Fitness and Probity

Irish Law

The Central Bank Reform Act 2010

1.1 The Fitness and Probity Regime (F&P Regime) was introduced by the Central Bank Reform Act 2010 (the 2010 Act) and applies to regulated financial service providers (including credit unions) and holding companies^[1] established in Ireland (hereafter referred to as firms).

1.2 The primary purpose of the F&P Regime is to prevent serious damage to the financial system in the State, to support the stability of that system, and to protect users of financial services. The F&P Regime seeks to achieve its aims by ensuring that individuals in key positions, and in customer-facing positions (referred to in the legislation as controlled functions (CFs)) within firms comply with the standards of fitness and probity, issued by the Central Bank^[2].

1.3 The F&P Regime is grounded on three key “pillars”:

• Firm obligations: the primary and ongoing statutory obligations of firms (and firms in the process of application for authorisation) in relation to the application of the standards of fitness and probity.
• Gatekeeper role: for certain roles, which are a subset of CFs (referred to as Pre-Approval Controlled Functions (PCFs)), there is a requirement for the pre-approval of the Central Bank prior to appointment.
• Investigations: the investigative and enforcement powers of the Central Bank (and the European Central Bank, where applicable) in relation to an individual's fitness and probity.

1.4 Firms perform a pivotal role in ensuring that fit and proper individuals occupy CF and PCF roles within their business. While the Central Bank has a significant role in assessing the fitness and probity of individuals in PCF roles, it is essential for firms to fulfil their primary responsibility in conducting a thorough due diligence in respect of all individuals both prior to appointment to CF roles, and on an on-going basis.

1.5 In this regard, firms have an obligation to undertake due diligence at the initial stage before appointing individuals to CF roles, and in the case of PCFs, before submitting the application for a PCF approval. The obligation to ensure, and to certify, that fit and proper individuals occupy CF and PCF roles applies on an ongoing basis ^[3]. Firms must maintain ongoing oversight of individuals in CF roles, and promptly address any concerns or changes pertaining to an individual’s fitness and probity.

1.6 Firms should develop and maintain appropriately and proportionately robust internal policies and procedures for assessing the fitness and probity of individuals in CF roles.

1.7 The Central Bank has a range of powers available to it to investigate, suspend or prohibit individuals from CFs in the financial services industry where there are justified concerns about their fitness and probity. Those powers are set out in Part 3, Chapters 3 & 4, of the 2010 Act.

Central Bank Regulations

1.8 The 2010 Act provides the Central Bank with a regulation making power to:

• Prescribe functions that are to be CFs in relation to regulated financial service providers or in relation to holding companies, and
• Prescribe a subset of CFs as functions for which the prior approval of the Central Bank is required before an individual can be appointed (i.e. PCFs).

1.9 The Central Bank has published regulations prescribing CFs and PCFs^[4]. The Central Bank may from time to time publish subsequent amending regulations, which add and/or amend the list of CFs and/or PCFs^[5].

Standards of fitness and probity

1.10 Under Section 50 of the 2010 Act the Central Bank has the power to issue a code setting out standards of fitness and probity for those individuals in CFs.

1.11 The Central Bank has issued the following codes setting out standards of fitness and probity (collectively referred to in this guidance as standards of fitness and probity):

• The Fitness & Probity Standards (F&P Standards), and
• The Minimum Competency Code.

1.12 The F&P Standards require individuals in CF roles to be:

• Competent and capable,
• Honest, ethical and to act with integrity, and
• Financially sound.

1.13 Fitness, in the context of being competent and capable, relates to the qualifications, experience, knowledge and other relevant factors that will make an individual fit for the performance of a CF or PCF.

1.14 Probity is a matter of character illuminated by an individual’s past behaviour. It means acting honestly, ethically, with integrity and being financially sound.

1.15 The Minimum Competency Code 2017 (MCC) sets out minimum professional standards for staff of regulated firms when they are dealing with consumers in relation to certain retail financial products. Part 1 and Part 2 of the MCC specify certain minimum competency standards with which individuals falling within the scope of the MCC must comply when performing CFs. Part 3 of the MCC sets out details on the recognition of qualifications in respect of retail financial products for the purposes of the MCC.

