Fitness and Probity

Approach to identifying the CF population

Identification by the Firm

2.1. It is the responsibility of the firm to determine whether an individual is performing a CF role. In doing so, firms should assess the role and functions of each individual in line with the definitions prescribed in the F&P Regulations.

2.2. Table A and Table C (in Appendix 1) set out the individual CF roles prescribed in the F&P Regulations. In summary, the CF roles in relation to a regulated financial service provider include:

• Exercising significant influence on how the affairs of a firm are conducted,
• Ensuring, controlling or monitoring the compliance of a firm with its relevant obligations, or
• The provision of a financial service.

2.3. The relevant CF roles in relation to a holding company (Table B in Appendix 1) include:

• Exercising significant influence on how the affairs of a firm are conducted, or
• Ensuring, controlling or monitoring the compliance of a firm with its relevant obligations.

2.4. There are additional CF roles in relation to credit unions that are also authorised as retail intermediaries as set out in Table D in Appendix 1.

Roles Captured by CF-1: Exercising Significant Influence

2.5. Any individual who is considered to exert a significant influence on the firm should be considered a CF-1. The type of roles that could be considered to exert a significant influence are wide-ranging and will vary from firm to firm. Accordingly, the F&P Regulations are not prescriptive in this context but the Central Bank anticipates that CF-1 roles holders are relatively senior individuals in firms. In this regard, and on the basis that PCFs are a subset of CFs, and given the nature and seniority of the roles, all PCFs are considered CF-1s.

2.6. In addition, there are other non-PCF roles which should be captured by CF-1. For example, in the context of credit unions the board of directors, the risk management officer, the credit committee, the credit control committee, the membership committee, the nomination committee and the management team would fall within the scope of CUCF-1.

2.7. The roles listed above are not exhaustive. It is a matter for the firm to determine any additional roles that fall within CF-1 or CUCF-1. In this regard, the designation of a company secretary as a CF-1 should be determined on a case-by-case basis, where the functions carried out by the individual enable them to exercise a significant influence on the conduct of the affairs of the firm. Where a firm determines that the role carried out by their company secretary is purely the administration of company law matters, such individuals need not, for those activities alone, be designated as CF-1.^[1]

Roles Captured by CF2: Ensuring, Controlling or Monitoring Compliance

2.8. Noting the role of CF-2 is compliance-related, and given that PCFs are a subset of CFs, all compliance-focused PCF roles are considered CF-2 (as well as CF-1s). Examples include PCF-12 (Head of Compliance), PCF-13 (Head of Internal Audit) and PCF-52 (Head of Anti-Money Laundering and Counter Terrorist Financing Compliance), as well as Head of Internal Audit (CUPCF-4).

2.9. In addition, there are other non-PCF compliance-related roles that the Central Bank expects to be captured by CF-2. For example, the functions commonly performed by a Money Laundering Reporting Officer would be considered to fall under the category of CF-2. In the context of credit unions, it is expected that the board oversight committee, the compliance officer, the money laundering reporting officer and the internal audit function fall within CF-2.

2.10. However, as with CF-1, the above list is not definitive and there may be other roles which are relevant for inclusion as CF-2. In this regard, it should be noted that the designation as a CF is dependent on the functions performed by the individual rather than their job title or physical location in the organisation structure. Therefore, any individual who may be considered to be “ensuring, controlling or monitoring compliance” in the firm may fall under the scope of CF-2, as opposed to individuals working in the designated “compliance unit” only.

CF-3 to CF-9: Provision of a Financial Service

2.11. The roles captured by CF-3 to CF-9 are those which relate to the provision of a financial service to a customer. While CF-3, CF-4 and CF-8 are broad, wide-ranging roles likely to apply across all financial services sectors, other CFs relate to specific sectors e.g. CF-5 and CF-6 relate specifically to insurance and reinsurance contracts, and CF-9 is relevant only in the context of insurance or reinsurance mediation. CF-7 specifically focuses on those roles that involve the management or supervision of individuals in roles which constitute CF-3 to CF-6.

2.12. It is worth noting that, in addition to the F&P Standards, the Central Bank has issued a MCC as set out in Chapter 1. The MCC sets out statutory minimum professional standards for staff of regulated firms when they are dealing with ‘consumers’ in relation to certain retail financial products.

