Opinion of the European Central Bank of 9 September 2011 on new measures strengthening supervision and enforcement in financial regulation (CON/2011/69)
Date: 2011-09-09
Institutions: European Central Bank
Subjects: Ireland, central bank, competence of the institution, financial services, financial stability, financial supervision, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 9 September 2011  

on new measures strengthening supervision and enforcement in financial regulation 

(CON/2011/69) 

Introduction and legal basis 

On  1  August  2011,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Ministry  of 

Finance  for  an  opinion  on  the  Central  Bank  (Supervision  and  Enforcement)  Bill  2011  (hereinafter  the 

‘draft law’).  

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of  the  European  Union  and  the  third  and  sixth  indents  of  Article  2(1)  of  Council  Decision 

98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding draft legislative provisions1, as the draft law relates to the Central Bank of Ireland (CBI) and 

contains  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the  stability  of 

financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article  17.5  of  the  Rules  of 

Procedure of the European Central Bank, the Governing Council has adopted this opinion.  

1. 

Purpose of the draft law  

The draft law is intended to enhance the CBI’s powers to (a) supervise regulated financial service 

providers, and (b) enforce financial services legislation. The introduction of this legislation is one 

of  the  financial  sector  reform  actions  under  the  EU/IMF  Programme  of  financial  support  for 
Ireland2.  

1.1  The draft law is intended to empower the CBI to require a financial service provider or a related 

undertaking to provide the CBI with an independent expert report paid for by the financial service 

provider  or  a  related  undertaking.  The  report  may  be  required  for  the  proper  and  effective 

regulation  of  financial  service  providers  and  may  relate  to  any  matter  on  which  the  CBI  may 

require information or documents under financial services legislation.   

1  
2  

OJ L 189, 3.7.1998, p. 42. 
See  the  Memorandum  of  Understanding  on  Specific  Economic  Policy  Conditionality  (First  Update)  of  17  May  2011, 
page  28,  and  the  Memorandum  of  Understanding  on  Specific  Economic  Policy  Conditionality  (Second  Update)  of 
28 July 2011, page 8, available on the Department of Finance’s website at www.finance.gov.ie. 

 
 
 
 
                                                      
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1.2  The  draft  law  will  -  with  limited  exceptions  -  replace  the  CBI’s  powers  to  appoint  investigative 

officers  with  a  single  consolidated  ‘authorised  officer’  regime  which  the  CBI  may  use  to  obtain 
information from all regulated financial service providers and various other categories or persons3. 

An authorised officer may be an officer or employee of the CBI or other suitably qualified person 

and may be appointed by the CBI for the purpose of obtaining any information necessary for the 

CBI’s  performance  of  its  functions  under  financial  services  legislation  relating  to  the  proper  and 

effective regulation of financial service providers.   

1.3  The draft law will introduce whistleblowing protection in the financial services area. Persons who 

make  good  faith  disclosures  regarding  the  possible  or  actual  contravention  of  financial  services 

legislation  to  the  CBI,  or  an  officer  or  employee  of  the  CBI  or  an  authorised  officer,  will  be 

protected  from  civil  liability  and  penalisation  (as  defined  in  section  32  of  the  draft  law)  by  their 

employer. The draft law will also require persons who perform a pre-approval controlled function 

within  regulated  financial  service  providers,  i.e.  a  senior  role  or  a  role  related  to  regulatory 

compliance,  to  disclose  to  the  CBI  such  possible  or  actual  contraventions  of  financial  services 

legislation which they believe or know might be of material assistance to the CBI. Additionally, to 

protect the whistleblower’s personal data, Section 34(5) of the draft law provides that the CBI may 

not divulge the whistleblower’s identity except (i) with the whistleblower’s consent, or (ii) if this is 

necessary to ensure proper investigation of the matters to which the disclosure relates. 

1.4  The  draft  law  extends  the  CBI’s  powers    to  give  directions  to  all  regulated  service  providers  or 

related undertakings, in particular where they are acting or failing to act in a particular manner. 

