The Central Bank's increased appetite to take enforcement action is examined by Declan Sheehan, who recently joined us from the Enforcement Division of the UK's Financial Services Authority (the 'FSA').

Following last December's headline fines of €2,000,000 and €100,000 respectively imposed upon AIB and NCB Stockbrokers, regulated firms will be looking closely at the newly formed Enforcement Directorate of the Central Bank (the 'Bank').

Administrative Sanctions Procedure

The Bank's 'administrative sanctions procedure' outlines the method by which enforcement action is usually taken arising from a suspected breach of any law or requirement coming within its remit.

Should an initial examination confirm that the suspicion of a contravention is reasonably held, the Bank may hold a formal public hearing called an 'inquiry'. Its purpose is to determine whether a breach has occurred and decide upon the appropriate sanction(s). The matter is appealable to the Financial Services Appeals Tribunal and to the High Court.

No enforcement cases have been contested yet in Ireland, with regulated firms seemingly willing to take their medicine. This is unlikely to remain the case.

Fines

The Bank may only impose a fine of up to €5,000,000 (or €500,000 in the case of a natural person).

The FSA, in contrast, is not bound by any such limits. Last year, it levelled fines totalling £89 million in comparison with €2.2 million imposed in Ireland.

Unsurprisingly, therefore, the Bank is seeking to double its maximum fine levels to €10,000,000 (or 10% of turnover (whichever is the highest)) for firms and to €1,000,000 for natural persons.

The FSA found it necessary, in response to stakeholders' views that fines were being inconsistently applied and unclearly calculated, to introduce a transparent new framework for deciding upon fines. The Bank may find itself under similar pressure to articulate its own framework for determining financial penalties.

Settlement

In recognition of the advantages that result from early settlement, the FSA operates a formal settlement discount system. A discount of up to 30% will be given, depending on how early settlement is reached.

The Bank does not operate any equivalent formal discount system. In the absence of specific incentives for early settlement, it is debatable whether regulated persons in Ireland have much to gain by settling early.

Moreover, the Bank has said that it only envisages facilitating one settlement meeting in each case, which would appear to exclude the possibility of mediation to help negotiate an agreed settlement. In contrast, the FSA is committed to using mediation, unless urgent action is required or criminal conduct is alleged.

Skilled persons reports

The FSA frequently uses its power to require a firm to appoint 'skilled persons' to examine and report on matters in respect of which expert analysis is needed. The costs of such reports are significant and must be borne by the firm.

The Central Bank has sought an extension of its powers so that it too may require the production of 'skilled persons reports'.

Prevention better than cure

Firms ought to ensure that their compliance procedures stand up to scrutiny and proactively attempt to resolve any concerns. If any issues arise, firms should obtain advice early on, given the considerable reputational damage and penalties that formal enforcement action can bring.

Disclaimer

This information is for guidance purposes only. It does not constitute legal or professional advice. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. No liability is accepted by Eversheds O'Donnell Sweeney for any action taken in reliance on the information contained herein. Any and all information is subject to change. Eversheds O'Donnell Sweeney is not responsible for the contents of any other website or third party material which can be accessed through this website.

Eversheds O'Donnell Sweeney is an Irish partnership and a member firm of the Eversheds International network of firms affiliated with Eversheds International Limited, an English company limited by guarantee. Member firms of Eversheds International are independent firms and members of Eversheds International Limited, but have no authority to obligate or bind Eversheds International Limited or one another vis-à-vis third parties. Neither Eversheds International Limited nor any of its member firms have any liability for each other's acts or omissions.