Some banks and insurers are not alerting regulators to issues that could affect senior employees’ fitness to hold key positions in their organisations, it has emerged.
Financial services watchdog, the Central Bank, wrote to lenders and insurers on Tuesday warning that they were failing to follow fitness and probity rules, meant to ensure key staff meet "high standards of competence, honesty and integrity".
Laws passed in 2010 oblige financial services companies to fully disclose to the Central Bank any issues likely to affect a candidate’s fitness to fill senior posts, where the regulator has to approve their appointment.
The companies must also explain to the Central Bank why any adverse information does not affect a candidate’s suitability for the post.
A Central Bank spokeswoman confirmed that some banks and insurers were not disclosing this information to the regulator. However, she added that this did not ultimately mean the individuals in question were unsuitable.
The regulator’s letter warns companies that it takes non-disclosure seriously, particularly where they are apparently attempting to mislead it.
“This may call into question not only the individual’s suitability but also the firm’s decision to propose the individual in question,” the letter says.
The Central Bank has to approve appointments to senior positions in financial services, including chief executives, heads of compliance, and other key roles.
Central Bank deputy governor Ed Sibley said it was "wholly unacceptable" that these problems existed almost 10 years after the Oireachtas passed the law, designed to safeguard consumers and the Republic's financial system.
The regulator revealed that inspections found common shortcomings in the procedures that banks and insurance companies use to ensure they comply with the rules.
Central Bank staff found that companies’ boards had “poor awareness” of their fitness and probity obligations.
Mr Sibley and the Central Bank's director general Derville Rowland say in the letter that board candidates were not subject to the same scrutiny as other key figures when they were being appointed.
“For example, there was a notable lack of interview notes and suitability assessments available to support board appointments, and succession plans generally did not meet expectations and were not used in practice,” the regulators say.
They add that in some cases, chief executives screened potential board members. “It is inappropriate for a chief executive to carry out such a role given the conflict of interest between the respective responsibilities of directors and the executive,” the letter states.
Banks and insurers failed to get evidence of qualifications, check references or the suitability of those in posts subject to the regime.
Regulators found banks and insurers had no ongoing to checks to ensure there were no changes in circumstances that affected senior employees’ fitness and probity.
Where financial services companies outsourced posts subject to the regime to other businesses, they failed to srcutinise those organisations’ procedures for assessing fitness and probity, or to get the documents that the laws require.
The Central Bank did not name any companies or individuals as its inspections focused on procedures.
Mr Sibley said on Tuesday that the Central Bank was concerned that some companies had not analysed their fitness and probity procedures following a letter from the regulator in April last year.
“The range of findings from our thematic onsite inspections indicate that many firms do not have due regard to their obligations under the fitness and probity regime,” he said.
The regulator introduced the fitness and probity regime under the Central Bank Reform Act, 2010, in line with its role to safeguard financial stability and protect consumers.
The Oireachtas passed the law after taxpayers were forced to bail out the banks following a property lending spree that left the Republic’s financial system in crisis.
