Fitness and Probity

Due Diligence

Standard of Fitness

3.1. Section 3 of the F&P Standards relates to fitness and requires an individual to be competent and capable. An individual shall have the qualifications, experience, competence and capacity, including sufficient time commitment, appropriate to the relevant function, and taking into account matters such as nature, scale, complexity, risk profile, organisation structure, target market, etc.. Similar functions in different firms will entail different responsibilities and different levels of required knowledge, expertise and time commitment.

3.2. A firm should fully understand what qualifications, experience, knowledge, time commitment and other relevant factors will make an individual fit for the performance of a particular function.

3.3. The requirements of the CF may also be dictated by the roles undertaken by individuals in other CF roles in an organisation. An individual considered fit for a particular CF role within a firm may not be considered fit for another CF role with different responsibilities, or for a similar CF within another firm. Conversely, an individual considered unfit for a particular CF in a particular firm may be considered fit in different circumstances, e.g. in a different CF role.

3.4. Fitness also includes ensuring that individuals shall not allow the conduct of concurrent responsibilities to impair their ability to discharge the duties of the relevant function or otherwise allow conflicts of interest to arise in carrying out their role.

Standard of Probity

3.5. Individuals proposed for CF or PCF roles must be honest, diligent and independent-minded and must act ethically and with integrity.

3.6. Probity is a matter of character illuminated by an individual’s behaviour. In general, where an individual is found not to be an individual of probity due to a lack of honesty, integrity or ethical judgement, that individual may not be suitable for any CF or PCF.

3.7. The principle of proportionality cannot be applied in relation to probity and the assessment shall be conducted for all firms in an equal manner.

Standard of Financial Soundness

3.8. In assessing an individual’s financial soundness, the following factors which could compromise an individual’s ability to carry out the role should be considered:

• The individual has defaulted on any payment due arising from a compromise or scheme of arrangement with their creditors or made an assignment for the benefit of their creditors,
• The individual is subject to a judgment debt which is unsatisfied, either in whole or in part, whether in the State or elsewhere,
• The individual is or has been the subject of a bankruptcy petition, whether in the State or elsewhere,
• The individual has been adjudicated a bankrupt and the bankruptcy is undischarged, whether in the State or elsewhere, or
• The individual was a director of an entity that has been the subject of insolvency.

3.9. The Central Bank considers that the existence of these factors may have an impact on an individual’s reputation, integrity and honesty. It is not the case that firms are required to prove that an individual is financially sound, rather firms should perform checks to establish that none of the above factors impact an individual’s ability to perform the role e.g. a judgement check/search of publicly available information that could call into question the financial soundness of an individual.

3.10. In accordance with Section 72 of the Credit Union Act, 1997, any person who has been declared bankrupt and whose bankruptcy still subsists, or who, in the previous 10 years, has been convicted of an offence in relation to a credit union or an offence involving fraud or dishonesty may not hold a CF within a credit union.

Due Diligence

Legal Obligation of a Firm

3.11. The 2010 Act prescribes a continuing obligation on firms in relation to fitness and probity due diligence. Firms are responsible for ensuring that individuals performing CFs meet the standards of fitness and probity, both prior to appointment and on an on-going basis.

3.12. This obligation includes the following key steps:

• Due Diligence/Screening: firms should conduct initial assessments of individuals to determine their suitability for a specific role. This will include, for example, reviewing CVs, conducting interviews and verifying qualifications.
• Background checks: firms should perform comprehensive background checks, which include criminal record checks, where possible, credit checks and reference checks. The depth and scope of these checks depend on the seniority of the roles and the nature scale and complexity of the firm.
• Documentation and record keeping: firms should maintain detailed records of their due diligence processes, including the information collected, assessments conducted and decisions made.
• On-going monitoring: firms should establish mechanisms for monitoring individuals’ ongoing fitness and probity, such as regular performance reviews, mandatory training and self-declaration of any changes in personal circumstances that may affect their suitability for the role.