Definition of Terms Used (CF10-11)

2.13. In order for a function to fall within the definition of CF-10 or CF-11, the function must relate to the provision of a financial service.

2.14. Property in CF-10 is “property of the customer”, whether the property is held in the name of the customer or some other individual.

2.15. CF-11 concerns a function in relation to the provision of a financial service that is likely to involve the individual responsible for the performance of the function dealing in or with property on behalf of the regulated financial service provider, or providing instructions or directions in relation to such dealing. This could include, for example, stocks/shares held by a stockbroker as principal

Approach to Identifying the PCF Population

Identification by the Firm

2.16. The full list of PCF roles is set out in the F&P Regulations. A firm is not required to create a PCF for the sole purposes of complying with its obligations under the F&P Regime where the role did not previously exist.

2.17. A firm should review its roles and determine whether any of the roles would meet the PCF roles as listed in the relevant F&P Regulations. Firms should apply substance over form when reviewing such roles and be mindful that it is the function, rather than the job title of the individual performing that function, that determines which PCF category, if any, the role falls under. Thus, based on a firm’s size and/or existing governance structure, it may be the case that only one/two roles require pre-approval.

2.18. References in the F&P Regulations to a title commonly used for an individual who performs a certain function (e.g. Head of Finance, Head of Compliance etc.) should be taken to refer to the functions commonly performed by an individual with such a title.

2.19. Where an individual has been identified as a PCF and is taking formal extended leave e.g. maternity leave, the individual does not need to resign their PCF role or reapply when they return to their role.

Definition/Operation of Specific PCFs

2.20. While it is the responsibility of the firm to determine whether an individual is performing a PCF role, the following guidance has been prepared to assist relevant firms in considering whether their internal roles meet the definition for certain PCF roles, that are not clear-cut and/or in existence in all firms. Guidance has not been provided for all PCF roles on the basis that many roles are well understood and are common in many organisations.

PCF-8 Chief Executive Officer

2.21. The Chief Executive Officer (CEO) is the top executive responsible for the regulated financial service provider (other than credit unions), with ultimate executive responsibility for the operations, compliance and performance of the regulated financial service provider (other than credit unions). PCF-8 applies even where a regulated financial service provider (other than credit union) is headed by a General Manager rather than a CEO. Individuals holding PCF-8 should also hold PCF-1 (Executive director) if the role holder is also a member of the board.

PCF-16 Branch Manager of Branches outside Ireland

2.22. PCF-16 applies where the business arising from the branch amounts to 5% or more of any of:

1. The assets of the regulated financial service provider (other than credit union), or
2. The revenues of the regulated financial service provider (other than credit union), or
3. The gross written premium of the regulated financial service provider (other than credit union), as applicable.

2.23. The onus is on the regulated financial service provider (other than credit unions) to review the branch manager function to determine whether it meets the definition of PCF-16. The materiality threshold ensures that only managers of outgoing branches where the branch meets or exceeds the threshold will require pre-approval.

2.24. In considering the applicability of PCF-16, regulated financial service providers (other than credit unions) should take a practical approach, and in determining the appropriate frequency of any related assessment. The Central Bank understands that branches can use different booking models; however the use of specific booking models should not affect the application of the definition. The definition should be applied in the spirit it is intended i.e. to capture managers of branches where the branch meets or exceeds the threshold. Regulated financial service providers (other than credit unions) should document any related assessment, which must be made available to the Central Bank on request. After an individual has been approved and is performing the role, that individual remains a PCF until such time as they leave their role, even if there are fluctuations above and below the threshold post-approval.

PCF-42 Chief Operating Officer

2.25. The Inherent Responsibility of the Chief Operating Officer (COO) is defined in the SEAR Regulations as ‘Overall responsibility for managing the internal operations of the firm’. Accordingly, the Central Bank recognises that the role of the COO could encompass a wide range of duties and responsibilities. It is also anticipated that this role would be held by a senior individual with a direct reporting line to the CEO.

