Analysis: Central Bank ramps up enforcement actions as record fines imposed
Dillon Eustace partners John O’Riordan and Rachel Turner examine the Central Bank of Ireland’s move towards greater enforcement.
Last year saw the Central Bank impose a record level of monetary fines on financial firms and individuals. These fines contributed to the Central Bank’s profits increasing by some 59 per cent to €1.32 billion for the financial year.
In its Annual Report for 2021 published on 30 May 2022, the Central Bank states that significant progress has been made to strengthen protections for consumers and investors over recent years, with this progress being underpinned by a credible threat of enforcement.
This progress is evidenced by the €67 million received in fines in 2021. The report states that this figure represents the highest amount in fines imposed in a single year to date, and brings the total fines imposed on regulated firms and individuals in the period from January 2006 to December 2021 to €191 million.
In the report, the Central Bank states that the enforcement outcomes, including the record level of fines imposed, “reflect the targeted and proportionate application of enforcement tools to address serious breaches of regulatory requirements and misconduct by firms and individuals”.
The record fines will be seen as good news for the Exchequer, which is the beneficiary of all fines collected by the Central Bank.
The 2021 fines included five firm settlements and one individual settlement. A wide variety of firms was targeted, with two banks, one investment firm, one fund management company and one insurance intermediary receiving fines.
Amongst the penalties given out last year were two of the largest fines ever imposed by the Central Bank at the time under its Administrative Sanctions Procedure (ASP).
The ASP is the means by which the Central Bank carries out investigations and sanctions breaches of financial services law by regulated firms and individuals. Under the ASP, the Central Bank can fine firms up to €10 million, or 10 per cent of the firm’s turnover, while individuals may be fined up to €1 million.
Ulster Bank Ireland DAC was subject to a fine of €37.7 million in March 2021 for ‘serious failings’ in protecting the rights of tracker mortgage customers. The Governor and Company of the Bank of Ireland also received a significant fine of €24.5 million in November 2021 for breaches pertaining to its IT service continuity framework and related internal controls failings.
Other fines levied included a fine of €4.13 million on an investment firm for regulatory breaches arising from personal account dealing, €385,000 on a funds management company for breaches of investment restrictions and inadequate supervision of delegates, and €41,385 on an insurance intermediary for breaches of the Consumer Protection Code 2012.
A former Head of Commercial Lending (UK) at Irish Nationwide Building Society was also fined €200,000 and disqualified for a period of 15 years for breaches of financial services law relating to commercial lending and credit risk.
In addition to the record fines imposed, the Central Bank issued one fitness and probity prohibition notice to an individual and revoked the authorisations of two firms. The Central Bank also published 90 warning notices in respect of unauthorised firms, while 231 protected disclosures were received by the Central Bank during 2021.
In June 2022, just a few weeks after the publication of the Annual Report for 2021, the Central Bank fined AIB plc €83.3 million for regulatory breaches affecting tracker mortgage customers. This is the largest monetary penalty ever imposed by the Central Bank under its ASP.
Other fines levied this year include a fine of €13.4 million on a bank for regulatory breaches affecting tracker mortgage customers and a fine of €10.78 million on a fund administrator for regulatory breaches relating to outsourcing.
It is evident from the record level of fines imposed in 2021 and thus far in 2022 that the Central Bank is making enforcement a top priority.
With one of its stated aims for 2022 being to adopt “a targeted and proportionate approach to enforcement action to address serious breaches of regulatory requirements in order to deter misconduct and promote compliance in the financial services sector”, we are likely to see the level of fines imposed by the Central Bank on both firms and individuals continue to increase this year and beyond.
Further, with the recent publication of the Central Bank (Individual Accountability Framework) Bill (see further details here) bringing us closer to the implementation and operation of the Individual Accountability Framework, it is likely that there will be increased focus on individuals.