Individual Accountability

Individual Accountability Framework Act 2023

The principal purpose of the Act is to confer powers on the Central Bank of Ireland to strengthen and enhance individual accountability in the financial services industry. This is to be achieved by prescribing responsibilities and providing for the allocation of responsibility and accountability for the management and operation of regulated financial service providers (RFSPs) to individuals while maintaining a balance with the responsibilities that properly belong to the firms themselves.

The Act provides for obligations on RFSPs with respect to governance, management arrangements and senior executive accountability; by providing for conduct standards setting out standards of behaviour for RFSPs and individuals performing functions in relation to them; and by providing for the sanctioning of individuals who breach their responsibilities under financial services legislation.

To facilitate the holding of individuals accountable for their actions, the Act will break the existing “participation link” which requires wrongdoing by a firm to be demonstrated before enforcement action can be taken against those persons involved in the management of the firm who participated in that wrongdoing. A new “duty of responsibility” will oblige senior executives to take reasonable steps to ensure that the firm does not breach its obligations under financial services legislation. The Act introduces conduct standards for businesses and for persons performing controlled function roles.

The 2023 Act also amends certain of the Central Bank’s processes in order to make them more efficient and effective and to ensure that they conform to the required standards of fairness in the administration of justice, in light of the decision of the Supreme Court in the case of Zalewski v. An Adjudication Officer and Others (2021). The processes to be amended include the Fitness and Probity regime, which will also be extended to financial holding companies, and the Administrative Sanctions Procedure.

The Act is drafted so as to achieve its objectives by means of amendment of existing Central Bank legislation, and there is, therefore, a good deal of restatement and reordering of this existing legislation.

New Regulation Making Power

The 2023 Act provides for a new regulation-making power for the Central Bank to provide for arrangements that RFSPs shall adopt in relation to the allocation of responsibilities and compliance with obligations under financial services legislation.

Regulations made under the 2023 Act may apply to a specified class or classes of pre-approval controlled functions and may include different provisions in relation to different classes of pre-approval controlled functions.

Chapter 1 provides a new regulation-making power for the Central Bank to give effect to the Senior Executive Accountability Regime (SEAR). The SEAR will ensure greater transparency and clearer accountability within the financial services sector by giving the Central Bank powers to impose obligations on RFSPs to set out clearly where responsibility and decision-making lies within the RFSP including by making provision for the following:

• responsibilities that are inherent to each senior executive role;
• prescribing further responsibilities which the Central Bank considers that RFSPs must ensure are allocated to individuals in senior roles;
• the identification and allocation of other responsibilities by RFSPs to relevant senior executives;
• imposing requirements on RFSPs to prepare statements of responsibilities for each of their senior executives which clearly set out their role and areas of responsibility;
• imposing requirements on RFSPs to produce a management responsibility map documenting key management and governance arrangements in a comprehensive and accessible way within a single source of reference.

Senior Executives & Management

The number of senior executives who will be subject to the SEAR is aligned, for each in-scope firm, to the list of pre-approval controlled functions (PCFs) prescribed by regulations made under section 22 of the Central Bank Reform Act 2010.

The individual responsibilities of each senior executive (i.e., his or her inherent responsibilities, as well as any prescribed and/or other responsibilities allocated to the individual) must be documented in a statement of responsibilities. These statements are individual to each senior executive and are intended to promote clarity, transparency and accountability for individual responsibilities within the RFSP. The additional clarity provided in the statement of responsibilities will also enhance the Central Bank’s ability to hold individuals to account for regulatory breaches in the area for which they are responsible.

Each in-scope RFSP will be required to produce a management responsibility map. The purpose of the management responsibility map is to describe the management, governance and reporting arrangements of the RFSP in a clear single source of reference to include governance arrangements for the board, board committees and other decision-making committees or groups, reporting lines of senior executives, including within the wider RFSP group, and, if relevant, the interaction between the RFSP’s and the RFSP group’s governance and management arrangements.

Prescribed Business & Conduct Standards

Business standards will apply to RFSPs. The business standards will create a single reference point setting out in clear and simple terms the conduct standards that all RFSPs, regardless of sector, must meet. They will also provide an essential counterbalance to conduct standards imposed on individuals under the

The business standards will be further elaborated on through Central Bank regulations which will specify additional detail with respect to the operation of these standards.

A breach of the business standards will be a prescribed contravention so that the Central Bank can take direct enforcement action against, and may impose sanctions on, an RFSP responsible for such a breach.

There is a new regulation-making power for the Central Bank to prescribe business standards with which RFSPs shall comply to ensure that they act in the interests of customers and of the integrity of the market; act honestly, fairly and professionally; and act with due skill, care and diligence.

