Following a three-month consultation period, the Central Bank of Ireland (CBI) has issued final guidance on the Individual Accountability Framework (IAF), which aims to enhance governance, performance, and accountability in the financial services sector.
The Guidance released on the 16th of November provides clarity on the following aspects of the IAF:
- The Senior Executive Accountability Regime (SEAR), which sets out the responsibilities of senior executives;
- The Conduct Standards, which apply to all individuals working in regulated firms;
- Enhancements to the Fitness & Probity regime;
- The Conduct Standards and enhancements to the Fitness and Probity Regime which will come into effect on 29 December 2023; and
- The SEAR Regulations which will apply to in-scope firms from 1 July 2024 and to (Independent) Non-Executive Directors at in-scope firms from 1 July 2025.
The findings
The CBI has deferred the introduction of the SEAR for NEDs and INEDs until 1 July 2025. This will enable, in the first instance, both the Central Bank and regulated firms to learn from the introduction of the new framework to executives.
Additionally, as set out in the Guidance, the standards to be met by these individuals in their role as NEDs and INEDs will relate exclusively to their non-executive oversight functions and will be limited to what should reasonably be expected of individuals in that role.
Based on feedback received, the Central Bank has additionally, amended some of the Prescribed Responsibilities such as:
- The removal of PR8 (responsibility to consider the impact of, and any necessary changes to, key business initiatives and strategic decisions) and PR26 (responsibility for oversight of the implementation of conduct requirements);
- Merging PR29 (responsibility for overseeing the adoption of a firm’s diversity and inclusion policy) with PR4 and PR5; and
- Moving PR19 (responsibility for managing a firm’s treasury management functions) and PR23 (responsibility for a firm’s compliance with client asset requirements) from General list of Prescribed Responsibilities to Sector of Circumstance Specific list.
In addition, the guidance has been amended to provide clarity on the responsibilities for senior individuals in firms and ensuring firms know to document where the responsibility for decisions, and decision-making lies within an organisation.
The CBI has acknowledged that certain PCF roles may be performed by two individuals. In such cases, the CBI expects that only the following PCF roles could be potentially shared based on the role requirements:
- PCF18 (Head of Underwriting)
- PCF19 (Head of Investment), PCF29 (Head of Trading), and PCF 30 (Chief Investment Officer)
Where a role is shared between two individuals, each individual is responsible for all the responsibility allocated to that PCF role. The details of the job-sharing arrangements should be set out in the Statement of Responsibilities and Management Responsibility Map.
Both the Statement of Responsibilities and Management Responsibility Map must be kept up-to-date and submitted to the Central Bank on request. However, they will no longer be subject to periodic reporting requirements. They should be considered live documents and will be reviewed as part of the regulators ongoing supervision. The framework seeks to align with the way that firms have chosen to structure themselves, while ensuring that such structures have appropriate levels of governance and clarity. Both documents are required to be retained for 10 years.
The CBI will provide additional clarification in the future with respect to reasonable supporting steps. It will support what is already found in legislation. It is noted that reasonable steps should already be embedded into an individual’s actions. The central bank has set a non-exhaustive list of factors that may be considered in these steps, which they will continue to develop in the future.
SEAR and the Conduct Standards are applicable when someone has been pre-approved as a PCF, even if the appointment is or is meant to be temporary. However, a Statement of Responsibility will not be necessary, as a temporary officer appointed to a PCF job is not subject to the PCF application procedure.
The CBI requires that, where outsourcing arrangements are in place, there is a PCF role holder with responsibility for outsourcing arrangements; this will be PCF19 (responsibility for the firm’s outsourcing framework). Where a firm chooses to outsource a PCF role, the outsourced PCF role should fall under the oversight of an appropriate PCF role holder within the firm. Additionally, this should be acknowledged in the Statement of Responsibilities and the Management Responsibility Map.
The CBI has changed the requirement on the roles which firms need to have certified under enhanced due diligence, these roles are now limited to PCF’s and CF1-2. CF3-11 can now self-certify and has been removed from the enhanced due diligence aspect of the certification process.
After formal disciplinary action has been taken against a person for violating the Conduct Standards, regulated firms are no longer required to report this to the CBI when the firm or individual has already been reported to the Central Bank, under separate new or pre-existing reporting obligations.
Next steps
The Conduct Standards and enhancements to the Fitness and Probity (‘F&P’) Regime are set out in legislation and will now become applicable on 29 December 2023 which is brought forward from 31 December 2023.
How can KPMG help?
Navigating the Individual Accountability Framework with confidence
KPMG's Risk Consulting team is ready to provide expert guidance and support to businesses as they prepare to implement the Central Bank of Ireland's Individual Accountability Framework. With extensive experience in implementing accountability regimes, spearheading large-scale regulatory change programs, and providing tailored guidance, KPMG can help businesses navigate the complexities of the IAF and ensure a smooth and compliant transition.
We can support you in your preparation for the IAF through:
Readiness Assessment
We can assist you with a readiness assessment and identify required changes to be implemented. This includes a remediation plan and clear actions for any gaps identified.
Technology
We can advise you on technology solutions to manage the IAF requirements, using our bespoke technology solutions which include our Accountability Manager Tool, that are adaptable for your needs.
Design and Implementation
We can assist you with the design and implementation of a programme of work to implement the IAF requirements using the output of a readiness assessment. This includes target operating model design and implementation.
Assurance
We can assist you to ensure that you are in adherence with the new requirements prior to implementation or post implementation, leveraging our experience with implementing and advising on F&P requirements as well as Individual Accountability regimes such as the UK’s Senior Manager and Certification Regime, and Australia’s Banking Executive Accountability Regime / Financial Accountability Regime.
Contact us
Please feel free to contact our team if you have any questions. We’d be delighted to hear from you.
Gillian Kelly
Partner, Head of Consulting
KPMG in Ireland
Yvonne Kelleher
Managing Director
KPMG in Ireland
Rosalind Norton
Director
KPMG in Ireland