FOCUS on Financial Soundness – What does it actually mean?
As part of the Fitness and Probity regime regulated financial service providers (RFSP’s) should not allow a person perform a controlled function (CF) or a pre-approval controlled function (PCF) unless the regulated financial service provider is satisfied on reasonable grounds that the person complies with the Code issued under Section 50 of the Central Bank Reform Act 2010. They must also ensure that the person has agreed to abide by the Fitness and Probity Standards. With further changes to the regime and enhanced measures scheduled to take effect from 31 December an even heavier onus will apply to RFSP’s when they will be obliged to certify that this is the case.
The Fitness & Probity Regime
A key requirement of the fitness and probity regime is ensuring compliance with the Standards. In order to comply with the Standards a person performing a controlled function must be financially sound. But what does it actually mean as far as the Code is concerned to be financially sound?
In general terms, the person performing the controlled function must be able to show that they manage their affairs in a sound and prudent manner. The Code provides little by way of further clarity on what this actually means in practice. However from the term alone it’s possible to glean that, overall, any person performing CF’s and PCF’s should have financial stability and security and that they can show that their financial standing has not been adversely affected by poor financial decisions or actions now or in the past.
The Code does provide some concrete examples of where due diligence checks might be made to ensure compliance as detailed below:
RFSP’s must ensure that the person performing a CF or PCF can demonstrate that their role is not adversely affected to a material degree by the fact that any of the following might apply to them:
- They have defaulted upon any payment due arising from a compromise or scheme of arrangement with creditors or made an assignment for the benefit of creditors.
- They have an unsatisfied judgment debt against them in the State or elsewhere.
- They are or have been the subject of a bankruptcy petition OR have been adjudicated a bankrupt and the bankruptcy is undischarged in the State or elsewhere.
- They were a director of an entity which has been the subject of insolvency.
Given these specific risk factors and the new duty upon RFSP’s to certify compliance it would be prudent to undertake appropriate and focused due diligence checks to ensure that none of the above apply in each case. Particular care should be taken when conducting fitness and probity checks as critical information that evidences non-compliance will not always show up if due diligence checks are not carried out correctly.
Orion Risk has been conducting fitness and probity reports for our clients in the Financial Service Provider industry for over 30 years and is well placed to help with your fitness and probity regulatory requirements. Please do not hesitate to contact us for a free consultation and we can discuss how Orion Risk reports can help you.
DISCLAIMER: This document is for information purposes only and does not constitute any legal advice.