Fitness and Probity

Ongoing Obligation to Comply: Certification

The Certification Process

5.1. Section 21 of the 2010 Act provides that a firm shall not permit an individual to perform a CF unless:

1. The firm is satisfied on reasonable grounds that the individual complies with any Standard of Fitness and Probity issued pursuant to Section 50 of the 2010 Act,
2. A certificate of compliance with Standards of fitness and probity, given by the firm in accordance with Section 21 of the 2010 Act, is in force in relation to the individual, and
3. The individual has agreed in writing to comply with any such standard.

5.2. Therefore, a firm cannot appoint an individual to a CF, or allow them to continue in such a role, if it is not satisfied that the individual meets the above standards (and any of the relevant codes, as applicable). The same prohibition applies to the firm if the individual in the CF role has not agreed in writing to comply with the above standards (or any of the codes that may be applicable to them).

5.3. Accordingly, firms are required to document the following in respect of each individual in a CF role as part of the certification process:

1. Confirmation that the firm is satisfied that the individual meets any standards of fitness and probity applicable to the CF role(s),
2. Confirmation that the individual has agreed to comply with those standards,
3. Identification of the CF role(s) held,
4. An outline of the aspects of the firm’s affairs in which the individual will be involved in performing the CF role(s),
5. Details of the steps taken by the firm in forming the view that the individual meets any standards of fitness and probity applicable to the CF role(s) and
6. Whether the role is outsourced to an unregulated entity.

5.4. Where an individual performing a CF does not comply, or continue to comply, with the standards of fitness and probity and therefore cannot be certified, the firm cannot permit that individual to perform, or continue to perform, the CF and must notify the Central Bank without delay.

5.5. It should be noted that where the Central Bank approves a proposed appointment to a PCF that, in itself, is not a certification of the individual’s compliance with the Standards of fitness and probity. The firm is obliged pursuant to Section 21 of the 2010 Act to satisfy itself on reasonable grounds, and certify that, that the individual is compliant with the Standards of fitness and probity.

Identification of CFs

5.6. Section 21 of the 2010 Act applies to all firms subject to the F&P Regime. Accordingly, the certification requirements will apply to all firms and are relevant to all individuals in CF roles within them, with the exception of those individuals in CF roles to whom the exemptions from the F&P Standards apply (see Chapter 2).

5.7. Firms are required to maintain a register of individuals in CF roles and the specific CF role performed by them as defined in the F&P Regulations, which is reflective of the Certification process as outlined in this Chapter. The Central Bank recommends that job descriptions are reviewed when a vacancy arises to determine if the role is CF or PCF in nature. The guidelines setting out the key principles and rationale for the general interpretation of the CFs across the firm set out in Chapter 2 should also be reviewed. The Central Bank encourages the use of such practices in respect of all CF or PCF roles performed within the firm or outsourced to an unregulated Outsourced Service Provider.

5.8. As set out in Chapter 2 of this guidance, where a CF role is outsourced to an “unregulated entity”, the regulated firm remains responsible for its obligations under Section 21 of the 2010 Act, including the certification process in respect of each individual in the CF role.

5.9. Firms are not required to submit the register to the Central Bank unless requested to do so. However, the list of individuals performing CF roles must be made available to the Central Bank on request. Details in respect of the information to be submitted to the Central Bank with regard to Section 21 of the 2010 Act are set out below.

5.10. In accordance with Regulation 261(3) of the Solvency II Regulations^[1], an insurance holding company must notify the Central Bank when a new individual is appointed to manage the holding company. In this regard the Central Bank requires this notification to be provided no later than five working days from the date of the appointment of an individual to a CF role.

Forming the View that the Individual Meets the Standards

5.11. The firm must undertake appropriate due diligence to satisfy itself that each individual performing a CF is fit and proper to perform that CF and to be in a position to certify same.

5.12. All due diligence is applicable to the CF population to which the certification requirement applies. All due diligence must be performed prior to appointment and on an ongoing basis, except where specific due diligence is relevant prior to appointment only (e.g. reference checks, interview or application, or record of previous experience) or which are applicable only in certain circumstances.

Frequency of Completion of the Certification Process

5.13. Section 21 of 2010 Act is a continuing obligation on firms. It is not a once off obligation discharged once initial due diligence has been undertaken. Accordingly, firms are required to carry out the certification process in respect of all CFs:

• Prior to appointment
• In the case of a PCF, prior to the submission of an Individual Questionnaire to the Central Bank,
• On an annual basis,
• Where new facts emerge which may materially call into question a person’s fitness and probity and/or
• In respect of any new CF(s) assumed, in advance of appointment to same.

5.14 In respect of individuals holding more than one CF role concurrently, one single certification process that is reflective of all CF roles held, completed prior to appointment, on an annual basis and/or in respect of any new CF(s) assumed in advance of appointment to same, is required.

5.15 An entity which becomes a regulated financial service provider or a holding company must certify individuals in CF roles within five days of becoming a regulated financial service provider/holding company or as otherwise agreed with the Central Bank. In this regard, it should be noted that the steps required to certify individuals in CF roles will be completed as part of the authorisation process.

