Strong and credible regulation is a vital part of this ambition. That’s why we have welcomed the new Individual Accountability Framework (IAF), which is the most significant change to the regulation of financial services in Ireland in the last decade.
The new framework will give the Central Bank of Ireland (CBI) new powers to take enforcement action directly against individuals via the Administrative Sanctions Procedure (ASP) and also strengthens corporate governance requirements.
Patricia Callan: 'the new powers being afforded to the CBI are significant, with the potential to have a profound impact on an individual's reputation, livelihood and wellbeing'.
For example, an enhanced fitness & probity regime will mean that firms have to provide annual assessments of why they believe individuals in certain senior roles meet fitness & probity standards. A new Senior Executive Accountability Regime (SEAR) will mean that firms are to allocate areas of responsibility to individual members of senior management, to provide additional clarity on who is responsible for what.
This framework can serve to enhance Ireland’s reputation as a location of choice for international financial services firms. Effective regulation and corporate governance are a competitive advantage, because of the confidence which consumers of financial services, and other key stakeholders, can draw from it. Continuous improvement in trust and accountability is for the good of consumers, investors and the industry itself. And our firms have been focused on delivering that in their own operations.
So while we welcome the new framework, we must also ensure that it does not dissuade people from choosing financial services as a career, or from investing and doing business in Ireland.
The new powers being afforded to the CBI are significant, with the potential to have a profound impact on an individual’s reputation, livelihood and wellbeing. Firms will require time to prepare for the substantial changes that will be required in their own operations, in order to make sure they are complying with the new rules.
The CBI has been consulting with the industry in relation to the practical implementation of the framework. In our engagements with them, FSI has highlighted a number of areas where changes or clarifications are warranted.
For example:
• We have asked for an extension of the currently envisaged implementation period, where firms will be afforded time to adapt their operations before the new regime comes into practical effect. The volume of work that firms will be required to undertake is very significant. The IAF will impact all employment policies and procedures, from recruitment, to onboarding, to career development, to separation. Existing contracts of employment will also need to be reviewed to determine if amendments are required.
• We’ve asked for additional clarity on how the IAF will interact with existing accountability legislation i.e. directors’ duties under the Companies Act 2014. Providing clear guidance on how these frameworks interact, any precedence given to one over the other in particular circumstances, would assist firms in understanding their obligations and ensuring overall compliance.
• We have also asked for clarity as to how accountability for individuals will be applied in this context. We have consulted with academics on this point and consider that the process by which decisions are taken should be the key determinant in relation to accountability i.e. process-based accountability. We consider that the outcomes of decisions lie within the collective responsibility of the Board.
• The impact of SEAR as it relates to overseas branches of Irish-regulated entities needs to be considered further, due to the potential for overlapping regulatory obligations and administrative burdens in some cases.
• The same is true when it comes to outsourced functions, where individuals are operating outside the Irish-regulated entity. Clearer guidelines would help to mitigate potential challenges and ensure consistency with local HR laws and regulations.
• To foster continuous learning and improvement, we believe there should be a review of the revised ASP after three years of the sanctions being operational. The review would be designed to measure, among other things the efficacy of the regime in relation to its objectives, and a cost-benefit analysis of its application from a supervisory, employer and senior executive perspective.
These are just some of the issues on which we have engaged with the CBI highlighting the complexity involved in implementing the new IAF. We thank them for the comprehensive nature of the consultation upon which they have embarked, and will continue to work with them to ensure the IAF enhances the reputation of the financial services sector in Ireland.