CBI updates Individual Accountability Framework for Irish financial firms

The Central Bank (Individual Accountability Framework) Act 2023 (82 pages/ 667 KB) was signed into law on 9 March 2023 and the updated regulations and guidance were published after a three-month industry consultation process on the implementation of the IAF.

The feedback found respondents were broadly supportive of the implementation of the IAF, agreeing that the updated guidance provides much needed clarity of responsibility, aiming to underpin sound governance across the financial sector.

The updated regulations and guidance include notable changes to three areas of the IAF: the senior executive accountability regime (SEAR), the conduct standards, and enhancements to the fitness and probity (F&P) regime. The second and third of these came into effect on 29 December 2023. The update shows the CBI continues to emphasise that its approach to implementing and supervising the IAF will be grounded upon principles of proportionality, predictability and reasonable expectations.

The CBI has also introduced changes to lessen the administrative burden on firms by limiting the mandatory periodic reporting requirements, allowing firms to take responsibility for maintaining the relevant documentation, and producing it to the CBI on request.

Changes to the senior executive accountability regime

Despite submissions in favour of excluding independent non-executive directors – (I)NEDs – from the IAF, the CBI reaffirmed its view that doing so “would do a disservice to the significance of their role in the financial system”. It has, however, deferred the application of SEAR to (I)NEDs until 1 July 2025. This means that SEAR will apply to senior executives from 1 July 2024, before coming into effect for (I)NEDs one year later. The CBI believes that this will provide sufficient time for firms to gain understanding of the relationship between collective responsibility and individual accountability.

Other parts of the IAF, including the common conduct standards and additional conduct standards, became applicable to (I)NEDs on 29 December 2023, alongside other controlled functions (CFs) and pre-approval controlled functions (PCFs).

Within the guidance, the CBI has indicated that it may introduce a materiality threshold in relation to the application of SEAR to managers of outgoing branches, meaning that SEAR would only apply if the relevant branch met a certain threshold. Additionally, the CBI has reduced the number of prescribed responsibilities, removing some and merging others together. Other prescribed responsibilities have been moved from the general to a sector or circumstance specific list, meaning they are no longer widely applicable, with further editorial changes made to the prescribed and inherent responsibilities following the feedback received.

The CBI has amended the guidance to better clarify the circumstances in which PCF roles may be shared. This includes specific examples of circumstances where a PCF role may legitimately be shared, such as where two individuals share a PCF role based on a job-sharing arrangement as well as where the role consists of several distinct business lines and no one individual is responsible for the entirety of the remit of the role.

Where two individuals share a PCF role, either based on a job-sharing arrangement or where a PCF role consists of several business lines, the inherent and prescribed/other responsibilities for the PCF role should be allocated in full and jointly to everyone involved. The details of any sharing of roles should be explicitly outlined in the statement of responsibilities for each person and documented on the management responsibilities map.

Changes to the conduct standards

The conduct standards came into effect on 29 December following CBI confirmation. However, business conduct standards will not be effective until the revised consumer protection code is implemented. The revised guidance provides more clarity on the operation of the conduct standards while retaining the substance of the initial guidance.

Changes to the fitness and probity regime

The updated guidance also amends the certification regulations and guidance to narrow the scope of the enhanced due diligence requirements to PCFs and CFs. The revisions aim to facilitate self-certification in respect of certain due diligence checks. This amendment is in response to feedback which raised concerns about the potentially onerous nature of the certification requirement if enhanced due diligence was required to be completed by firms in respect of all CFs.

The CBI has removed the additional obligation for firms to report instances where formal disciplinary action has been taken or concluded against an individual in respect of a breach of the conduct standards. Within the update, the CBI reminded firms that, in any event, they would expect to have already received the relevant details where the firm, or an individual, has reported a suspected prescribed contravention to the bank under their separate reporting obligations.

It has also been confirmed in the feedback that individuals proposed for PCF roles in holding companies will be assessed under the fitness and probity regime in the same way as individuals proposed for PCF roles in other firms.

Firms will be required to complete their first certification process in advance of 1 January 2025.

Co-written by Orla Hubbard of Pinsent Masons.