Irish Individual Accountability Framework – the Central Bank consults

Overview

On 13 March 2023, the Central Bank of Ireland (the Central Bank) published CP153, “Enhanced governance, performance and accountability in financial services” (the CP).

This follows the signing into law on 9 March 2023 of The Central Bank (Individual Accountability Framework) Act 2023 (the Act).

The CP sets out proposals on a number of key aspects of implementing the new Individual Accountability Framework (IAF) as introduced by the Act.

Published with the CP are two annexes, the first containing draft Regulations and the second draft Guidance under the Act. These are intended to clarify the Central Bank’s expectations for the implementation of three aspects of the IAF:

• the Senior Executive Accountability Framework (SEAR);
• the Conduct Standards; and
• enhancements to the Fitness & Probity (F&P) regime.

The consultation period closes on 13 June 2023.

Simmons webinars

We recently hosted a series of webinars to discuss the CBI’s expectations for the implementation of the new Individual Accountability Framework.

Watch on demand here.

What does the CP set out?

The IAF includes the following key elements:

Senior Executive Accountability Regime (SEAR)

The aim of the regime is to require in-scope firms to set out, clearly and fully, where responsibility and decision-making lie within the firm’s senior management.

The initial in-scope population will be as has previously been indicated, covering around 150 firms, determined on a risk-based approach. The CP proposes that the SEAR will initially apply to regulated firms in the following areas:

• credit institutions (excluding credit unions);
• insurance undertakings (excluding reinsurance undertakings, captive (re)insurance undertakings and insurance SPVs);
• investment firms which:
  • underwrite on a firm commitment basis and/or;
  • deal on own account and/or;
  • are permitted to hold client assets; and
• incoming third country branches of the above.

Independent Non-Executive Directors (INEDs) and NEDs of in-scope firms will be included, and will be responsible in respect of their non-executive oversight responsibilities.

SEAR will apply:

• to incoming third country branches, though the Central Bank explains that application will be proportionate, with a reduced number of Prescribed Responsibilities.
• to outgoing branches of Irish firms.

Where a firm outsources functions, it must have a Pre-Approved Controlled Function (PCF) with responsibility for such outsourcing arrangements (who will therefore also be a SEF).

Conduct Standards

Common Conduct Standards are basic standards (such as acting with honesty and integrity and acting in the best interest of customers) and will apply to individuals in all regulated firms.

The aim is that the standards will impose a single set of readily understood, basic obligations on individuals carrying out CFs within firms.

Senior executives (PCFs and CF1s) will have ‘a small number’ of Additional Conduct Standards related to running the part of the business for which they are responsible.

The draft IAF Guidance set out as Annex 2 to the CP sets out the Central Bank’s expectations in relation to the Conduct Standards and provides some non-exhaustive examples of the steps which individuals may reasonably be expected to take to ensure the Conduct Standards are met.

The CP also makes clear the Central Bank’s expectation that, for firms within the scope of SEAR, the individual who is in the relevant PCF role with responsibility for embedding the Conduct Standards throughout the firm should oversee training in respect of the Conduct Standards.

Enhancements to the current Fitness & Probity (F&P) Regime

The CP is clear that the introduction of IAF will not result in a substantive change to the current F&P Regime.

Rather, the two regimes can be considered separately – F&P should be seen as being concerned with individuals’ suitability (prior to appointment) while the IAF will deal with their ongoing conduct once in the role.

Key aspects of the proposed changes include:

• annual certification that individuals carrying out CF roles comply with fitness and probity standards;
• firms would not be required to submit certification details to the Central Bank (though the information should be available on request);
• firms will required to confirm the completion of the certification process as part of their existing annual PCF return;
• firms will be required to inform the Central Bank where formal disciplinary action has been taken against individuals in the firm in respect of breaches of the Conduct Standards; and
• the F&P Regime would be extended to apply to holding companies established in Ireland, thereby closing a recognised gap in the current framework.

Amendments to the Administrative Sanctions Procedure (ASP)

A key change will be the Central Bank’s ability to take enforcement action under the ASP directly against individuals for breaches of their obligations rather than only for their participation in breaches committed by a firm.

The Central Bank will publish a separate consultation on the changes to the Administrative Sanctions Procedure in mid-2023. This package will include a revised ASP Outline, ASP Inquiry Guidelines and ASP Sanctions Guidance.

Timing

The CP proposes a number of deadlines in respect of the IAF implementation timeline.

• March 2023: The Central Bank plans to issue revised F&P Investigations Regulations and F&P Investigations Guidance
• 13 June 2023: The consultation period for CP153 closes
• 31 December 2023: Conduct standards start to apply
• 31 December 2023: F&P – certification and inclusion of holding companies to start to apply
• 1 July 2024: proposals in respect of the SEAR regulations to apply to in-scope firms