Implementation of Individual Accountability Framework Principles by Central Bank of Ireland

Following the enactment of the Central Bank (Individual Accountability Framework) Act 2023 on 9 March 2023, the Central Bank of Ireland (CBI) launched a three-month consultation process regarding the implementation of the proposed individual accountability framework (IAF), together with the publication of draft regulations and guidance.

The purpose of the regulations and guidance is to provide clarity in terms of the CBI's expectations for the implementation of three aspects of the IAF that impact regulated firms, including Credit Servicing Firms, namely:

1. The Senior Executive Accountability Regime (SEAR);

2. The Conduct Standards and Additional Conduct Standards; and

3. Enhancements to the fitness and probity regime. 

The IAF includes the following key elements:

Senior Executive Accountability Regime (SEAR)

Currently it is proposed that this be limited to senior executives in Credit Institutions, certain Investments Firms, and certain Insurance Undertakings, albeit the process may in due course be expanded to other regulated firms.

Conduct Standards

The Conduct Standards are basic standards such as acting with honestly and integrity, with due skill, care and diligence and in the best interest of customers and will apply to individuals in all regulated firms, including Credit Servicing Firms.

The Conduct Standards set out a single set of applicable standards of behaviour which will apply to relevant individuals and all firms, irrespective of sector. Specifically, these comprise Conduct Standards for Control Functions (CF) and Additional Conduct Standards for individuals performing Pre-Approved Control Functions (PCF) and other individuals who may exercise significant influence on the conduct of a firm's affairs.

The Act imposes obligations on regulated firms to:

1. Notify persons holding Control Functions of the Conduct Standards and individuals in PCF roles of the Additional Conduct Standards that apply to them and to provide training to them in this regard.

2. Establish, maintain and give effect to policies as to how the Conduct Standards are integrated into the culture and conduct of the affairs of the firm.

3. Report to CBI any disciplinary action taken against an individual performing a CF role where that disciplinary action is relevant to compliance with the fitness and probity standards, including disciplinary action in respect of individuals in CF roles related to breaches of the Conduct Standards or in respect of Additional Conduct Standards. 

Firms should maintain up to date records regarding the notification of the Conduct Standards to the relevant individuals.

Additional Conduct Standards: Senior executives will also have Additional Conduct Standards relating to the running of the part of the business for which they are responsible. Additional Conduct Standards include:

• Ensuring that the business for which that person is responsible is controlled effectively;

• Ensuring that the business for which that person is responsible complies with the relevant regulatory requirements;

• Ensuring that any delegation of tasks for which they are responsible is to an appropriate person and that they oversee the discharge of the delegated task effectively;

• Disclosing promptly, proactively and appropriately to the CBI, any information which the CBI would reasonably expect notice;

• Participating effectively in collective decision making.

Enhancements to the current fitness and probity regime

Under the Act, firms and holding companies are required to document the following in respect of each individual in a CF role as part of the certification process:

1. Confirmation that the firms/holding company is satisfied that the individual meets any standards of fitness and probity applicable to the CF role;

2. Confirmation that the individual has agreed to abide by those standards;

3. Identification of the CF roles held;

4. An outline of the aspects of the affairs of the firm/holding company in which the individual will be involved in performing the CF roles;

5. Details of the steps taken by the firm/holding company informing the view that the individual meets any standards and fitness and probity application to the CF role; and

6. Whether the role is outsourced to an unregulated entity.

Under the accompanying Certification Regulations, firms would be required to carry out certification process in respect of all individuals and CF roles:

• Prior to appointment;

• On an annual basis; and

• In respect of any new control function roles assumed, in advance of appointment of same.

Amendments to the administrative sanctions' procedure

The CBI will have the ability to take enforcement action under the administrative sanctions' procedure directly against individuals for breaches of their obligations rather than only for their participation in breaches committed by a firm.  A breach of the Conduct Standards or Additional Conduct Standards may be a basis for the CBI finding that a person does not meet the requirements of the fitness and probity regime.

Implementation

The consultation paper sets out the following implementation timeline for the IAF package and reforms:

• Conduct Standards and Additional Conduct Standards – from 31 December 2023

• F&P regime enhancements including certification requirements – from 31 December 2023

• SEAR - from 1 July 2024.

The closing date for the consultation is 13 June 2023.  Link to CBI consultation paper, draft guidance and draft regulations can be found here.