Today, the CBI has published its finalised Guidance on the Individual Accountability Framework, three sets of draft Regulations and its feedback statement on the Consultation on the draft Guidance. The documents outline a number of substantive changes to aspects of the IAF, including SEAR, as against the draft Guidance. The key changes are summarised below.
The A&L Goodbody IAF team are continuing to compare the Final Guidance with our practical experience of designing, advising on and progressing implementation plans for both SEAR and the Conduct Standards. We will be providing you with a more detailed outline of the changes between the Draft Guidance and Regulations and the Final Guidance and what this means for your implementation project, your firm and your senior management.
We are also holding a Flash Webinar on Wednesday 29 November at 11.00 am GMT to talk through what’s new in the Final Guidance and what this means for your implementation plans. You can register for this Webinar here.
Key changes to the IAF
Deferral of SEAR to NEDs and INEDs
The CBI had previously indicated that SEAR would apply to all pre-approval controlled function (PCF) roles within in-scope firms from 1 July 2024. However, the application of SEAR to non-executive directors (NEDs) and independent non-executive directors (INEDs) of in-scope firms will now be deferred by one year until 1 July 2025.
The deferral applies to all NED/INEDs, including the Chair of the Board and Chairs of audit, risk, remuneration and/or nomination committees for in-scope firms.
SEAR will still apply to all other PCF roles from 1 July 2024.
All other parts of the IAF, including the Common Conduct Standards and Additional Conduct Standards, will still apply to NEDs and INEDs (as with all other PCFs) from 29 December 2023. The Duty of Responsibility (which is part of SEAR) will also apply to all PCFs, including NEDs and INEDs, from 29 December 2023.
Application of SEAR to outgoing branches
In respect of Managers of outgoing branches of in-scope firms, the CBI is now considering whether a materiality threshold could be introduced, such that SEAR would only apply to managers of outgoing branches when the branch exceeds a defined threshold.
This would require an amendment to Regulations already issued under section 22 of the Central Bank Reform Act 2010. Further guidance on the practical operation of the threshold is expected in the coming weeks.
Prescribed Responsibilities and Inherent Responsibilities
The list of Prescribed Responsibilities has been amended. Certain Prescribed Responsibilities have been removed while others have been merged or moved from the General list of Prescribed Responsibilities to the Sector or Circumstance Specific list of Prescribed Responsibilities as follows:
PR8 (responsibility to consider the impact of, and any necessary changes to, key business initiatives and strategic decisions) and PR26 (responsibility for oversight of the implementation of conduct requirements) have been removed
PR29 (responsibility for overseeing the adoption of a firm’s diversity and inclusion policy) has been merged with PR4 and PR5
PR19 (responsibility for managing a firm’s treasury management functions) and PR23 (responsibility for a firm’s compliance with client asset requirements) have been moved from the General list of Prescribed Responsibilities to the Circumstance Specific list
Other Inherent and Prescribed Responsibilities have been edited to reflect feedback received, including to address a concern that some responsibilities had a potential to blur the ‘three lines of defence’ model.
The CBI reaffirms that a Prescribed Responsibility should be allocated to the most senior individual with the appropriate authority. However, the CBI acknowledges in the Guidance that, while the PCF holder who allocated the Prescribed Responsibility is ultimately responsible, the tasks required to discharge the Prescribed Responsibility may be delegated to staff and that such delegation should be appropriately arranged, managed and monitored. The Guidance sets out further considerations in relation to delegation.
Sharing of roles and responsibilities
The CBI has amended the Guidance clarify that PCF roles may be shared in a wider set of circumstances than set out in the Draft Guidance, which only allowed for sharing of responsibilities in cases of formal ‘job-sharing’.
The CBI acknowledges that it may be common business practice that certain PCF roles may be performed by two individuals where the role has a distinct business line and there is no one individual who would be responsible for the whole respective area falling under the remit of a specific PCF role.
