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12 Jul 2021

Senior Executive Accountability Regime Imminent

briefing

Regulatory Investigations

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For further information on any of the issues discussed in this publication please contact the related contact(s) on this page.

The Central Bank of Ireland (CBI) recently published its “Consumer Protection Outlook for 2021” (the Report). In the Report, the CBI states that one of its priorities in 2021 is to “deliver intrusive risk-based supervision and intensify [its] targeted assessment of firms and sectors that pose the greatest potential harm to consumers and investors”. The Central Bank stresses the importance for firms to exhibit a consumer focused culture and requires senior individuals to take responsibility for embedding such culture and behaviour in their organisations.

The Central Bank is working closely with the Department of Finance to develop a proposed Individual Accountability Framework (see our previous article on this topic here) with the goal of producing better outcomes for investors and consumers. The Individual Accountability Framework will aim to hold firms and their senior individuals accountable for living up to certain standards which will allow the Central Bank to take enforcement cases against them when these standards are not met.

The Department of Finance press release in relation to the proposed legislation indicates that it will provide for:

  • Introduction of the Senior Executive Accountability Regime (SEAR), which is discussed in more detail below;

  • Introduction of Conduct Standards for individuals and firms to provide for statutory powers to set and impose binding and enforceable obligations on all Regulated Financial Service Providers (RFSP’s) and individuals working within them with respect to expected standards of conduct;

  • An enhanced Fitness & Probity Regime to ensure the effective operation of the regime and to support the CBI’s proposed Individual Accountability Framework and the conduct standards for individuals and firms; and

  • Breaking the “Participation Link” which addresses the known deficiency in the existing legislation which requires the CBI to first prove a contravention of financial services legislation against a RFSP before it can take any action against an individual.

The CBI released a publication in July 2018 entitled “Behaviour and Culture of the Irish Retail Banks”. In this publication it is outlined that the SEAR will place obligations on firms and senior individuals within them to set out clearly where responsibility and decision-making lies. Specifically, it is proposed that:

  • There would be prescribed “Mandatory Responsibilities” for firms. These will be assigned to individuals carrying out Senior Executive Functions (SEFs). This will ensure that there is a SEF accountable for all key conduct and prudential risks. SEFs will, broadly speaking, include board members, executives reporting directly to the board and heads of critical business areas;

  • Each SEF would be required to have a documented “Statement of Responsibilities” setting out their role and areas of responsibility; and

  • Each firm would be required to produce “Responsibility Maps” which outline key management and governance arrangements in a clear and easily understood format.

Comment

It was announced by the Minister for Finance that he intends to publish the Central Bank (Amendment) Bill, supporting the introduction of the SEAR, before the Dáil rises for the 2021 summer recess. In light of recent controversies, there could be pressure on the Government to enact the legislation soon, but it is not possible at this stage to predict when it will become law.

The stated aim of the legislation is to make the individuals’ responsibilities clear; increase transparency regarding decision-making; and outline the expected standards for their conduct. This will undoubtedly require both firms and individuals to adapt their practices to ensure they are not in breach of the requirements of the new regime when it comes into force.

The CBI stresses the importance of clarity about who is responsible for what and how decisions are made within a firm's governance structures. This insistence on clarity in respect of individual responsibility demonstrates the CBI’s focus on a culture of good conduct and the need for accountability.

If you require advice in relation to the matters covered in this briefing please contact a member of our Regulatory Investigations Team.

DISCLAIMER: This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.

Copyright Notice: © 2021 Dillon Eustace LLP. All rights reserved.

DISCLAIMER: This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.


Copyright Notice: © 2024 Dillon Eustace LLP. All rights reserved.