In July 2018, the Central Bank of Ireland (CBI) announced its intention to introduce an Individual Accountability Framework and Senior Executive Accountability Regime (SEAR). This has significant implications for regulated financial services firms in Ireland; individuals currently in scope of the Fitness and Probity (F&P) regime as Control Functions (CF) and Pre Approval Control Functions (PCF) will be required to comply with enhanced requirements as Certified and Senior Executive Functions respectively.
In order to prepare for this new landscape, firms should consider how they are complying with and monitoring their obligations under the current F&P regime. In April 2019, the CBI published a Dear CEO letter highlighting its concerns on the lack of understanding by regulated financial service providers (RFSPs) of the extent of their obligations under the current F&P regime. The CBI has clearly indicated that firms need to ensure that their current F&P policies, processes and procedures are fit for purpose. In particular it re-emphasised the need to conduct robust due diligence on individuals being proposed for PCF roles; and has published statistics which indicate increasing numbers of PCF applications being refused or withdrawn. Additionally, it has announced potentially including a number of new PCF roles under the current F&P regime, including Chief Information Officer (“CIO”), Head of Material Business Line and Head of Market Risk.
Therefore, firms must assess their position under the current F&P regime and consider how they will address such challenges as :
- Executing due diligence on individuals prior to submitting application for PCF role to Central Bank.
- Preparing individuals for PCF interviews by the Central Bank.
- High bar in terms of CBI appointment process and increase in the number of "Specific Interviews".
- Assessment of CF holders to determine F&P and robustness of related procedures.
- Assessment of F&P by HR and robustness of procedures in place to do so – both at recruitment stage and on an ongoing basis, for both PCF and CF functions.
- Lack of adequate system and controls in place for managing compliance with the F&P regime and ensuring remedial actions are reported and addressed promptly.
- Challenges around third party providers performing CF roles.
- Additional challenges posed by remote assessment in the current COVID-19 environment.
- How are Fit and Proper individuals discharging their responsibilities in the current environment.
- Establishing succession and contingency planning to identify individuals who could temporarily perform PCF roles when required and in particular in the current COVID-19 environment.
We have outlined a number of practical steps that you can take to address the current requirements and also prepare for the new environment and enhanced obligations under Individual Accountability and SEAR.