Confirmation of Agreement to Comply with the Standards of Fitness and Probity

5.16. A firm shall not permit an individual to perform a CF unless the individual has agreed to comply with the standards of fitness and probity^[2].

5.17. Firms must bring the standards of fitness and probity to the attention of every individual performing a CF on its behalf, and obtain a signed copy of the template agreement at Appendix 3 for each such individual.

5.18. As part of the certification process, the firm is required to ask individuals performing CFs to confirm that they are aware of the standards of fitness and probity and agree to continue to comply with those standards of fitness and probity at least on an annual basis. Please also refer to Sections 5.30 - 5.33 on Material Changes or Concerns.

Submission of Data in Relation to Certification to the Central Bank

5.19. It is not the Central Bank’s expectation that firms provide individual certificates to each CF, nor is it intended that an individual confirmation of the completion of the certification process in respect of each CF is submitted to the Central Bank. Further details regarding the retention and submission of data in relation to certification are set out below.

5.20. As part of the Annual PCF Confirmation process firms are required to:

1. Submit confirmation of the completion of the certification process for each PCF role holder to the Central Bank on an annual basis via the Annual Confirmation on the F&P section of the portal, and
2. Submit confirmation of the completion of the overall certification process in respect of all other CF role holders on an annual basis via the Annual Confirmation on the F&P section of the portal.

5.21. While it is expected that the majority of firms should be in a position to confirm the completion of the overall certification process annually, the Central Bank notes that there may be circumstances whereby a firm cannot confirm same (for example, where an individual in a CF role has yet to complete the CPD hours but is scheduled to do so within a reasonable timeframe). In such circumstances, firms should assess the materiality of the situation and, where it is determined that it will not affect the certification of the individual, firms are required to record any such instance and the reason for same, as well as an appropriate timeframe within which it will be remedied, and to confirm that the overall certification process has otherwise been completed. Information regarding such instances must be made available to Central Bank on request.

Retention of Data in Relation to Certification

5.22 Firms are required to maintain all information collected in compliance with their obligations under Section 21 of the 2010 Act for the duration during which the individual performs the CF role. This includes the documentation of, and records in relation to, the certification of each CF, and the due diligence and the agreements to comply with the Standards of fitness and probity.

5.23 Firms are required to maintain the information collected in compliance with Section 21 of the 2010 Act for a minimum of six years after that individual has ceased to perform the CF on behalf of the firm.

5.24. The Central Bank may require to see any such records or due diligence either in the context of an investigation of a firm’s compliance with Section 21 of the 2010 Act, or an investigation in relation to an individual’s fitness and probity to perform a CF role.

5.25. Firms should have regard to their obligations under General Data Protection Regulation^[3] in holding the information referred to in this Chapter including ensuring that the information is held securely and in an appropriate manner.

Responsibility for and Compliance with the Certification Process

5.26. Firms should implement procedures to manage the firm’s compliance obligations with Section 21 of the 2010 Act.

5.27. In this regard, the Central Bank recognises that firms may wish to incorporate the certification process within existing processes and, as such, the Central Bank has not prescribed a format for certification. For example, some firms may wish to incorporate the certification process as part of their ongoing performance monitoring.

5.28. The Central Bank will engage in periodic follow-up with firms regarding the appropriateness of and compliance with the certification process, through ongoing supervisory engagement and/or thematic inspections.

5.29. Further, there should be one individual within a firm with overall responsibility for certification. Accordingly, for those firms subject to the SEAR, an individual must be assigned PR 2 ‘Responsibility for the firm’s performance of its obligations under the Fitness and Probity Regime under Part 3 of the 2010 Act’^[4]. Whilst the day-to-day operation and management may be delegated to the relevant department(s), one individual must be assigned PR-2. For those firms outside the scope of the SEAR, in line with the existing approach to due diligence for PCFs and the Annual Confirmation, the Central Bank considers the CEO or equivalent^[5] to be responsible and accountable for certification.

Material Changes or Concerns

5.30. In addition to the requirement for firms to obtain confirmation that a CF role holder has agreed to comply with the standards of fitness and probity under Section 21 of the 2010 Act, a firm should require individuals performing CF roles to notify the firm without delay if for any reason the individual no longer complies with the standards of fitness and probity. Suggested wording in this regard is included in the agreement to comply with the standards of fitness and probity at Appendix 3.

5.31. Where a firm becomes aware that there may be concerns regarding the fitness and probity of an individual performing a CF role, the Central Bank expects the firm to investigate such concerns and take action as appropriate without delay.

5.32. The firm should also notify the Central Bank without delay of material changes in relation to the fitness and probity of an individual and of any action taken. Where the individual continues in a CF role at the firm, the firm must provide the rationale on which it is satisfied that the individual continues to comply with the Standards of fitness and probity.

5.33. While there is no exhaustive list of the types of action that must be notified to the Central Bank, in the context of fitness and/or probity, examples would include issuing a formal written warning, suspending/dismissing an individual or reducing/recovering some of their remuneration as a result of issues relating to fitness and/or probity.