The Central Bank is facing pushback from lawyers and company directors against sweeping powers to impose new sanctions against individuals for misconduct in the financial sector.
In a sign of anxiety in business circles about new Central Bank measures to take direct enforcement action against individuals for alleged wrongdoing, the professional bodies for solicitors and directors have called into question key strands of the plan.
The Law Society said the new regime raises “rule of law” issues and the Institute of Directors (IoD) said it could expose “good faith actors” to big risks, even if their actions were the best they could achieve at the time.
The move comes under the Central Bank (Individual Accountability Framework) Act, signed into law in March.
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The Central Bank set out detailed guidelines in June for a new administrative sanctions procedure for investigations, which will take force later. This could lead to severe penalties, including fines up to €1 million and lifetime work bans.
Some 15 years after the crash that led to large parts of the banking system being nationalised, the aim is to deter bad behaviour by toughening how executives are personally held to account for their own actions.
The bank said its proposals were “based on the principles of proportionality, predictability and reasonable expectations”.
But as a public consultation on how a sanctions procedure will operate closes this week, two professional groups have set out serious reservations about the plan.
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Philip Andrews, a member of the Law Society business law committee and an author of its Central Bank submission, said the criminal enforcement regime for white-collar crime has proved challenging for regulators.
“This is an innovation clearly geared to overcome that. But the question is whether it might go too far,” he said.
“The legal question is whether an arm of the State can impose penal sanction on people and publicly hold them accountable, to their reputational harm, for law violations using a relatively strong-arm enforcement policy that favours plea bargaining or settlement.”
Noting how the Central Bank has imposed €400 million in enforcement fines via settlements with 154 companies, he questioned plans to use similar procedures against individuals.
“When that system is used in respect of individuals, our concern is that that gives rise to inequality of arms issues associated with the recognised ability of the Central Bank to leverage large settlements, as against an individual who is faced with the full arm of the State coming down on them in relation to this,” he said.
“From a legal perspective, when issues of the rule of law arise, they’re always the most important. Fundamentally, this is a question about the rule of law and to what extent State agencies are constrained in taking actions against individuals.”
The IoD, which represents thousands of directors, said the measures marked a big change, although governance advisor Dr Margaret Cullen stressed it was not challenging Central Bank objectives.
“One of the things that is a concern to our members is that the draft guidelines make very limited distinctions between enforcement actions against companies and enforcement actions against individuals,” she said.
“What they do not do is acknowledge the significant difference between the reputational damage and the psychological damage that an enforcement action imposes on an individual versus a firm.”
One “significant change” was the Central Bank’s ability to take action “directly against individuals for alleged breaches of their obligations rather than only for their participation in breaches committed by a firm”.
The IoD was concerned that individuals acting in good faith were exposed “to personal, professional and financial costs in circumstances where they are not supported by their organisation” or where they had left the company and were “not entitled to support from their former employer”.
