New Regulations and guidance on fitness and probity regime

New Regulations

On 20 April 2023, the Central Bank Reform Act 2010 (Procedures Governing the Conduct of Investigations) Regulations 2023 (the “Regulations”) were signed into force (here). These Regulations, which have applied since 20 April 2023, provide rules that will govern investigations by the CBI in relation to the F&P of individuals in financial services firms, under the following areas:

Statement of grounds

• where the Deputy Governor (Financial Regulation) of the CBI (the “Deputy Governor”) is investigating a subject and forms the view that it is possible that adverse conclusions may be drawn against the subject, the CBI must furnish the subject and any regulated financial service provider or holding company (together, “entity”) concerned with a statement of grounds setting out the CBI’s concerns;
• the details which must be contained in the statement of grounds include the present concerns of the CBI and any information provided by the subject if an interview has taken place;
• where the subject or entity believes that any person would be able to give evidence regarding matters in the statement of grounds, the subject or entity must provide a list of such persons to the Deputy Governor, together with particulars, within 7 days or any longer period as the Deputy Governor considers reasonable. The particulars are the name, address and contact details of the person and a description of the reasons why the person would be able to give evidence that relates to the F&P of the subject;
• where a list of persons is given to the Deputy Governor and interviews are conducted with any person, the Deputy Governor must provide the subject and any entity concerned with an account of the information provided by any person interviewed. However, the Deputy Governor is not required to conduct any interview with any person named in the list;
• where the Deputy Governor requires any person to provide additional documents or information, and the person provides additional materials, the Deputy Governor must inform the subject or entity concerned that the person has been required to provide documents, provide copies of such additional materials and provide an opportunity to make submissions on those materials.

Circumstances in which oral hearings may be convened

• the Deputy Governor may hear oral evidence once satisfied that it is necessary for the proper conduct of an investigation and the Deputy Governor may convene an oral hearing for the purposes of hearing evidence;
• the Deputy Governor may be satisfied as to the necessity for an oral hearing:
  •  where there is an issue of fact in dispute which cannot fairly be resolved without an oral hearing;
  • where the credibility of the subject or a witness needs to be tested; 
  • where, having regard to the potential effect of the investigation on the subject, the Deputy Governor considers an oral hearing necessary in the interests of fairness; 
  • where allegations of a serious nature have been made against the subject; or
  • where the subject or a witness has requested that an oral hearing be convened.
• requests for oral hearings by the subject, entity concerned, or witness must be submitted in writing to the Deputy Governor, containing the following particulars: a description of the grounds that an oral hearing is considered necessary for the proper conduct of the investigation and the name of the person sought to appear at the oral hearing. Nonetheless, there is no obligation on the Deputy Governor to convene an oral hearing in any particular case.

Notice of oral hearing

• the Deputy Governor must give written notice of an oral hearing to the subject, any entity concerned and any witnesses. The Deputy Governor must also serve an evidentiary notice in accordance with section 32 of the Central Bank Reform Act 2010 (the “2010 Act”) to require any person to appear at an oral hearing. 

Conduct of proceedings at oral hearing

• the Deputy Governor can direct the manner in which evidence must be given at oral hearings;
• at an oral hearing, (i) the Deputy Governor can question the subject or witness, (ii) where the Deputy Governor directs, the subject shall, personally or through a legal representative, have a full right to cross-examine witnesses and call evidence in defence and reply and (iii) the Deputy Governor may invite oral submissions from the subject or any entity concerned;
• the subject must attend an oral hearing in person and may be represented by solicitor or by solicitor and counsel;
• the evidence of persons at oral hearings must be given on oath or by affirmation;
• the Deputy Governor may receive evidence of witnesses given via live video link, a video recording, sound recording or any other mode of transmission (referred to as “recorded evidence”). The Deputy Governor will only receive recorded evidence after considering written submissions by or on behalf of the subject or any entity concerned as to its appropriateness.

