In this piece, we look back on enforcement actions from 2019 and assess what is to come in 2020 having regard to the Central Bank's recently published priorities for 2020.
Large Sanctions
The Central Bank published statements relating to a total of seven Enforcement Actions under the Administrative Sanctions Procedure (ASP) in 2019, down from nine cases in 2018.
Notwithstanding that there were less investigations resolved in 2019 than in the previous year, the total level of financial sanctions imposed during 2019 was four times higher than the total for 2018. This is partly due to the Central Bank relying on its enhanced sanctioning powers for regulated entities which allow for firms to be fined up to EUR 10 million or 10% of turnover, whichever is greater. Previously sanctions could not exceed EUR 5 million.
The imposition of larger penalties appears to be something the Central Bank is keen to highlight in the public statements from 2019. Firms and individuals can benefit from a 30% discount on sanctions under the ASP where an early resolution of the investigation is agreed. Public statements from the Central Bank regarding the settlement of ASP cases have followed a similar format for many years. In 2019 this format changed, with the amount of the original sanction before the application of the 30% discount being set out towards the beginning of all statements published in 2019.
The provisions of the Central Bank Act 1942 prohibit the regulator from imposing a sanction that would cause an individual to be adjudicated bankrupt or cause a financial service provider to cease business. In 2018 there were two published outcomes where the sanction was reduced having regard to this provision. This trend continued in 2019 with the rule being applied in one instance.
Active Supervision
It is notable that the majority of enforcement actions settled in 2019 arose from CBI-instigated inspections or reviews. Themed inspections and sectoral reviews conducted by the Central Bank appear to have been the basis for three of the cases resolved in 2019, with a fourth arising from the Central Bank's Tracker Mortgage Examination. The remaining three cases involved self-reporting of certain regulatory breaches by the firm involved.
The Central Bank continues to sanction a variety of financial services providers, including a credit union, a stockbroker, credit institutions and an investment firm. A correspondingly broad range of regulatory regimes is covered by the 2019 enforcement cases, covering for example, consumer protection, anti-money laundering, outsourcing, breaches of authorisation requirements and capital requirements.
The supervisory priorities for 2020 provide some indication of the areas in which further enforcement activity may be expected in the coming years. Those priorities include a focus on funds management, differential pricing in the motor and home insurance sectors, anti-money laundering and the protection of customers in mortgage arrears, including the conduct of Credit Servicing firms in this area.
Individual Accountability
The Central Bank published two outcomes against individuals in 2018. There were no outcomes against individuals in 2019. However, the Central Bank has also focused heavily on individual accountability in its priorities for 2020. This is therefore expected to be another area of focus for enforcement cases going forward.
The Central Bank's recommendations for an Individual Accountability Framework, including a Senior Executive Accountability Regime, were intended in part to overcome the challenges it has reported with pursuing individuals in enforcement investigations. Draft Heads of Bill were expected from the Minister for Finance by the end of 2019 but are still awaited. The area of individual accountability remains highly topical and much cited by the Central Bank in its addresses to industry.
Timelines
The timelines for resolving cases are an interesting feature of 2019. It appears that where firms self-reported breaches to the Central Bank and where enforcement action followed, those cases took between 2 to 4 years from reporting to settlement. Where the Central Bank itself uncovered regulatory issues, the length of time between discovery of the breaches and the settlement appeared to be longer, between 3 to 5 years.
ASP Sanctions Guidance
Certain public statements from 2019 indicate that the Central Bank was engaging with the relevant firm regarding remediation before the commencement of the enforcement investigation. The inclusion of this fact in a public statement is a significant detail and indicates the importance of meaningful engagement with supervisory concerns and 'risk mitigation programmes'.
The Central Bank identified a failure to remediate underlying issues as an aggravating factor in one public statement in 2019. Good cooperation was expressly cited as a mitigating factor in a second public statement in 2019. The Central Bank published its ASP Sanctions Guidance in November 2019 which details the aggravating and mitigating factors considered by the regulator when imposing sanction and the Central Bank's approach to applying these factors. The application of the Guidance to settlements and how that filters through to the public statements will be an interesting development for 2020.
For more information contact Dario Dagostino, Partner - Financial Regulation or Sinéad Prunty, Knowledge Lawyer - Financial Regulation.