In such cases, the CBI expects that only the following PCF roles potentially could be shared based on the business line:
PCF18 (Head of Underwriting) taking into consideration retail and corporate business lines
PCF19 (Head of Investment), PCF29 (Head of Trading) and PCF 30 (Chief Investment Officer) taking into consideration different investment types, i.e. equity and bonds.
Where two individuals share a PCF role in a job-sharing arrangement, each individual is accountable for all the responsibilities inherent in and allocated to that PCF and, as such, responsibilities must be allocated jointly to all individuals holding that PCF role. The details of job sharing arrangements must be set out clearly in the Statement of Responsibilities and Management Responsibility Map.
Separately, the CBI also acknowledges that the nature of certain PCF designations allows for several individuals to hold the same PCF role, providing the following examples: PCF1, PCF2A, PCF2B, PCF16, PCF28, PCF41, PCF50, PCF5X (Head of Material Business Line for insurance undertakings) and PCF5X (Head of Material Business Line for investment firms).
However, each individual would be holding a distinct role and the scope of responsibilities has to be clearly defined in each individual’s Statement of Responsibility and set out in the Management Responsibilities Map.
The CBI clarifies that where two individuals share a PCF role, all individuals are individually and fully accountable for all the responsibilities allocated to that PCF and, as such, Prescribed Responsibilities will be allocated jointly to all individuals holding that PCF role
Statement of Responsibilities
The template for the Statement of Responsibilities broadly remains the same. There is still a section for including ‘other responsibilities’ but there is also a new section to allow firms to include details of 'other relevant information’.
The Guidance states that the following information should also be included in the Statement of Responsibility:
a description of how a PCF role is shared (where permitted)
relevant information in respect of the delegation of significant tasks.
Temporary appointments and temporary officers
The CBI has provided clarity on the extent of the application of SEAR in respect of temporary PCF appointments and temporary officers, as follows:
Where an individual has been pre-approved as a PCF under section 23 of the Central Bank Reform Act 2010, SEAR and the Conduct Standards apply even where the appointment is (or is intended to be) temporary.
A ‘temporary officer’ appointed to a PCF role, pursuant to Regulation 11 of the Central Bank Reform Act 2010 (Sections 20 and 22) Regulations 2011, is not subject to the PCF application process and, accordingly, a Statement of Responsibility will not be required.
In the context of SEAR, to ensure transparency and accountability, the CBI requires that where outsourcing arrangements are in place, there is a PCF role holder with responsibility for outsourcing arrangements. For this purpose, outsourcing is addressed by way of a General Prescribed Responsibility, PR19 (responsibility for the firm’s outsourcing framework).
Where there is outsourcing of a PCF role, the role holder should fall under the oversight of a PCF role holder within the firm. This will need to be reflected in the relevant Statement of Responsibilities and the Management Responsibility Map to ensure that the overall responsibility and related individual accountability is retained within the firm.
The CBI has limited the scope of the enhanced due diligence aspect of the certification requirement to PCFs, CF1s and CF2s. This facilitates self-certification in respect of individuals within the CF3 – CF11 categories.
The CBI has removed the additional obligation for a regulated firm to report to the CBI where formal disciplinary action has been concluded against an individual in respect of a breach of the Conduct Standards.
The CBI proposes to limit the extent of mandatory periodic reporting to the Central Bank. Instead, it is proposed that firms take responsibility for relevant documentation and make it available to the CBI on request.
The Business Standards are being reviewed and updated as part of the CBI’s ongoing review of the Consumer Protection Code 2012 (CPC), and so the Business Standards will not be effective until the revised CPC is implemented (which will be by way of statutory instrument).
A&L Goodbody has been at the forefront of feedback on the scope and content of the IAF since it was first proposed. We continue to assist clients in implementing the IAF, including by way of training, briefings, policy updates and enhancements. We also work with clients on developing a framework of individual accountability including Statements of Responsibilities, Management Responsibilities Maps and supporting infrastructure to ensure embedding of accountability.
We will continue to provide updates on developments on the IAF, in particular, when the CBI publishes feedback to its second IAF consultation relating to changes to the Administrative Sanctions Procedure.