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The Senior Executive Accountability Regime – What Does it Mean for Regulated Entities?

23 August 2021 | 2 min read ⧖

Introduction

The introduction of a Senior Executive Accountability Regime (SEAR) has been in the offing for a number of years. However, in July 2021, SEAR took a considerable step toward implementation with approval from the cabinet for the Minister for Finance to draft the Central Bank (Individual Accountability Framework) Bill.

SEAR is focused on the prevention of misbehaviour or mismanagement by individuals in senior management positions in regulated financial service providers (RFSPs). The proposed Individual Accountability Framework intends to achieve this aim by requiring individual accountability from senior management, with further enforcement powers being granted to the Central Bank of Ireland (Central Bank).

The Proposed Legislation

The proposed legislation can be summarised in four main parts. These are -

  1. The establishment of SEAR, which will be rolled out on a phased basis. Under SEAR, RFSPs and senior individuals within these firms must clearly lay out where decision making and responsibility lies.

  1. The introduction of:

  • Common conduct standards to apply to all persons in controlled function roles

  • Additional conduct standards for individuals in senior positions, and

  • Business standards for all regulated firms in the financial sector

The introduction of these standards will give the Central Bank enhanced powers and will mean RFSPs will be obliged, together with individuals working within the RFSPs, to abide by and respect the standards.

  1. Enhancements to the Fitness & Probity Regime to require RFSPs to certify that staff are fit and proper.

  1. Breaking the “Participation Link”. This addresses a deficiency in existing legislation whereby the Central Bank must first prove non-compliance with financial services legislation against an RFSP before it can take any type of action against an individual.

The Objectives of the Individual Accountability Framework

The Department of Finance’s recent press release sets out a number of anticipated outcomes from the implementation of the Individual Accountability Framework. These include:

  • Customers benefiting from RFSPs that are fully accountable for the level of service and advice they provide

  • Employees of RFSPs benefiting from greater clarity as to their exact roles and responsibilities and feeling more empowered to speak up when they see failings

  • Firms and their shareholders benefiting from real accountability for senior executives, and

  • The wider economy and society benefiting from a more stable financial system

The Implementation of the Individual Accountability Framework

Minister Donohoe has indicated that SEAR is likely to be introduced on a phased basis. In the first phase, SEAR will apply to banks, insurance companies, and other sectors that have a high degree of interaction with retail consumers. These include:

  • Credit institutions, excluding credit unions

  • Insurance undertakings, excluding reinsurance undertakings, captive (re)insurance undertakings and Insurance Special Purpose Vehicles

  • Investment firms which underwrite on a firm commitment basis and/or deal on own account and/or are authorised to hold client monies/assets, and

  • Third country branches of the entities listed immediately above

RFSPs should expect SEAR to be rolled out from sometime in late 2022.

Conclusion

The momentum for the introduction of SEAR has picked up apace with this recent development. There are a number of key considerations that RFSPs should take the time to think about in advance of the impending introduction of the Individual Accountability Framework. We are available to assist any RFSP in this regard.

For more information, contact a member of our Financial Regulation team.


The content of this article is provided for information purposes only and does not constitute legal or other advice.

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