The Individual Accountability Bill

In the decade since the financial crisis, the banking industry has paid at least $350 billion in penalties for conduct-related matters. At home in Ireland, retail banks have spent in and around €1 billion in respect of a tracker mortgage scandal. For the boards of the firms in question, these huge sums represent a failure in governance and oversight. In response to this and the international focus on strengthening corporate culture, a new accountability regime for senior executives of regulated financial service providers (“RFSPs”) has been proposed by the Department of Finance.

The aim of the Central Bank (Individual Accountability Framework) Bill (the “Bill”) is to make individual responsibilities clear; increase transparency regarding decision-making; and outline expected standards for conduct. The Bill provides an individual accountability framework which will empower the Central Bank of Ireland to hold those in management roles at RFSPs accountable for wrongdoings that occur under their supervision.

The Bill will likely require significant changes to organisational structures and HR practices within RFSPs. Accordingly, it is important to consider what compliance will involve.

Elements of the Bill
The four elements of the Bill are as follows:

  • The introduction of the Senior Executive Accountability Regime (the “SEAR”). Under SEAR, RFSPs must be transparent in respect of how decision-making occurs and where ultimate responsibility lies. The SEAR will apply to banks, investment firms and certain aspects of the insurance industry but will not apply to credit unions.
  • The establishment of conduct standards such as common conduct standards for all staff, additional conduct standards for senior management and standards for business applicable to all firms across the regulated financial services sector.
  • The initiation of a certification regime which will include the enhancement of the existing fitness and probity regime. This certification regime will require RFSPs to certify on an annual basis that their in-scope staff are fit and proper persons to perform their functions.
  • An increase in the Central Bank of Ireland’s powers of enforcement, allowing it to pursue individuals directly for their own misconduct.

How should RFSPs prepare?
The Bill will require RFSPs to set out where responsibility and decision-making lies within the organisation, including by preparing:

  • a “statement of responsibility” for each senior executive, identifying risks within their area of responsibility; and
  • a “management responsibility map” which shows where each of the senior executives fit within the RFSP’s management and governance structures and their reporting lines.
  • Policies in relation to the new business and conduct standards and ensuring that in-scope staff are appropriately trained.
  • Systems for conducting regular due diligence in respect of in-scope staff in order to keep up with enhancements to the certification regime.

This preparation will require RFSPs to undertake a careful analysis of any gap in their existing governance arrangements and will likely require changes to contracts of employments and the job descriptions of certain personnel.

Next steps
The SEAR has been described as a “multi-year” project which should begin to be rolled out on a phased basis from Q3 or Q4 2022. Accordingly, RFSPs should begin their preparation with this timeline in mind.

Both firms and individuals will have to adapt their practices to ensure they are not in breach of the new requirements when the new regime comes into force.