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General Scheme of the Central Bank (Individual Accountability Framework) published

  • Ireland
  • Financial services and markets regulation - Briefings and articles
  • Financial services disputes and investigations
  • Financial services - Senior Managers and Certification Regime

27-07-2021

On 27 July, the Minister for Finance, Paschal Donohoe, announced the publication of the new General Scheme to give effect to a new Individual Accountability Framework, including the Senior Executive Accountability Regime (“SEAR”).

Introduction

In a July 2018 report into the culture of the retail banks in Ireland, the Central Bank of Ireland (“CBI”) stated that “without a strengthened Individual Accountability Framework, the likelihood of profound cultural change in the regulated financial services sector is reduced”. In that report, the CBI set out in some detail its recommendations for such a new framework. The General Scheme of the Central Bank (Individual Accountability Framework) (“General Scheme”), which were published on 27 July 2021, aim to implement the CBI’s recommendations.

This new framework is broadly modelled on the Senior Managers and Certification Regime (“SMCR”) that has been in place in the UK since 2016.

Key points of the General Scheme

The key elements of the proposed new framework are:

Conduct standards: The codification of Common Conduct Standards, for all persons in a Controlled Function role in regulated financial services firms. These include requirements to “act honestly, ethically and with integrity”, “act with due skill, care and diligence”; “be cooperative with the Central Bank and other regulators or authorities and deal with them in good faith and without delay”.

Additional conduct standards will apply for senior management ie persons in a so-called Pre-approval Controlled Function (“PCF”) and as well as other persons who have the ability to exercise significant influence over the affairs in the firm. These will require these senior managers to “ensure that the business of the [regulated firm] for which the person is responsible is controlled effectively”; “ensure that the business of the [regulated firm] for which the person is responsible complies with relevant regulatory requirements”; “ensure 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”; “disclose promptly, proactively and appropriately to the Central Bank of Ireland (“CBI”) any information of which the Central Bank would reasonably expect notice”; and “participate effectively in collective decision making”.

There are also to be business conduct standards for all regulated firms.

Duty of responsibility: All persons in a so-called Senior Executive Function (“SEF”)(in essence, all in a PCF role who fall within the scope of SEAR) must take reasonable steps to avoid their firm committing or continuing to commit a “prescribed contravention” in relation to the areas of the business for which they are individually responsible.

SEAR: This places obligations on in-scope firms and SEFs to set out clearly where responsibility and decision-making lies. SEFs will be required to have an individual Statement of Responsibility in place, which sets out the specific areas of responsibility of that individual. There will also be prescribed responsibilities that must be allocated to SEFs. Also, in-scope firms will be required to have in place a Management Responsibility Map, which would set out in a single document the various governance arrangements (terms of reference of the Board and committees; reporting lines; ensuring that there is no overlaps/underlaps in respective Statements of Responsibility so that there is clarity in who is responsible for what etc).

It is intended that SEAR will apply in an initial phase only to:

o Credit institutions (excluding credit unions);

o Insurance undertakings (excluding reinsurance undertakings, captive (re)insurance undertakings and Insurance Special Purpose Vehicles);

o Investment firms which underwrite on a firm commitment basis and/or deal on own account and/or are authorised to hold client monies/assets;

o Third country branches of the above

• Fitness & Probity enhancements: The current F&P regime is to be enhanced. Regulated firms will be required to certify, probably an annual basis, that individuals in Controlled Function roles are fit and proper for their role in the firm. This certification requirement goes beyond the current arrangements, whereby individuals typically self-certify their fitness and probity.

Sanctions: A breach of the above conduct standards or duty of responsibility would enable the CBI to sanction a firm or individual under its current Administrative Sanctions Procedure (“ASP”). Importantly, the CBI would be able to sanction individuals for these breaches without first having to establish that the individual participated in a regulatory breach by their firm (which is currently the case). Under the ASP, the CBI can impose various sanctions on individuals, including disqualifications and fines of up to €1 million.

Minister Donohoe welcomed the publication of the General Scheme, noting:

“The changes to Central Bank legislation will put individual accountability at the centre of decision making in financial services organisations. The provisions will ensure that there is clarity around the roles and functions of senior executives….

Taken together these are significant changes in the governance of financial institutions. Their aim is to drive a culture of positive behaviour among those who work in financial institutions and is part of the ongoing work to restore trust in these institutions.”

Firms need to prepare for the new requirement

The new requirements, once they come into force, will have significant implications for all regulated firms in Ireland, and for individual employees and senior managers/directors. Firms will, in particular, need to review their governance arrangements and HR arrangements to ensure compliance with the new requirements.

Our separate brochure Individual accountability: Preparing for the new regime provides firms with a detailed roadmap for preparing for the new requirements.

How we can help you prepare effectively for the new requirements

We have the expertise to assist you with all aspects of preparations for the new regime. This includes assisting firms to review and revise all aspects of their governance framework, HR aspects and all relevant policies and procedures.

We work closely with our colleagues in our UK offices, who have extensive experience of advising on the equivalent UK regime since its introduction in 2016. Furthermore, we are supported by the financial services team within Konexo, the global alternative legal and compliance division of Eversheds Sutherland. Through Konexo, we are able to offer a ‘one stop shop’ team of financial services compliance specialists and programme management personnel, alongside our lawyers.

Next steps

We regularly give presentations to the boards of regulated firms, to help them with their initial considerations of what needs to be done to prepare effectively for the new regime.

Please contact us if you would like us to assist you with any aspect of preparations for the new regime.

For more information, please contact

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