And so it begins - the Central Bank (Individual Accountability Framework) Bill 2022 embarks on its journey through the Houses of the Oireachtas
On 18 October 2022, the Central Bank (Individual Accountability Framework) Bill 2022 (the "Bill") was discussed at Second Stage in Dáil Eireann (the first substantive stage in the legislative process). The long awaited legislation sets out new requirements in respect of senior executives working in the financial services sector through the introduction of an individual accountability framework (the "IAF"). The IAF comprises the senior executive accountability regime (the "SEAR"), conduct standards for regulated financial service providers (the "RFSPs") and persons performing certain functions in RFSPs, enhancements to the current Fitness and Probity (the "F&P") regime as well as amendments to the Administrative Sanctions Programme (the "ASP").
Deputy Sean Fleming, Minister of State at the Department of Finance (the "Minister of State") gave an opening statement on the Bill. The following is a brief note on the key points which he made on the Bill:
- the Bill "is a further step in enhancing existing regulatory powers" of the Central Bank of Ireland (the "Central Bank") that were previously enhanced by the Central Bank Reform Act 2010 and Central Bank (Supervision and Enforcement) Act 2013 and will also "play a key role in driving the positive cultural change in financial services organisations".
- the Bill will make individuals in financial services firms "more responsive and responsible by enhancing individual accountability in decision-making at all levels", particularly at senior levels in financial institutions.
- the Bill introduces the IAF, which comprises the SEAR and conduct standards for firms and for individuals performing controlled functions ("CFs"), and the duty of responsibility. The Minister of State explained that "by ensuring that there is clarity about who is responsible for what, the senior executive accountability regime will ensure that, in the event that there is wrongdoing in a firm regulated by the Central Bank, the resulting investigation can be focused and effective".
- the Bill serves as a "clear declaration of the standards of behaviour expected of those working in the financial services industry", providing conduct standards for RFSPs and individuals performing CFs and providing for the sanctioning of individuals who breach these responsibilities. The Minister of State did however confirm that "the conduct standards are, in and of themselves, unremarkable". In fact, we in Matheson LLP, have maintained that these standards are a codification of existing obligations.
- the Bill will be "an additional enforcement tool for the Central Bank" and will introduce enhancements to the Central Bank's existing supervisory and enforcement frameworks. There will be changes to the ASP and to the F&P regime including extending the fitness and probity regime to cover various categories of financial holding companies and breaking the existing participation link which currently requires wrongdoing by a firm to be demonstrated before enforcement action can be taken against an individual involved in the management of the firm.
- the Bill "provides an opportunity for the Government to review the Central Bank's processes in light of the Supreme Court's decision in the case of Zalewski v. Adjudication Officers and others". The Minister of State noted that the changes included in the Bill "will ensure these processes conform to the standards of fairness required by the Constitution in the administration of justice and provide for enhanced oversight by the High Court".
- the Minister for State highlighted that given that the Bill extends the Central Bank's enforcement powers to a wider cohort, including more junior members of staff, "due regard has to be given to the constitutional rights of all concerned in preparing the Bill for publication" and the "complexity of certain elements of the Bill is necessary to achieve this important objective and to include appropriate safeguards".
Central Bank Consultation
Much of the detail of the IAF, including the initial scope of the SEAR, will be included in Central Bank regulations. As previously highlighted in speeches and communications from the Central Bank, in advance of concluding these regulations, the Central Bank intends to conduct a comprehensive consultation exercise which includes the draft regulations. The Minister of State strongly urged all industry participants to "engage constructively with this consultation process".
The Minister of State advised that the Minister for Finance intends to propose a number of minor amendments at Committee Stage including, amendments to take account of the ECB Opinion on the Bill published on 13 September in which the ECB made a number of suggested amendments to the Bill. Where a change to the text of the Bill is necessary, the Minister for Finance intends to address this at Committee Stage.
Please note that the debate was adjourned at this stage, it is expected that the Minister of State will continue today (19 October 2022) by outlining the main provisions of the Bill. Discussions are also scheduled to continue on 20 October 2022. We will update clients on these discussions in early course.