Individual Accountability Framework

The Individual Accountability Framework (IAF), introduced by the Central Bank (Individual Accountability Framework) Act 2023, reflects the central role that culture and conduct now have in the Irish financial services sector.

Comprising four key pillars, the IAF presents significant implementation challenges for regulated firms and senior individuals working within them.

SENIOR EXECUTIVE ACCOUNTABILITY REGIME (SEAR)

SEAR will come into force as planned on 1 July 2024 for all persons performing pre-approval controlled functions (PCFs) within in-scope firms with one exception: the Central Bank of Ireland (Central Bank) has deferred the application of SEAR to (I)NEDs until 1 July 2025.

Preparing for 1 July 2024

In-scope firms should:

put a Statement of Responsibility in place for each PCF role;
put a Management Responsibility Map in place which clearly outlines the firm’s governance structure;
carry out a detailed review of the existing allocation of individual responsibilities and management responsibilities to identify any gaps or inconsistencies;
create maps of the pre-SEAR position; and
engage with PCF role-holders to agree Statements of Responsibilities, taking into account the prescribed and inherent responsibilities set out by the Central Bank in its Guidance.

The Central Bank has published a template Statement of Responsibility but will not be publishing a template Management Responsibility Map.

Information expected from the Central Bank

We expect further communication from the Central Bank in 2024 regarding the submission of Statements of Responsibilities and Management Responsibility Maps.

We also expect more information from the Central Bank in Q1 2024 on the planned materiality threshold for the application of SEAR to managers of outgoing branches.

In-scope firms for SEAR are banks, insurance undertakings, certain investment firms (those that underwrite on a firm commitment basis and/or deal on own account and/or are authorised to hold client monies/assets), and (in each case) their third country branches.

CONDUCT STANDARDS

Common Conduct Standard and Additional Conduct Standards

Notwithstanding the deferral of the application of SEAR to (I)NEDs, the Common Conduct Standards and the Additional Conduct Standards have applied since 29 December 2023 to:

(in the case of the Common Conduct Standards) all persons performing controlled function (CF) roles in regulated financial services providers (RFSPs); and
in the case of the Additional Conduct Standards, to persons performing PCF roles within RFSPs, and to “other persons who exercise significant influence on the conduct” of an RFSP’s affairs including controlled function 1 (CF1) role-holders.

From 29 December 2023 onwards, individuals subject to the above conduct standards are expected to take reasonable steps to comply with them. The Central Bank has published Guidance to help individuals understand how to meet those standards.

Practical Steps to take in 2024

RFSPs can take a number of practical steps to ensure compliance including:

notification and training of all individuals carrying out CF roles;
updating policies and procedures to embed the standards;
reviewing employment contracts and appointment letters; and
ensuring IAF record-keeping and monitoring processes are in place.

Business Standards

The third set of standards (the Business Standards) will come into force later, most likely towards the end of 2024. These will apply to all RFSPs, but the Central Bank may apply these differently as between different classes of RFSP. The Business Standards will form part of the new retail conduct framework which will revise the Consumer Protection Code - a public consultation is planned for Q1 2024.

ADMINISTRATIVE SANCTIONS PROCEDURE

Following its consultation on changes to the Administrative Sanctions Procedure (ASP) (read our insights here), the Central Bank has published a Feedback Statement and new Guidelines (Guidelines) on the ASP which came into effect on 13 December 2023.

The Guidelines consolidate and replace the Central Bank’s existing guidance documents (the ASP Outline 2018, the Inquiry Guidelines 2014 and the ASP Sanctions Guidance 2019) and reflect changes to the Central Bank’s ASP introduced by Central Bank (Individual Accountability Framework) Act 2023 as well as feedback provided during the consultation process.

For more information, read our insights here. We will watch with interest, and continue to share our insights on, the practical impact of these Guidelines as they are put into effect by the Central Bank in investigations and inquiries in 2024.

ENHANCEMENTS TO FITNESS & PROBITY REGIME

The IAF modified the Central Bank’s existing fitness and probity (F&P) regime which applies to individuals performing PCF and CF roles in RFSPs.

The following modifications took effect from 29 December 2023, and will need to be embedded by RFSPs during 2024:

The extension of the F&P regime to holding companies established in Ireland. In light of this, the Central Bank has prescribed CF and PCF roles for holding companies.
A requirement that RFSPs and holding companies annually certify ongoing compliance with the F&P standards by all individuals carrying out CF roles.

In addition, it is expected that from January 2025 RFSPs and holding companies will be required to confirm completion of the new annual certification process to the Central Bank.