Individual accountability - global and local
In recent years, there has been a move towards increasing individual accountability at a global level. Seen as a key driver of culture and responsible senior management and Board behaviour, individual accountability regimes have already been established in the UK, Hong Kong, Singapore, and Australia. From an Irish perspective, a lack of trust in the financial services industry, and in particular within the banking industry, has heightened the need for clear responsibility and accountability within firms.
On 09 March 2023, the Central Bank of Ireland (Individual Accountability Framework) Act 2023 was enacted with the aim of promoting improved governance and positive cultural change in Regulated Financial Services Providers (“RFSPs”). The Central Bank of Ireland (“CBI”) launched an associated three-month consultation process (PDF, 500KB) on key aspects of the Individual Accountability Framework (“IAF”) on 13 March 2023, including the publication of draft Regulations and draft IAF Guidance (PDF, 1.7MB).
Partial commencement of the IAF Act 2023
Key sections of the Central Bank (Individual Accountability Framework) Act 2023 (IAF Act 2023) were commenced by the Minister for Finance on 19 April 2023. These sections apply to all regulated financial service providers with effect from 19 April:
- Enhancements to the Central Bank’s existing Fitness and Probity (F&P) regime to improve efficiency and effectiveness;
- Extension of the scope of the existing F&P regime to certain categories of holding companies;
- Amendments to the Central Bank’s Administrative Sanctions Procedure (ASP) for enhanced individual accountability, including the breaking of the “participation link” between the conduct of an individual and a firm’s wrongdoing.
On 21 April 2023, following the partial commencement of the IAF Act 2023, the Central Bank published updated procedures for F&P investigations, suspensions and prohibitions, including Regulations and Guidance, with immediate effect from 20 April.
It is expected that an order to commence the remaining sections of the IAF Act 2023, concerning the Senior Executive Accountability Regime (SEAR), Conduct Standards, and the Fitness and Probity firm certification, will occur later in the year after the Central Bank’s Consultation Process concludes on 13 June 2023.
The Individual Accountability Framework (“IAF”)
The IAF will result in significant changes across organisations and will impact all aspects of in-scope firms’ operating models and the employee lifecycle. Firms are encouraged to embrace the spirit of the framework and its ultimate objective of driving improved governance and accountability when implementing IAF, both for their own enhanced governance but also for consumers of financial services, as well as the broader financial system.
The key components of the IAF are:
- The SEAR will initially apply to credit institutions (excluding credit unions), insurance undertakings, certain investment firms, and incoming third country branches of these entities.
- The roles to which the SEAR applies at in-scope firms directly aligns to the listing of Pre-Approval Controlled Functions (“PCFs”), including Board members, Non-Executive Directors (“NEDs”), and Independent Non-Executive Directors (“INEDs”).
- Firms will need to create a Statement of Responsibilities (“SoR”) for each of their PCFs, outlining their role and the specific areas of their responsibility. This includes the allocation of Prescribed Responsibilities provided by the CBI.
- Firms will also need to develop a Management Responsibility Map (“MRM”) illustrating the key management and governance responsibilities within their organisation.
- The SEAR requires firms to demonstrate the compliance of PCFs to their Duty of Responsibility by documenting the Reasonable Steps taken to avoid contravention of legal and regulatory requirements.
- The Conduct Standards outline the standards of behaviour for RFSPs and the individuals working within them focusing on customers, market conduct, integrity, and controls.
- The Conduct Standards will apply to all regulated firms, irrespective of whether the firm is in-scope for the SEAR.
- There are three new sets of Conduct Standards being introduced:
- Standards for Business that are applicable to all firms across the regulated financial services sector.
- Common Conduct Standards for all individuals performing Controlled Functions (“CFs”) roles.
- Additional Conduct Standards for those individuals performing PCF roles and those who may exercise a significant influence on the conduct of the firm’s affairs (i.e., CF1 roles).
- The F&P Regime will be extended to apply to holdings companies established in Ireland. The CBI proposes to prescribe CFs and PCFs for relevant holding companies in draft Holding Company Regulations (PDF, 909KB).
- The enhancements to the current F&P Regime will apply to all RFSPs, irrespective of whether the firm is in-scope for the SEAR.
- Firms and relevant holding companies will need to certify on an annual basis that the CF role holders within their organisation are fit and proper and in compliance with the F&P Standards.
- Firms will need to inform the CBI where formal disciplinary action has been taken against individuals in the firm in respect of breaches of the Conduct Standards.
- The CBI will have the ability to investigate individuals who previously performed a CF role up to six years prior to an investigation taking place.
- Breaches of Conduct Standards will be subject to direct enforcement action by the CBI.