Conclusion of investigation and delivery of reports

• the balance of probabilities will be the legal test for the making of any findings by the Deputy Governor or the CBI;
• the CBI must, within three months of receiving a report by the Deputy Governor under section 41(5) of the 2010 Act, inform the subject and any entity as to whether the CBI or Governor intends to issue a prohibition notice under section 43 of the 2010 Act and inform the subject and any entity of their entitlement to make submissions to the CBI within 7 days (or longer period if the CBI considers it reasonable) in relation to the prohibition notice;
• once the subject or entity have made submissions to the CBI in relation to the proposed issue of the prohibition notice, the subject and entity concerned shall be informed of the decision of the CBI as to whether to issue a prohibition notice within six weeks of the receipt of such submissions.

New Guidance

On 21 April 2023, the CBI published its guidance on F&P investigations, suspensions and prohibitions (the “Guidance”) (here). The Guidance provides individuals and regulated financial services providers with an overview of how such F&P procedures operate following the changes introduced in Part 3 of the IAF Act and the Regulations. 
The Guidance reiterates that the CBI may investigate a person if there is a reason to suspect his or her F&P to perform a controlled function (“CF”) role. The Guidance then explains the legislative provisions relating to investigations, reports and decisions and other miscellaneous aspects. 

Transitional Guidance

On 21 April 2023, the ‘Fitness and Probity Investigations, Suspensions and Prohibitions – Guide to Transitional Arrangements Arising from the Central Bank (Individual Accountability Framework) Act 2023’ (the “Transitional Guidance”) was published by the CBI (here).

The Transitional Guidance explains that the changes to the F&P regime made by the IAF Act apply to all relevant procedures begun on or after the IAF Act’s commencement, being 19 April 2023, and do not apply to procedures concluded before that date. In general, where an investigation or related procedure was ongoing on the commencement date, having begun before that date, the changes made by the IAF Act do not apply to it, subject to certain exceptions laid down in Part 7 of the IAF Act. 

Discontinuing an investigation: the IAF Act amends the 2010 Act to provide that the CBI may discontinue an investigation. An exception to the rule that ongoing investigations are not affected by the changes is that ongoing investigations can be discontinued in accordance with the relevant new provisions. 

Investigation reports: while the requirements in relation to investigation reports have changed under the IAF Act, when preparing the investigation report in ongoing investigations the CBI is not required to consider a statutory Notice of Investigation.

Suspensions: where the CBI has issued a suspension notice before the commencement date, the relevant changes made by the IAF Act do not apply to it. If, however, the CBI issues a suspension notice after the commencement date, the changes made by the IAF Act do apply to it even if the related investigation or prohibition notice procedure began before the commencement date.

Prohibitions: Where the CBI has issued a prohibition notice before the commencement date but the notice has not taken effect before that date, the changes made by the IAF Act apply to it. Where a prohibition notice took effect before the commencement date, the changes do not apply to it. However, a new statutory procedure permitting applications to the High Court to vary or revoke a prohibition notice that was previously confirmed by the High Court applies from the commencement date. If a prohibition notice is issued after the commencement date, the changes made by the IAF Act apply to it even if the related investigation began before the commencement date.

Requirements for independence: changes to statutory requirements regarding the independence of F&P investigations generally apply from the commencement date to procedures that were ongoing on that date. However, certain transitional arrangements under Part 7 of the IAF Act apply.

Industry Letter

On 21 April 2023, the CBI sent an industry letter to several bodies in relation to the updates to the CBI’s F&P enforcement procedures (here). The letter notes the Regulations and the Guidance and also states that the CBI is writing to parties involved in ongoing procedures to bring the Transitional Guidance to their attention. The letter also contains an appendix outlining an overview of the changes.

The CBI has also published F&P guidance on individual questionnaires, applications and PCF roles (here and here) and F&P guidance for payment institutions, e-money institutions and account information service providers (here).

Comment and next steps

The Regulations have applied from 20 April 2023 and therefore should be considered by individuals and firms as soon as possible. The changes made by the IAF Act to the F&P procedure are part of wider reforms regarding individual accountability and the CBI is consulting on other aspects of the IAF, with those changes entering into force in the coming months.