Central Bank (Individual Accountability Framework) Bill 2022August 2022
The Central Bank (Individual Accountability Framework) Bill 2022
(‘the Bill’) was published on 28th July 2022. Its principal purpose is to confer powers on the Central Bank of Ireland (the ‘CBI”) and provide greater detail on the four pillars of the individual accountability framework (‘IAF’), namely the Senior Executive Accountability Regime; the Conduct Standards; the Fitness and Probity Regime; and the Administrative Sanctions Procedure.
As noted by Gerry Cross, Director of Financial Regulation, on 21st February 2022 in an address
to the Compliance Institute: “The Framework is fundamentally about underpinning good conduct and high quality governance and culture within firms. It is about being clear who is responsible for what and ensuring that reasonable steps are taken to fulfil those responsibilities. It is aligned with what will already be sound practices at well-governed and organised firms. The framework is, and our approach to implementation of it will be, firmly founded in proportionality and what is reasonable.” SEAR
Under the Senior Executive Accountability Regime (‘SEAR’) regulated financial service providers (‘firms’) will be required to set out clearly where the responsibility and decision-making of the firm lies.
The Bill proposes to extend the regulation-making power of the CBI to give effect to SEAR. This will enable the CBI to make regulations in relation to inherent responsibilities and prescribed responsibilities, which relate to pre-approval controlled function (‘PCF’) holders.
This includes a new legal “duty of responsibility” on PCF holders who fall within the scope of SEAR to take “any steps that it is reasonable in the circumstances for the person to take” to ensure the firm does not breach its obligations under financial services legislation. When considering if the relevant individual has discharged their “duty of responsibility”, the CBI will consider all relevant circumstances, examples of which are set out in the Bill include the function of the person and the level of knowledge and experience that a person with such function could reasonably be expected to have. If a contravention of the duty occurs, the individual may be held directly accountable for the breach and be subject to the CBI’s Administrative Sanctions Procedure.
Initially, SEAR is expected to extend only to credit institutions, insurance undertakings (except reinsurance, captive (re)insurance and insurance special purpose vehicles), certain investment firms and any third country branches of those companies. Conduct Standards
The Bill provides for the introduction of three types of conduct standards for firms and their staff as follows:
• Business Standards (for firms);
• Common Conduct Standards (for individuals); and
• Additional Conduct Standards (for individuals in the most senior roles). 1. Business standards for firms
The Bill (Section 5) provides for a new regulation-making power for the CBI to prescribe business standards within which firms will be obliged to comply to ensure they act in the best interests of customers and of the integrity of the market; act honestly, fairly and professionally; and act with due skill, care and diligence. The business standards will apply to all firms and a breach will be considered a prescribed contravention for purposes of enabling the CBI to enforcement action. 2. Common conduct standards for individuals
The Bill (Section 6) provides for the following individual conduct standards:
- Common Conduct Standards: these standards will apply to all persons performing controlled functions (i.e. CF or PCF roles).
- Additional Conduct Standards: these standards will apply to more senior persons performing PCF roles or who exercise a significant influence on the conduct of the firm’s affairs, for example, chief executives, executive or non-executive directors, heads of functions. Such persons will need to comply with both the Common Conduct Standards and the Additional Conduct Standards, regardless of whether their role is within the scope of SEAR.
Firms must ensure that they notify any relevant persons of the conduct standards that will be expected of them and that they provide training on these standards. The Bill also provides that the CBI will provide guidelines relating to the notification and training obligations of firms. Certificate of Compliance with Standards of Fitness and Probity
Part 3 of the Bill strengthens the existing obligations on firms in relation to the fitness and probity of their key personnel. The Bill provides that firms will only allow an individual to perform a CF role if a certificate of compliance with standards of fitness and probity is in force in relation to the person. A certificate can be given only if the firm “is satisfied on reasonable grounds” that the person concerned complies with any standard of fitness and probity in a code issued under Section 50 of the Central Bank Reform Act 2010 Act 2010 Act and the person has agreed in writing to comply with any such standard.
The CBI will have the power to make regulations in relation to the form and content of these certificates, the validity period of a certificate and the firm’s procedures in relation to the giving or revoking of a certificate. Administrative Sanctions Procedure (‘ASP’)
The Bill also makes a number of amendments to the Central Bank Act 1942 which underpins the ASP:
- High Court oversight for the ‘settlement process’ under section 33AR of the 1942 Act (where the firm or individual acknowledges the commission of the prescribed contravention). Therefore, any sanction imposed by the CBI will only have effect if confirmed by the High Court.
- The High Court will confirm the decision unless it is satisfied that the CBI “made an error of law” in its decision or that a sanction is manifestly disproportionate.
- The Bill provides a list of relevant considerations that the CBI must take into account when determining whether to impose a sanction, what sanction to impose and the level of any monetary penalty to impose including the person’s seniority and level of responsibility in the firm and whether the person’s conduct was intentional, negligent or dishonest.
- The Bill replaces the concept of a ‘person concerned in the management of an RFSP’ with the concept of a ‘person performing a controlled function’ with a view to facilitating individual accountability of the relevant individual.
The Bill is yet to be enacted and once the legislative process is completed, the CBI will prepare relevant guidelines and regulations to be issued under the Bill. Relevant firms and senior executives should note that the framework will require significant training and having the appropriate processes in place.
RegSol will keep our clients updated on progress of the Bill and any draft guidelines and regulations once published. If you require assistance in planning for SEAR and IAF or assessing your current framework, contact us at firstname.lastname@example.org