PCF-49 Chief Information Officer

2.26. The Chief Information Officer (CIO) role is a function that is likely to enable the individual responsible for its performance to exercise a significant influence on the conduct of the affairs of a regulated financial service provider (other than credit unions) and will typically apply to the most senior individual at the regulated financial service provider (other than credit unions) with responsibility for IT matters. This may be referred to as ‘Chief Technology Officer’ or other similar role titles in some instances.

2.27. While not limited to the following circumstances, the Central Bank expects that the CIO role would likely apply where:

1. It is warranted based on the risk profile of the entity, or
2. Information and communication technology is a key enabler or core element of the regulated financial service provider’s (other than credit unions) business model.

The criterion “Information Technology is a key enabler or core element of the regulated financial service provider’s business model” is not intended to refer to all regulated financial service providers (other than credit unions) solely based on the use of technology within the regulated financial service provider (other than credit unions). In the context of this criterion, the CIO role is applicable where the size, nature and complexity of the regulated financial service provider (other than credit unions) warrants such a role and where failure of the regulated financial service provider’s (other than credit unions) ICT would have an adverse effect on one or more of the following:

• The provision of critical services to their customer base, taking into consideration potential customer detriment it may cause,
• The ability of the regulated financial service provider (other than credit unions) to meet its regulatory obligations, or
• The overall stability of the financial system in Ireland.

PCF-50/PCF-54/PCF-55 Head of Material Business Line

2.28. In line with the approach to PCF-16, the existence of the Head of Material Business Line role is determined by the use of quantitative criteria. The Head of Material Business Line applies in the case of credit institutions, (re)insurance undertakings and investment firms.

The Head of Material Business Line for credit institutions is an individual who has significant influence over the performance of a material business line e.g. oversees the performance of that business, and the business in question satisfies either of the following quantitative criteria:

1. Has gross total assets equal to or in excess of €10 billion, or
2. Accounts for 10 per cent or more of the credit institution’s gross revenue.

Similarly, the Head of Material Business Line for investment firms is an individual who has significant influence over the performance of a material business line e.g. oversees the performance of that business, and the business in question satisfies either of the following quantitative criteria:

1. Has gross total assets equal to or in excess of €5 billion, or
2. Accounts for 10 per cent or more of the investment firm’s gross revenue.

The Head of Material Business Line for insurance undertakings is an individual who has significant influence over the performance of a material business line e.g. oversees the performance of that business, and the business in question satisfies either of the following quantitative criteria:

1. Has gross total technical provisions (whether positive or negative) equal to, or in excess of €10 billion, or
2. Accounts for 25 per cent or more of the insurance undertaking’s gross earned premium, if that gross earned premium is above €1 billion per annum.

PCF-51 Head of Market Risk

2.29. A risk-based approach will be adopted whereby the Head of Market Risk role will only apply where the level of market risk is deemed to be material by the Central Bank.

2.30. The role will only apply in credit institutions whereby the market risk of the credit institution satisfies either of the following quantitative criteria^[2]:

1. €500m of market risk (including Credit Valuation Adjustment) risk weighted assets, or
2. €100bn of notional derivatives traded.

PCF-52 Head of Anti-Money Laundering and Counter Terrorist Financing

2.31. The Central Bank expects firms to appoint a Member of Senior Management with primary responsibility for implementing, managing and overseeing compliance with AML/CFT measures, where such an appointment is proportionate to the nature, scale and complexity of a firm’s activities.

2.32. This is a key measure in order to protect the financial system by ensuring that firms do not attach low priority to AML/CFT issues. A lack of buy-in or understanding of AML/CFT matters at Senior Management level can result in a corporate culture that pursues profits at the expense of a robust compliance framework that is backed by sufficient resources and training. Accordingly, the Central Bank expects that where a firm is exposed to a significant degree of inherent ML/TF risk, the firm should consider if it is appropriate for the Member of Senior Management to be a member of the Board.

2.33. Where no such appointment has been made by a firm, the Central Bank may, under Section 54 (8) of the CJA 2010, direct the firm to do so. In considering whether such a direction is necessary, the Central Bank will have regard to the nature, scale and complexity of the firm’s activities, and in particular the inherent ML/TF risks to which the firm is exposed. The obligation set out in Section 54(8) does not apply to an individual that carries on business alone as a designated person.

