The introduction of the Individual Accountability Framework from January 2024 is a seismic change to the Irish regulatory environment. Insurance Ireland believes that the framework will support consumer confidence in financial services by demonstrating that industry participants operate to appropriate conduct standards. While past events have demonstrated that instances of reckless and unethical behaviours by senior individuals operating within the Financial Services can and do lead to material consumer harm, it should be noted that these instances are thankfully rare events. These events however, are serious and harmful breaches of trust, which reduce consumer confidence and should be dealt with appropriately.
Insurance Ireland and our members appreciate the balanced tone of the framework from the CBI. It is vital that the framework be applied in a way that is predictable, proportionate, reasonable and takes account of the circumstances that apply at the time of any event, rather than enforcing in hindsight. It is reassuring for individuals that the CBI has communicated its commitment to taking this approach at the time of any issue, which mitigates the risk of being judged by future events.

The most important point for the implementation of the framework is that it works for the consumer, for regulated entities and for the Regulator, and a clear and transparent regulatory and supervisory approach will be an essential element to this. With less than three months to the implementation of two of the four pillars of IAF (Fitness and Probity and Conduct Standards), it is unhelpful that the final rules have not yet been published by the CBI, leading to a risk that firms may well be interpreting the draft guidance as final – which as we all know, can change. However, our members are progressing as much as they can within the parameters of the guidance.

The benefits of the regime are clear – supporting consumer confidence in financial services, and a clear delineation of responsibilities within financial services firms, strengthening oversight and governance and making regulatory action (where required) easier to deliver. But what about the risks?

Top of the list is that the framework allows the CBI to implement greater personal sanctions on individuals than regulators of other industries. This means that individuals, particularly senior individuals, are carrying a higher level of personal risk working in financial services over others, even when they are doing the best they can and delivering positive outcomes for consumers. From a governance perspective, there may well be a specific concern for Board members. A balanced Board with collective responsibility may operate differently than a set of separately accountable individuals with separate mandates (statements of responsibility). The collective responsibility of the Board is important and should be maintained.

Next is proportionality. From the conduct standards through to the Senior Executive Accountability Regime (SEAR), all financial services firms are treated the same for risk purposes. This is not reflective of a proportionate, risk based approach. While no other EU country has implemented such a framework, the UK adopted a Senior Managers & Certification Regime and Australia with the Banking Executive Accountability Regime.

Both of these regimes allowed a limited approach for certain firms dependent on the risk posed, which offers true proportionality, and we called on the CBI to consider implementing the legislation in a similar manner, particularly given that the IAF takes much from the UK approach.

And what about talent? The insurance industry operates in a very competitive marketplace for talent with many other industry sectors. There is therefore a need for the application of the framework to be proportionate and balanced, otherwise the industry will find it difficult to attract and retain the best staff. The risk of individual sanction will be greater than other industries which are also very strong in Ireland and have the capacity to match and exceed what the financial services sector can offer, e.g. Fintech, broader IT sector. The regime should, if implemented proportionately, predictably and practically have a ‘warming’ as opposed to a ‘chilling’ effect on the industry by ensuring that all actors know and understand their responsibilities. Positively, the guidance allows for sharing responsibilities where job sharing applies, supporting inclusive work practices at senior levels.

Ultimately, we agree that where events happen leading to poor consumer outcomes or damage to the integrity of the financial system, the root cause must be identified, and have structures in place to prevent this from happening again, which is the aim of the framework. However it is equally important that those who are working in Insurance are confident and comfortable in their regulated role and can expect to be treated fairly by the CBI.