The Central Bank of Ireland (Central Bank) has published its Authorisations and Gatekeeping Report (the Report). The is the first edition of what will be an annual report, providing ongoing information about the Central Bank’s approach to the authorisation of regulated entities in Ireland and its gatekeeping role.

The Report provides information on the Central Bank’s authorisation framework and risk appetite, including explaining the Central Bank’s priorities and expectations of applicants for authorisation and outlines key challenges that the Central Bank sees for firms seeking authorisation. We will explore these key areas in this article.

Insights into the operation of the Central Bank’s fitness and probity regime are also included in the Report and explored further below.

Key Central Bank expectations for authorisations

The Report outlines that the Central Bank continually seeks to evolve and enhance its authorisation process but emphasises that an authorisation granted by the Central Bank is an entry point for providing services into the Irish and European financial markets and therefore the Central Bank has an important role as a gatekeeper to those markets. The Report highlights that the phrase “regulated by the Central Bank of Ireland” has to hold meaning in setting standards and providing reassurance to the people of Ireland and across Europe. The Central Bank states that it takes a risk-based and proportionate approach to authorisations reflective of the nature, scale and complexity of the applicant’s business model. The Central Bank also acknowledges that the authorisation process has to be efficient and transparent.

Regarding engagement with industry and stakeholders in relation to the authorisation process, the Central Bank notes its fresh approach of being open to hearing a wider range of views and focusing on clearer communications and expectations to enhance the authorisation process for firms. The Central Bank also points out its wider outreach activities, providing opportunities for engagement and dialogue with firms and industry and its publication of updated guidance material for firms seeking authorisation across a number of sectors.

In considering applicants’ engagement with the application process, the Central Bank notes that firms should plan for a comprehensive authorisation process and that the authorisation timeline is strongly influenced by:

• the nature, scale complexity of the proposed business model;
• the completeness and quality of the application submission; and
• the applicant firm’s timeliness in responding to the Central Bank’s queries and the quality of those responses.

Some key Central Bank expectations and insights for the authorisation process set out in the Report include:

• Awareness of regulatory obligations: The process is more productive and efficient where firms have fully considered their regulatory obligations in their applications.
• Tailoring the application: Applications should not be generic, they must be tailored and specific to the authorisation sought, the applicant’s business model and its enterprise risks and risk frameworks.
• Early engagement with the Central Bank: Applicants should engage with the Central Bank at an early state to clarify expectations and to support their application. Firms with new and innovative business models should consider engaging with the Central Bank’s Innovation Hub.
• Awareness of post-authorisation regulatory expectations: Applicants are not only expected to meet the minimum authorisation standards but are also expected to be aware of the Central Bank’s broader expectations post-authorisation. William Fry is on hand to assist firm’s with understanding these broader regulatory expectations.
• Organisation to ensure ongoing compliance: Applicants should be well organised and prepared to comply with the current regulations and guidance for their sector on an ongoing basis in addition to being prepared for any upcoming rule changes.
• Awareness of business model risks and mitigants: Applicants should fully understand the risks arising from their business models and operations and how to mitigate those risks.

The Report also contains information about average authorisation times by sector. The Central Bank states that for the full year 2023 it met or exceeded the service standards to which it has committed.

Key challenges faced by applicants

The Central Bank identify the following common challenges experienced by applicants in the authorisation process:

• Business models: An inability to describe the proposed business model, with clarity on underlying assumptions made and customer offering may result in a prolonged assessment period. The Central Bank notes that similarly, substantial changes made by applicants during the course of the assessment to their proposed business model, may cause an extended assessment period.
• Delays in responding to Central Bank queries: Long delays by firms in responding to queries or providing clarifications to questions posed during the authorisation process.
• Governance: A lack of substantive presence and adequate staffing for both pre-approval controlled function (PCF) and non-PCF roles in the jurisdiction.
• Inadequate preparation and application completeness: Inadequate preparedness for the application process and low quality and/or incomplete information in application submissions can hold up a timely authorisation assessment. The Central Bank outlines that firms which have made the necessary senior appointments at the application point generally submit a more complete application which has been subject to appropriate review and therefore tend to progress through the authorisation process in a timelier manner.
• Localised risk frameworks: The Report notes that the Central Bank supervises many international financial services firms with various structures however it expects local risk frameworks, tailored to the Irish applicant entity, to be in place to ensure all risks are managed. This is often not appropriately considered by applicants and there is an over-reliance on group risk frameworks which do not achieve that outcome.
• Sector specific analysis: Within its analysis of authorisations in each sector, the Central Bank also points out some challenges specific to some sectors.

Fitness and Probity Insights

The Report provides some insights into the current fitness and probity (F&P) regime and particularly relating to the exercise of the Central Bank’s gatekeeping prior approval function in the assessment of PCF candidates for fitness (i.e. competence and capability) and probity (i.e. honesty, ethical behaviour and integrity). The F&P regime is noted as being critical for the protection of the public interest and ensuring that there is public trust and confidence in the financial system.

In 2023, 3359 PCF applications were received by the Central Bank, with 2603 applications approved and 279 applications withdrawn by the applicant. The Central Bank states that the quality of PCF applications has improved since the introduction of the new portal for PCF application submission. However, 361 PCF applications were returned as incomplete due to errors in initial submission which include, failure to upload necessary documentation, insufficient due diligence performed by the proposer or the applicant applying for the wrong PCF role or being unable to answer questions regarding key aspects of their F&P requirements. The Central Bank also interviewed 126 PCF applicants as part of the F&P approval process.

The Central Bank also references some recent developments including:

• The independent review of the F&P approval process, which was commissioned by the Central Bank in March 2024, with findings expected to be published in Summer 2024;
• The introduction of the Central Bank (Individual Accountability Framework) Act 2023 (IAF) which introduced the Senior Executive Accountability Regime (SEAR), Conduct Standards, enhancements to the current F&P regime (including strengthening the responsibility of firms in the ongoing assessment of the F&P of individuals in PCF and controlled function (CF) roles including firm certification of F&P) and a simplified regulatory enforcement process; and
• The inclusion of holding companies for banking, insurance and MiFID firms in the F&P regime from 29 December 2023 and the introduction of the new PCF roles of Head of Material Business Lines for insurance and investment firms.

With SEAR coming into effect for in-scope firms from 1 July 2024, the Central Bank adds that in-scope new entrants must now submit a statement of responsibilities with their PCF application.

For further information on IAF/SEAR please see our dedicated Individual Accountability & SEAR web page and our IAF/SEAR client briefing.

How we can help

Our Financial Regulation team is already supporting firms applying for authorisation from the Central Bank and has extensive experience in the authorisation of all types of regulated financial service providers. For example, William Fry have acted for one-third of the electronic money institutions which have been granted authorisation in Ireland to date. If you are considering applying for authorisation from the Central Bank, please contact Shane Kelleher, Louise McNabola or your usual William Fry contact.

Contributed by Danielle Higgins