Irish Bill Aims To Make Financial Managers More Accountable

September 22, 2021
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The Irish version of the UK's Senior Managers and Certification Regime (SM&CR) is on the stocks, with finance minister Paschal Donohoe having approved the drafting of the Central Bank (Individual Accountability Framework) Bill whose main purpose is to improve accountability in the financial sector.

The Irish version of the UK's Senior Managers and Certification Regime (SM&CR) is on the stocks, with finance minister Paschal Donohoe having approved the drafting of the Central Bank (Individual Accountability Framework) Bill whose main purpose is to improve accountability in the financial sector.

There are four main aspects to the proposals along with necessary technical changes to existing legal processes. All of these make up the so-called Individual Accountability Framework.

The bill proposes the following:

  1. A Senior Executive Accountability Regime (SEAR), which could oblige financial firms and the senior individuals who work there to delineate the boundaries between people's responsibilities and authority to make decisions. SEAR is not designed explicitly to apply to payment firms, but it is likely to happen in the fullness of time. It will apply to credit institutions (excluding credit unions), insurance firms, investment firms of various kinds and non-EU branches of the above.
  2. Standards of conduct to apply to all persons in "controlled function roles" — a term borrowed from the UK, with additional standards of conduct for people in senior positions and standards of business conduct for all regulated firms in the financial sector. The Central Bank of Ireland is to receive powers to hold both firms and individuals to such standards of conduct.
  3. Improvements to the Fitness & Probity Regime, which the central bank introduced years ago in accordance with the Central Bank Reform Act 2010. The aim here is to help the Individual Accountability Framework work.
  4. The end of the “Participation Link”, which requires the central bank to first prove that a regulated financial service provider (RFSP) has contravened financial services law before it can take action against anyone within its ranks.

Sanctions are to apply for breaches of SEAR.

SEAR is designed to prevent senior managers from misbehaving or mismanaging people. As with the SM&CR, management responsibility maps are to be the order of the day.

The government also said that it is introducing standards of conduct in all RFSPs and fairly junior staff will have to obey them.

The central bank's ultimate aim is to "rebuild trust in the financial sector". It admits that this is going to be "challenging" in the wake of the financial crisis that began in 2008.

The new regime is likely to come into force in the next 12 to 18 months.

Simmons & Simmons law firm has written that the Irish regime resembles the SM&CR, which inspired it, in its desire to impose a legal duty on everyone who performs a senior executive function (SEF) to take reasonable steps to stop their firm from committing "a prescribed contravention in relation to the areas of the business for which they are individually responsible".

When assessing whether the SEF person took reasonable steps, the central bank must look at the nature, scale and complexity of the business, the nature of the SEF, the amount of knowledge that someone in that position should reasonably have, whether that person set up reasonable risk-management systems and whether that person fulfilled their legal obligations.

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