On 27 September 2019, the Central Bank published a notice of prohibition, served by its Director of Asset Management and Investment Banking on a director of a regulated firm, for breaches of the Central Bank’s Fitness & Probity Standards (F&P Standards). The notice, which prohibits the director from performing any controlled function (including pre-approval control function (PCF)) of any regulated entity for a period of two years, was served to “demonstrate to and the financial system that the provision of false and misleading information to the Central Bank has real consequences.”
Case background
The applicant director submitted an individual questionnaire (IQ) to the Central Bank for approval to act as executive director of a firm seeking authorisation under the Investment Intermediaries Act 1995 (IIA). In section 3 of the IQ ‘Employment History’, the applicant director disclosed his ‘reason for leaving’ a role previously held as ‘unfair dismissal’. However, in section 5 of the IQ, ‘Applicant Reputation and Character’, the applicant director answered ‘no’ to question 5.5 which requests a yes/no response to “Have you ever, in any jurisdiction, been dismissed or asked to resign and did resign from any profession, vocation, office or employment, or from any position of trust or fiduciary appointment, whether or not remunerated?”
In a request from the Central Bank for additional information regarding the unfair dismissal from his previous role, the applicant director stated that ” restructured their Irish operation in 2012 and are still currently doing so there were redundancies and job losses across the board, I went out on the 28th of June 2013 and as a result of this was dismissed from my position on 20th September. I am currently taking action against that decision and I have attached a copy of a letter from my solicitor.” Shortly after, the Central Bank approved the applicant director’s appointment as executive director of the IIA firm and in the coming years the director filed several Annual PCF Confirmations of compliance with the F&P Standards with the Central Bank.
Following the director’s approval by the Central Bank, a determination by the Employment Appeals Tribunal (EAT) in respect of the director’s claim for unfair dismissal came to the attention of the Central Bank. The determination indicated that the applicant had been dismissed for gross misconduct arising from an allegation that he had taken a number of cheques without authorisation which were returned the next day. The allegation that cheques were taken without authorisation was strenuously denied by the director. While the EAT accepted the explanation for what happened in relation to the cheques as plausible, it upheld the dismissal, based on the director’s failure to properly engage with the process of investigation. The unfair dismissals claim was later settled between the director and his former employer.
Central Banks grounds for prohibiting the director
It is significant to note that the Central Bank found the director to be in breach of the F&P Standards for the duration of his approval as PCF on the basis of the information provided in the IQ submitted, including:
- the ‘no’ response in section 5.5 of the IQ which the Central Bank found should have been answered in the positive as even though the dismissal was the subject of a dispute this did not negate the “unambiguous requirement for truthfulness, and candid and accurate information” in completing an IQ and “the financial system expected to be truthful and honest irrespective of whatever else was going on in his life”,
- the director knew or ought to have known that the response to the Central Bank’s request for additional information regarding the unfair dismissal, which characterised the dismissal in the context of redundancies and job losses at his former employer, was “false and misleading” and “demonstrate failure to act honestly, ethically and with integrity, in breach of the Standards”,
- the failure to detail the circumstances of the dismissal, irrespective of the director’s belief that they were not justified, “conferred an advantage” on the director as it prevented the CB from “properly evaluat” the director and had the Central Bank had the full information this would likely have led to further investigation by the Central Bank, thereby delaying the application, or resulting in a refusal of the application, and
- the failure to volunteer information on the EAT determination and the subsequent settlement of the unfair dismissals claim compounded the provision of false and misleading information in the application for Central Bank approval.
- In the prohibition notice, the Central Bank disregarded the following mitigating circumstances submitted by the director:
- the absence of any consequence to the Central Bank’s approval of the director, e.g. in the form of evidence against the applicant firm, as the Central Bank is “entitled to take a more global view of the protection of users of financial services”,
- the regret shown by the director as “for a period of time during this process believed he had done nothing wrong”,
- the isolated nature of the incident as the issue occurred at the time of the IQ application however, the Central Bank considered the director “could have disclosed the information on number of other occasions to the Central Bank and did not”, and
- the absence of a catalyst for the director to inform the Central Bank of the EAT determination. The director noted that the EAT determination was immediately appealed and as such there was no change to the information in the IQ submitted which disclosed the ongoing unfair dismissal dispute. The director intended to inform the Central Bank of the EAT determination and subsequent appeal however, the Central Bank’s investigation commenced ahead of the finalisation of the appeal and subsequent settlement of the unfair dismissal claim by the director with his former employer.
A keen and continuing focus on individual accountability
Ensuring the fitness & probity and accountability of individuals performing senior functions in regulated firms, is, has and continues to be, a high priority of the Central Bank.
In its ‘Dear CEO’ letter of 8 April 2019 to regulated financial service providers (RFSPs), the Central Bank highlighted several obligations under the F&P regime which firms were failing to comply with in respect of individuals they appointed to senior positions. RFSPs were told to review their F&P policies, procedures and practices as against the contents of the letter and the Central Bank’s Guidance on F&P Standards (the Guidance) and be able to evidence completion of such review and any resulting remedial action deemed necessary. Click here to read our Briefing on this topic.
In September 2018, the Central Bank published proposals for greater accountability of senior individuals in regulated firms which incorporates enhancements to the F&P regime, including stronger requirements for regulated firms to assess the fitness and probity of senior managers on an ongoing basis. The adoption of legislation to allow for the introduction of the Central Bank’s proposal is currently awaited and expected to be passed in the coming months. Click here to read our Briefing on this topic.
The Central Bank states that, with the prohibition notice, it is seeking “to demonstrate to the financial services industry as a whole that the provision of false and/or misleading information to the Central Bank is taken very seriously by the Central Bank” and “ensure that other applicants to the financial service industry are deterred from doing so”. The prohibition notice, a copy of which may be found here on the Central Bank’s website, is a none too subtle reminder to holders of controlled functions and regulated firms of the necessity to be aware of, understand, and comply with their obligations under the F&P regime.
Contact Us
If you have any queries in relation to this or would like to know more about the services we are offering, please contact any of our Asset Management & Investment Funds Partners or your usual contact at William Fry.
