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Bosses must drive accountability culture, says Central Bank
Peter Gallagher (head of enforcement advisory) and Central Bank Deputy Governor Derville Rowland Pic: Cian Redmond

17 Apr 2023 / regulation Print

Bosses drive accountability culture, says Central Bank

The forthcoming Individual Accountability Framework (IAF) should see the financial-services industry and its regulatory relationships move up the 'maturity curve', Central Bank Deputy Governor Derville Rowland said this morning (17 April).

Speaking at a Law Society briefing event at Blackhall Place on the new Senior Executive Accountability Regime (SEAR) , Rowland said that the regulator wanted a mature industry operating to high standards, which would be good for business, for investors, and for the economy.

An "immature" relationship of the regulator "coming in with a homework list" was unhelpful and not good for firms or the Central Bank, which wanted businesses providing good products and services and making a reasonable profit, she added.

The Central Bank had a globally relevant footprint, overseeing 10,000 entities and over 3,000 firms, Rowland said.

Consumer benefit

Welcoming attendees to the session, Law Society President Maura Derivan commented that the Central Bank consultation with solicitor stakeholders on the IAF would ultimately benefit all consumers.

"This is very important, in order to bring forward Ireland as a safe and well-regulated place to do business," the president added.

"Ireland for Law, which promotes Ireland as a forum for legal business, is dependent on clear illumination about regulation," the Law Society President stated. 

Rowland said that the Individual Accountability Framework, and financial regulation in general, was about supporting positive outcomes and protecting consumers and investors, using the values ​​of fairness, consistency, proportionality and predictability.

The Central Bank's Deputy Governor urged firms to take steps now to prepare for the new accountability regime, by assessing their governance and ensuring clarity in reporting matters.

Not a 'tick-box' exercise

"We are not into 'tick-box' compliance," said the Central Bank's Gina Fitzgerald (head of financial risk and governance policy).

"We are into effectiveness; we are outcome-focused."

She added that firms should use whatever technology helped to achieve that goal.

"We really do want senior leadership to take ownership of this," Fitzgerald said, "through examining processes, training and standards. We want to drive culture and governance from the top.”

'Absolute drive from the top'

The regulators warned that a culture of accountability must come from the top of financial-services firms, and not be delegated to human resources or the 'chief people officer'.

"I dislike hearing that culture is the responsibility of HR... I think it is a senior-role responsibility; it is an absolute drive from the top," Rowland said.

The Central Bank wants insights from as wide a group of interested stakeholders  including legal-service providers  as possible, before the framework comes into play.

Feedback statements will be published, and an appropriate transitional period will be allowed for firms to make arrangements, with the framework operational from July 2024.

The framework will impose accountability obligations on senior executives who are in scope, and who have decision-making roles in their businesses.

Business-conduct standards that enhanced the current fitness and probity regime, and addressed some of its limitations, were set out, Rowland added.

Enforcement ability on breaches will be enhanced.

'Kitemark of quality'

"If we get this right, in a proportionate and high-quality manner, it will support Irish business to further fulfill the role of a trusted provider here and abroad, act as a protection to consumers and investors and, ultimately, as a kitemark of quality for this jurisdiction," she said.

The benefits to the new regime will outweighed the costs, Rowland stated.

"There will be an inevitable increase in the administrative burden on firms during the initial implementation phase," she added. "It will take time for firms to create a statement of responsibilities, and plan accordingly," Rowland said.

Individuals would have to be notified and trained about conduct standards in the new way of doing business, she added.

Benefits will become apparent

"Best practice provides a new and significant regulatory burden; we acknowledge that this is the case," Rowland stated, adding that all of this would be reviewed after the initial period of operation.

"As firms become more familiar with the regime, we think that the administrative burden will recede and the benefits will become more apparent," she said.

Credit institutions  excluding credit unions, certain insurance undertakers, investment firms, and incoming third-country branches of these firms  will all be affected.

"It is our intention to increase the scope classification of SEAR over time, with lessons from the initial roll-out to be incorporated as we go on, to form our view," the deputy governor said.

Those not within the initial scope would be well-advised to consider early adoption, she stated.

For consistency and coherence, the framework roles will align with existing fitness and probity roles.

Thus, firms would not be required to create new roles, and SEAR would not alter the existing governance of well-run firms, she explained.

Two chief responsibilities

Two main types of responsibilities are imposed – 'inherent' and 'prescribed' – with the latter allocated to individuals who have 'Pre-approval Controlled Functions' (PCFs).

The Central Bank had no intention of being overly prescriptive in this allocation, Rowland said, and the standards and obligations imposed would be readily understood.

"That approach will allow the firm itself to determine its own best way to allocate those responsibilities in a manner that will accommodate its own business model and organisational structure, in line with its own governance," Rowland said.

If firms took ownership of the framework, there would be a permanent uplift in governance standards, she stated. Proper embedding should result in fewer serious issues and less enforcement.

"We use our enforcement powers sparingly, but we do take action where it is warranted," the deputy governor said. 

Over 200 delegates attended the consultation at Blackhall Place.

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