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The UK’s promise to overhaul its post-crisis system for controlling major financial players has largely been seen through the lens of attempts to revive a Brexit-bloodied City of London.
A recent Irish legal case, however, raises another argument for overhauling systems to see if major financial players are up to the task: the fundamental (and legally protected) principle of fairness.
Ireland hit the nail on the head with the introduction of its “fitness and probity” regime to check the qualifications and character of its bankers in 2011, while the country was still struggling with a €67.5 billion bailout. EU-IMF euro triggered by the implosion of its major financiers.
Emboldened perhaps by the deep prevailing anti-banker sentiment, the Central Bank of Ireland forced incumbent bank executives to jump through hoops in the new system if they wanted to continue in the roles they already held. There were no shortcuts – a then chief executive said at the time he had been asked for a copy of his final school exam results – but no one was in a position to question the central bank’s methods.
More than a decade later, the regime has grown to fill a variety of roles in Ireland’s regulated financial services firms, ranging from the country’s largest national banks to the international funds sector and its sizable group of post-Brexit European outposts.
The expansion has fueled discontent among bankers, fund managers, insurance executives and others. Now in a stronger position thanks to the much-changed health of Ireland’s financial sector, they accused the CBI of being bureaucratic and taking an overly intrusive and combative approach.
The CBI says it has “continuously evolved” the suitability and probity regime, which provides a crucial “supervisory role” to ensure those working to financial standards are up to the job.
Some of the criticism leveled against the trial emerged in a recent successful challenge to the CBI’s rejection of a candidate submitted to chair two Irish-based investment funds. The case marked the first time that an individual’s clearance refusal was referred by an appellate body to the CBI for “reconsideration”.
The 90-page ruling by the independent Irish Financial Services Appeals Tribunal criticized the regulator for conducting a process that was at odds with the director’s constitutional right to fairness. He also questioned the opacity of some CBI requirements for incoming directors and highlighted the need for a timely process when delays could impact the candidate’s ability to earn a living.
“They are sending a very strong message to the CBI,” says a senior figure in the funds industry, which forms a key part of Ireland’s financial services hub.
The CBI, in response, promised an “independent review” of the suitability and probity regime “to ensure it remains effective in the future”, without providing further details on what this would involve and when it would be completed.
Some of the issues raised in the appeal, which involved around 1,500 documents and was examined over four days, appear peculiar. The judge criticized the fact that, during a key video interview, the screen of an officer peering into him went blank without explanation, which made the appellant uncomfortable.
Other aspects and criticisms have broader application, including the need for candidates to be fully informed about the content of their interviews. The judge slammed the CBI for not giving the appellant “fair notice” that he would be asked detailed questions on matters relating to a company where he had previously worked, where bond investments had become “severely compromised”. The appellant had complained that the interview was “more like an investigation or criticism” of events related to that company.
The CBI review could clarify the technical skills needed by executives and directors at various levels, which would be welcomed by the industry, but even finance veterans who crave certainty fear it could be elusive. “It is difficult for the CBI to be black and white about the requirements,” says one. “They need some freedom to be able to review each case on its own merits.”
Some outside-looking regulators fear the review goes too far in the changes, and could undermine a key part of the checks and balances in Ireland’s financial system. Fairness, after all, is in the eye of the beholder.
laura.noonan@ft.com