1.5  The  draft  law  will  empower  the  CBI  to  make  wide-ranging  regulations,  following  prior 

consultation  with  the  Ministry,  for  the  proper  and  effective  regulation  of  financial  service 

providers. It will also provide additional powers to the CBI to enforce financial services legislation 

and  will  increase  the  maximum  levels  of  financial  sanctions  which  can  be  imposed  on  regulated 

financial service providers by the CBI for contraventions of financial services legislation.   

2.   General observations 

2.1  The  ECB  understands  that  this  draft  law  is  the  second  step  in  the  legislative  reform  of  the  Irish 
central banking and financial regulatory regime4. In particular, it will provide the CBI with powers, 

such  as  powers  related  to  third  party  reports,  authorised  officers  and  directions,  which  would 

extend  beyond  the  regulated  financial  service  provider  to  include  related  undertakings.  These 

powers therefore will enhance the ability of the CBI to have a complete understanding of the whole 

group of which the regulated entity is a  member when assessing the risks to which the regulated 

3  
4  

See section 21 of the draft law for the list of persons to whom the powers of an authorised officer can apply. 
The first was the Central Bank Reform Act 2010, renaming the Central Bank and Financial Services Authority of Ireland 
the Central Bank of Ireland, that became a single fully-integrated structure with a unitary board to replace the two-pillar 
structure of the previous Central Bank and Financial Services Authority of Ireland. 

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business is subject. In this regard, the ECB welcomes the draft law as enhancing the supervisory 
and enforcement tools available to the CBI5. 

2.2  The  ECB  understands  that  further  legislation  will  be  introduced  to  consolidate  all  legislation 
relating  to  the  CBI.  The  ECB  reaffirms  its  previous  opinions6  on  the  consolidation  of  Ireland’s 

Central Bank Acts and notes that such further consolidating legislation should be the subject of a 

separate consultation of the ECB.   

3. 

Additional CBI powers in supervisory and enforcement matters 

As  regards  the  financing  of  the  additional  and  enhanced  CBI  powers  in  supervisory  and 

enforcement  matters  introduced  by  the  draft  law,  the  ECB  refers  to  the  principle  of  financial 

independence under which a national central bank must have sufficient means to perform its tasks 
related to the European System of Central Banks (ESCB) and its national tasks7. The CBI should, 

therefore, dispose of sufficient human and financial resources to efficiently perform any additional 

tasks introduced by the draft law, as well as its current tasks, and should not be adversely affected 

in carrying out its ESCB-related tasks, from an operational or financial point of view, as a result of 

any additional tasks introduced by the draft law.  

3.1 

Independent expert report 

Part 2 of the draft law will empower the CBI in certain circumstances to require a financial service 

provider or a related undertaking to report to it. While section 9 of the draft law provides (i) that the 

substance of such report may relate to any matter on which the CBI could require information or 

documents  under  financial  services  legislation,  and  (ii)  that  the  report  may  be  required  for  the 

proper and effective regulation of financial service providers, section 10 provides that the CBI must 

have  regard  to  certain matters  before requesting  a  report  under  section  9. For  example,  the  CBI 

must  have  regard  to  whether  it  might  use  other  more  appropriate  powers  instead  of  requesting  a 

report  and  to  the  degree  of  relevant  knowledge  and  expertise  available  to  the  financial  service 

provider or related undertaking, as well as the cost implications of providing such report. Although 

the  draft  law  does  not  specify  precisely  when  a  report may  be  requested, the  ECB acknowledges 

the  need  for  flexibility  in  this  regard  and  understands  that  the  scope of  section  9  should  be  read 

against the provisions in section 10.   

