Out-Law News | 31 Oct 2019 | 9:59 am | 2 min. read
In a speech at an industry conference last week CBI director general for financial conduct Derville Rowland made the case for creating a Senior Executive Accountability Regime (SEAR) backed by "clear and enforceable" conduct standards and an enhanced 'fitness and probity' regime.
In her speech Rowland said that the proposed reforms were "necessary enhancements" to the CBI's supervisory and enforcement toolkit, which would support "an effective and ethical culture in regulated firms".
"What we would like to see is that the tone for a positive culture is set from the top at the firms, cascaded throughout the entire organisation – and echoed from the bottom up," she said. "We believe that these proposals to strengthen individual accountability are an important step in that direction."
The CBI first recommended that laws be brought forward to enhance its ability to hold senior people at regulated firms to account in 2017, in a submission to the Law Reform Commission. It expanded on its proposals in its 2018 report on behaviour and culture at Irish retail banks, which was commissioned by the minister for finance in the context of the tracker mortgage mis-selling scandal.
The proposals included a requirement for senior managers at financial firms to submit a 'statement of responsibilities' to the CBI, setting out the matters for which they are responsible in their role. The regime would also incorporate a unified enforcement process, which would apply to all breaches of financial services legislation whether by firms or individuals. The CBI would also be permitted to pursue individuals directly for breaches, rather than only in circumstances where they are proven to have participated in wrongdoing by their firm.
"At present, we can only impose sanctions on individuals where they have participated in a firms' breach," Rowland said in her speech. "In our view, this is unduly restrictive and it is not compatible with delivering the necessary reforms and enhanced accountability."
"[Cultural change] isn't just about the firms. All participants in the financial services industry, including key legal and accountancy advisors, must play their part in the cultural transformation. Given that the purpose of regulation is to safeguard stability and protect consumers, the Central Bank expects the conscientious professional to advise firms to comply not only with the letter of the rules, but also with the spirit," she said.
The UK introduced a Senior Managers and Certification Regime (SMCR) in 2016, which was applicable first to banks but later extended to other regulated firms. The international Financial Stability Board identified lack of accountability as a key cultural driver of misconduct in a report in April 2018, and went on to recommend that national regulators consider the introduction of ways of holding individuals to account and assessing the suitability of key personnel.
Rowland said that the CBI was already using its existing powers to challenge the behaviour of individuals and keep people out of senior roles where there were concerns about fitness and probity. To date, 80 applications for senior positions have been withdrawn following challenge by the CBI; which has also issued four outright refusals and six prohibition notices, she said.
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