In some circumstances, self-certification will be sufficient and further detail on applicable circumstances is provided in Appendix 4

3.13. In complying with Section 21 of the 2010 Act, the Central Bank expects firms to consider the responsibilities of the specific function and to determine the specific competencies, and appropriate standard of fitness and probity that should be expected of an individual performing that specific CF in the firm.

3.14. Firms should holistically consider the outcome of a due diligence assessment and draw an overall conclusion on the individual’s suitability on the basis of this assessment.

3.15. For illustration purposes, a table at Appendix 4 sets out examples of due diligence required. The table is not intended to be exhaustive and does not supersede the due diligence requirements set out in this guidance.

3.16. While this guidance sets out the Central Bank’s expectations in relation to due diligence, it does not purport to address every possible check and, as such, firms should apply an approach consistent with the nature, scale and complexity of the firm and the roles therein.

3.17. Matters such as scale, complexity, risk profile, organisation structure, target market and so on are unlikely to be the same within any two organisations. Different functions will entail different responsibilities and different levels of knowledge and expertise. For this reason, this guidance cannot point to conclusive knowledge or expertise that is required for a particular function. The firm, using its own unique knowledge of the CF, and taking into account all relevant matters (including those listed above) can make the assessment as to what makes an individual fit and proper to perform, or continue to perform, the specific CF in that firm. This guidance sets out due diligence that the Central Bank expects would be undertaken by firms when assessing compliance with the Standards of fitness and probity. In all cases, it is for the firm itself to assess the information and exercise judgment to determine whether an individual is fit and proper to carry out a particular CF.

3.18. Where an individual performs more than one CF, and more than one set of specific competencies and the appropriate standard of fitness and probity applies in respect of the exercise of those multiple CFs, the higher standard is the relevant standard for the purposes of due diligence.

3.19. If a firm has insufficient information available to enable it to conclude on reasonable grounds that the Standards of fitness and probity are being complied with, particularly if due to lack of co-operation by the individual, the Standards of fitness and probity may not be met. The firm should bring this to the attention of the individual and allow them an opportunity to provide the required information.

3.20. When considering compliance with Section 21 of the 2010 Act, the Central Bank will assess the firm’s analysis of what specific competencies and appropriate standards of fitness and probity are required for the performance of a relevant function or functions. In addition, the Central Bank will consider the steps that the firm has taken to satisfy itself and certify that the individual performing the relevant CF is competent, and has the appropriate standard of fitness and probity to perform that CF.

Fitness – Due Diligence to be undertaken by a Firm

3.21. The Central Bank expects firms to undertake due diligence when assessing an individual’s fitness to perform, or continue to perform, a particular CF role as set out below.^[1]

In carrying out the due diligence, where relevant firms should also consider the objective measures in Chapter 4.

1. Evidence of professional qualifications

   Where the CF requires a specific professional qualification, the firm should satisfy itself that the individual has that specific qualification(s) (e.g. actuary, accountant, lawyer, etc.) by obtaining a copy of the certificate/transcript/record evidencing the qualification. Where the individual is required to be registered with a professional body, the firm should require and maintain a copy of the individual’s licence or certificate to practise (howsoever described), and where that licence/certificate is renewed on an annual (or more or less frequent) basis, the firm should require a copy of the most recent renewal.

   The Central Bank expects firms to obtain copies of qualifications only where the firm has determined that those qualifications are relevant to the exercise of the CF, e.g. where a job specification requires that an individual has five years’ post-qualification experience as a lawyer, for example, the Central Bank expects the firm to obtain evidence of the professional legal qualification and post-qualification experience.

2. Record of previous experience

Where an individual demonstrates skills and experience gained through a previous role (for example, through the individual’s CV, or the firm’s interview process), the firm should assess and document how the individual’s performance in that role equips that individual with the expertise and experience necessary for the performance of the current function. Similarly, the firm should maintain a record of the skills/competencies they expect the individual role holder to possess for that role

The Central Bank’s Individual Questionnaire requests details of the individual’s professional and other experience within the last 10 years, qualifications held and professional memberships, along with other experience prior to the last 10 years, which is relevant to the application and suitability of the individual.

