07/27/2021 | Press release | Distributed by Public on 07/27/2021 07:24
Bill aims to improve accountability in the financial sector
The Minister for Finance, Paschal Donohoe TD, this morning (Tuesday) received agreement from his Cabinet colleagues to approve the drafting of the Central Bank (Individual Accountability Framework) Bill, the main purpose of which is to improve accountability in the financial sector.
There are four main aspects to the proposed Heads along with necessary technical changes to existing legal processes. All of these make up the Individual Accountability Framework.
This draft legislation provides for:
1. The introduction of a Senior Executive Accountability Regime (SEAR), which places obligations on firms and senior individuals within them to set out clearly where responsibility and decision-making lies.
SEAR will apply to those in management roles within:
2. The introduction of:
a. Common conduct standards to apply to all persons in controlled function roles;
b. Additional conduct standards for individuals in senior positions; and
c. Business conduct standards for all regulated firms in the financial sector.
The introduction of these conduct standards will give the Central Bank powers to set and impose binding and enforceable obligations on all Regulated Financial Service Providers (RFSPs) and individuals working within them with respect to expected standards of conduct.
3. Enhancements to the Fitness & Probity Regime to ensure the effective operation of and ability of the regime to support the Individual Accountability Framework and the conduct standards for individuals and firms.
4. Breaking the 'Participation Link', which addresses the known deficiency in the legislation which requires the Central Bank to first prove a contravention of financial services legislation against an RFSP before it can take action against an individual.
Sanctions to apply under the Central Bank's Administrative Sanctions Procedure for breaches of SEAR or Conduct Standards; and Technical amendments to improve existing legislation and clarify certain statutory processes.
The additional powers that will be provided to the Central Bank are significant and, in drafting these Heads, care has been taken to adopt the correct balance between these powers and the protection of individuals' constitutional rights.
SEAR's focus is on preventing misbehaviour or mismanagement by senior management. By requiring individual accountability from senior management, supported by enforcement powers, there is an incentive for senior management to comply with financial services law. SEAR also fulfils the purpose of incentivising and assisting regulated firms in strengthening their internal processes through management responsibility maps and clarification of senior management responsibilities.
The adoption of conduct standards across all regulated financial service providers sets out the standards expected of relevant individuals who work in such firms. Given that more junior staff will be in scope of the common conduct standards being introduced, there is a range of safeguards included, so that staff will be aware of what is expected of them.
Ultimately a key challenge will be the rebuilding of trust in the financial sector. The rebuilding of trust will require ongoing cultural and practical change in the banking sector and throughout the financial services industry. The Central Bank (Individual Accountability Framework) Bill will make a significant contribution to bringing about this needed cultural change.
It is anticipated that the introduction of the Framework will mean that:
Speaking today, Minister Donohoe said:
'I welcome the publication of the Heads of the Central Bank (Individual Accountability Framework) Bill. The publication of these Heads is in line with the Programme for Government commitment to introduce the Senior Executive Accountability Regime to deliver heightened accountability with the banking system'.
'The changes to Central Bank legislation will put individual accountability at the centre of decision making in financial services organisations. The provisions will ensure that there is clarity around the roles and functions of senior executives.
'The adoption of conduct standards for individuals working in financial institutions, as well as standards for businesses applicable to regulated firms, will provide for appropriate standards of conduct.
'There are also changes in respect of the fitness and probity regime and in breaking the participation link. These changes are supported by an appropriate sanctions regime in order to ensure compliance and deal with potential misbehaviour. Taken together these are significant changes in the governance of financial institutions. Their aim is to drive a culture of positive behaviour among those who work in financial institutions and is part of the ongoing work to restore trust in these institutions.'
Notes to the Editor
On foot of a request made by Minister Donohoe in November 2017, the Behaviour and Culture of the Irish Retail Banks Report was drafted by the Central Bank and published in July 2018.
The draft heads set out in the General Scheme seek to amend the Central Bank Acts to provide for the implementation of an Individual Accountability Framework to ensure the appropriate allocation of responsibility for actions taken by individuals in their work in the financial services industry.
The Department engaged extensively with the Central Bank of Ireland to inform the policy positions adapted to address the principles as approved by Government. Further extensive engagement was undertaken with the Office of the Attorney General to achieve the objective of ensuring that the Central Bank has the powers it needs to regulate effectively while safeguarding the constitutional rights of all concerned.
The Central Bank (Individual Accountability Framework) Bill will ensure greater levels of accountability, leading to better outcomes for all across the financial sector and ensure that financial institutions have the tools to address meaningful cultural change.
The scheme aims to
The SEAR will be rolled out on a phased basis and it will apply, in the first instance, to banks, insurance companies, and other sectors that have a high degree of interaction with retail consumers. The sectors to which SEAR will initially apply are the following:
Additional sectors may be brought within scope of SEAR in the future. This will be a matter for the Central Bank to implement by Regulation with Ministerial approval.
The Common Conduct Standards will apply to staff in Controlled Function (CF) roles (including customer facing roles), the rationale being that all such staff have made a conscious decision to work in such roles in a regulated industry. CFs are prescribed by regulation under Part 3 of the Central Bank Reform Act 2010.
CFs breaching the common conduct standards will be committing a 'prescribed contravention' and therefore subject to enforcement action under Part IIIC of the Central Bank Act 1942. A breach of the conduct standards could also give rise to action under the fitness and probity regime.
Those performing Pre-Approval Controlled Function (PCF, i.e. senior) roles will be subject to both sets of standards (the Common Conduct Standards and the Additional Conduct Standards).
The Additional Conduct Standards will impose binding obligations on persons in senior roles with respect to expected standards of conduct in the performance of their roles. These additional conduct standards apply to all PCFs within all regulated financial services providers (RFSPs), as well as other persons who have the ability to exercise significant influence over the affairs of an RFSP.
The additional conduct standards will apply regardless of whether the RFSP in question is in scope of the Senior Executive Accountability Regime (SEAR).
A breach of the additional conduct standards will be a 'prescribed contravention' and therefore the Central Bank can take action against such persons under Part IIIC of the Central Bank Act 1942. A breach of the additional conduct standards could also give rise to action under the fitness and probity regime.
The Standards for Businesses will apply to all RFSPs regardless of whether or not they come within the scope of SEAR.
A breach of the Standards for Businesses will be a 'prescribed contravention' and therefore the Central Bank can take direct enforcement action against, and may impose sanctions on, an RFSP responsible for such a breach.
The Minister for Finance will write to the Chair of the Committee on Finance, Public Expenditure and Reform and the Taoiseach regarding pre-legislative scrutiny. Officials will engage with the Office of the Parliamentary Counsel to the Government to begin drafting the legislation on the basis of the General Scheme published today.