The Central Bank has committed to setting up a unit to oversee the vetting of candidates for senior roles in the financial sector.
It follows a review of the regime that found the current use of enforcement staff in complex cases causes confusion that the process was akin to a “quasi-enforcement investigation”.
The regulator hired the recently-departed European Central Bank (ECB) banking supervisory chairman, Andrea Enria, in March to lead the review of its decade-old fitness and probity (F&P) regime for key finance positions, after an appeals body made a highly critical judgment about its refusal to approve a board nominee for a fund.
The Irish Financial Services Appeals Tribunal (Ifsat), an independent body that hears appeals from aggrieved parties against certain central bank decisions, said in February the regulator’s decision-making process in the case was “flawed” and the appellant was “denied fair procedures at every stage”.
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Mr Enria found the degree of organisational overlapping between the F&P and enforcement functions “seems to have generated some confusion among firms and candidates as to the key focus of the F&P process being orientated towards a quasi-enforcement investigation of past behaviour”.
Central Bank governor Gabriel Makhlouf said in a statement that the organisation will create a new unit that will bring together F&P activities that are currently dispersed across the bank.
“A clear understanding of the distinction between F&P gatekeeping and enforcement investigation is vital to the effectiveness, and the fairness, of a regulatory authority and its decisions, which in turn is critical to public trust,” Mr Enria said in his report, published on Thursday.
“While both functions serve the overarching goal of maintaining stability, integrity and public trust in the financial system, their operational approaches differ, and a differentiation in culture is crucial to ensure appropriate conduct and engagement by the regulator.”
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Still, he highlighted that the vetting process cannot be reduced to a tick-the-box exercise and must allow supervisory judgment on the ability of an individual to exercise certain functions in a financial firm in a professional and ethical manner.
“While a probity assessment tends to be a black or white decision – either an individual gives sufficient guarantees of ethically driven behaviour, or they do not – a fitness assessment is not an absolute judgment,” he said.
He also said it is “crucial” that if an application is refused by the regulator, it should not be construed as a ban on the individual’s participation in the financial services sector. In some cases, the individual might not yet have enough experience for a specific role, but could be a good match for another position or a role in a simpler firm.
Mr Enria said while the Central Bank’s published standards on F&P are in line with good practices of peer regulators, they are fragmented across different documents and are not user friendly. Consolidating these in one location would make it easier for firms to vet potential candidates and for nominees to prepare for the process, he said.
He said that candidates called for an interview by the Central Bank F&P team should be given sufficient advance notice of a draft agenda with a clear indication of the topics on which the interview will focus. Interviews should also have a well-defined time limit, such as 90 minutes, which he said is “good practice” at other authorities.
“I accept all of the recommendations in the review,” said Mr Makhlouf. “As we introduce these improvements, it is paramount that our supervisory judgment is consistently grounded in a fair and impartial evaluation process, ensuring equity and transparency for all parties involved.”
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