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.
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.
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...