The Central Bank of Ireland welcomes today’s (27 July 2021) publication of the General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021 by the Department of Finance.
The Central Bank has been actively engaged with the Department of Finance on these proposals and will continue to work with the Department of Finance throughout subsequent stages as the legislation progresses through the Oireachtas to enactment.
In more recent years, there has been an increased focus nationally and internationally on strengthening corporate culture, driving positive behaviour and increasing individual accountability to mitigate conduct risk and prevent issues arising within firms. As Director General Financial Conduct, Derville Rowland, said “Culture is developed and evolves within individual firms. As regulators, we cannot prescribe or mandate a culture for firms. We can, however, monitor, assess and seek to influence culture within firms in order to guard against conduct risk and drive better outcomes for consumers and investors.”
Experience has shown that in order for a regulatory framework to work well, it should stimulate strong and effective governance within firms. To achieve this:
- the allocation of responsibilities within firms needs to be transparent, clear and comprehensive; and
- individuals need to know what they are responsible and accountable for, be clear what standards of behaviour are expected of them, and recognise that where their actions fall short of expected standards, they will be held accountable.
The following four key components of the Individual Accountability Framework (IAF), proposed in the Central Bank’s Behaviour and Culture Report into Irish Retail Banks, set out to achieve these behavioural, cultural and regulatory objectives:
- The Senior Executive Accountability Regime will require firms to set out clearly and comprehensively where responsibility and decision-making lie in order to achieve transparency as to who is accountable for what within firms.
- The enforceable Conduct Standards set out the behaviour expected of firms and their staff, including obligations to conduct themselves with honesty and integrity, to act with due skill, care and diligence, and in the best interest of consumers.
- The Central Bank’s Fitness & Probity Regime will be enhanced and will place a greater onus on firms to proactively certify that certain staff are fit and proper and capable of performing their roles with integrity and competence.
- The Central Bank’s Administrative Sanctions Procedure will be strengthened to ensure that individuals can be pursued directly for their misconduct rather than only where they have participated in a firm’s wrongdoing. The reforms will also provide for greater process efficiency, clarity and administrative consistency to all involved, including those who may be the subject of enforcement action. A continued focus by the Central Bank on proportionality and fair procedures is a key theme of its IAF proposals.
The various separate aspects of the IAF complement each other to achieve the ultimate goals of better outcomes for consumers and a more sustainable financial system by driving higher standards of behaviour for individuals in financial services firms.
The IAF is ultimately about incentivising positive behaviours and promoting an improved culture within firms while strengthening the Central Bank’s enforcement toolkit, particularly with respect to individuals, to allow the Central Bank to more effectively hold to account those that fall below the expected standards.
Once the Bill has been enacted the Central Bank intends to publicly consult on the implementation of the IAF.
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