Back to Appendix 7: Legislation sponsored by the Minister for Finance within the broad scope of the Inquiry Terms of Reference: 2000-2013

Appendix 8: Powers of the Central Bank and Financial Regulator: 1992 to 2013

This Appendix sets out the powers of the Central Bank and/or the Financial Regulator in relation to its prudential policies in the period from 1992 to 2013.

It is based on a document created by the Central Bank ¹ for the Banking Inquiry with respect to –

(i) powers of enforcement in relation to breaches of prudential supervision for credit institutions;

(ii) Bank’s policy of enforcement in the areas of consumer protection, prudential supervision of credit institutions and other regulated firms; and

(iii) Administrative Sanctions Policy and Procedures and Guidelines.

1992-2003:
The Central Bank of Ireland (CB) was responsible for financial stability and micro prudential policies during this period.

2003-2010:
The Central Bank and Financial Services Authority of Ireland (CBFSAI) Act of 2003 established the Irish Financial Services Authority of Ireland (IFSRA) as an autonomous body within the CBFSAI, to deal with prudential supervision and consumer protection matters. The Central Bank retained intervention powers and through a Memorandum of Understanding was accountable for the Financial Stability consideration of the supervision outputs of banking Institutions and where micro prudential activity became a macro prudential issue.

2010-2013:
“Back to the Future”- The Central Bank Reform Act, 2010, created a new single unitary body – the Central Bank of Ireland - responsible for both central banking and financial regulation. The new structure replaced the previous related entities, the Central Bank and the Financial Services Authority of Ireland and the Financial Regulator. This Act also created a harmonised system for the regulation of persons performing “controlled functions” and pre-approval controlled functions” i.e. individuals exercising significant influence on the conduct of the affairs of the financial services provider. The Act commenced on 1 October 2010. The Central Bank (Supervision and Enforcement) Act 2013 enhanced further the Central Bank’s enforcement powers.

The table below summarises the powers available to the Central Bank and the Financial Regulator during these periods.²

Period 1: 1992 to 2003
Relevant body	Central Bank
Key Powers	Details	Legislation
Conditions on the issuing of a banking licence	This power could only be used to promote the orderly and proper regulation of banking.The Bank believed this was available to remove a director for fitness and probity reasons.	Central Bank Act 1971 (CBA1971)
Revocations	The Bank required the consent of the Minister for Finance to revoke a banking licence. This power was available in certain circumstances, including insolvency, the conviction of the licence holder, or if circumstances had changed such that if banking licence application were now made it would be refused.	Central Bank Act 1971 (CBA1971)
Directions to Suspend	The Bank could direct the holder of a bank licence to, inter alia, suspend the carrying on of banking business, including the taking of deposits, the making of payments or the acquisition of assets and liabilities, where it was of the opinion that it was in the public interest or in certain other circumstances (e.g. if the licence holder was likely to be unable to meet its obligations). The power to suspend was limited to an initial period of 6 months. The exercise of this power could have the effect of preventing winding up or the appointment of a receiver. If the circumstances were unlikely to be rectified, the Bank was required to apply to the High Court requiring the holder to prepare for the orderly termination of its banking business.	Central Bank Act 1971 (CBA1971)
Directions in relation to Advertisements	The Bank could give directions including a direction not to advertise for deposits, in the interest of the orderly and proper regulation of banking.	Central Bank Act 1971 (CBA1971)
Court Orders	The Bank had the power to apply for an order of the High Court to prohibit the continuance of certain contraventions of the CBA1971 e.g. contravention of sections 17 & 18 of the Act (i.e. in terms of the maintenance of records and the provision of information to the Bank), or the failure to comply with a condition imposed under section 10 of the Act.	Central Bank Act 1971 (CBA1971)
Summary Prosecutions	Section 58(1) (b) of the Act gave the Bank the power to prosecute a person who commits by act or omission a breach of a condition, or fails to comply with a direction.	Central Bank Act 1971 (CBA1971)
Winding Up	The Bank could petition the High Court to wind up a licence holder in certain circumstances (e.g. failure to comply with a direction under section 21 or if the holder was, in the opinion of the Bank, unable to meet its obligations to creditors.	Central Bank Act 1971 (CBA1971)
Other Supervisory Powers	Powers that might lead to the use of enforcement powers included a power of inspection, a power to require information, and powers to regulate ratios and the composition of assets and liabilities.	Central Bank Act 1971 (CBA1971)

