Act 1988: a new
section 33B has been included giving
the Minister for Finance, following
consultation with the CBI and the
Investor Compensation Company
Limited, power to make regulations
for the return of investors’ funds or
investment instruments.
Regulation 99 of the Prospectus (Directive
2003/71/EC) Regulations 2005.
5
Regulation 41 of the Market Abuse (Directive
2003/6/EC) Regulations 2005.
6
Regulation 67 of the Transparency (Directive
2004/109/EC) Regulations 2007.
7
FINANCial regulatory
4 | arthur cox
The Central Bank (Supervision and
Enforcement) Act 2013
»» Financial Services (Deposit Guarantee
Scheme) Act 2009: a new section 8A
has been inserted, giving the CBI
power to make regulations requiring
credit institutions to keep prescribed
information in relation to depositors
and provide that information to the
CBI. If a credit institution fails to
comply with such a requirement,
the CBI may direct it to take specific
steps and, if the failure to comply
continues, apply to the High Court
for an order requiring the institution
to comply with the CBI direction.
arthurcox.com
key contacts
For further information on any of the
items above, please contact any of the
partners listed below or your usual Arthur
Cox contact.
Orla O’Connor
Partner
Robert Cain
Partner
+353 1 618 0521
[email protected]
+353 1 618 0246
[email protected]
Elizabeth Bothwell
Partner
GREGORY GLYNN
Partner
+353 1 618 0506
[email protected]
+353 1 618 0470
[email protected]
andrew lenny
Partner
louise gallagher
Partner
+353 1 618 0425
[email protected]
+353 1 618 0426
[email protected]
Dublin
+353 1 618 0000
[email protected]
Silicon Valley
London +44 207 823 0200
+1 650 943 2330
[email protected]
[email protected]
Belfast
+44 28 9023 0007
[email protected]
New York
+1 212 782 3294
[email protected]