Summary Obligations of the Central Bank (Supervision and Enforcement) Act 2013
The recently enacted Central Bank (Supervision and Enforcement) Act 2013 ("2013 Act") will fundamentally change the regulatory landscape in banking and financial services. It greatly enhances the powers of the Central Bank of Ireland ("CBI") in a number of respects. These include the following:
It gives the CBI the power to write rules in a broad range of areas including conduct of business, financial regulation systems and procedures and dealing with client assets. The CBI is not obliged to consult with persons other than the Minister for Finance before making these rules. Notwithstanding it is hoped that the CBI will engage in a robust consultation exercise with industry in advance of finalising these rules.
If a regulated entity breaches any of these new rules, and this causes loss to a customer, the customer can sue for damages on foot of a statutory right of action. This right is not confined to private customers. However it probably does not apply to counterparties.
Where a regulated entity has engaged in "widespread or regular" breaches of rules causing customer loss, the CBI can direct the entity to provide for a scheme of redress. This is, in effect, a form of "classaction" relief.
The CBI can direct a regulated entity to provide a report to the CBI (at the entity's cost), or an auditor's report, with regard to certain regulatory matters specified by the CBI.
Legal protections are provided for "whistleblowers." These do not extend, however, to anonymous disclosures.
The CBI's information-gathering and inspection powers are bolstered. Further these provisions impact significantly on the manner by which the privilege against self-incrimination and the entitlement to legal professional privilege may be claimed.
The CBI's powers to give directions to a regulated entity to restrict its business or cease to carry on business, and to obtain injunctions and restitution orders in support of its regulatory enforcement powers are strengthened and extended.
The powers of the Financial Services Ombudsman ("FSO") have been extended to include a power to "name and shame" regulated entities against whom three complaints have been substantiated in whole or in part by the FSO.
There are important new provisions dealing with the prosecution of criminal offences and the manner by which evidence (including expert evidence by an accountant or other industry expert) can be presented to a jury.
In summary, the 2013 Act represents a sea-change in the approach to banking and financial services regulation in Ireland. This seems clearly to be a response to the perceived (and now much criticised) "light-touch" style of regulation in place before the credit crunch. The new legislative framework envisages a pro-active approach by the CBI. Its arsenal of enforcement powers has been greatly strengthened and extended. It remains to be seen whether the CBI has the resources to employ these powers on the scale envisaged by the 2013 Act. What is clear, however, is the need for regulated entities actively to engage in any consultation exercise conducted by the CBI in advance of exercising its rule making powers. The introduction of a statutory right of action creates a significant area of regulatory exposure independent of the CBI's ability or inclination to exercise its new enforcement powers. It is vital that the industry embraces any opportunity presented to influence the content of the new regime.