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Law Society in cautious welcome for IAF changes

The Law Society’s Business Law Committee (BLC) has outlined the key changes made by the Central Bank to the procedures that it will apply when investigating and sanctioning senior executives and other employees for violations of financial-services rules.

The changes are set out in guidelines on how the regulator will implement its powers under the Central Bank (Individual Accountability Framework) Act 2023 (IAF).

They follow a public consultation that attracted submissions from 13 stakeholders – including one from the Law Society that focused mainly on the due-process rights of defendants under investigation.

Rights of defence

The BLC says that, because of the consultation, the Central Bank has improved rights of defence at the investigation stage of the process.

The procedures now provide an opportunity for a person under investigation to respond to allegations against them at an earlier stage in the investigation process.

The revised guidelines also allow a defence team to respond to the initial Notice of Investigation that sets out which alleged breaches of the rules are under investigation.

The BLC has also welcomed “an important new step” that improves due process at the investigation stage. The procedures now provide that a draft investigation report will be issued to the party under investigation, before a final investigation report.

It adds that the Central Bank has also taken on board comments on the timeframe for a defendant to respond to the draft investigation and has taken “a more nuanced outlook” on this.

The revised guidelines also contain enhanced safeguards, clarifying that important investigative and decision-making functions will be split between separate Central Bank officials.

Confidential information

The BLC also highlights a more flexible approach to confidentiality, with the Central Bank stating that “recipients of confidential information may disclose it where required to do so by law or to their legal advisor”.

The revised guidelines also recognise that there may be other circumstances where information needs to be shared.

The BLC has also flagged changes that give defendants improved access to lawyers, with the guidelines now explicitly stating that an interviewee may be accompanied by an independent legal representative.

The BLC has questioned, however, why the IAF guidelines state that a lawyer is “not expected or required” to attend at the interview stage, pointing out that the guidelines also seek to restrict the role of a lawyer at any such meeting.

On legal privilege, the Central Bank’s feedback statement “… accepts that the assertion of privilege is a legal right and that the subjects of investigations are entitled to assert it and may wish to do so”.

Settlements

In its submission to the public-consultation process, the Law Society expressed concern that the Central Bank’s settlement procedure, used to date to impose fines of over €400 million on firms, may also be heavily used when prosecuting individuals, rather than businesses.

The BLC notes and welcomes that the IAF guidelines no longer state that the Undisputed Facts Settlement procedure will be the Central Bank’s primary or preferred settlement procedure.

However, the BLC points out that this procedure is available only before an investigation is completed and, as the name suggests, allows defendants limited opportunity to contest the Central Bank’s findings of fact.

The BLC also notes a recent Central Bank plan to commission an independent review of its fitness-and-probity regime, after critical findings made in a judgment of the Irish Financial Services Appeals Tribunal (IFSAT).

At this time, it is not clear whether this review may extend to Central Bank’s IAF procedures.