1.16 The aim of the MCC is to ensure that consumers obtain a minimum acceptable level of competence from individuals acting for, or on behalf of, regulated firms in the provision of advice and information, and associated activities in connection with retail financial products.

1.17 The MCC is closely linked with the F&P Standards, in that the MCC specifies certain minimum competencies that individuals must comply with when performing certain CFs^[6]. Accordingly, where an individual is non-compliant with their obligations under the MCC they also risk not complying with the F&P Standards.

1.18 Similarly, even if the relevant individuals are compliant with the MCC, this does not necessarily equate to compliance with the F&P Standards. Firms must ensure that relevant CF role holders are compliant with both the MCC and the F&P Standards for all relevant roles.

1.19 The Central Bank (Supervision and Enforcement) Act 2013 (Section 48 (1)) Minimum Competency Regulations 2017 impose obligations on regulated firms under Section 48 of the 2013 Act in connection with the MCC to ensure that individuals performing relevant functions on its behalf comply with the standards set out in the MCC.

Guidance on the Standards of Fitness and Probity

1.20 Since the introduction of the F&P Regime in 2011, the Central Bank has provided detailed Guidance on the F&P Standards, setting out the Central Bank’s expectations on how firms should comply with the requirements of the F&P Regime.

1.21 This new Guidance on the Standards of Fitness and Probity consolidates the existing guidance on F&P Regulations and F&P Standards for firms into one document, and therefore, replaces the Guidance on Fitness and Probity Standards 2023 and the Guidance on Fitness and Probity for Credit Unions 2024. It also replaces the existing “Fitness and Probity – Frequently Asked Questions” for firms and credit unions.

1.22 In addition, this Guidance on the Standards of Fitness and Probity details how other Central Bank requirements interlink with the F&P Regime, e.g. the Corporate Governance Requirements and the Individual Accountability Framework.

1.23 Further, this Guidance on the Standards of Fitness and Probity seeks to provide additional details with regard to a number of specific areas where greater clarity was sought, including:

• The use of objective measures (such as specific qualifications, certifications or experience requirements) within the assessment process,
• Expectations in terms of the number of directorships that an individual can hold and the time commitments expected,
• The role of an executive, non-executive and independent non-executive director,
• Identifying, managing and mitigating conflicts of interest,
• Temporary Officer appointments,
• The Central Bank’s expectations in relation to collective suitability and diversity within management boards, and
• The approach to be adopted in relation to considering past events in the context of a PCF application.

1.24 This Guidance on the Standards of Fitness and Probity will be updated periodically as considered appropriate by the Central Bank.

1.25 The Guidance on the Standards of Fitness and Probity represents the Central Bank’s expectations. It does not purport to address every aspect of, or potential issue that may arise in connection with assessments of fitness and probity.

1.26 This Guidance on the Standards of Fitness and Probity is not intended to be exhaustive nor to replace or override any legislative provisions or code. It should be read in conjunction with Part 3 of the 2010 Act and any regulation, code or other legal instrument as the Central Bank may issue from time to time.

Other Guidance

1.27 The Central Bank has issued other guidance and guidelines which are relevant to the F&P Regime, which assist firms in complying with their obligations, for example:

• Fitness and Probity Gatekeeper Process Manual (PDF 800.14KB)
• Individual Questionnaire, Applications and PCF Roles Guidance (PDF 1.67MB)
• Guidance on the Individual Accountability Framework, (PDF 1.49MB)
• Fund Management Companies – Guidance (PDF 1.29MB),
• Administrative Sanctions Procedure Guidelines (PDF 2.15MB), 
• Guidance on Fitness and Probity Investigations, Suspensions and Prohibitions (PDF 1.16MB); 
• Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector (PDF 952.79KB).

1.28 The Central Bank may from time to time issue additional, and/or amend existing guidance and guidelines, as appropriate.

