With effect from 1 October 2010, the Central Bank Reform Act (the Act) has created a new fully integrated Central Bank of Ireland (the Central Bank) with a unitary board called the Central Bank Commission (the Commission). The intention being that by uniting the Central Bank and the Financial Regulator, the Central Bank will now be in a better position to monitor and react to potential risks. The Commission's mandate includes, inter alia, three primary responsibilities:

• to ensure the stability of the financial system overall;
• to ensure the prudential regulation of financial institutions; and
• to ensure the protection of consumer interests.

Although these responsibilities are primarily the responsibility of the Central Bank, the Head of Financial Regulation, Matthew Elderfield and the Head of Central Banking, Tony Grimes will assume responsibility for their respective departments and will report to the Commission and the Governor of the Central Bank, Dr Patrick Honohan.

Importantly, the Central Bank has advised that the institution previously known as "Irish Financial Services Regulatory Authority" or the "Financial Regulator" is now referred to as the "Central Bank of Ireland".

A very important aspect of the Central Bank Reform Act 2010 is the new powers to ensure fitness and probity of nominees to key positions within financial service providers and of key-office holders within these financial service providers. The Act provides the Central Bank with statutory powers to regulate sensitive or influential appointments in regulated financial service providers.

Whereas the old regime placed obligations on financial service providers with regard to "senior management", this Act goes further and places obligations on staff that carry out a "controlled function" within a financial service provider.

The Act provides a very useful, albeit broad, definition of the term "controlled function". A controlled function is now defined as, inter alia, a function in relation to the provision of a financial service that:

1. is likely to enable a person to exercise a significant influence on the conduct of the affairs of a regulated financial service provider;
   
   
2. is related to ensuring, controlling or monitoring compliance by a regulated financial service provider;
   
   
3. involves the giving of advice to a customer, dealing with or having control over property of a customer; or
   
   
4. dealing with property on behalf of the financial service provider.

The Act also extends the power of the Central Bank to suspend a person carrying out a controlled function if the Head of Financial Regulation is of the opinion that there is sufficient reason to suspect that person is not a fit and proper person. The effect of a suspension notice is that the relevant person is suspended for an initial ten days unless the Head of Financial Regulation confirms the suspension notice, in which case the suspension can apply for a period of up to three months. The Head of Financial Regulation has the power to extend the validity of the notice by way of an application to the High Court.

Given the recent turmoil and lack of accountability in the financial sector, the legislature has taken a proactive approach and made provision for enhanced accountability to the Oireachtas whereby a committee of the Oireachtas will be established to consider an annual "Regulatory Performance Statement" from the Central Bank to increase accountability with regard to regulatory obligations.

Although a relatively short Act, a number of other important changes have been enacted, including:- " The Central Bank will no longer have statutory responsibility for promoting the development of the financial services industry. " The role of providing consumer information will transfer to the national consumer agency " The Insurance Act, 1989 is amended to allow the Central Bank greater scope to ensure better compliance with insurance regulations. " The Credit Union Act 1997 is amended to allow credit unions to increase the size of the loan book of individual credit unions, subject to appropriate liquidity provisions and accounting transparency.

In conclusion, this Act provides a new central banking system which aims to maximise efficiency and accountability as well as providing a welcome development on the standards to which financial service employees are held and greater accountability of our banking and regulatory bodies.

For further information please contact Ronan Cremin or Tracy Gilvarry.

October 2010.