Page Contents
Key Contacts
First published in the Finance Dublin year book 2024.
It took a mammoth (91 pages) decision issued by retired Supreme Court Judge John McMenamin on behalf of Irish Financial Services Appeals Tribunal (IFSAT) to bring IFSAT out of the shadows of Central Bank of Ireland (CBI) legislation and into the spotlight.
The “AB” decision
In a decision published on Valentine's Day 2024 concerning an individual, identified only as "AB", IFSAT determined that the CBI had not applied fair procedures when deciding whether to approve AB for two pre-approval controlled function (PCF) roles with an authorised investment fund.
The decision is far-reaching, extremely important for regulated financial services providers and prompted the CBI to instigate an independent review of its fitness and probity regime. The terms of the review were published in March 2024. Therefore, this was an important decision by any measure. However, I was particularly struck by the number of people whose initial reaction was to ask: "IFSAT – what's that?!"
Original vision
This doesn't surprise me. Almost 25 years ago, the Department of Finance commissioned A&L Goodbody to draft what eventually became the Central Bank and Irish Financial Services Authority Act 2003 (CBIFSA Act). At the time, my colleagues and I envisaged that the appeals tribunal incorporated into the legislation would play a prominent role in determining the appropriate balance between (i) fairness to individuals and other regulated financial services providers and (ii) ensuring the integrity of financial regulation. This balance would preserve individual rights but also protect the public and Ireland's reputation as a location for financial services. However, in practice, a quick spot through IFSAT's decisions reveals a worthy but uninspiring series of orders addressing issues such as withdrawal of appeals on consent, determining whether IFSAT has jurisdiction to hear certain appeals, return of appeal fees, and, occasionally, affirming a CBI decision.
But the most recent decision is not a case of the mouse that roared. The tribunal has, and has always had, a substantive function and strong powers. It has now shown that it is prepared to use those powers in appropriate cases. The decision is a helpful reminder that our constitutional democracy protects fundamental rights to fair procedures and to earn a living.
What is IFSAT?
For all of you who asked the question: IFSAT is a statutory body established under the Central Bank Act, 1942 as amended by the CBIFSA Act. Its role and powers are set out in the legislation. An individual or other regulated financial services provider can appeal to IFSAT against any decision identified as appealable in the legislation. Appealable decisions include refusing an application for authorisation, cancelling an authorisation, refusing an application for a PCF position, opposing an acquiring transaction, imposing an administrative sanction and suspending an individual from performing a controlled function.
The options available to IFSAT are to:
The CBI and the individual or other regulated financial services provider each has a right to appeal an IFSAT decision to the High Court.
What's so special about this decision?
This decision is an important reminder that supervisory bodies are bound by the principles of natural and constitutional justice. As IFSAT put it "quasi-judicial bodies exercising limited powers, or extensive powers, must be independent, impartial, dispassionate, apply the law and observe fair procedures."
The CBI is obliged to observe constitutional and natural justice. This means applying fair procedures and giving the other party an adequate opportunity to set out their case. Natural justice also prohibits the CBI from being "the judge in its own case". For this reason, although established under the Central Bank legislation, IFSAT is comprised of independent members, usually a retired judge and qualified lawyers.
In the AB decision, IFSAT highlighted flaws in the way in which the CBI reached its decision not to approve AB’s application to perform PCF roles.
By way of brief background, AB applied for two PCF roles, chair and independent director of an authorised UCITS SICAV. Following an evaluation process, during which the CBI conducted two interviews with AB, the CBI issued a letter to GP indicating that it was "minded to refuse" the application. The CBI invited submissions from AB before making a final decision. AB made detailed submissions challenging the CBI's findings. However, the CBI refused the application on the basis that AB had not demonstrated a comprehensive understanding of the regulatory environment and therefore, in the CBI's opinion, AB was not fit to perform the PCF roles.
After a four-day hearing, that included taking expert evidence, IFSAT identified fundamental procedural flaws at all stages of the fitness and probity assessment and decision making process. As a result, it concluded that the CBI had not applied fair procedures. It did not give AB fair notice, did not provide appropriate reasons for its decision and did not give AB an appropriate opportunity to set out his case. Particular issues included:
IFSAT also noted that some of the questions raised at interview were very complex, unnecessarily granular and sometimes unclear.
As a result of these findings, IFSAT remitted the issue back to the CBI directing the CBI to reassess the application within 90 days of the decision, having due regard to IFSAT's findings and directions. IFSAT also directed that this reassessment not be carried out by the original CBI team that assessed AB's application. Finally, IFSAT directed the CBI to notify AB, within 21 days of the IFSAT decision, of the procedures that will apply to its reconsideration of the applications. IFSAT awarded AB most of the costs that he incurred on the appeal.
What's next?
The CBI’s Administrative Sanctions Procedure has recently been amended by legislation to reflect the findings of the Supreme Court decision in an employment appeal case, Zalewski v An Adjudication Officer and Others. That case also addressed fair procedures. The CBI procedures now:
The CBI has instigated an independent review of its fitness and probity procedures in light of IFSAT's decision. It will be interesting to see whether this leads to significant changes in the way in which the CBI's assesses fitness and probity. However, IFSAT's decision has potential implications for a broader range of CBI decisions. The decision highlighted a difficulty in reconciling the various functions that the CBI carries out. While the roles of rule maker, investigator and decision-maker may not be quite the same as judge, jury and executioner, the need for impartial, dispassionate and the independent exercise of key decision-making powers in accordance with fair procedures would extend to many of the appealable decisions identified in CBI legislation. Achieving this balance is not easy. We may not have seen the last significant IFSAT decision on the topic.
For further information please contact James Grennan, Partner or any member of the A&L Goodbody Insurance & Reinsurance team.
Date published: 12 June 2024
