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Revamped 'fitness & probity' requirements published Back  
The financial services industry has welcomed the Financial Regulator's revised requirements for directors and senior managers working in the sector, which include significant changes from the first draft published in February 2005. However, concerns remain over the efficiency of the new regime.
Following extensive consultation with the financial services industry, the Financial Regulator has published its new ‘Common Fit and Proper Requirements for Directors and Senior Managers’.

The requirements are designed to test the fitness and probity of directors and senior managers of financial services firms, and it will apply from January 1st, 2007. Previously, the Financial Regulator assessed the fitness and probity of directors and managers against broadly similar standards but with different sectoral processes.

The publication of the requirements marks the culmination of a two-year consultation process with the industry. The original consultation paper, known as CP11, was published in February 2005, and was met with uproar by the industry. Financial Services Ireland (FSI) said the paper was ‘anomalous’ and argued that it was disappointing that more consideration was not given to the competitive impact of the proposals, saying, ‘if this framework is implemented as it currently stands, we believe that it will have a seriously detrimental impact on competitiveness’.

The original concerns centered around the intrusive nature of the proposed individual questionnaires (IQ) for directors and managers, the lack of clarity around the treatment of tax issues and the risk that the IQ would have proved a disincentive to foreign directors accepting appointments in Ireland. In light of the level of the industry’s concerns the Regulator went back to the drawing board, and published in February 2006 another consultation paper, CP15., with the fruits of this process evident in the final requirements just published.

Aileen O’Donoghue, director of FSI, welcomed the new proposals, saying, ‘We are pleased the Financial Regulator’s second consultation addressed many of these concerns and the final guidelines are an indication that the Financial Regulator has heard the concerns of the sector. This has been a good example of the benefit to both industry and the Financial Regulator of full and thorough consultation. The willingness of the Financial Regulator to engage in meaningful discussion on this issue has been greatly appreciated,’ O’Donoghue said.

One of the revisions made, is that unlike the initial proposal, existing directors or managers will not have to complete the new IQ, ‘since they have already been subject to the present sector-specific tests, but will be subject to the test for any new positions’ says the Regulator.

However, despite the very positive steps made, O’Donoghue said that FSI still has some residual concerns. ‘Obviously, to succeed, this regime will need to be operating efficiently and the question of turnaround times for approvals will prove crucial. FSI hopes this is an area the Financial Regulator will address before it comes into effect in January 2007 – perhaps in the context of the ongoing discussion on service protocols,’ she told FINANCE.

Although the new requirements mark a significant change to the initial proposals, Con Horan, head of prudential supervision with the Financial Regulator remarked to FINANCE that they do not represent a capitulation to the industry. He said, ‘it is far too important to have a regime that meets the highest standards’, and believes that in the new proposals, the Regulator has found a way to meet both its own needs and those of the industry.

The new rules and requirements can be read on the Financial Regulator’s website: www.financialregulator.ie.
The consultation documents can be found on: www.financialregulator.ie/frame_main.asp

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