The Individual Accountability Framework, Financial Regulation and the Central Bank – consultation and next steps

Following the enactment of the Central Bank (Individual Accountability Framework) Act 2022 (IAF Act), which grants the Central Bank of Ireland (CBI) relevant powers to adopt detailed implementing regulations and guidelines and represents significant changes for directors and others performing regulated functions in Irish companies, the CBI launched a three-month public consultation paper, CP153.
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„The IAF is given legal effect by the following:
– Central Bank (Individual Accountability Framework) Act, 2023; and
– Regulations issued by the Central Bank:
– Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Senior Executive Accountability Regime) Regulations 20XX (SEAR Regulations),
– Central Bank Reform Act 2010 (Section 21(6))) Regulations 20XX (Certification Regulations), and
– Central Bank Reform Act 2010 (Sections 20(1) and 22(2A) – Holding Companies) Regulations 20XX (Holding Companies Regulations) (all attached at Annex 1 of CP153).
The primary and secondary legislation will be supported by the CBI Guidance on the Individual Accountability Framework (the IAF Guidance) (attached at Annex 2 of CP153).“
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In CP153, the CBI provides an overview of its plan for implementing the IAF. The CP153 contains draft regulations including SEAR Regulations, Certification Regulations, and Holding Companies Regulations, along with proposed IAF Guidance to reinforce the IAF outlined in the IAF Act.
The Draft Regulations and Guidance aim to clarify the CBI’s expectations for the execution of SEAR, Conduct Standards, and certain facets of the enhanced Certification Regulations, and Holding Companies Regulations. The CBI further states that the structure relies on principles of proportionality, predictability, and reasonable expectations, asserting that each company should adopt the framework in a manner suitable to the nature, size, and complexity of the company and its operations.
The CBI proposes a phased implementation timeline for the IAF in CP153, allowing firms adequate preparation time. The Certification Regulations and Holding Companies Regulations will apply from 31 December 2023, while SEAR Regulations will apply to targeted firms from 1 July 2024.
Key elements of CP153 include Conduct Standards, applicable to all regulated firms. A few more standards apply to individuals holding PCF roles or who might significantly influence the firm’s affairs. IAF Guidance regarding these standards provides reasonable examples of steps individuals may take to comply.
The Certification Regulations will provide details on new F&P certification requirements, including annual certification of CFs‘ continuous compliance with fitness and probity standards. Though no submission of details on such certifications to the CBI is required, they should be accessible upon request. Notably, the F&P regime will now also apply to Ireland-established holding companies, according to the Holding Companies Regulations.
The CP153 clarifies that SEAR will initially apply to a specific range of firms and eventually extend to other sectors. It also introduces a „duty of responsibility“ and three new sets of conduct standards. The F&P regime will be modified, including annual certification of ongoing compliance and formal disciplinary action reporting. The CBI’s Administrative Sanctions Procedure will be strengthened to allow enforcement action against individuals for breaches of obligations.
The Individual Accountability Framework are relevant for directors and individuals performing regulated functions in Irish financial service firms, specifically, credit institutions (excluding credit unions), insurance, investment firms that underwrite on a firm commitment basis, deal on their own account, or hold client assets, incoming third-country branches of the above institutions. Initially, fund managers and fund boards are not in SEAR’s scope, but the CBI may extend the regulation to other sectors in the future.