The proposed heads of Central Bank (Individual Accountability Framework) Bill 2021 (Bill) has been published which, once it is enacted, will strengthen the level of obligations placed on individuals working in regulated financial firms.
The Bill proposes the introduction of an "Individual Accountability Framework" and a "Senior Executive Accountability Regime" which will place obligations on certain customer facing firms and senior individuals within them to set out clearly where responsibility and decision making lies.
The Bill proposes the introduction of several material changes to the regulatory framework governing the conduct of individuals working in financial services providers, including:
- It would break the "Participation Link" which requires the Central Bank to first prove a contravention of financial services legislation against a regulated financial services provider before it can take enforcement against an individual
- Introduce standards of behaviour for regulated financial providers and individuals working within them (the Conduct Standards)
- introduce a senior executive accountability regime (SEAR) which will include clearer accountability by placing obligations on firms and senior individuals within them to set out clearly where responsibility and decision making lies with their business; and
- Enhancements to the current fitness and probity regime and the administrative sanctions procedure to strengthen the onus on firms to proactively assess individuals in controlled functions on an ongoing basis.
The Conduct Standards will provide clarity to firms and to the Central Bank as to who is responsible for what role and how decisions are made within firms. The Conduct Standards will apply across the regulated financial services sector whereas the SEAR will focus on sectors of the financial services industry that have greater customer focus and more the protection of consumer interest is essential.
Senior Executive Accountability Regime (SEAR)
The proposal is that the Bill will require firms to make it clear who is responsible for what within a firm and how decisions are made within its governance structures. The SEAR will apply to those performing senior executive functions (SEFs) in regulated firms. SEFs would include board members, executives reporting directing to the board and the heads of critical business areas.
Each SEF will have responsibilities, which are inherent to that role. The Central Bank will also prescribe mandatory responsibilities for firms which must be allocated to individuals carrying out SEFs to ensure that there is an SEF accountable for all key conduct and potential risks. The general list of prescribed responsibilities applicable to all firms will vary depending on industry sectors and based on firms scale and complexity.
Each SEF will be required to have a documented statement of responsibilities which clearly set out their role and areas of responsibility. These statements are intended to promote clarity and transparency of individual responsibilities and to provide for a more targeted assessment of the fitness and probity of SEFs by allowing their conscience, knowledge, experience and qualifications to be measured against the responsibilities they have been allocated. In addition, such statement and responsibilities also decrease the ability of individuals to claim that the culpability for misconduct of wrongdoing lies outside their sphere of responsibility thereby making it easier to hold individuals to account. Financial institutions will be required to keep statements of responsibilities up to the date and submitted the Central Bank.
It is proposed that each firm within the scope of SEAR will be required to produce a responsibility map and keep this up to date and submitted to the Central Bank. The responsibility map will document key management and governance arrangements in a comprehensive, accessible and clear single source of reference.
Furthermore, the Central Bank has indicated that the Conduct Standards will complement the existing fitness and probity regime by delineating the responsibilities of controlled functions and introducing a certification regime obliging firms to certify on an annual basis that its controlled function staff and fit and proper persons to perform their functions.
While, it may take some time for the Bill to ultimately be enacted by the Oireachtas and be fully implemented, it seems clear that the regulatory obligations of individuals working in regulated financial services firms will increase.