3. Record of experience gained outside the State

Where some or all of the experience is gained outside the State, the firm should consider the extent to which the individual can demonstrate competency that relates specifically to the function within the State, i.e. does the individual have a clear full understanding of the regulatory and legal environment, and has market knowledge appropriate to the relevant function The firm should maintain a record of this consideration.

4. Record of interview and application

Where the firm uses an interview process to assess competence and capability (such as skills and experience), it should maintain a record of the interview to evidence this. Similarly, where a written application was submitted for the particular CF, this should be maintained on file^[2].

5. References

The Central Bank expects firms to make all reasonable efforts to obtain references from former employers or other relevant individuals. The Central Bank expects firms to maintain evidence of this correspondence.

Where the firm is unable to obtain a reference(s) for whatever reason, it must record the steps that it has taken to obtain the reference(s). The firm must also record how, in the absence of the reference, it has satisfied itself that the individual is competent and suitable to perform the CF.

6. Concurrent Responsibilities, Conflict of Interest and Time Commitment
   1. Directorships: : in relation to individuals performing roles designated as PCF, CF-1 or CF-2 in the F&P Regulations, the firm should require the individual to confirm whether or not they have any other directorships. Where the individual performing the CF or PCF has other directorships, the firm should seek confirmation from that individual that the performance of their responsibilities in other directorships will not adversely affect their ability to perform the CF or the PCF, prior to appointment and as part of the certification process.
   2. Conflict of interest: firms should identify actual or potential conflicts of interest in accordance with the firm’s conflict of interest policy and assess their materiality. The firm should ensure that any existing or potential conflicts of interest are adequately mitigated or managed and will not adversely affect on the individual’s ability to perform the CF, prior to appointment and as part of the certification process.
   3. Directors (Credit Unions): Section 53(5) of the Credit Union Act, 1997 requires that each director of a credit union shall ensure that they have sufficient time to devote to the role of director and the responsibilities associated with that role.
   4. Other employment: the firm should ensure that the individual performing the CF does not have other employment which interferes with, or create conflicts in relation to, the exercise of the CF. The firm should require the individual to self-certify in writing that the individual is capable of conducting the relevant function, including that the individual has adequate time to perform those functions having regard to those other potential concurrent responsibilities, prior to appointment and as part of the certification process.
7. Evidence of compliance with the MCC, where relevant:

Where an individual is performing or proposes to perform a CF role the performance of which is subject to the MCC, that individual can be assessed as having the appropriate qualifications or competence to conduct that CF where compliant with the MCC.

The regulated firm should satisfy itself that the individual has the recognised qualification(s) by obtaining a copy of the certificate/transcript/records evidencing the qualification. The records to be retained in relation to grandfathered individuals are set out in the MCC. The MCC also contains requirements concerning the monitoring of compliance with ongoing Continuing Professional Development (CPD) requirements.

9. Evidence of CPD, where relevant:

Where maintenance of a qualification is dependent on completing CPD, the firm should satisfy itself that the individual is compliant with the particular CPD requirements.

Where an individual must maintain up-to-date CPD in order to renew their practising certificate, evidence of the renewal of that practising certification will be regarded as sufficient to evidence CPD for the purposes of these Standards of Fitness and Probity.

Probity – Due Diligence to be undertaken by a Firm

3.22. In accordance with Section 21 of the 2010 Act, firms are required to undertake the appropriate due diligence when assessing an individual’s probity, both prior to appointment and as part of the certification process, including but not limited to the following actions:

1. Seek and obtain signed written confirmation from the individual performing or proposing to perform a CF as to whether or not any of the circumstances set out in Section 4.1 and Section 5.2 of the F&P Standards, apply to that individual;
2. In relation to Section 4.1(c) of the F&P Standards, refer to the Central Bank’s website and those of other regulatory authorities (where available) to confirm for their own records that the individual has not been the subject of sanction or other regulatory action;
3. In relation to 4(1)(f) of the F&P Standards, check the Companies Registration Office records for restrictions or disqualifications from acting as a Company Director;
4. In relation to Section 4.1(j) of the F&P Standards, seek confirmation from those performing CFs as to whether, to the best of their knowledge, any of the matters set out in Section 4.1(j) have arisen in relation to that person;
5. In relation to Section 5.2(b) of the F&P Standards, check against publicly available sources whether a judgment debt has been registered against an individual. Publicly available resources may include, for example, Experian, All Ireland Gazette or Stubbs Gazette. Where the individual has lived outside the State for more than six months in the previous five years, the firm should request that the individual provide a check from a publicly available source in relation to judgment debts from that other jurisdiction(s).

