Important update for investment banks and regulated firms where information technology is a key enabler or core element of the firm’s business model.
The Central Bank of Ireland (Central Bank) has updated its Fitness & Probity regime by adding to the list of Pre-Approval Control Functions (PCFs).[1]
Of particular note is the addition of Chief Information Officer and the introduction of Head of Material Business Line and Head of Market Risk.
Chief Information Officer (PCF-49)
The introduction of Chief Information Officer (CIO) as a new PCF role reflects “the increasing importance of and reliance on information technology within regulated financial service providers (RFSPs).”[2]
PCF-49 applies to all regulated firms except credit unions.
The Central Bank is introducing the CIO as a PCF role in light of the increased role of technology in financial services, as well as the risks posed by IT.
If you are a regulated firm with a PRISM impact rating of High or Medium High or where IT is a key enabler or core element of your business model, you should consider (1) whether there is a CIO in place (the role may not carry that title exactly) and (2) if not, whether one should be appointed.
The Central Bank states that the CIO role is applicable where the size, nature and complexity of the RFSP warrants such a role and where failure of the firm’s Information and Communication Technology would have an adverse effect on one or more of the following:
- the provision of critical services to their customer base, taking into consideration potential customer detriment it may cause;
- the ability of the firm to meet its regulatory obligations; or
- the overall stability of the financial system in Ireland.
Head of Material Business Line and Head of Market Risk (PCF-50 and PCF-51)
The introduction of Head of Material Business Line and Head of Market Risk reflects “the changing landscape of the banking sector in Ireland due to Brexit, including the entry/expansion of investment banks/broker-dealer firms with significant capital markets activity.”[3]
PCF-50 and PCF-51 Head of Market Risk apply to credit institutions.
The Head of Material Business Line role will only apply in credit institutions whereby a Material Business Line is one which satisfies either of the following quantitative criteria:
- has gross total assets equal to or in excess of EUR10 billion; or
- accounts for 10 per cent or more of the credit institution’s gross revenue.
A risk based approach will be adopted whereby the Head of Market Risk role will only apply where the level of market risk is deemed to be material by the Central Bank. The role will only apply in credit institutions whereby the market risk of the credit institution satisfies either of the following quantitative criteria:
- EUR500 million of market risk (including Credit Valuation Adjustment) risk weighted assets; or
- EUR100 billion of notional derivatives traded.
What does this mean in practice?
If a regulated firm does not currently have an individual performing one of the new PCF roles, it is not required to create one in order to comply with its obligations under the Fitness & Probity Regime.
Individuals in situ on 5 October 2020 when the rules came into effect will not be required to seek the approval of the Central Bank to continue to perform one of the new PCF roles. Regulated firms will be required to review their assessment under Section 21 of the Central Bank Reform Act 2010 in respect of individuals in situ and submit confirmation of such an assessment to the Central Bank within six weeks.
If the individual’s role changes after the new PCF roles have been introduced, he/she will be required to seek the Central Bank’s prior approval in writing to that appointment by means of a new Individual Questionnaire.
[1] https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/fitness-probity/regulated-financial-service-providers/regulated-financial-service-providers/list-of-54-pre-approval-controlled-functions.pdf
[2] https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/fitness-probity/regulated-financial-service-providers/regulated-financial-service-providers/additions-to-the-list-of-pcfs-october-2020.pdf
[3] https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/fitness-probity/regulated-financial-service-providers/regulated-financial-service-providers/additions-to-the-list-of-pcfs-october-2020.pdf
and then 