Section  11(1)  of  the  draft  law  provides  that  the  person  appointed  to  report  (hereinafter  the 

‘reviewer’)  will  be  either  (i)  nominated  by  the  financial  service  provider  or  related  undertaking 

being reviewed (hereinafter the ‘reviewee’) and approved by the CBI, or (ii) nominated by the CBI 

if the reviewee makes no nomination. Section 11(2) provides that the reviewer may be employed or 

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6  

7  

See also paragraph 2.1 of Opinion CON/2009/50. 
See,  for  example,  paragraph  17  of  Opinion  CON/2002/16,  paragraph  9  of  Opinion  CON/2003/24,  paragraph  2.1  of 
Opinion CON/2010/30 and paragraph 2 of Opinion CON/2010/48.  
See the ECB’s Convergence Report, May 2010, p. 21, and paragraph 3.1.5 of Opinion CON/2009/93 and paragraph 3.2.1 
of CON/2011/46. 

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otherwise engaged by the reviewee. The ECB welcomes the provisions of section 11(3) aimed at 

ensuring the independence and impartiality of the reviewer vis-à-vis the reviewee as a precondition 

for  its  appointment  and  for  drafting  the  report.  The  ECB  stresses  the  importance  of  the  adequate 

application of such provisions by the reviewee and  by the CBI, through thorough scrutiny of the 

absence of conflict of interests and fulfilment of all the other conditions set forth by the draft law. 

3.2  Authorised officers 

Part  3  of  the  draft  law  provides  for  the  appointment  in  certain  circumstances  by  the  CBI  of  an 

authorised  officer  in  respect  of  a  regulated  financial  service  provider  or  related  undertaking  and 
various  other  categories  or  persons8,  for  the  purposes  of  obtaining  information  necessary  for  the 

CBI’s performance of its regulatory and supervisory functions. According to section 25 of the draft 

law,  an  authorised  officer  is  provided  with  a  wide  range  of  powers  including  in  relation  to 

inspections,  interviews,  searches  and  document  production.  Section  30  provides  that  where  a 

person  subject  to  an  authorised  officer’s  powers  fails  or  refuses  to  comply  with  that  authorised 

officer in the exercise of their powers, the authorised officer may certify the failure or refusal to the 

High Court. The High Court may then make an order or direction as it sees fit, following hearings 

of any witnesses against or on behalf of the person concerned and any statement in defence.   

The ECB notes that the draft law does not address the question of possible interplay between the 

function of a reviewer appointed under Part 2 to report to the CBI, and that of an authorised officer 

appointed under Part 3 to obtain information for the CBI. The draft law does not provide in what 

circumstances a reviewer as opposed to an authorised officer, and vice versa, would be appointed. 

Similarly, there are no provisions in the draft law to deal with the potential situation where both a 

reviewer  and  an  authorised  officer  are  performing  tasks  for  the  CBI  in  relation  to  a  regulated 

financial  service  provider  or  related  undertaking  at  the  same  time.  The  ECB  appreciates  that  the 

reviewer and the authorised officer have different functions, with the reviewer performing specific, 

stipulated tasks for the CBI, whilst the authorised officer will be largely gathering information for 

the CBI. Although it could be helpful to clarify the respective positions of each as regards the other 

in such circumstances, the ECB understands the difficulty in providing precise dividing lines in the 

draft law between the use and position of authorised officers and reviewers, respectively, and that 

the choice of measure will depend on the circumstances in each case, and therefore suggests that 

this point is addressed by the CBI when implementing the draft law.  

3.3  Whistleblowing  

Part  4  of  the  draft  law  introduces  whistleblowing  protection  for  persons  who  make  good  faith 

disclosures to the CBI or a CBI officer or employee or an authorised officer regarding the possible 
or  actual  contravention  of  financial  services  legislation9.  The  ECB  understands  that  this 

8  
9  

See section 21 of the draft law for the list of persons to whom the powers of an authorised officer can apply. 
The  proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  the  access  to  the  activity  of  credit 
institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC 
of  the  European  Parliament  and  of  the  Council  on  the  supplementary  supervision  of  credit  institutions,  insurance 
undertakings  and  investment  firms  in  a  financial  conglomerate,  COM(2011)  453  final  also  introduces  a  provision 

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introduction of specific protection for whistleblowers in the financial services sector is to address a 

recognised lack of protection for good faith disclosures in respect of a potential or actual offence 

under or contravention of financial services legislation. The ECB understands that the CBI could 

use any of the information disclosed to it under Part 4 to more efficiently avail of its other powers 

under the draft law and under other relevant laws to contribute to the more effective application of 
the  financial  services  legislation10.  On  this  basis,  the  ECB  welcomes  the  introduction  of  such 

protection for whistleblowers. 

