The Central Bank’s director of financial regulation has said that he expects a new framework for individual accountability in financial firms to come into effect “later next year”.

Minister for Finance Paschal Donohoe said yesterday (23 June) that he expected a bill on the issue to be published before the summer recess.

Last year, the Department of Finance published the general scheme of the Central Bank (Individual Accountability Framework) Bill 2021, and pre-legislative scrutiny took place earlier this year.

‘Clear and proportionate’

Gerry Cross (pictured) told an Arthur Cox client seminar that the framework represented “a straightforward response to the deficiencies of governance, culture and accountability that were revealed by the tracker-mortgage scandal”.

Yesterday, the regulator imposed fines totalling €96.7 million on AIB and EBS for consumer-protection breaches linked to tracker mortgages.

Cross told the seminar that, after enactment, the bank would then move quickly to consult interested parties on how the new rules – known as the Individual Accountability Framework – would operate.

Cross said that this process would include draft regulations and accompanying guidance, to ensure that the proposed measures were “clear and proportionate”, and to help firms to implement them effectively and consistently.

He stated that the new rules were “aligned with what will already be sound practices at well-governed firms”, and would not generate significant extra costs for most firms.

Plan to extend SEAR scope

Under the new rules, a Senior Executive Accountability Regime (SEAR) sets out additional standards and responsibilities for senior financial executives.

Its initial scope will include around 150 banks, insurers, and investment firms, but Cross told the seminar that the Central Bank intended to extend this over time.

He added that the regulator, in its regulations, would set out which responsibilities would be covered.

Firms will have to allocate these responsibilities to individuals, but Cross stressed that the Central Bank would give them flexibility, in order to accommodate different business models across the financial sector.

Outsourcing

“The purpose of prescribed responsibilities is to provide clarity, both within the firm itself and to the Central Bank, as to who is responsible for key activities of the firm, including the management or oversight of specific conduct and prudential risks,” Cross explained.

The Central Bank official said that SEAR would not apply to branches from firms based in the European Economic Area (EEA), but would apply to those owned by firms from third countries.

He added that all non-executive directors would be covered by SEAR.

On outsourcing, Cross told the seminar that he expected firms to have a senior executive with responsibility for any outsourcing arrangements that were in place.