Central Bank publishes new accountability rules for financial companies

The Central Bank has today published regulations and guidance for firms who have to comply with the Individual Accountability Framework (IAF).

This is a set of rules governing the conduct of employees and executives in financial companies.

It follows a three month consultation process.

Today's guidelines cover the Senior Executive Accountability Framework (SEAR), the Conduct Standards and the Fitness & Probity Regime.

The changes to the Conduct Standards and Fitness & Probility Regime will apply from 29 December 2023.

Regulations on specific roles will apply from 1 July 2024 and for Independent Non-Executive Directors from 1 July, 2025. This is to allow for a transition period for board members to meet their obligations.

"In order to assist with [the compliance burden] we've removed some of the rerporting standards, we've brought together some of the accountabilities for senior role-holders," said Derville Rowland, deputy governor of the Central Bank. "I think an important one is to give a bit more time to independent, non-executive directors and non-executive directors to come in-scome to this SEAR regime."

"They will get an extra 12 months to allow firms to get to grips with the regime, first of all, in respect of their executives, and then take the lessons to be learned and apply it to the non-execs and independent non-execs on their board."

Ms Rowland said it was important that time was taken to ensure the new rules were applied properly.

She also pointed out that the conduct standards - which she described as "really important" were coming into force at the end of this year.

"They will apply to nearly all people who work in financial services roles... and they're really fundamental standards of acting with integrity, honesty, acting in the best interest of customers, treating your customers fairly and professionally," she said.

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The changes announced today include amendments to the Administrative Sanctions Procedure (ASP) which will allow the Central Bank to take enforcement action against individuals for breaches of their obligations, "rather than only for their participation in breaches committed by a firm."

Under the Senior Accountability Regime, firms will have to set out clearly which senior executives are responsible for what decisions.

Under the Fitness & Probity Regime, firms will have to certify that individuals doing certain jobs are ‘fit and proper’ for those jobs.

And overall, the Common Conduct Standard will set "basic standards’ for honesty, integrity, due skill, care and diligence and acting ‘in the best interest of customers" which will apply to individuals in all regulated firms.

Senior executives will have ‘Additional Conduct Standards’ relating to the parts of the business in which they are involved.

Ms Rowland said the Central Bank saw these new rules as a foundation stone for all types of obligations that regulated entities have, many of which have been in place for a considerable amount of time.

"There's already a lot of duties on people who work in financial services to bring concerns and breaches to the attention of the Central Bank and other authorities, as appropriate," she said. "There's always, available to everybody, very extensive whistleblowing protections and avenues for all people - including senior role-holders."

Financial Services Ireland (FSI) welcomed the publication and the changes made to the draft rules.

"We are pleased to note a number of FSI's specific recommendations reflected in the final publication, such as the extension of the lead-in period for the Senior Executive Accountability Regime for Independent Non-Executive Directors, the allowance for continued self-certification for a significant portion of employees, the provision for sharing roles in limited circumstances, and the enhanced clarity and efficiency in the design of some prescribed responsibilities," said Director, Patricia Callan.

"FSI also welcomes CBI’s stated intention to apply the regime in a proportionate and predictable manner, with reasonable expectations."

"FSI will continue its engagement with its members to provide support in implementing the guidelines."

Other experts also saw the developments as positive.

"The practical impact of implementing the IAF has been recognised by the Central Bank, and it has listened to public feedback, as reflected in the deferred timing of certain elements, not least in the deferral of the application of SEAR on (I) NEDs," said Kevin Coleman, Director in Financial Services Advisory at Grant Thornton.

"Practical implementation will require patience and understanding from both industry and the Central Bank of Ireland."

"Regulated providers in Ireland comprise a variety of business models, in nature scale and complexity. The practical application of the principles of "proportionality and predictability" in particular by the Central Bank will be critical."

Kian Caulwell, Partner, and Head of Financial Services Consulting at Mazars Ireland, said it was important that the Central Bank listened to some of the industry's key concerns and adapted the requirements, without losing sight of the IAF Act’s key objectives.

"It also demonstrates that the Central Bank has pivoted focus, to concentrate on the senior most individuals with firms, removing more junior individuals from the formal certification process," he said.

"The impact of this will allow firms to concentrate their resources on the conduct of senior executives, which will have a positive impact on making sure the tone at the top is the right one.

He added that the changes to the first submission dates will ensure the conduct standards are fully incorporated within the performance management processes within firms.