The Senior Executive Accountability (SEAR) Regime forms part of the Individual Accountability Framework (IAF). SEAR will apply to most credit institutions and some investment firms and insurance undertakings in Ireland. The purpose of the Regulations, published on 13 March 2023, is to clarify and clearly set out where decision-making responsibilities lie in financial firms at senior executive level. The Central Bank of Ireland has commenced a three-month consultation regarding the IAF, which the SEAR regulations form part of.
Inherent responsibilities of Pre-Approval Controlled Function (PCF) Holders
Schedule 1 of the draft regulations sets out the inherent responsibilities of certain PCF-Holders, for example:
PCF1 - Executive director
Directing the business of the firm
PCF2A - Non-executive director
Overseeing and monitoring the strategy and management of the firm
PCF 2B - Independent Non-executive director
Overseeing and monitoring the strategy and management of the firm.
PCF3 - Chair of the Board
Chairing meetings of the Board, leading and overseeing its performance.
PCF4 - Chair of the audit committee
Chairing meetings of the audit committee, leading and overseeing the committee’s performance
PCF5 - Chair of the risk committee
Chairing meetings of the risk committee, leading and overseeing the committee’s performance.
PCF6 - Chair of the remuneration committee
Chairing meetings of the remuneration committee, leading and overseeing the committee’s performance.
There are 32 pre-approval-controlled functions set out in schedule 1 and there are inherent responsibilities attached to each one.
Schedule 2 of the Regulations sets out responsibilities which are concerned with various aspects of a firm’s affairs. Firms must allocate a PCF-Holder to to oversee and manage these responsibilities. Subject to limited exceptions for low impact investment firms or a third country branches, each responsibility in the table in Schedule 2, Part 1 should be allocated to a PCF-Holder.
PCF-Holders shall be responsible for the following prescribed responsibilities amongst various others:
- The firm’s performance of its obligations under the Senior Executive Accountability Regime
- The firm’s performance of its obligations under the Fitness and Probity Regime, including certification
- Embedding the conduct standards throughout the firm
- Adopting the firm’s culture in the day-to-day operation of the firm
- Overseeing the development of, and embedding positive culture, consumer protection and conduct risk into, the firm’s remuneration policies and practices
- Managing the firm’s approach to identifying, assessing and managing climate-related and environmental risks across the firm
Certain prescribed responsibilities must be assigned to particular categories of PCF-Holders. The rules are slightly different for low impact investment firms and third country branches.
Areas of responsibility and management responsibilities maps
It is the responsibility of firms to identify each of the activities, business areas and management functions (the Activities) constituting the overall business of the firm. They must then establish and maintain a comprehensive and up-to-date single composite document (the Management Responsibilities Map). The Management Responsibilities Map must describe the firms’ management and governance arrangements for the Activities. It must contain the following information:
- Description of each aspect of the Activities to include how each operates within the overall business of the firm
- Information on the reporting lines and the lines of responsibility
- Matters reserved for the governing body and how its subcommittees, and other senior level committees, contribute to decision making by the governing body
- An organisation chart which illustrates where the company sits within the group structure and how the firm’s management and governance arrangements interact with those of the group
- The identity of each PCF–Holder, details of that person’s inherent responsibility, and allocated responsibilities, as well as any other responsibility held by that person
- Description of the reporting lines of each PCF-Holder to persons and committees in the firm and, if applicable, to other persons within the corporate group structure
- Where the firm has allocated an allocated responsibility to more than one PCF-Holder, the firm must explain its rationale for doing so, together with the arrangements for the effective operation of that joint allocation of responsibility
- Where a CF1, a person with a controlled function who can exercise a significant influence on the conduct of the affairs of a regulated financial service provider, is identified in the management responsibilities map, the firm shall provide the following information:
- Whether the person is an employee of the firm and if not an employee of the firm, the person’s status with the firm.
- Any responsibilities the persons may have in relation to other entities in the group.
- Detail regarding any outsourcing and oversight thereof, and
- Detail on how the above matters fit together and how they fit into the firm’s management and governance arrangements.
Other items of note under SEAR
- Regarding the Activities, where responsibility for each has not already been allocated, the firm shall designate this an ‘other responsibility.’ The Central Bank of Ireland can declare by notice in writing that a responsibility of an Activity is an ‘other responsibility.’ ‘Other responsibilities’ should be allocated to PCF-Holders.
- Any proposed allocation to a PCF-Holder of an allocated responsibility should be consistent with other duties already held by the PCF-Holder.
- The firm must prepare and maintain a Statement of Responsibilities (“Statement of Responsibilities”) for each PCF-Holder in one document. Any application made to the Central Bank of Ireland or the ECB to permit a person to be appointed to a pre-approval-controlled function should be accompanied by such a statement.
- The Central Bank of Ireland shall have the power to require a firm to provide the bank with their Management Responsibilities Map and/or the Statement of Responsibilities of any PCF-Holder.
- Management Responsibilities Maps and Statement of Responsibilities should be kept for ten years after they cease to be in force.
It will be necessary for financial institutions which fall within the scope of SEAR to review and allocate:
- Inherent responsibilities
- Prescribed responsibilities, and
- Other responsibilities
It will also be necessary for financial institutions to begin preparations for completion of their Management Responsibilities Map and Statements of Responsibilities for each PCF-Holder. From a purely employment law perspective, firms will need to think about updating their employment contracts on an ongoing basis to reflect responsibility allocation and Management Responsibilities Maps. Firms will need to update their policies and procedures in line with SEAR and maintain accurate records going forward.
For more information on ensuring full compliance with the draft Regulations, contact a member of our Employment Law & Benefits team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.