The Central Bank of Ireland (the CBI) recently published long awaited regulations and guidance for firms on new measures setting out standards of conduct for top financial executives. The overarching goal of the rules is to improve culture and governance in financial services firms.
Following a consultation process on consultation Paper 153 (CP 153) the CBI also published a feedback statement on the Individual Accountability Framework. The guidance provides clarity on its expectations for the implementation of three aspects of the framework:
- The Senior Executive Accountability Regime (SEAR)
- Conduct standards; and
- Certain aspects of the enhancements to the fitness and probity regime.
SEAR
The SEAR regime will require firms to set out " clearly and fully" where responsibility and decision-making lie within the firm's senior management. Following the consultation, the CBI has decided to defer the introduction of the SEAR for independent non-executive directors until July 2025. This is a year later than it will apply to other executives. Amendments have been made to the list of inherent responsibilities and the list of prescribed responsibilities. A new Duty of Responsibility applies to all PCF (pre-approved control function) holders, requiring them to take reasonable steps to ensure that the aspects of the firm’s affairs for which they are responsible under SEAR, are conducted in compliance with financial services legislation. A materiality threshold will be introduced for the application of the SEAR to managers of outgoing EEA branches (full detail on this will be published over the coming weeks). The CBI has also restated that the Statements of Responsibilities and Management Responsibilities Maps are living documents, which must be kept up to date and submitted if requested.
Conduct Standards
The Common and Additional Conduct standards will apply to all individuals in regulated firms from 29 December 2023. The basic conduct standards (Business Standards) include acting with honesty and integrity, with due skill, care and diligence and in the best interests of customers. Senior executives will have additional standards. The Business Standards will be developed in conjunction with the separate review of the Consumer Protection Code which is on-going. These will apply when the revised Code comes into effect in late 2024.
Fitness and Probity regime
Amendments to the rules on fitness and probity will clarify firm's obligations to proactively certify that individuals carrying out certain specified functions are fit and proper. These will be effective from 29 December 2023.
Comment
The CBI has also made several other changes designed to reduce the administrative burden of the measures on firms. In its release statement the CBI said that this piece of regulation is ultimately about enhancing performance, governance, and accountability in financial services.
The guidelines emphasise and reiterate the "good practices" expected of firms and role-holders and their accountabilities. The CBI's approach to implementing the framework and achieving its objectives will be founded on the principles of "proportionality, predictability and reasonable expectations, underpinned by effective enforcement".
Click here for Guidance on the Individual Accountability Framework
