On 3 November 2021, the Joint Committee on Finance, Public Expenditure and Reform and An Taoiseach conducted pre-legislative scrutiny of the General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021 which was published in the summer.
In this short update, Matheson’s expert team on the Individual Accountability Framework summarises the key points that arose and the next steps for regulated financial services providers.
In his opening statement to the Committee, Gerry Cross, Director of Financial Regulation - Policy and Risk welcomed the opportunity to discuss the General Scheme and reaffirmed the rationale and the four key components of the General Scheme, which were as expected and previously communicated.
Together, these four components will provide a “proportionate and predictable framework” to help the financial sector fulfil its role of supporting the economy and serving the best interests of consumers and other users of financial services.
The opening statement was followed by a Q&A session with the committee members and the CBI representatives Gerry Cross and Seana Cunningham, Director of Enforcement and Anti-Money Laundering.
The following were the key points arising:
- the Central Bank representative stated that firms “… would like us to be very clear about what reasonable steps are … it is important that we provide guidance and clarity … but of course it is important also for those caught by this regime to think about and put in place the steps that are appropriate without [the Central Bank] leading them by the hand each step of the way”.
- The Central Bank representatives emphasised the importance of the proposed conduct standards, stating that they are “directly enforceable obligations on individuals that are not necessarily tied to the firm having committed a contravention…the common conduct standards and the additional conduct standards… are a very significant enhancement standard that people must abide by that are directly imposed on them and enforceable against them”.
- As had been anticipated, the Central Bank intends to apply a phased implementation of the SEAR framework, saying that “in the first instance the proposal… would apply to…the most high impact firms… it is very important to say the financial system is… evolving very quickly and there are all sorts of opportunities, potential benefits but also challenges and risks …”.
- The Central Bank said that there wasn’t any legislative assurance that the payment of fines imposed on individuals could not be paid by their firm.
- The Central Bank’s response was emphatic on the topic of reviewing responsibility maps produced by in-scope Regulated Financial Services Providers. “it is very important… that…the financial service industry does not think…the Central Bank…will take them by the hand and check their work every step of the way…fundamentally, this bill is about bringing the culture and governance and approach of the financial sector and its firms up a level and crucial to that is that they are taking responsibility. Having said that, it is [the Central Bank’s] job as the regulator and supervisor to ensure that they are doing so and to supervise them in a way that [the Central Bank is] comfortable and confident that they are meeting their obligations and expectations as they should. So yes, in terms of the maps, in terms of the statements of responsibilities, yes they will come to us and yes we will have regard to them and they will be part of our supervision of the firm and a very helpful part of our supervision of the firm... but…this is about the firms taking responsibility for themselves in the first instance”. – Gerry Cross
- In response to a question about potential adverse effects of this legislation, the Central Bank agreed that “it is right to say we need to be aware of …the risk of “juniorification” of roles… however…it is about [the Central Bank] ultimately standing back and saying what is the culture of this firm, what is happening in this firm…it is not good governance, it is box ticking, it is formalisation of things which is precisely what this regime is designed to avoid”. – Gerry Cross
- A question was posed as to whether the Central Bank would be considering a directory of certified individuals similar to the UK. The Central Bank explained that it was not something that forms part of the Bill at present, but something which could be considered.
Next Steps
In short, the opening statement from the Central Bank and the responses to the Q&A from the committee indicated emphatically that the Central Bank will not be "checking work".
This further highlights the need for firms to proactively define the appropriate governance, culture and responsibility framework that will suit their business and meet the expectations of the regulator.
Matheson’s expert team of financial regulation, investigation and employment law specialists will continue to keep our clients abreast of the latest developments as the Central Bank (Individual Accountability Framework) Bill 2021 passes through the legislative process.
If you have any questions, please contact Karen Reynolds, Niamh Mulholland, Darren Maher, Joe Beashel, Grainne Callanan, Louise Dobbyn, Bryan Dunne, Russell Rochford, Geraldine Carr, Tara Doyle, Barry O'Connor or your usual Matheson contact.