The Individual Accountability Framework – Key Highlights from the CBI Guidance

The draft regulations and guidance seek to provide clarity in terms of the Central Bank’s expectations for the implementation of three aspects of the framework: the Senior Executive Accountability Framework (SEAR), the Conduct Standards and certain aspects to enhance the Fitness & Probity regime.

Set out below are the key highlights, however it is important to note a number of areas remain open for clarification including:

• Who will be required to approve Statements of Responsibilities (“SORs”) and Management Responsibility Maps (“MRMs”)?
• Is it the correct interpretation that the requirements are applicable to PCF role holders only i.e. a member of Executive Committee who is not a PCF is not required to have an SOR or an MRM per the SEAR requirements?
• Responsibilities should be allocated to the most senior individual, with appropriate authority, but what happens when a PCF reports directly to a PCF?
• Do the SOR templates capture sufficient detail to be fit for purpose.

Timelines clarified

To ensure focus by firms, the following implementation period is proposed by the CBI to successfully achieve the highest quality and compliance of the framework standards:

• Conduct Standards including accountability of senior individuals for running their parts of the business effectively to apply from 31 December 2023;
• Fitness & Probity Regime - Certification and inclusion of Holding Companies to apply from 31 December 2023; and
• Regulations prescribing responsibilities of different roles and requirements on firms to clearly set out allocation of those responsibilities and decision making to apply to in-scope firms from 1 July 2024.

The 31 December timelines will likely be a challenge across industry, particularly when considering governance pathways, Board approvals, and training and awareness embedding.

It is worth noting that all regulated financial service providers (including those not in scope of the first phase of SEAR) will have to ensure they are compliant by end 2023.

The CBI will undertake a review of the framework’s operation three years after implementation.

Initial takeaways

SEAR:

• Power for the CBI to expand the scope of SEAR (to other entities) in due course.
• Roles to which SEAR applies to in-scope firms align with the PCF listing.
• Inherent and Prescribed Responsibilities have been provided by the CBI, while “Other Responsibilities” will be determined by the firm and allocated to the relevant PCF.
• There is no reference to “Overall Responsibilities” or “Main Business Activities” as was the case in the UK, and therefore will be determined by firms what is appropriate.
• CBI are not being prescriptive in the allocation of responsibilities, however, certain responsibilities must be allocated to Non-Executive Directors.
• Limited amount of Prescribed Responsibilities will apply to incoming 3^rd country branches and Low PRISM impact investment firms.
• Sharing of Responsibilities is only allowed for job sharing arrangements.
• Non-Executive Directors responsibilities will be aligned with Corporate Governance Requirements.
• Introduction of IAF should not alter the concept of collective responsibility and decision-making.
• SORs and MRMs:
  • An SOR template has been provided, which allows for the inclusion of additional information relevant to the responsibilities allocated.
  • The CBI have not requested periodic reporting of SORs and MRMs, but should be available on request.
  • SORs will have to be submitted with new PCF applications.
  • No template has been assigned for the MRM, however, a guide and information requirements have been provided.
  • CF1s will now need to be listed in the MRM.
  • One PCF must be responsible for Outsourcing arrangements in the entity. If a PCF role is outsourced, oversight must be provided by the PCF responsible for Outsourcing, and will also need to be reflected in the MRM and SOR.
  • No MRM required for outgoing 3^rd country branches, only an SOR for the Branch Manager.
  • Record keeping and maintenance - SORs and MRMs need to be retained for 10 years.

Reasonable Steps:

• The CBI have given further guidance in relation to Reasonable Steps and what individuals need to ensure they are taking reasonable steps to discharge their responsibilities including:
  • PCF role holders in-scope of SEAR;
  • CF role holders (including PCF role holders), who are subject to the Common Conduct Standards; and
  • PCF / CF1 role holders who are subject to the Additional Conduct Standards.
• Expected that the concept of reasonable steps should already be embedded in CF role holders’ day-to-day actions, and a tick-box mentality should not be adopted in applying the guidance.
• While the regulatory landscape may change, in considering this, the Central Bank will look to the overall circumstances and environment, as they existed at the time rather than applying standards retrospectively or with the benefit of hindsight.
• It is acknowledged that human error can occur and perfection is not the required standard.
• Records of the steps taken that the Central Bank may seek to review or obtain may include but not limited to meeting minutes, SORs, MRMs, organisation charts, job descriptions and performance appraisals.

Conduct Standards:

• Firms will need to ensure up-to-date records of notification of Conduct Standards are kept, and appropriate training is provided to staff.
• Business Standards will be updated, as part of the on-going Consumer Protection Code review.
• Additional Conduct Standards will apply to PCF and CF1 role holders.
• Legal obligation on firms to notify the CBI of any disciplinary action arising from a breach of the Conduct Standards, within 5 days of the disciplinary action concluding.
  • The CBI have clarified that “disciplinary action” means the issuing of a formal written warning, the suspension, or dismissal of a person, or the reduction or recovery of any person’s remuneration.

Fitness & Probity:

• Largely the Fitness & Probity regime will remain substantially unchanged.
• Updated Fitness & Probity Investigations Regulations and guidance expected in March 2023.
• As expected, firms will need to certify the Fitness & Probity of all CF / PCF staff at least annually.
• The Fitness & Probity regime has been extended to apply to holding companies established in Ireland, which means there will be CFs and PCFs prescribed for holding companies.
• Guidance on the specific due diligence to be undertaken and the frequency of same, has been set out.
• New PCF for Head of Material Business Line for Insurance and Investment Firms.
• While certificates will not be submitted to the CBI, firms will have to confirm completion of the certification process for all impacted staff.

Next steps and how we can help

Grant Thornton Ireland are well positioned to assist your firm with IAF and SEAR queries.  We have the experience and expertise to support you in establishing a programme to ensure adherence to the new regulatory requirements. 

Our market leading team of regulatory professionals can also provide support with a full fitness check of your firm in comparison to the wider regulatory expectations regarding IAF and SEAR. From bespoke advice to large-scale projects, our subject matter experts are here to help.