Review of the Fitness and Probity Regime

The Central Bank of Ireland has today (11 July 2024) published the independent review of its Fitness and Probity (F&P) regime (PDF 1.03MB).

The review was undertaken by Mr Andrea Enria, the former Chair of ECB Supervisory Board. Speaking at the publication of Mr Enria’s report, Governor Makhlouf said “I am grateful to Andrea Enria for undertaking a thorough review of a very important part of Ireland’s financial system. I was particularly pleased to hear of the constructive engagement he had with key stakeholders, including individual firms and all relevant industry associations which underscored the significant importance they attach to the F&P regime. I welcome his strong endorsement of the importance of the F&P regime and confirmation that the standards operated by the Central Bank of Ireland broadly align with international good practice. Maintaining trust in the financial sector hinges on having individuals in key roles within regulated entities who are fit and proper to carry out their responsibilities. It is important to emphasise, as the report does, that industry has the primary responsibility to ensure the appointment of competent and suitable candidates. 

“I accept all of the recommendations in the review. They will help us to ensure that the F&P regime continues to perform its key role into the future. In particular, I very much welcome the emphasis on the critical role of supervisory judgement in promoting good governance within the financial sector and the necessity to uphold procedural fairness as its foundation. In this respect there are clearly improvements we can make in the way we manage applications and come to a judgement on them. As we introduce these improvements, it is paramount that our supervisory judgement is consistently grounded in a fair and impartial evaluation process, ensuring equity and transparency for all parties involved. We are immediately looking to our implementation approach, including the creation of a new unit to bring together F&P activities that are currently dispersed across the Central Bank.” 

In commenting on the publication of the report, Mr Enria said: “Through extensive consultation with all parties engaged in the fitness and probity regime operated by the Central Bank of Ireland, I have noted the strong recognition that the system has driven higher standards in regulated firms and provided an important contribution to improving governance standards after the great financial crisis. Robust supervisory judgement is critical for the effectiveness of the framework and needs to be exercised within a fair, efficient and transparent process. In light of the input received I am recommending a number of enhancements to how the system is operated by the Central Bank of Ireland to clarify supervisory expectations, strengthen internal processes and ensure fair and transparent procedures are strongly embedded in supervisory culture”.

ENDS

Further information: [email protected]

Notes to the editor

The F&P regime is aimed at ensuring that individuals in key roles within regulated entities in the financial sector are fit and proper to carry out their responsibilities. In the last 4 years (2020-2023), the Central Bank approved over 11,000 individual roles. 

The regime is over a decade old and, as with other key processes and procedures, the Governor believed it was appropriate and timely to review it and ensure it remained effective into the future. His decision also followed a decision from the Irish Financial Services Appeals Tribunal which raised issues regarding the effectiveness, fairness and transparency of the Central Bank’s handling of an individual application within the F&P regime. 

In the preparation of his report, Mr Enria undertook extensive consultation with stakeholders, including all relevant industry associations, individual firms, legislative and policymaking bodies, as well as staff in the Central Bank and other Irish authorities. An extensive analysis of good practices at other supervisory authorities in the EU, the UK and Australia was a key element of the review. 

The review concludes that the conduct of the F&P regime at the Central Bank is broadly in line with peer regulators in different jurisdictions across a number of dimensions:

• standards are comparable and robust supervisory judgement is utilised;
• statistics on outcomes (approvals, withdrawals of applications, refusals) are in line with other supervisory authorities and do not signal either a particular stringency or leniency of the process; and
• timelines are well aligned with the target service standards and generally faster than in other countries. 

However, the review also highlighted the need for targeted improvements in process consistency across firms of different sizes which are operating in different financial sectors. The recommendations focus on three areas: clarity of supervisory expectations, governance of the process, and the fairness, efficiency and transparency of the process. The review identified a number of areas in which the operation of the F&P regime could be improved including the creation of a new unit to bring together all F&P work. 

The recommendations of the review will be implemented over the coming months and should be in place by the end of the year.