Central Bank to review ‘fitness and probity process after ‘flawed’ decision

The Central Bank has decided to commission an independent review of its fitness and probity vetting regime for individual taking up important finance sector positions, after an appeals body made a highly critical judgment of its refusal to approve a finance executive for board position on an Irish fund.

The Irish Financial Appeals Tribunal (Ifsat), an independent body that hears appeals from aggrieved parties against certain Central Bank decisions, chaired by former Supreme Court judge John MacMenamin, said the regulator’s decision-making process in the case was “flawed” and the appellant was “denied fair procedures at every stage of the process”.

Efforts to secure comment from the individual, who is not named in the report but whose identity is known to The Irish Times, were not immediately successful.

“The tribunal is satisfied that taken cumulatively – or even individually – the various procedures adopted by the Central Bank did not comply with the requirements of Constitutional and natural justice; including the necessity for fair notice; the duty to give reasons; and the observance of the principle of audi alterem partem,” the Ifsat judgment said.

Audi alterem partem is the Latin phrase for the concept of allowing the other side to be heard as well.

However, Ifsat said it was unable to conclude whether the Central Bank decision to refuse approval for the individual was the correct or preferable one.

The regulator said it will conduct a reassessment of the application in accordance with Ifsat’s directions. It has also decided to commission an independent review of the fitness and probity approval process “to ensure that it remains effective into the future”.

“If you go through the decision, you will see lots of criticisms of the Central Bank of Ireland by the tribunal, including areas where it is perplexed that the Central Bank did not offer evidence that would have been expected to advance its case,” said Peter Oakes, a former enforcement director at the Central Bank and experienced independent non-executive director in the finance industry.

“The tribunal decision should be a bible for the Central Bank for the future-proofing of its own internal processes for [fitness and probity] decisions.”

The Ifsat decision outlined that a key Central Bank concern related to the appellant’s previous roles as chairman and non-executive director of at a financial services provider called Quayside Fund Management Limited as well as an alternative investment fund named Ruvercap Icav, where Quayside had been appointed as a delegate of the fund’s board of directors. Ruvercap Icav made investments under advice the advice a Swiss investment firm called Ruvercap AG.

It emerged in 2019 that bonds in which Ruvercap ICAV investment – to a Swiss company called Go Factoring that lent money to other businesses – had become impaired.

The tribunal heard that Ruvercap AG did not inform Quayside or Ruvercap ICAV that the bonds had become impaired “for a significant period”.

The boards of Irish-based Quayside and Ruvercap Icav became aware of the impaired bonds in February or March 2019, according the Ifsat document. It added, however, that it appeared the Central Bank “only became alive to the situation in October 2019″.

However, Quayside co-founder and director Kevin O’Doherty said in a statement to The Irish Times that Ruvercap Icav “fully and clearly” informed the Central Bank of issues with the fund by letter on July 19th 2019, and that a decision had been taken to suspend dealings and wind down the fund because it had become difficult to value.

Nevertheless, Ifsat said the question the tribunal faced was whether the Central Bank adopted the appropriate procedure in its vetting process.

It also highlighted that the question of fitness of the appellant was the only issue before the tribunal. “No allegation is made that the appellant lacked probity,” it said.