The Central Bank Individual Accountability Regime

Introduction

The Central Bank (Individual Accountability Framework) Act 2023 incorporates provisions within the consolidated central bank acts to empower the Central Bank in implementing the Individual Accountability Regime.

This regime sets forth legal obligations for both firms and individuals, ensuring common standards of conduct are upheld across regulated entities. Enforcement of these obligations is facilitated through the Central Bank’s Administrative Sanctions process, as outlined in the Central Bank (Supervision and Enforcement) Act, 2013 (as amended). The Central Bank has provided guidance on the operation of the Individual Accountability Regime, which can be found here, along with a concise summary of its key aspects.

What is the (CB IAR)?

The Central Bank of Ireland has introduced the CB IAR, a regulatory framework aimed primarily at:

increasing the accountability of individuals in designated significant firms, including banks, insurers, and certain investment firms (known as the Senior Executive Accountability Regime, SEAR); and
applying minimum common standards of conduct across all regulated firms in the regulated financial sector (known as Common Standards).

The goal of this regime is to enhance governance, risk management, and ethical standards in the financial sector.

Senior Executive Accountability Regime

The SEAR, in simple terms, assigns specific responsibilities to senior executives who qualify as holders of Pre-Approval Control Functions (PCF holders) in subject institutions.

These responsibilities are categorised into three groups: ‘inherent’, ‘prescribed’, and ‘other’.

All firms within the scope of SEAR must allocate these responsibilities to senior management to establish an effective governance framework. The purpose of this allocation is to ensure that individual PCF holders are accountable for specific conduct and prudential risks.

Statement of Responsibilities:

A Statement of Responsibilities is necessary for every PCF holder, specifying their particular role and providing a comprehensive breakdown of the responsibilities assigned to them, including those that are inherent, prescribed, and other. This document plays a critical role in ensuring transparency and accountability throughout the organisation.

Common Standards

All regulated financial services firms are in scope for the Common Standards.

Common Conduct Standards

Similar to Fitness and Probity Standards, the Common Conduct Standards require all PCFs and holders of a Control Function (CF holders) to:

Act with honesty and integrity
Act with due skill and care
Cooperate with the Central Bank and other regulators in good faith and in a prompt manner
Act in the best interests of customers treating them fairly and professionally
Observe proper standards of market conduct
these additional common standards and provide suitable training

Additional Conduct Standards

In addition to the Common Conduct Standards, PCF holders and CF1 holders are subject to the following Additional Conduct Standards:

Ensure effective control of the firm’s business
Ensure that the business is conducted in accordance with applicable FS legislation
Ensure that delegated tasks are appropriately delegated and are subject to effective supervision
Make prompt and transparent disclosure of any matter of which the Central Bank ‘would expect reasonable notice’
Notify senior management of these additional common standards and provide suitable training

Each firm has an obligation to:

Play a critical role in embedding common standards in the firm’s
Notify all relevant CFs and PCFs of the Conduct Standards (both Common and or Additional) applicable to their role and maintain a record of the notification.
Establish and maintain and give effect to policies in respect of the Common Standards
Reporting disciplinary actions,
Provide training, maintain evidence and oversight of same

Business Standards

The IAF Act also provides for regulation making powers for the Central Bank to prescribe various minimum business standards, including to ensure that a firm:

Acts in the best interests of customers
Acts honestly, fairly, and professionally
Acts with due skill, care, and diligence
Does not act in a misleading manner as to product features
Maintains adequate financial resources
Operates effective systems and controls in a sound and prudent manner.

Common Conduct Standards/Fitness and Probity (F&P)

At a high level, the Common Conduct Standards and the Fitness and Probity Regime overlap, though the purpose of the F&P regime differs in that its purpose is to ensure that staff in CF roles are sufficiently skilled and possess the required level of integrity to be competent and capable to perform their role; whereas, the Common Conduct Standards are there to ensure that individuals in CF and PCF roles are subject to enforceable legal obligations to comply with the Common Standards.

Certification of Compliance with the F&P regime

Firms are also required to ensure, based on reasonable grounds, that every PCF holder and also every CF holder adheres to the F&P requirement set by the Central Bank and must obtain certification from each person confirming their agreement to comply with these standards. This certification process places a significant emphasis on thorough investigation and places the legal responsibility on the firm to prove compliance with the F&P requirements in each instance. The CEO holds the ultimate responsibility for overseeing the certification process.

Implications of the Individual Accountability Regime

Implications for Regulated Firms:

For regulated firms, compliance with the CB IAR represents a significant operational challenge. They must allocate resources to review and enhance governance structures, update internal policies and procedures, and ensure that individuals understand their accountability obligations. Failure to comply with the regime can result in regulatory sanctions, reputational damage, and potential legal consequences.

Recommendations for Compliance

Conduct a thorough review of existing governance structures and processes to identify areas for improvement.
Develop comprehensive SoRs that clearly define roles, responsibilities, and reporting lines for senior executives and key personnel.
Implement robust systems for monitoring and enforcing compliance with the CB IAR, including regular training and performance evaluations.
Foster a culture of accountability and transparency within the organization, emphasizing the importance of ethical conduct and risk management.
Stay informed about evolving regulatory requirements and proactively adapt to changes to ensure ongoing

Conclusion

The Central Bank Individual Accountability Regime represents a significant milestone in Ireland’s efforts to strengthen accountability and integrity within the financial industry. While compliance may present challenges for financial institutions, proactive engagement and collaboration with trusted advisors, such as accountants, can help navigate the regulatory landscape effectively. By embracing the principles of accountability, organizations can build greater trust with stakeholders and contribute to a more resilient and sustainable financial system.

The Central Bank Individual Accountability Regime