- The breaking of the current link that exists between the conduct of an individual and a firm’s wrongdoing (‘participation’) to allow the CBI to pursue individuals directly for their misconduct.
- The High Court will have oversight of the settlement process and will have to confirm sanctions imposed by the CBI.
CBI consultation and implementation timeline
The CBI has launched a three-month consultation process on the key aspects of the IAF, excluding those sections commenced on 19 April 2023, with all responses required to be submitted by 13 June 2023. The current timeline for implementing IAF and complying with the various requirements is as below:
| Effective Date | Requirement |
|---|---|
| From 19 April 2023 |
|
| From 31 December 2023 | Conduct Standards including the accountability of senior individuals for running their parts of the business effectively (i.e., Additional Conduct Standards) |
| From 31 December 2023 | Firm certification requirements under the F&P regime |
| From 01 July 2024 | SEAR for those firms in-scope of the initial phase |
Get our insights on the Individual Accountability Framework:
Key speeches from the Central Bank of Ireland
- 01 June 2023: The Individual Accountability Framework: What it means for Directors - Remarks by Gerry Cross, Director of Financial Regulation, Policy & Risk (centralbank.ie)
Remarks by Gerry Cross, Director of Financial Regulation: Policy and Risk, at an Institute of Directors event - 18 April 2023: Enhanced governance, performance and accountability in financial services: the Individual Accountability Framework
Speech by Deputy Governor Derville Rowland at Central Bank of Ireland / Law Society breakfast seminar in Blackhall Place - 13 March 2023: The Individual Accountability Framework, Financial Regulation and the Central Bank – consultation and next steps
- 28 July 2022: Statement on the publication of the Central Bank (Individual Accountability Framework) Bill 2022
- 24 June 2022: Individual accountability – a maturing of financial regulation
Speech by Gerry Cross, Director of Financial Regulation: Policy and Risk, at Arthur Cox Client Seminar - 9 March 2022: Changing individual behaviour and culture in financial services
Speech by Director General, Financial Conduct Derville Rowland - 21 February 2022: “The spirit in the machine: considering evolving financial regulation”
Remarks by Gerry Cross, Director of Financial Regulation – Policy Risk, at the Compliance Institute - 3 November 2021: Opening Statement by Gerry Cross Director of Financial Regulation
Policy & Risk at Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach - 13 October 2021: “Clear standards of conduct, accountability, and robust enforcement mechanisms are essential to fostering trust in the financial services sector”
Director General Derville Rowland - 27 July 2021: Statement - Central Bank (Individual Accountability Framework) Bill 2021
- 17 February 2021: “Governance and risk in a time of uncertainty and change”
Deputy Governor Ed Sibley - 31 October 2019: The Senior Executive Accountability Regime: Our Expectations of Firms
Director General Derville Rowland - 22 October 2019: The Case for the Senior Executive Accountability Regime
Director General, Financial Conduct Derville Rowland - 16 May 2019: Accountability and sustainability: key themes in financial regulation
Gerry Cross, Director Financial Regulation Policy and Risk - 2 May 2019: The Senior Executive Accountability Regime: The Central Bank’s Expectations and Insights for Boards
Director General Derville Rowland - 14 November 2018: ‘Leadership, Accountability and Culture in Financial Services’
Derville Rowland, Director General, Financial Conduct - 27 August 2018: Individual accountability – our approach
Seana Cunningham, Director of Enforcement and Anti-Money Laundering - 10 June 2018: The importance of fitness, probity and ensuring responsibility
Director General, Financial Conduct, Derville Rowland
How can KPMG help?
KPMG’s Risk and Regulatory Consulting team has experience in leading large-scale regulatory change programmes within Ireland as well as in implementing similar Individual Accountability regimes across the globe, particularly in the UK (Senior Manager and Certification Regime) and Australia (Banking Executive Accountability Regime).
Members of our Irish team have been involved in the design and implementation of global accountability regimes for small, medium, and large organisations. We have also supported several Irish clients with IAF readiness assessments and implementation planning. We will leverage our experience and global network, coupled with our extensive knowledge of the Irish financial services market, to support firms in this process.
Our team of IAF experts includes our KPMG Law colleagues who can provide advice on all elements of IAF and SEAR (including any HR or contractual implications of the legislation).
What we do
We can support you in your preparation for the IAF in the following ways:
1. Readiness Assessment
2. Design and Implementation
3. Technology
4. Assurance
Why KPMG?
With KPMG, you can have confidence that you’re partnering with the best team in the market, with unrivalled experience, insight and commitment. We incorporate the latest global thinking into the provision of our services in the financial services sector and provide best practice advice.