European Legislation

1.29 European legislation for certain industry sectors is applicable in conjunction with the Irish F&P Regime.

SSM Framework

1.30 The European Central Bank (ECB) is the authority with competence for fitness and probity assessments of applicants to certain PCF roles for institutions under its direct supervision (i.e. credit institutions or (mixed) financial holding companies), and in the case of licensing or qualifying holding procedures:

• The management board of significant institutions,^[7]
• Certain key function holders in significant institutions, and
• The management board of all institutions applying for authorisation.

1.31 The significance of an institution is determined by the ECB in accordance with conditions set down in the SSM Regulations^[8].

1.32 Under Article 6(4) of the SSM Regulation, responsibility for assessment (and, where appropriate, reassessment) of PCF applications in less significant institutions (i.e. except in the case of licensing or qualifying holdings) continues to lie with the Central Bank.

1.33 The ECB has issued a Guide to fit and proper assessments (PDF 794.06KB)^[9] with its objective being to explain in detail the policy stances, supervisory practices and processes applied by the ECB, and to specify the ECB’s main expectations as they relate to fit and proper assessments.

European Supervisory Authorities Guidelines

1.34 The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA), both of which form part of the European Supervisory Authorities (ESA), have published guidelines relating to the assessment of the suitability/ adequate knowledge and experience of key role holders for a number of firm types (e.g. banks and investment firms^[10], crypto-asset service providers^[11], and credit servicers^[12]).

1.35 These ESA Guidelines, and any other relevant sectoral legislation and guidelines, apply to individuals in CF roles at in-scope firms, in addition to the standards of fitness and probity, both prior to appointment and on an on-going basis.

The Individual Accountability Framework

1.36 The F&P Regime and the Individual Accountability Framework (IAF) are two aspects of an overall framework that promotes sound governance and conduct, and are therefore part of the broader corporate governance framework.

1.37 While the IAF introduced certain specific enhancements to the F&P Regime (e.g. the extension of the F&P regime to holding companies and the introduction of certification), it also includes the following elements which are of relevance to the F&P Regime:

• The Senior Executive Accountability Regime (SEAR): The SEAR requires in-scope firms^[13] to set out clearly and fully where responsibility and decision-making lie within the firm’s senior management, and imposes a legal Duty of Responsibility on individuals carrying out PCF roles in such firms.
• Conduct Standards: These include the Common Conduct Standards, which are a set of expected standards of conduct which apply to all individuals carrying out CF roles in regulated firms, and the Additional Conduct Standards, which apply to all individuals carrying out PCF roles or any other role that may exercise a significant influence on the firm’s affairs (CF-1), in regulated firms.

Interaction between the F&P Regime and the SEAR

1.38 The F&P Regime addresses the suitability of individuals to fulfil relevant roles and the SEAR focuses on their responsibilities while performing those roles.

1.39 A firm in-scope of SEAR seeking approval for an individual to perform a PCF role is required to submit a ‘Statement of Responsibilities’ with the Individual Questionnaire. The Statement of Responsibilities identifies the individual’s Inherent Responsibilities and sets out the individual’s Prescribed Responsibilities and Other Responsibilities (as defined in the Guidance on the IAF (PDF 1.49MB)).

Interaction between the F&P Regime and the Conduct Standards

1.40 Both the F&P Regime and the IAF contain certain standards that apply to individuals in all firms (referred to as the F&P Standards and the Conduct Standards respectively). Conceptually, there is overlap between the F&P Standards and the Common Conduct Standards (e.g. both sets of standards include requirements in relation to acting with honesty and integrity). However, there are also a number of key distinctions between the sets of standards which support the co-existence of these standards:

• The purpose of the F&P Standards is to set a standard that staff in CF roles must meet to ensure that they are sufficiently skilled and have the requisite integrity to be trusted in their roles, while the Conduct Standards govern the conduct of individuals in CF and PCF roles, imposing positive, legal obligations on individuals to act in a particular way.
• While the F&P Standards are relevant to assessing individuals prior to their appointment (and on an ongoing basis while performing a role), the Conduct Standards only apply once an individual is in a CF or PCF role.
• In terms of the application of the sets of standards, there are some exemptions^[14] from the F&P Standards which do not apply to the Common Conduct Standards.

