Josh Hogan
However, there has certainly been nervousness among non-executive directors about the increased potential for personal liability and thoughts about what amendments might be appropriate to their services contracts, insurance arrangements etc. In addition, there has been a lot of concern about how best to reconcile the proposed Prescribed Responsibilities with existing non-executive director duties (including fiduciary duties to the company) and the concept of collective board responsibility. In its Feedback Statement, the Central Bank insists that individuals can discharge their SEAR responsibilities by acting appropriately in the collective decision-making of the firm, in line with their role. Hopefully, the 12 month learning period will enable firms to work through this issue with their non-executive directors in a manner that will be satisfactory to all concerned.
I wouldn’t over-emphasise the importance of the deferral of the application of SEAR to non-executive directors though. In reality, I’m not sure it will have much practical impact on firms’ implementation plans for IAF. It’s important to remember that the non-executive directors remain subject to other parts of IAF, including the Common Conduct Standards and the Additional Conduct Standards. I have spoken with a number of firms in scope of SEAR who expect that their planning will continue on the basis of including non-executive directors in plans for SEAR implementation beginning in July 2024, such as in Statements of Responsibilities and Management Responsibilities Maps. The advantage of the 12 month deferral though is that these new SEAR processes can be bedded down with respect to the non-executives without the accompanying legal jeopardy that will apply for other PCFs from 1 July 2024.
The IAF is a hugely important development in the Irish regulatory landscape. If the Central Bank and industry manage to implement it successfully, I am confident that it will enhance Ireland’s reputation as an excellent jurisdiction for financial services. There are serious downside risks though. There is no getting away from the fact that the IAF is an extensive, complex and novel regime; it is potentially a legal minefield for firms and individuals. The Central Bank has promised that its approach to implementation will be based on the principles of proportionality, predictability and reasonable expectations – I think this will be vital to avoid deterring investment in Ireland or disincentivising talented individuals from working in Irish financial services.