3.23. Where it is confirmed that one or more of the circumstances set out in Section 4.1 or Section 5.2 apply:

1. The individual must be in a position to demonstrate that their ability to perform the CF (s) is not adversely affected to a material degree by that matter(s).
2. The firm should require, from the individual concerned, underlying documents relevant to the matter (for example, a final decision or report and/or key correspondence). The firm should inform the individual concerned that failure to provide information requested by the firm and which is relevant to the matter may result in the firm being unable to satisfy itself, and therefore certify, that the individual complies with, or continues to comply with, the standards of fitness and probity.
3. The firm should make an assessment based on all of the information received as to whether the matter is material to the performance of the CF. In making its assessment, a firm should also take into account the matters referred to in the section below entitled “Criminal, Civil, and Regulatory Actions.” A firm may decide that it is not material, and may conclude that, in the opinion of the firm, the individual complies with, or continues to, comply with the standards of fitness and probity. The firm should document this assessment.
4. If it is considered that the matter is material, the firm should make all reasonable enquiries arising on foot of the information provided by the individual, such as, where relevant, contacting third parties for further information, e.g., former employers, regulatory authorities, etc.
5. A firm is not required to remove or suspend an individual from acting in a CF solely on the basis that one or more of the matters listed in Section 4.1 or Section 5.2 of the F&P Standards may have occurred. For example, in 4.1 (c) of the F&P Standards, the fact that an individual has been the subject of disciplinary proceedings will not automatically mean that the individual fails to meet the probity required for the (continued) performance of the CF. In assessing the impact of the proceedings on that individual’s probity, issues for consideration include the subject matter of the proceedings, the circumstances surrounding the disciplinary proceedings, the length of time passed since the proceedings, the explanation offered by the individual and the relevance of the proceedings to the proposed role.
6. It is for the individual who is subject to Sections 4.1 and 5.2 of the F&P Standards to demonstrate that their ability to perform, or continue to perform, the relevant function is not adversely affected to a material degree by any of the factors in Section 4.1, or Section 5.2.
7. If there is evidence to suggest that the individual may not be able to comply with the standard of probity, a firm must investigate thoroughly. Where a matter may be relevant (for example, where the disciplinary proceedings are in respect of a serious matter), the firm should consider it in conjunction with other relevant matters in assessing whether the individual is fit and proper to perform the current or proposed function including:
   1. The seriousness of, and surrounding circumstances of the particular set of facts and the role of the individual in those set of facts,
   2. The relevance of those to the duties that are, or are to be, performed and the responsibilities that are, or are to be, assumed by that individual,
   3. Repetition and duration of the behaviour,
   4. The passage of time since the matter under consideration, and
   5. Evidence of rehabilitation, including the individual’s self-reflection/learnings.
8. When assessing an individual’s fitness and probity, a firm may decide that it is not necessary to make enquiries about a matter that is unlikely to be material. The firm should document why they consider that the issue is not likely to be material.
9. A series of matters used to assess fitness and probity may be significant when taken together, even if each matter in isolation might not be significant. The cumulative effect of such matters might determine whether the individual is fit and proper to perform, or continue to perform, the CF.
10. Where the firm has made reasonable efforts to contact third parties and has received no response, or a response which is insufficiently detailed to allow the firm to make a decision, the firm should revert to the individual concerned in an effort to identify other possible avenues of inquiry.
11. If the firm is unable to obtain information which is sufficiently detailed to allow the firm to make a decision, the firm may, as a result, be unable to satisfy itself, and therefore certify, that the individual complies with the standards of fitness and probity and the individual should not take up or continue to perform the CF role.

3.24. If there is evidence to suggest that the individual is not complying with the standard of probity, a firm must investigate thoroughly.