Period 1: 1992 to 2003 (continued)
Relevant body	Central Bank
Key Powers	Details	Legislation
Powers in respect of Building Societies	Powers with respect to Building Societies were broadly analogous to its powers for banks, but there were differences.	Building Societies Act 1989 (BSA1989)
Conditions on authorisation	If the Bank thought it proper to do so, it could impose conditions such as: Limit the issue of shares or debt instruments Require the society to take steps with regard to the conduct of business of any subsidiary or associated body Require the removal of any director or other officer Require the society to take certain steps or refrain from adopting a particular course of action	Building Societies Act 1989 (BSA1989)
Revocations	The Bank could revoke a building society’s authorisation in the public interest or to protect the funds of shareholders or depositors. The Minister for Finance did not have a statutory role in approving such revocations for Building Societies.	Building Societies Act 1989 (BSA1989)
Directions to Suspend	The Bank could, under section 40 of the BSA1989, issue a direction to suspend (for a period not exceeding an initial 6 months), the carrying of the ordinary business of the Society, the making of payments and the acquisition and disposal of assets or liabilities.	Building Societies Act 1989 (BSA1989)
Other Directions	The powers available to the Bank in respect of advertisements, Court Orders, Summary Prosecutions, Winding Up and Other Supervisory Powers for Building Societies were broadly similar to those for banks.	Building Societies Act 1989 (BSA1989)
Special Investigations	The Bank could, under Section 45 of the BSA1989 appoint inspectors to inspect the affairs of a building society, with powers to examine witnesses under oath and to prepare a report, which may be published. On consideration of the Report, the Bank could petition for the winding up of the Society, bring proceedings in respect of fraud or misconduct, and could also refer criminal matters to the DPP.	Building Societies Act 1989 (BSA1989)

Period 2: 2003 to 2010
Relevant body	Central Bank
Key Powers	Details	Legislation
Imposition of specified ratios	The Bank may from time to time require a holder of a licence to maintain: (a) a specified ratio, (b) a ratio which does not exceed a specified ratio, or (c) a ratio which is not less than a specified ratio, between his assets and his liabilities and the specified ratio may be expressed as a percentage of the assets or liabilities concerned.	Central Bank Act 1971 (CBA1971)³
Issuing of guidelines to IFSRA	33D.— Either the Governor or the Board may, with respect to the functions the Governor or the Board, issue to the Regulatory Authority guidelines as to the policies and principles that that Authority is required to implement in performing functions, or exercising powers, of the Bank. The Regulatory Authority is required to comply with guidelines issued to it under this section. Guidelines issued by the Governor or the Board under this section shall be in writing and the Governor or the Board, as the case may be, shall cause them to be published in Iris Oifigiúil as soon as practicable after they are issued.	Section 33D Central Bank and Financial Services Act 2003