3.4  Directions 

The ECB understands that the CBI’s power to give directions is not new and that the intention of 
the draft law11 is rather to clarify and consolidate its precise scope12 by providing for a new power 

which  applies  to  all  regulated  financial  service  providers  and  their  related  undertakings.  In  this 

regard, the ECB welcomes the intention of clarification and consolidation.   

3.5  Regulations  

Part  6  of  the  draft  law  will  empower  the  CBI  to  make  wide-ranging  regulations,  following  prior 

consultation  with  the  Ministry,  for  the  proper  and  effective  regulation  of  financial  service 

providers.  Such  regulations  would  allow  the  CBI  to  effectively  perform  the  new  supervisory 

responsibilities related to all financial services providers and financial markets. As pointed out on 
previous occasions13, and without prejudice to the Governing Council’s powers under Article 14.4 

of the Statute of the European System of Central Banks (hereinafter the ‘Statute of the ESCB’), the 

ECB  does  not  consider  that  this  new  task  would  interfere  with  the  ESCB’s  objectives  and  tasks. 

Nonetheless, pursuant to the last sentence of Article 14.4 of the Statute of the ESCB, this new task 

would  have  to  be  performed  on  the  responsibility  and  liability  of  the  CBI  and  would  not  be 

regarded as being part of ESCB functions.   

Section  41  of  the  draft  law  provides  that,  prior  to  making  any  such  regulations,  the  CBI  must 

(i) consult with the Ministry, and (ii) provide the Ministry with a draft of the proposed regulations. 

The  ECB  would  welcome  elaboration  in  the  draft  law  of  the  precise  procedural  rules  for  such 

consultation, for example in terms of timing. Such procedural rules should not impact on the CBI’s 

independence  of  decision-making  or  action  or  its  need  to  act  quickly  in  times  of  crisis.  In  this 

regard,  it  should  be  clear  that,  by  giving  the  Ministry  the  opportunity  to  comment  on  a  draft 

regulation,  the  CBI  will  have  fulfilled  ipso  facto  its  obligation  to  consult  the  Ministry  under 

section 41, and that there is no obligation to obtain the Ministry’s consent before making any such 

regulation.  

regarding whistleblowing (Article 70). 
See  in  this  respect the  Commission  Communication  on  reinforcing  sanctioning  regimes  in  the financial  services  sector 
(COM (2010) 716 final), 8 December 2010, page 15. 
Part 5 of the draft law. 
For example under section 21 of the Central Bank Act 1971 and under section 18 of the Insurance Act 1989. 
See for example Opinion CON/2006/38, Opinion CON/2006/47, Opinion CON/2007/8 and Opinion CON/2007/29. 

10   

11  
12  
13  

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3.6  Cooperation with foreign authorities 

The ECB welcomes the provision in section 53 on cooperation with foreign authorities to enhance 

the effectiveness of international supervision. The ECB notes, however, that a reference to Member 

State  and  third  country  authorities  would  be  more  consistent  with  Union  language  and  for  this 

reason  preferable  to  ‘overseas  regulator’.  In  this  regard,  the  provision  should  address 

(i) cooperation with Member State authorities and the duty to cooperate to comply with any Treaty 

obligation and the Union banking directives, and (ii) cooperation with third country authorities, by 

setting out the conditions for such international cooperation which are not applicable in the Union 

context.   

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 9 September 2011. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

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