Evidential requirements for Payment Institutions (PI), Electronic Money Institutions (EMI), and Account Information Service Providers (AISP)

3.25. For PI, EMI and AISP, applications for PCF roles must provide certain additional evidence of the individual’s reputation, honesty and integrity in order to be in compliance with the EBA Guidelines under the Payment Services Directive (EU) 2015/2366 (PSD2) (PDF 0.96MB):

1. applications must provide objective evidence of an absence of criminal convictions, investigations and proceedings by the individual to satisfy Guideline 16.1(d)(i) (PIs/EMIs) or Guideline 11.1(d)(i) (AISPs):
   1. Irish resident individuals can fulfil this requirement through a Garda Vetting process managed by the Central Bank as part of the PCF application
   2. Non-Irish residents, may fulfil the requirement through provision of an official police certificate from their country of residence, where available, or through other objectively reliable sources of information^[3], including through lawyer testimony (from any jurisdiction in which the applicant has resided).^[4]

Evidence produced to fulfil this requirement is generally considered valid for 6 months from the date of issue.

2. For individuals who have previously undergone an assessment of their reputation, as an acquirer or as a person who directs the business of an institution, by a different financial regulator; and for individuals who have previously been assessed by an authority from a non-financial sector, in accordance with Guideline 16.1(d)(iii) (PIs/EMIs) or Guideline 11.1(d)(iii) (AISPs), applications must provide:
   1. the identity of that authority;
   2. the date of the assessment; and
   3. evidence^[5] of the outcome of this assessment.

Credit Unions – Due Diligence and Elected CFs and/PCFs

3.26 Under Section 56B (4) (e) of the Credit Union Act, 1997, the nomination committee is responsible for assisting the credit union in performing any obligations of the credit union under Section 23 of the 2010 Act in relation to any candidates proposed to perform PCFs. Furthermore under Section 56B (4) (f) of the Credit Union Act, 1997 the nomination committee is responsible for assisting the credit union in carrying out any checks which the credit union is undertaking to enable it to comply with its obligations under Section 21 of the 2010 Act.

3.27. Table 2 below (where relevant) refers to specific provision(s) within the Credit Union Act, 1997 which outline who in the credit union is responsible for conducting due diligence.

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Table 2

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3.28. For other CFs (including PCFs) it is a matter for the credit union to determine who should conduct due diligence, while ensuring that any potential conflicts of interest are managed.

3.29. When carrying out due diligence for proposed directors (CUCF-1), including proposed chairs, or proposed members of the board oversight committee (CUCF-2), credit unions should ensure that the proposed candidate does not fall within the list of ineligible persons as set out in the Credit Union Act, 1997^[6]. Furthermore, for the proposed chair (CUPCF-1), credit unions should ensure that the proposed candidate is eligible to seek election for the role of chair^[7].

Elected CFs/PCFs

3.30. Where a CF is subject to an election process, credit unions need to allow sufficient time in advance of the election at AGM for the credit union to conduct due diligence on a person that is proposed to hold that CF.

3.31. Under Section 63 of the Credit Union Act, 1997, the chair of the board of directors is elected at a meeting of the board of directors which is held immediately after an AGM that was held to elect the board of directors.

3.32. Any person, other than an existing chair that has previously been pre-approved, that must stand for election to the position of chair of the board of directors should be pre-approved by the Central Bank before they can be elected to the role of chair. A person who has not been pre-approved by the Central Bank is not eligible to be elected to the role of chair by the board, until such time as they have received pre-approval from the Central Bank.

3.33 If the person pre-approved for a particular PCF role in a credit union is not subsequently elected at the AGM then they are no longer pre-approved and will have to re-apply for pre-approval for any future PCF roles.

Criminal. Civil and Regulatory Actions

3.34. It is imperative that individuals exercise a high degree of candour when completing the Individual Questionnaire, and that full and complete information is disclosed in response to each question, including in Section 5 of the Individual Questionnaire. All information must be disclosed in Section 5 of the Individual Questionnaire, regardless of when or where the relevant matter occurred.

