In recent years a number of regulators, including Ireland and the UK, have focused increasingly on individual accountability. Regulated firms are being required to identify senior managers, allocate responsibilities to these senior managers, draw together responsibility maps for the firm, and ensure that senior managers (and in some cases a wider range of staff) are fit and proper for their roles and meet the expectations of conduct rules established by the regulator.
In July 2018 the Central Bank of Ireland put forward its proposals for a new Individual Accountability Framework which incorporates many of the elements introduced by the UK Senior Manager and Certification Regime. Legislation to facilitate the introduction of the new Framework is expected in Q2/Q3 2020.
Individual accountability is now a global concept and is becoming a regulatory focus area around the world – as, for example, in Australia (the Banking Executive Accountability Regime including the proposed Financial Accountability Regime), Hong Kong (the Manager-in-Charge regime), Ireland (proposed Individual Accountability Framework, including Senior Executive Accountability Regime and new Conduct Standards), Singapore (proposed guidelines on individual accountability and conduct), the UK (the Senior Managers and Certification Regime, the US (the latest guidance on the management of business lines and risk management), and in the Financial Stability Board’s work on governance and misconduct. More countries are likely to follow suit over the coming years.
This increasing focus on individual accountability has been driven by three main factors. First, to constrain excessive credit and market risk taking, in particular by banks, through a focus on both heads of business lines and heads of control functions such as Compliance, Risk Management and Internal Audit.
Second, together with the greater emphasis on culture, to mitigate retail and wholesale misconduct risks through a focus on conduct standards and on senior managers taking reasonable steps to prevent regulatory breaches in the areas for which they are responsible. This is also part of a wider focus of both regulators and financial institutions to restore trust in the financial sector. Third, to hold individual senior managers to account (including through lower remuneration and disciplinary actions) when regulatory breaches and other failures do occur.
Internationally, firms have taken the shift to greater individual accountability seriously, perhaps not least because of the potential consequences on individual senior managers of a failure to do so. In Ireland firms will need to undertake large-scale reviews and updates of governance structures, management reporting structures, individual responsibilities, governance maps, and management information.
