‘Our approach will be based on the principles of proportionality, predictability and reasonable expectations’
Ahead of the expected detailed guidance from the Central Bank on the workings of the IAF, SHARON DONNERY, the Deputy Governor for Financial Regulation of the Central Bank of Ireland provides a number of assurances regarding industry concerns expressed to date during the public consultation process regarding the framework.
Good governance is the bedrock of successful firms; and poor governance is regularly the root cause of many failings. From the global financial crisis to the failure of Silicon Valley Bank, from cases of fraud to cultures of excessive risk taking, weak corporate governance is often the common factor contributing to bad outcomes in the financial sector.
Sharon Donnery:
Sharon Donnery: "It will also be applied in a proportionate manner reflecting the context of many smaller, less complex, and/or less risky firms".

Recognising that, improving governance and culture in financial services firms has been a priority of both governments and regulators in recent years – with legislative requirements, fitness and probity standards and supervisory focus all working towards this goal.

It is important to recognise that there have been huge improvements in the regulatory framework over the last decade as well as increased importance placed on good governance by all stakeholders, including industry. While standards have improved, this is a journey we are all clearly still on.

Established firms continue to improve their governance and culture – through supervisory engagement and lessons learned from previous failings, as well as in their ongoing efforts to foster confidence and trust in their dealings with the public.

New entrants, especially fast growing and innovative firms, on the other hand are at the start of their own commercial and regulatory journey, and have the opportunity to embed good practices at the very outset. In this regard, it is important that good governance is seen as a founding pillar of their business, and an enabler for growth, rather than an afterthought in their commercial strategy.

The Individual Accountability Framework
From a regulatory perspective the next step in this journey, and aligned with our own mission to serve the public interest, is the introduction of the upcoming Individual Accountability Framework (IAF). The powers to implement this regime were given to us by the Oireachtas last year, with widespread support from both Houses. The overarching aim of the legislation is to strengthen and enhance individual accountability in the financial services industry. It also seeks to ensure that there is clarity within firms on the responsibilities and functions of senior executives – providing transparency to supervisors and the public, but also empowering role holders by making it clear what they are responsible for.

At the Central Bank, we see the IAF as an important addition to the wider regulatory framework – one which will underpin sound governance across the financial sector by setting out clearly what is expected of well-run firms and responsible role holders.

Our approach to implementing the IAF will be based on the principles of proportionality, predictability and reasonable expectations. The framework will seek to align with the way that firms have chosen to structure themselves, while ensuring that such structures have appropriate levels of governance and clarity. It will also be applied in a proportionate manner reflecting the context of many smaller, less complex, and/or less risky firms. We have recently consulted on our approach and will reflect on the feedback received as we work to calibrate the final guidance.

While the IAF is an important step in a regulatory framework designed to foster a well-run and stable financial sector, it goes without saying that ensuring and delivering good corporate governance will remain the responsibility of firms themselves. The aim of the IAF will be to support this by setting clear expectations for firms in relation to governance, and by providing clarity for individuals carrying out key roles as to the standards of conduct that they are expected to meet.

Basic expectations
Good governance is a key component of a properly functioning financial system, delivering good outcomes for our society. And so what the Central Bank expects from the financial sector is what the public is entitled to expect from businesses that play such an important role in the economy and their lives – namely that they are well run, by competent executives that act with honesty and integrity and who treat their customers and investors fairly.

In an increasingly technological and rapidly changing world, the need for effective governance underpinned by a strong ethical culture and robust systems of delivery is becoming more and more essential. But while the complexity of products, systems and organisations is increasing, these basic expectations remain the same.

And so, the Central Bank will continue to work with firms and industry to deliver these expectations and to embed good corporate governance and culture throughout the system. This will be better for firms, with governance a key enabler of successful business; and this will be better for society – delivering a safer and sounder financial system, trusted by the public and working in the best interest of the economy and our citizens.
Sharon Donnery, Deputy Governor for Financial Regulation.
This article appeared in the October 2023 edition.