Duty of Responsibility

A senior executive subject to SEAR commits a prescribed contravention if he or she fails to take reasonable steps to avoid a contravention by the RFSP occurring (or continuing) in the areas of the firm’s business for which he or she is individually responsible. This duty of responsibility will underpin the responsibilities identified and allocated under SEAR by imposing a legal obligation on senior individuals in relation to their discharge.

Where a firm is in breach of its obligations and the Central Bank is considering whether the relevant individual discharged his or her duty as required, the Central Bank will be required to consider all relevant circumstances.

The Common Conduct Standards which shall apply to a person performing a controlled function in relation to an RFSP and, in respect of each of these standards, provides a non- exhaustive list of behaviours that would be expected to achieve compliance with the standard.

There are Additional Conduct Standards which shall apply to a person performing a pre-approval controlled function in relation to an RFSP, or any other function by which the person may exercise a significant influence on the conduct of the RFSP’s affairs, in addition to the Common Conduct Standards.

Conduct Standards for Individuals

There are  two sets of conduct standards for individuals. Common conduct standards will apply to all persons performing controlled functions in relation to RFSPs. Such persons will be required to take reasonable steps to—

• act honestly and with integrity;
• act with due skill, care and diligence, including acting appropriately in any decision-making, including collective decision-making, ensuring decisions are properly informed;
• be cooperative with the Central Bank and other regulators or authorities and deal with them in good faith and without delay;
• act in the best interests of customers and treat them fairly and professionally; and
• observe proper standards of market

Additional conduct standards will apply (in addition to the common conduct standards) to more senior persons, those performing pre-approval controlled functions in relation to all RFSPs and others who perform any other function by which the person may exercise a significant influence on the conduct of the RFSP’s affairs. Persons in such senior roles will be required to take reasonable steps to—

• ensure that the business of the RFSP for which the person is responsible is controlled effectively;
• ensure that the business of the RFSP for which the person is responsible complies with relevant regulatory requirements;
• ensure that any delegation of tasks for which they are responsible is to an appropriate person and that they oversee the discharge of the delegated task effectively;
• disclose promptly and appropriately to the Central Bank any information of which the Central Bank would reasonably expect

The introduction of conduct standards for all controlled function staff in all RFSPs will provide clarity as to the standards of behaviour the Central Bank expects of individuals working in the financial services industry.

Obligations of Institutions

To ensure that each individual is aware of and understands the expectations of them, the Act provides that RFSPs shall—

• notify all relevant persons of the conduct standards that apply to them;
• provide suitable training to staff on the conduct standards; and
• report in a timely manner any disciplinary action arising from breaches of the conduct standards to the Bank.

RFSPs will also be required to establish and maintain policies setting out how they will embed the common conduct standards throughout their respective organisations.

The Act further provides that the Central Bank shall prepare and publish guidelines for providing practical guidance for persons who are to be subject to the conduct standards.

Pre-Approval Controlled Functions

A person performing a pre-approval controlled function has inherent responsibility for certain obligations specified by the Central Bank in relation to that function in regulations made under the Act of 2013; and has allocated responsibility for certain obligations allocated under arrangements adopted in accordance with regulations made.

A person performing a pre-approval controlled function shall take any steps that are reasonable in the circumstances to secure that a contravention of the obligations for which the person has inherent or allocated responsibility does not occur or continue during the period for which the person has that responsibility.

A person performing a controlled function shall take any steps as are reasonable in the circumstances to meet the common conduct standards; and that a person performing a pre- approval controlled function or any other function by which the person may exercise a significant influence on the conduct of the affairs of an RFSP shall take any steps that are reasonable in the circumstances in the performance of that function to meet the additional conduct standards.

Steps to Meet Standards

In determining what circumstances are relevant for the purposes of assessing what are reasonable steps to ensure that the conduct standards are met and the duty of responsibility discharged, the Central Bank shall consider certain matters including and not limited to,

• the nature and scale of the business concerned;
• the function performed by the person concerned and that person’s level of knowledge and experience;
• the existence and application of appropriate and effective systems;
• effective oversight of any delegation of responsibilities;
• appropriate and effective procedures for identifying and remedying problems;
• the extent to which these were within control or influence of the person and
• any guidelines published by the Bank in relation to the conduct standards.

Guidance & Notification

The Central Bank shall prepare and publish guidelines relating to the application and operation of Part 3A of that Act, and that a person performing a controlled function (including a pre-approval controlled function) shall have regard to such guidelines in the performance of that function.

An RFSP shall notify persons performing controlled functions in relation to it of the respective conduct standards that apply to them and shall provide training to such persons to ensure that they have appropriate knowledge of those standards. It further provides that the Central Bank shall prepare and publish guidelines relating to these notification and training obligations of RFSPs.

Nothing in Part 3A of that Act requires a person to produce a document, give information, or answer a question that the person could not have been compelled to do by a court.