Period 2: 2003 to 2010 (continued)
Relevant body	IFSRA
Key Powers	Details	Legislation
Administrative sanctions: A. Background	The CBFSA2004 gave the Authority the power to impose administrative sanctions, without recourse to the Courts, for breaches of specified regulatory requirements which occurred on or after 1 August 2004. These sanctions could include fines, a requirement to repay monies to customers and disqualification of directors and managers. The Bank undertook extensive preparatory work producing an internal procedures manual, consulting externally, developing departmental policies and obtaining advice from Senior Counsel as required. The Authority decided at its meeting in June 2005 that administrative sanctions should be brought into use progressively from 1 July 2005, with active consideration to the use of the powers in relation to consumer protection cases, to be followed by broader consideration of the option to use sanctions for other matters later. The Authority issued statutory guidelines and published procedures in October 2005.	Central Bank and Financial Services Act 2004 (CBFSA2004)
Period 2: 2003 to 2010 (continued)
Relevant body	IFSRA
Key Powers	Details	Legislation
Administrative sanctions: B. Overview	If the Financial Regulator has a concern that a prescribed contravention may have been committed, an examination into the issue may be commenced. Once the examination has been concluded, a decision will be taken as to whether an inquiry should be established once the financial services provider has had an opportunity to respond. An inquiry may be held where there are reasonable grounds to suspect that there has been a prescribed contravention. The inquiry will decide if the prescribed contravention has occurred and determine the appropriate sanctions. As an alternative, the Administrative Sanctions Procedure provides that the matter may be resolved by entering into a settlement agreement which binds both the Financial Regulator, and/or persons concerned in the management of the financial services. Decisions of an inquiry may be appealed to the Financial Services Appeals Tribunal and the High Court.	Central Bank and Financial Services Act 2004 (CBFSA2004)
Administrative sanctions: C. Enforcement	Enforcement options include: a) Supervisory action (e.g. enhanced regime, supervisory warning) b) Agree a settlement. c) Refer the case to an inquiry for determination and sanction. d) Initiate a criminal prosecution or e) Refer to another authority or enforcement body Enforcement action should promote compliance: a) by the regulated service provider b) within the industry or sector The enforcement action should be proportionate, and be likely to support the economic, efficient and effective pursuit of the strategic objectives of the Financial Regulator. Types of sanctions available include: a) Caution or reprimand. b) Direction to refund or withhold money to be charged. c) Monetary penalty (not exceeding €5,000,000 for a corporate and €500,000 in the case of a person). d) Direction disqualifying a person. e) Direction to cease the contravention if it is found to be continuing. f) Direction to pay all or part of the costs of the investigation and inquiry.	Central Bank and Financial Services Act 2004 (CBFSA2004)

Period 2: 2003 to 2010 (continued)
Relevant body	Irish Financial Services Appeals Tribunal
Key Powers	Details	Legislation
Appeals against certain decisions of the Central Bank	The Irish Financial Services Appeals Tribunal, “The Appeals Tribunal” was established by the Central Bank and Financial Services Authority of Ireland Act 2003, but only constituted in January 2007. The Appeals Tribunal is an independent tribunal which will hear and determine appeals from aggrieved parties against certain decisions of the Central Bank of Ireland. The Appeals Tribunal aims to provide an accessible, efficient and effective method of appeal in an informal and expeditious manner.	Section 28 of the Central Bank and Financial Services Authority of Ireland Act 2003

