This article first appeared in the November 2023 edition of Finance Dublin.
Walkers' Niall Esler analyses the key topics that have arisen for boards developing their companies' frameworks to meet the requirements of the Individual Accountability Framework and how some of these have been impacted by the Central Bank's November IAF Feedback Statement.
With the Conduct Standards due to come into force on 29 December of this year, the boards of in scope regulated financial service providers (firms) have dedicated significant time in recent meetings to overseeing the implementation of the Individual Accountability Framework (the IAF) requirements.
A number of key topics have arisen for firms in developing and finalising the appropriate frameworks, some of which are impacted by the Feedback Statement issued by the Central Bank of Ireland (the Central Bank) on 16 November 2023 and its revised draft Central Bank Regulations (on the Senior Executive Accountability Framework (SEAR), the Certification Regulations and the Holding Companies Regulations) and finalised IAF Guidance.
Applicability of SEAR to (independent) non-executive directors ((I)NEDs)
The Central Bank has confirmed that the application of SEAR to (I)NEDs and to the chair of certain committees will be deferred until 1 July 2025, which represents a 12-month delay.
The Central Bank indicated that this period should enable firms to better manage the perceived issues in reconciling the collective responsibility of boards with the IAF.
Fitness and Probity Certification
Unlike the consultation draft, the updated Certification Regulations do not confirm the timing for existing firms to issue certificates of compliance for their controlled function (CF) role holders, once the certification requirement is in effect. Under the draft Regulations, the time period for certification was within two months of the entry into force of those Regulations.
In its Feedback Statement, the Central Bank noted that the first annual submission confirming completion of the certification process will relate to the 2024 calendar year and will be required in 2025. The Central Bank has amended its IAF guidance to limit the scope of the enhanced due diligence aspect underlying the certification requirement to holders of pre-approved controlled functions, CF1 and CF2 and to facilitate self-certification in respect of those holding CF3 to CF11 roles.
Employment considerations
The application of SEAR and/the Conduct Standards raises significant practical considerations for firms who must evaluate their existing staffing arrangements to ensure all pre-approval controlled functions (PCFs) and CFs are identified, notified of their responsibilities and are bound to comply.
In its updated Certification Regulations, the Central Bank has removed the requirement for firms to report certain disciplinary actions to the Central Bank. Understanding firm and individual reporting obligations under other aspects of the IAF will likely require further attention following this change, for example the reporting obligations for individuals subject to the Conduct Standards.
Quality of management information and board reporting
We already see evidence of boards placing additional scrutiny on the information they are receiving, mindful of their responsibility to take steps reasonable in the circumstances to ensure that the business of the firm is controlled effectively. Indeed, the Central Bank's draft IAF Guidance places importance on CF role holders being fully informed of matters for which they are collectively responsible and preparing and reviewing papers in advance of meetings.
Reasonable steps
The IAF seeks to encourage positive action by individuals to mitigate against risks to the financial services sector and the firms they work for. At the heart of SEAR and the Conduct Standards is the concept of individuals taking 'reasonable steps'.
While strictly following a set scenario and prescribed responses is unlikely to be appropriate, some firms are considering more general prompts for employees to help them pause and consider whether, in the particular circumstance, the proposed course is appropriate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
