New controlled function roles proposed for Irish financial firms

Out-Law News | 04 Mar 2020 | 2:31 pm | 2 min. read

The Central Bank of Ireland has proposed adding three new roles to the list of pre-approval controlled functions (PCFs), reflecting emerging business risks and its focus on the fitness and probity of senior staff.

The regulator has published a notice of intention (7-page / 861KB PDF) setting out its plans, and is seeking views from the industry until 26 March.

The three proposed new PCFs are chief information officer (PCF-49), head of material business line (PCF-50) and head of market risk (PCF-51). PCF-49 would be applicable to all regulated financial services providers other than credit unions, while PCF-50 and PCF-51 would be applicable to banks and other 'credit institutions', within the meaning of the 2014 EU (Capital Requirements) Regulations.

The changes have been proposed due to the increasing importance of and reliance on information technology by regulated financial providers, as well as the increasing presence in Ireland of large banks and broker firms with significant capital markets activity following the UK's departure from the EU.

The Central Bank has also proposed splitting the PCF for fund management company directors who act as a designated person (PCF-39) into six distinct PCFs aligned to the specific managerial functions set out in its UCITS Regulations, AIF Rulebook and guidance for fund management companies.

The changes have been proposed due to the increasing importance of and reliance on information technology by regulated financial providers, as well as the increasing presence in Ireland of large banks and broker firms with significant capital markets activity following the UK's departure from the EU.

Regulated Irish financial services providers must obtain the approval of the Central Bank before appointing an individual to a PCF role. They must also carry out due diligence on these individuals on an ongoing basis, including regular assessments of the appointee's fitness and probity for the role, and file annual returns to the CBI confirming the names of the individuals in these roles and their fitness and probity.

The Central Bank expects firms to assign a Chief Information Officer role where information technology is a "key enabler or core element" of their business model, or if they have an impact rating of "high" or "medium high" under its PRISM risk-based supervision framework. The role should typically assigned to the most senior individual responsible for IT matters at the firm, such as 'chief technology officer' or similar titles. The onus will be on individual firms to decide whether their IT function meets the substance of the role.

The Head of Material Business Line role should be assigned to the individual with responsibility for management of a material business line "considered capable of having an impact on the safety and soundness of the credit institution" on account of its commercial or strategic importance. The role should be held by a senior individual with a direct reporting line to the firm's chief executive. The Head of Market Risk role will only apply at firms where the level of risk is deemed to be material by the Central Bank.

Current Central Bank rules and guidance assign responsibility for six managerial functions to the boards of fund management companies. It is now proposing to assign these functions separately, as PCF39A-F. The functions are designated person with responsibility for financial and capital management; operational risk management; fund risk management; investment management; distribution; and regulatory compliance.

The Central Bank intends to introduce the changes by amending the existing regulations designating PCFs and controlled functions. Designated persons already holding a PCF-39 function will not have to seek the approval of the Central Bank to perform their new roles, although fund boards will be required to review their PCF assessments of those individuals and submit confirmation of this assessment to the Central Bank within six weeks of the amended regulations taking effect. Individuals who already hold PCF-17 – Head of Retail Sales or PCF-21 – Head of Treasury will not be required to seek additional pre-approval as a Head of Material Business Line.