Financial Crime World

Fitness and Probity Regime for Irish Banks Comes into Force

The Central Bank of Ireland (CBI) has introduced a new Fitness and Probity Regime to ensure that individuals performing crucial roles in regulated firms, including banks, are competent and of good character.

Who is Affected?

The regime applies to “controlled functions” or “pre-approval controlled functions” in banks, which include:

  • Board directors
  • CEOs
  • Heads of control functions
  • Other senior management

Before appointing an individual to one of these roles, CBI approval must be obtained. This may involve a face-to-face interview with the regulator.

Objectives of the Regime

The regime is designed to promote high standards of integrity, honesty, and professionalism among banking professionals in Ireland. It requires individuals to disclose any potential conflicts of interest and ensure that their personal financial affairs are properly managed.

Capital Requirements Increase for Irish Banks

In a move to strengthen the resilience of Irish banks, the CBI has increased capital requirements for banks operating in the country. The new rules require banks to maintain:

  • A minimum total capital ratio of 8% of their risk-weighted assets (RWAs)
  • At least 4.5% of RWAs being Common Equity Tier 1
  • 6% of RWAs being met with Tier 1 capital

Additional Capital Requirements

Irish banks are also subject to additional capital requirements, including:

  • Capital conversion buffer
  • Global/Other Systemically Important Institution (GSII/OSII) buffer
  • Counter-cyclical capital buffer
  • Systemic risk buffer

Regulatory Capital and Lending Requirements

The CBI has introduced new regulatory capital requirements for Irish banks, including the need to maintain financial resources equal to or greater than a percentage of their risk-weighted assets. The types of capital that qualify for capital adequacy purposes include:

  • Common equity tier 1
  • Additional tier 1
  • Tier 2

Lending Requirements

The CBI has also introduced augmented measures to address real estate exposure, including:

  • Higher minimum risk rates on lending for commercial property acquisition
  • A maximum loan-to-value (LTV) ratio of 75% for owner-occupied residential property

Promoting Stability and Confidence

The new Fitness and Probity Regime, capital requirements, and regulatory capital and lending requirements are designed to promote stability and confidence in the financial sector in Ireland. The regulations aim to ensure that Irish banks operate with high standards of integrity, honesty, and professionalism, and maintain adequate capital and liquidity to withstand potential risks.

The CBI has issued a set of rules and guidance on the application of these new requirements, informed by international standards promulgated by the Basel Committee on Banking Supervision, the Financial Stability Board, and the OECD.