Two-thirds of compliance experts in the financial services sector believe, to some degree, that new laws which allow the Central Bank to fine individuals up to €1 million for rule-breaking – and empower the regulator to go after a person’s assets – could result in “financial ruin” for workers in the financial industry. Furthermore, more than six in ten (62pc) of those surveyed believe the wealth of the individual being investigated should be taken into account when deciding the size of any fine they are to be hit with.
This is according to the findings of a new survey by the Compliance Institute, which polled 175 compliance professionals working primarily in Irish financial services organisations nationwide.
The Compliance Institute survey examined attitudes towards new laws passed last March as part of the Central Bank’s move to clamp down on individuals found guilty of wrongdoing in the financial services industry.
Following changes that were introduced by the Individual Accountability Framework (IAF) Act last year, the Central Bank can now take direct enforcement actions against individuals in authorised roles for the first time. As part of this direct enforcement, individuals can be fined up to €1m for wrongdoing (see Appendix).
Commenting on the survey findings, Michael Kavanagh, CEO of the Compliance Institute said:
“The new laws means that for the first time, the Central Bank can now take direct enforcement actions against individuals in authorised roles. Despite concerns that the new powers could lead to the financial detriment of workers in the financial services sector, our survey found that an overwhelming 85pc of compliance professionals are in favour of the new laws. Almost one in five (17.5%) are already confident the changes are “necessary and well-measured”, while a further 67pc are waiting to see how the new laws work in practice before they make a final judgement.
Furthermore, of those who oppose the Central Bank’s new powers, just 4pc believe sanctions should be limited to the institution only.
This strengthening of powers has generated both discussion and debate throughout the financial services industry and while some groups have welcomed the move, others have voiced their concerns.”
The Compliance Institute points to arguments made by certain lobby groups late last year that these laws could make it harder for the financial services industry to attract and retain talent while others suggested they could even result in “financial ruin” for workers in the sector. Indeed, a survey conducted by the Compliance Institute last year found there was growing concern that new governance rules giving the Central Bank new powers to hold individuals accountable for wilful wrongdoing in the financial sector[1] could stymie the recruitment of senior executives in the field, with nine in ten firms in the sector saying they believe the new rules will make it difficult for firms to hire individuals into particular senior roles.
Mr Kavanagh added:
“Just 12pc of the people we surveyed agreed the changes could hamper the industry in Ireland, but a larger percentage (25pc) believe they could in fact result in financial ruin for the workers involved. In reality however, most people are on the fence, but one in three are confident that the Central Bank will be proportionate in the application of the powers”.
The Compliance Institute says the new laws should ultimately underpin sound governance across the financial services sector which in turn, consumers should benefit from.
Mr Kavanagh explained:
“While individuals could be fined up to €1m under the new laws, the Central Bank has promised it will apply the sanctions to individuals in a way that takes account of the unique challenges they face compared to firms. Most (62pc) also believe that the wealth of the individual should be considered while almost 6 in 10 say the access to advice provided by their employer should be factored in.”