2.34. Where a firm has decided that it is not necessary to appoint a Member of Senior Management, having regard to the nature, scale and complexities of the firm’s activities, it should record in detail its rationale for such decision. In such circumstances, the firm must ensure that it remains in compliance with all obligations under the CJA2010. This includes ensuring that all matters requiring approval by senior management are approved at the appropriate level.

Central Bank Declaration of a PCF

2.35. While typically it is the responsibility of the firm to determine whether an individual is performing a PCF role, the Central Bank may declare in writing ^[3]to a regulated firm that a function performed by, for, or on behalf of the regulated firm is a PCF if:

1. The individual who performs the function is concerned in the management of the regulated firm,
2. The function is not prescribed as a PCF in the F&P Regulations, and
3. No other individual in the regulated firm performs a PCF.

Temporary Officers

2.36. Firms should have adequate succession/contingency plans in place for all of their PCF roles. The Central Bank recognises that there may be circumstances where a PCF role becomes vacant and the firm may wish to appoint a person to fulfil that role, on a temporary basis. In such circumstances, the firm may appoint a suitable individual as a ‘Temporary Officer’ to perform that role for a period of no more than six months, subject to the prior written agreement from the Central Bank and the firm meeting the requirements set out in paragraph 2.41. The Central Bank will contact the firm to confirm agreement or should The Central Bank have any concerns with the proposed temporary officer appointment.

2.37. Where a Temporary Officer is appointed, to fill a role that had been permanently vacated, a firm must submit a PCF application in respect of the role to the Central Bank within three months from the date of the appointment. Such a PCF application may be in respect of the Temporary Officer fulfilling the role on a permanent basis, or it may be in respect of another person. If no PCF application is submitted in respect of the role within this period, the agreement of the Central Bank will lapse three months after the date of the agreement, and the Temporary Officer will no longer be permitted to fill the role, save in exceptional circumstances.

2.38. Where a PCF application in respect of the role filled by the Temporary Officer is submitted within three months, the Temporary Officer may continue to hold the role until such time as a decision has been made by the Central Bank on the PCF application for that role within the six month period.

2.39. Where the previous PCF role holder returns to the role following a temporary absence, their PCF approval remains valid and another application will not be required in this case.

2.40. Temporary Officers are CF1s and are subject to the F&P Standards and the Common and Additional Conduct Standards.

2.41. In order to make a Temporary Officer appointment, a firm must notify the Central Bank in writing. Such notification must include the following:

1. information on the circumstances which have given rise to the need for the Temporary Officer appointment,
2. confirmation that the proposed Temporary Officer has agreed to comply with the F&P Standards and will continue to do so whilst performing the PCF role,
3. for how long the appointment of the Temporary Officer is requested,
4. confirmation of the succession plans for the role where appropriate , noting there may be circumstances whereby the original PCF resumes the role within the permitted six month period
5. confirmation that the firm has satisfied itself that the person proposed to perform a role as Temporary Officer is suitable to perform that role for the temporary period,
6. confirmation that the firm has satisfied itself on reasonable grounds that the person complies with the F&P Standards and is in a position to certify same.

2.42. A notification for the appointment of a Temporary Officer will not be accepted as part of an authorisation application where PCF IQ applications must be submitted.

2.43. Where a person is accepted by the Central Bank as being suitable to fill a role on a temporary basis, it does not imply that they are fit and proper to perform the PCF role on a permanent basis, or that they are competent to perform all aspects of that role.

2.44. Consecutive or cumulative Temporary Officer appointments to a specific PCF role for a period of over 6 months will not be permitted save for exceptional circumstances. Should a vacancy not be filled within the six month period, firms must then engage directly with the Central Bank

Exemptions from the F&P Standards

2.45. The Central Bank has deemed it appropriate to exempt some CFs from the application of the F&P Standards, as set out in section 1.5 of the F&P Standards. The application of the exemptions, and the related criteria for the use of each exemption, is summarised in Table 1.

