The proposed implementation timelines of 31 December 2023 for the Conduct Standards and Fitness & Probity changes is ambitious and may not allow appropriate preparation time for firms to ensure high quality and consistent implementation of the guidelines.
Furthermore, the application of Conduct standards and the Senior Executive Accountability Regime (SEAR) are fundamentally linked and, so, it would be welcomed if the implementation date for both was aligned.
Michael D'Arcy: asking for a July 2024 implementation date.
As a result, the association has asked the Central Bank of Ireland (CBI) to consider a 1 July 2024 implementation date for the full suite of measures to come into force.
Roles and Responsibilities of Non-Executive Directors
Another area where the association has identified considerable challenges concerns the role and responsibilities of non-executive directors (NEDs) and independent non-executive directors (INEDs).
What is currently proposed appears to be moving non-executive director responsibility to be more closely aligned to executive director responsibility with potentially serious personal consequences for their – and even others decisions – and providing little or no recourse for contesting.
The Central Bank set out detailed guidelines in June for a new administrative sanctions procedure for investigations which could lead to severe penalties including fines up to €1 million and lifetime work bans.
Roles of NEDs/INEDs do not extend to the same responsibilities as executive directors but they do extend to Prescribed Responsibilities under SEAR. This is far beyond their typical responsibilities and into executive territory and has raised concerns from several quarters about the fundamental position individuals may find themselves in.
The Law Society of Ireland and the Institute of Directors (IoD) have both raised concerns about the mismatch of an individual facing the full arm of the state coming down on them.
The Law Society has said that the new regime raises “Rule of Law” issues and the IoD stated that it could expose “good faith actors” to big risks, even if their actions were the best they could achieve at the time.
The IoD has identified this unfairness along with an even worse scenario for an individual who has left the company and does not have the benefit or the resources of the company to vindicate their decisions.
The application of Conduct standards and the Senior Executive Accountability Regime (SEAR) are fundamentally linked and, so, it would be welcomed if the implementation date for both was aligned. As a result the association has asked the Central Bank of Ireland (CBI) to consider a 1 July 2024 implementation date for the full suite of measures to come into force.
The IAIM has identified another area of concern around companies who operate a delegated model via a number of jurisdictions. As the incoming legislation currently stands, the individual with the company based in Ireland could face legal liability for a decision made by others - even if they had disagreed with that decision - and potentially fined for €1 million and/or disqualified for life.
Additionally, such individuals facing financial and professional ruin have little comeback.
If a person has the possible sanction to lose their livelihood and/or a large financial fine, the process must facilitate their right to state they did not make the decision rather than being forced to take a legal recourse to protect themselves from the above implementation of the new regime?
Courts are very expensive and the unequal resources of firms and the Central Bank of Ireland versus an individual is what raises the Rule of Law concerns.
Further Consultation Needed
The IAIM supports the Individual Accountability Regime but, it is clear, that the proposals which the CBI states are “based on proportionality, predictability and reasonable expectations” require further consultation.
Most importantly, clarification is needed on the differences between the expectations of Executive Directors, NEDs and INEDs.
Industry and the regulator must work together to address the potentially untenable and unfair David vs Goliath battle employees who take up and are legally responsible for senior roles within companies.