3.35. The firm must conduct appropriate due diligence of all disclosed on-going and past events, including in relation to criminal,^[8] civil,^[9] and regulatory^[10] actions. Appropriate due diligence should take into account the same factors as listed below in the Central Bank’s approach to the assessment of these matters, as set out in paragraphs 3.37 – 3.40 below.^[11]

Ongoing Actions

3.36. Where a criminal, civil or regulatory action is on-going concerning the individual or a business or legal entity where the person holds or held a position of responsibility or influence, but has not yet concluded, the Central Bank will take into account the following factors:

1. What stage the action is at;^[12]
2. The type of action e.g. criminal, civil or regulatory;
3. Any further information which is available in respect of the action;
4. Whether the individual is being investigated personally, or whether the action relate(s) to a business or legal entity where the person holds or held a position of responsibility or influence;
5. The explanation offered by the individual and the lessons learned by them; and
6. The relevance of the action to the relevant function(s), including if it is a criminal action and relates to one of the matters referred to below.

Concluded Actions

3.37. The following matters may raise issues with an individual’s fitness and probity:

1. Where the individual has been convicted^[13] of a criminal offence, in particular where they received a custodial sentence, or where a business or legal entity in which the individual holds or held a position of responsibility or influence^[14], has been convicted of a criminal offence;
2. Where the individual has had a regulatory sanction imposed on them, or where a regulatory sanction has been imposed on a business or legal entity in which the individual holds or held a position of responsibility or influence;
3. Where a decision or finding has been made in civil proceedings in respect of the individual, or in respect of a business or legal entity in which the individual holds or held a position of responsibility or influence, and where the decision or finding is relevant to the performance of the relevant function(s).

3.38. In assessing the potential impact of the above matters, the Central Bank will take

1. The time elapsed since the matters occurred,
2. Whether the action was in respect of the individual personally, or whether it relates to a business or legal entity where the individual holds or held a position of responsibility or influence,
3. The explanation offered by the individual,
4. The relevance of the action to the relevant function(s),
5. The individual’s conduct since the action,
6. The individual’s current perspective on the action and their lessons learned
7. Whether the action is criminal, civil or regulatory in nature, and if criminal, whether a custodial sentence was imposed,
8. Any mitigating factors.

    

Time elapsed

3.39. In respect of 3.38 (i), the greater the period of time that has elapsed, the less impactful the issue is likely to be on the individual’s fitness and probity. As a general rule, if ten years have passed since the date of the final decision or finding in respect of the relevant action (save where a custodial sentence may have been imposed) and there are no other facts that raise material concerns regarding the individual’s fitness and probity, the individual is likely to meet the F&P Standards.

3.40. The exception to this general rule is if there are aggravating circumstances that make the decision or finding still relevant and material to that individual’s fitness and probity for the particular role. For example, a significant financial fraud conducted by or with the knowledge of the individual fifteen years ago would still be a relevant consideration for their PCF assessment, compared to a less serious matter committed seven years ago.

3.41. To properly weigh these considerations, the individual’s involvement in matters that led to a criminal, civil or regulatory action must be disclosed in the IQ, regardless of the time elapsed since the conclusion of the matter. This is because the underlying facts may still be relevant to an assessment of fitness and probity. It is for the Central Bank to assess on a case-by-case basis in the context of a particular assessment.

3.42 .In terms of criminal actions, certain types of conviction may be considered particularly relevant and should be disclosed, even when they occurred over ten years previously. This includes, but is not limited to, convictions for offences involving dishonesty, fraud, breach of trust, misrepresentation, financial crime or offences under company or financial services law. The conviction may be relevant whether the individual was convicted in the State or in some other jurisdiction.

Financial Soundness – Due Diligence to be undertaken by the Firm

3.43. The firm must be satisfied that the relevant individual complies with the standard of financial soundness both prior to appointment and as part of the certification process.

3.44. Any previous bankruptcy or insolvency should be investigated to ensure the individual and the firm is not vulnerable to external pressures or financial compromise.^[15]

3.45. Conduct such as tax evasion, financial fraud or legal action should be investigated by firms to ensure the individual is not subject to regulatory actions or misconduct due to financial decision-making.