The IAF and Positive Outcomes
The Individual Accountability Framework (the IAF) comprises the following key elements:
• Conduct Standards – basic standards such as acting with honesty and integrity, with due skill, care and diligence, and in the best interest of customers. These apply to individuals in all regulated firms. Senior executives also have Additional Conduct Standards commensurate with their role.
• Senior Executive Accountability Regime (SEAR) – requiring in-scope firms to set out clearly and fully where responsibility and decision-making lie within the firm’s senior management.
• Fitness and Probity – enhancements to the regime include clarifying firms’ obligations to proactively certify that individuals carrying out certain specified functions are fit and proper.

Now that the Central Bank’s IAF consultation has come to a close, and the standards and guidance published, the responsibility for embedding and living those expectations and standards rests with the regulated firms and the people working in them.

The focus for firms should be on high standards and delivering for their staff and customers. A financial system which sustains the trust and confidence of consumers and investors, whom it serves is a critical success factor for the IAF.

The Central Bank’s primary focus will be on high standards and outcomes - better run firms; firms that are clear as to roles and responsibilities; conduct standards which are lived by firms and its staff; and ultimately positive outcomes for regulated firms, their staff, their customers and other stakeholders.

Properly implemented and embedded culturally, the IAF will deliver really meaningful improvements in the standards those working in the financial industry live by, and the way that firms are run.

Opportunity for Ireland’s International Standing
The IAF is part of the broader corporate governance framework under which the board is responsible for, among other things, setting and overseeing the strategy for the firm, the management of material risks, a robust and transparent organisational structure with effective culture, an adequate and effective internal control framework and compliance with applicable legal obligations.

We believe that the IAF, properly implemented, will be a significant support to directors and boards in achieving these aims. This has been the experience in the UK where in a 2020 review by the Prudential Regulation Authority, the Senior Manager and Certification Regime (SMCR) received positive feedback from firms and other stakeholders in respect of improving conduct, governance, and individual responsibility, and was cited as helping firms to run their businesses more efficiently.

The IAF represents an opportunity for the raising of standards within the Irish financial services industry. This is good for business. Properly embedded and lived, it has the potential to increase the international reputation of the industry – not just amongst consumers and investors, but also with a broader range of stakeholders.

Proportionality
Proportionality has been a guiding principle for the Central Bank in how we have chosen to design the scope and application of the framework, and it also guided the decisions we made in respect of submissions received during the consultation process.

Some examples of that proportional approach include:
• In terms of design, SEAR works with the way firms have chosen to structure themselves, while ensuring that such structures have appropriate levels of governance and clarity.
• With respect to the duty of responsibility for pre-approved control function holders, we have included a concept of “reasonable steps” and provided in-depth guidance on its operation.
• The framework’s applicability - specifically in respect of the measured application of SEAR to smaller, less complex and/or less risky investment firms and incoming third country branches.
• With respect to the conduct standards, we feel that they are reasonable and are no more than customers, the regulator, and the firms themselves should expect as the standards to which regulated participants should hold themselves.

Supervision
Our approach to the supervision of the new framework is based on the principles of proportionality, predictability and reasonable expectations. The experience in other jurisdictions has taught us that it is important that the implementation of this framework is not approached as an exercise in ‘tick the box’ compliance (by either firms or the Central Bank), but rather that firms live the IAF by making it a part of their culture, behaviours and practices to ensure its successful and sustainable adoption.

The IAF will help – both firms and ourselves – to explain and understand how a firm is being run, how it is implementing its business model, and managing its risks. In other words, the IAF will support the existing supervisory relationship.

Of course, we acknowledge that there are both challenges and opportunities for both the Central Bank, and firms and individuals in implementing the framework and it is important that an appropriate balance is struck to ensure successful implementation.

Further engagement and review
Though the formal consultation process has come to an end, that does not signal the end of our engagement on the IAF. We are planning further industry engagement in the new year, and are committed to periodic engagement with stakeholders as implementation progresses.

Additionally a review of the IAF will take place three years after implementation which will provide an opportunity to assess the functioning of the framework, how the benefits and costs are being realised in practice, and whether any changes should be introduced.