Period 3: 2010 to 2013
Relevant body	Central Bank
Key Powers	Details	Legislation/year
Creation of a unified regulatory authority within the Central Bank		Central Bank Reform Act 2010
Creation of a harmonised system for the regulation of persons performing “controlled functions” and “pre-approval controlled functions” i.e. individuals exercising significant influence on the conduct of the affairs of the financial services provider.	The Central Bank has a “gatekeeper” role in respect of individuals seeking appointment to a pre-approved controlled function. A regulated firm cannot appoint an individual to such a role without the prior approval of the Central Bank. In order to determine an individual’s fitness and probity the Central Bank may request the individual (or the specified officer/employee of the applicant financial services provider) to produce certain information/documents, answer questions or attend for interview. Controlled functions do not require the pre-approval of the Central Bank before appointment. However, all persons occupying such functions must comply with the Fitness and Probity Standards as published by the Central Bank in 2011. From the commencement in December 2011 up to February 2015 some 10,857 applications for pre-approved functions had been approved and 422 applications were withdrawn.	Central Bank Reform Act 2010 Part 3
Introduction of New Regulatory Model	The Central Bank indicated in its Strategic Plan 2010 - 2012 that it was introducing a new regulatory model – risk-based, more intrusive and challenging. This was developed into what was known as PRISM (Probability Risk and Impact SysteM).	2011
Introduction of formal escalation procedure	In 2010, the Central Bank introduced a formal escalation procedure whereby regulatory issues were required to be reported to senior colleagues and, if sufficiently important, to the Supervisory Risk Committee of the Bank.	2010
Establishment of Enforcement Directorate	The Enforcement Directorate was established in June 2010 and its responsibilities are as follows: To take administrative sanctions procedure cases under Part IIIC of the Central Bank Act 1942 Advise on cases under the Market Abuse Regulations 2005 Advise on and assist with potential actions on fitness and probity grounds Refusals of applications for and revocations of existing authorisations and Summary criminal convictions The Enforcement Division also issues private Supervisory Warnings to regulated financial service providers. This is a non-statutory device that is available where the Central Bank has reasonable cause to suspect that a “prescribed contravention” was committed but where it is considered that that an administrative sanction is not warranted. Since 2011, the Central Bank has published “Enforcement Priorities” on an annual basis. The Irish Financial Services Appeals Tribunal was set up as outlined by the Central Bank and Financial Services Authority of Ireland Act 2003. It acts like a court but is outside the normal court system. It is a forum that can hear appeals relating to some decisions made by the Financial Regulator and has the authority to decide them.	2010

Period 3: 2010 to 2013 (continued)
Relevant body	Central Bank
Key Powers	Details	Legislation/year
Requirements of firms and auditors	The CB can issue a notice to require a financial services provider to furnish a report on any matter by a skilled person. It can also require an auditor of a bank to provide a statement on compliance of a firm with obligations.	Central Bank (Supervision and Enforcement) Act 2013
Administrative sanctions:Enforcement penalties	On Enforcement, this Act increased the maximum penalties that could be imposed under Administrative Sanctions (to €10m or 10% of turnover for firms, and €1m for individuals.).	Central Bank (Supervision and Enforcement) Act 2013
Customer redress	The CB can direct a Regulated Provider to make appropriate redress to customers where there has been “widespread or regular relevant defaults”.	Central Bank (Supervision and Enforcement) Act 2013
Directions/regulations	The CB has wide-ranging powers to give written directions to a firm, and make a broad range of regulations for the “proper and effective regulation” of Regulated Providers; the latter is subject to an obligation to consult in advance with the Minister for Finance.	Central Bank (Supervision and Enforcement) Act 2013
Orders	The CB can apply to the High Court for an order restraining a person from engaging in conduct which would contravene financial services legislation.	Central Bank (Supervision and Enforcement) Act 2013

Period 3: 2010 to 2013 (continued)
Relevant body	European Central Bank (ECB)
Key Powers	Details	Legislation/year
Direct supervision of significant credit institutions(with effect from 4 November 2014)	In Ireland, as at January 2015, the following are significant credit institutions: Allied Irish banks plc, Permanent TSB Group Holdings plc, The Governor and Company of the Bank of Ireland, Ulster Bank Ireland Ltd. The ECB is able to take direct enforcement and sanction proceedings against significant credit institutions and can instruct the Central Bank to use its supervisory powers or open proceedings against such institutions.	European Union (Single Supervisory Mechanism) Regulations 2014

Appendix 8 Footnotes

1. Item 12, Fourth Indent, CB05462 -001-018.

2. Central Bank, breaches of prudential supervision by credit institutions were typically not taken, or powers not utilised, in three different periods (1992- 2002, 2003- 2010 and 2010- 2013), CB05464.

3. Patrick Honohan, letter of 12 February 2015 to the Joint Committee of Inquiry into the Banking Crisis, CB07423

Appendix 9: Key Roles 2000-13: State, Regulators, Banks

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