Bosses must drive accountability culture

The Central Bank’s deputy governor has said that firms should take steps now to prepare for the new Senior Executive Accountability Regime. Mary Hallissey reports.

The forthcoming Individual Accountability Framework (IAF) should see the financial-services industry and its regulatory relationships move up the “maturity curve”, the Central Bank’s deputy governor said at a Law Society briefing event on 17 April.

Speaking at the Blackhall Place seminar on the new Senior Executive Accountability Regime (SEAR), Derville Rowland said that the regulator desired a mature industry operating to high standards, which would be good for business, investors, and the economy.

An “immature relationship” of the regulator “coming in with a homework list” was unhelpful and not good for firms or the Central Bank, which wished to encourage businesses to provide good products and services, while making a reasonable profit, she added.

The Central Bank had a globally relevant footprint, overseeing 10,000 entities and over 3,000 firms, Rowland said.

Consumer benefit

Welcoming attendees to the session, Law Society President Maura Derivan commented that the Central Bank consultation with solicitor stakeholders on the IAF would ultimately benefit all consumers.

“This is very important, in order to bring forward Ireland as a safe and well-regulated place to do business,” the president added. “Ireland for Law, which promotes Ireland as a forum for legal business, is dependent on clear illumination about regulation.”

Derville Rowland commented that the Individual Accountability Framework, and financial regulation in general, was about supporting positive outcomes and protecting consumers and investors, using the values of fairness, consistency, proportionality and predictability.

The deputy governor urged firms to take steps now to prepare for the new accountability regime, by assessing their governance and ensuring clarity in reporting matters.

Not a ‘tick-box’ exercise

“We are not into ‘tick-box’ compliance,” said the Central Bank’s head of financial risk and governance policy, Gina Fitzgerald. “We are into effectiveness; we are outcome-focused.” She added that firms should use whatever technology helped to achieve that goal.

“We really do want senior leadership to take ownership of this,” Fitzgerald said, “through examining processes, training and standards. We want to drive culture and governance from the top.”

The regulators warned that a culture of accountability must come from the top of financial-services firms – and not be delegated to human resources or the ‘chief people officer’. “I dislike hearing that culture is the responsibility of HR ... I think it is a senior-role responsibility; it is an absolute drive from the top,” Rowland commented.

The Central Bank is seeking insights from as wide a group of interested stakeholders – including legal-service providers – as possible, before the framework comes into play. Feedback statements will be published and an appropriate transitional period will be allowed for firms to make arrangements, with the framework operational from July 2024.

The framework will impose accountability obligations on relevant senior executives who have decision-making roles in their businesses. The framework also deals with business-conduct standards that enhance the current fitness and probity regime (and address some of its limitations), as well as enhanced enforcement of breaches.

Mark of quality

“If we get this right, in a proportionate and high-quality manner, it will support Irish business to further fulfil the role of a trusted provider here and abroad, act as a protection to consumers and investors and, ultimately, as a kitemark of quality for this jurisdiction,” Rowland continued, adding that the benefits of the new regime would outweigh the costs: “There will be an inevitable increase in the administrative burden on firms during the initial implementation phase. It will take time for firms to create a statement of responsibilities,
and plan accordingly.”

Individuals would have to be notified and trained about conduct standards in the new way of doing business.

Benefits apparent

“Best practice provides a new and significant regulatory burden; we acknowledge that this is the case,” Rowland stated, adding that all of this would be reviewed after the initial period of operation.

“As firms become more familiar with the regime, we think that the administrative burden will recede and the benefits will become more apparent,” she said.

Credit institutions – excluding credit unions, certain insurance undertakers, investment firms, and incoming third-country branches of these firms – will all be affected.

“It is our intention to increase the scope classification of SEAR over time, with lessons from the initial roll-out to be incorporated as we go on, to form our view,” the deputy governor said. Those not within the initial scope would be well-advised to consider early adoption, she stated.

For consistency and coherence, the framework roles will align with existing fitness and probity roles. Thus, firms would not be required to create new roles, and SEAR would not alter the existing governance of well-run firms, she explained.

Two chief responsibilities

Two main types of respons-ibilities are imposed – ‘inherent’ and ‘prescribed’ – with the latter allocated to individuals who have ‘pre-approval controlled functions’.

The Central Bank had no intention of being overly prescriptive in this allocation, Rowland said, and the standards and obligations imposed would be readily understood. “That approach will allow the firm itself to determine its own best way to allocate those responsibilities in a manner that will accommodate its own business model and organisational structure, in line with its own governance,” she said.

If firms took ownership of the framework, there would be a permanent uplift in governance standards, she stated. Proper embedding should result in fewer serious issues and less enforcement.

“We use our enforcement powers sparingly, but we do take action where it is warranted,” the deputy governor concluded.

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