Table 1

For regulated financial service providers (other than credit unions)

2.46. The exemptions from the F&P Standards as outlined above do not equate to an exemption from the F&P Regime in full. It is important to note that where a CF or a PCF benefits from one of the exemptions from the application of the F&P Standards, they will, nevertheless, remain subject to Part 3 of the 2010 Act (e.g. the powers of investigation, suspension and prohibition) and any code or order issued thereunder, including the MCC. In addition, it should be noted that equivalent exemptions have not been introduced in the context of the Conduct Standards and accordingly, these apply to all CFs.

Outsourcing

2.47. In this guidance, outsourcing^[4]means means a written arrangement of any kind between a regulated financial service provider and a service provider who is a natural or legal person (whether regulated or unregulated) whereby the service provider performs a CF or PCF which would otherwise be performed by the regulated financial service provider itself.

Outsourcing of a CF to an unregulated Entity

2.48. Where the CF(s) is outsourced to an ‘unregulated entity’, the unregulated entity performing the outsourced activities must:

• Identify the individuals who will perform the CF, and assess whether those individuals are compliant with the F&P Standards,
• Obtain the written agreement of those individuals to comply with the F&P Standards,
• Provide written confirmation to the regulated financial service provider that those individuals performing CFs are compliant with the F&P Standards, and that those individuals have agreed in writing to comply with them,
• Furnish the regulated financial service provider with sample documentation as to how compliance with the F&P Standards is adhered to.

2.49. In this subsection “unregulated entity” means an entity (including a certified person within the meaning of Section 55 of the Investment Intermediaries Act, 1995) that is not regulated either:

1. By the Central Bank, or
2. By an authority that performs functions in an EEA country that are comparable to the functions performed by the Central Bank, or
3. By an authority that performs functions in a non-EEA country that are comparable to the functions performed by the Central Bank.

2.50. Notwithstanding that a regulated firm has entered into an outsourcing arrangement with an unregulated entity for the performance of a CF, the regulated firm:

• Remains responsible for compliance with its obligations under Section 21 of the 2010 Act, including in relation to certification, and
• Must satisfy itself on “reasonable grounds”, and certify, that individuals performing CFs comply with the standards of fitness and probity and that those individuals have agreed to comply with the standards of fitness and probity.

2.51. If a CF is outsourced to an unregulated entity, the unregulated entity must be able to identify the individuals who will perform the CFs and assess whether those persons are compliant with the standards of fitness and probity. In such cases, the outsourced service provider should be able to provide written confirmation to the regulated firm that the individuals performing CFs are compliant with the standards of fitness and probity and that the individuals have agreed to be bound by them.

2.52. Firms are required to maintain an up-to-date register of individuals in CF roles and the specific CF role performed by those individuals.

Outsourcing of a PCF to an unregulated Entity

2.53. Where the performance of a PCF is outsourced to an unregulated entity, the firm concerned must ensure the individual is fit and proper and obtain the approval of the Central Bank before appointing the unregulated entity to perform the PCF on its behalf. The written outsourcing arrangement must also name the individual within the unregulated entity who will be responsible for performing the PCF, and individuals performing a PCF under such an outsourcing arrangement must comply with the standards of fitness and probity.

2.54. Notwithstanding that a regulated firm has entered into an outsourcing arrangement with an unregulated entity for the performance of a PCF, the regulated firm:

• Remains responsible for compliance with its obligations under Section 21 of the 2010 Act, including in relation to certification, and
• Must satisfy itself on “reasonable grounds”, and certify, that individuals performing CFs comply with the standards of fitness and probity and that those individuals have agreed to comply with the standards of fitness and probity.

Exclusion of Certified Persons

2.55. Regulated financial service providers cannot avail of the outsourcing exemption when outsourcing PCFs or CFs to certified persons.^[5]

2.56. Part 3 of the 2010 Act and MCC apply to certified persons.

Performing a (P)CF Outside the State

2.57. The F&P Regulations do not limit (P)CFs to functions performed in the State. Accordingly, a person performing a (P)CF at a location outside of the State on behalf of a regulated financial service provider will be subject to Part 3 of the 2010 Act.

2.58. While (P)CF roles performed outside the State are captured by the F&P Regime, regulated firms are expected to demonstrate a sufficient degree of substantive presence in the State. For example, this should include the management of key risks from within the entity and the making of key decisions by those within the entity and not elsewhere in the group.