1.41 There are also important interactions and distinctions where a breach of the standards occurs. In this regard, it is important to set out that an individual may breach a Conduct Standard but still comply with the F&P Standards in relation to a role. However, a breach of a Conduct Standard may be relevant to an individual’s suitability for a role which is assessed both prior to appointment and as part of ongoing obligations to comply with F&P Standards. Conversely, an individual may fail to comply with the F&P Standards in relation to their role despite not having breached the Conduct Standards. Such determinations will depend on the facts and circumstances of any specific case.

Corporate Governance Requirements

1.42 Corporate governance refers to the system of rules, practices and processes by which a firm is directed and controlled. It is focused on the overall management of the firm, including its structure, decision-making processes and the relationship between stakeholders. In essence, corporate governance aims to ensure that a firm is run in a responsible, transparent and accountable manner.

1.43 The Central Bank is committed to strengthening corporate governance standards and practices across the financial services industry. Sound internal governance arrangements are fundamental if firms are to operate well. Sound corporate governance increases accountability to stakeholders, improves transparency in terms of roles and responsibilities, mitigates risk, and underpins the integrity of an organisation and the market in which it operates.

1.44 The Central Bank promotes the adoption by industry of minimum standards of sound corporate governance practices, and has issued corporate governance requirements for credit institutions, insurance undertakings, investment firms and market operators, captive insurance and captive reinsurance undertakings (hereafter referred to as the Corporate Governance Requirements).

1.45 The Corporate Governance Requirements set out detailed provisions in relation to, for example, requirements with respect to the composition and role of the board, the role of non-executive and independent non-executive directors, establishment of committees and requirements for certain roles.

1.46 The Corporate Governance Requirements define the role of the board as well as the role of individual directors including that both the role and the responsibilities of the board must be clearly documented and directors must have “a full understanding of their individual direct and indirect responsibilities and collective responsibilities”.

1.47 Part IV of the Credit Union Act, 1997 includes governance requirements for credit unions, and includes provisions on the composition, operation and functions of the board of directors, together with requirements for certain roles, the establishment of committees, and general governance arrangements in credit unions.

Other Sectoral Codes

1.48 Irish Funds has issued the Corporate Governance Code for Fund Service Providers and the Corporate Governance Code for the Collective Investment Schemes and Management Companies.

Enforcement Powers

1.49 The Central Bank has statutory enforcement powers under the F&P Regime as set out in Part 3 of the 2010 Act including the powers of investigation, suspension and prohibition. These powers are supplemented by regulations^[15] and described in guidance (PDF 1.16MB).

1.50 The Central Bank has the power to conduct an investigation into the fitness and probity of an individual who performs a CF (including a PCF) role, who formerly performed such a role (subject to certain statutory limitations), or who is proposed to be appointed to a CF (but not a PCF) role where:

• There is reason to suspect the individual’s fitness and probity to perform the relevant function, and
• An investigation into the individual’s fitness and probity is warranted.

1.51 The Central Bank has powers to gather information in relation to the individual’s fitness and probity, including by way of interview or requests for documents.

1.52 The Central Bank may issue a Suspension Notice to remove an individual from a CF (including a PCF) role for a limited period either during an investigation or following a Prohibition Notice (prior to the Prohibition Notice taking effect).

1.53 At the end of a fitness and probity investigation, the Central Bank may, if it forms the view that an individual is not of appropriate fitness and probity to carry out specified CF (including PCF) roles, prohibit an individual from performing those roles for a specified period or indefinitely. Prohibitions are imposed in a Prohibition Notice, which may be published to protect the financial system and users of financial services.

1.54 Firms have an ongoing statutory obligation to ensure they do not allow an individual to perform a CF unless the firm is satisfied that the individual complies with the standards of fitness and probity and the individual has agreed to comply with those standards.

1.55 Failure to comply may result in an investigation and the imposition of sanctions by the Central Bank under the Administrative Sanctions Procedure (ASP) on a firm and/or individuals concerned.