SEAR and individual accountability: Central Bank (Individual Accountability Framework) Bill published
The Department of Finance has now published the long-awaited Central Bank (Individual Accountability Framework) Bill 2022 (IAF Bill). This follows on from publication of the General Scheme for the individual accountability framework (IAF) legislation which was previously published in July 2021.
We will provide a detailed analysis of this legislation shortly along with key insights from the ALG team. In the meantime, we highlight below some key features of the IAF Bill.
The IAF Bill confirms many of the aspects of the General Scheme which related to the Senior Executive Accountability Regime and Conduct Standards elements of the IAF. The IAF Bill also contains substantial changes to both the Central Bank's Fitness & Probity (F&P) regime and the Administrative Sanctions Procedure (ASP), which were not in the General Scheme.
Senior Executive Accountability Regime (SEAR)
- As envisaged in the Draft Scheme, SEAR imposes a legal 'duty of responsibility' on individuals performing senior executive functions (i.e. PCFs) to take reasonable steps to avoid their firm committing, or continuing to commit, a regulatory contravention in relation to the areas of the business for which they are individually responsible. Individuals may be held directly accountable for a breach of the duty of responsibility, with contraventions subject to potential enforcement under the Central Bank of Ireland's (Central Bank) ASP.
- Little detail has been provided on the Statements of Responsibilities and the Management Responsibility Maps, as the power to introduce a system of Statements of Responsibilities and Management Responsibility Maps is to be granted to the Central Bank, to introduce by way of regulation. Regulations will also be introduced by the Central Bank specifying both the 'prescribed responsibilities' and the 'inherent responsibilities' which relate to a particular PCF role.
- As SEAR will apply to all PCFs, the population of individuals subject to SEAR and the 'duty of responsibility' continues to include Non-Executive Directors (and therefore Independent Non-Executive Directors) in their roles as Non-Executive Directors.
- In line with the General Scheme, the IAF Bill confirms the introduction of 'Common Conduct Standards' applying to all controlled function (CF) holders within all regulated firms and 'Additional Conduct Standards' applying to PCFs and persons who exercise a significant influence on the conduct of regulated firms, as well as broad 'Standards for Businesses' applying to regulated firms themselves.
- A degree of clarity has been provided in the IAF Bill regarding the scope of the requirement under the Additional Conduct Standards on PCFs, and persons who exercise a significant influence on the conduct of regulated firms, to disclose to the Central Bank any information which the Central Bank would reasonably expect notice of. Helpfully, the IAF Bill now provides examples of the types of such information, some of which are new and some of which align closely to a PCF's current disclosure obligations.
The Fitness & Probity Regime
Many of the significant changes in the IAF Bill as against the General Scheme relate to amendments of the Central Bank's processes, to ensure that they conform to the required standards of fairness in the administration of justice, in light of last year's Supreme Court decision of Zalewski v An Adjudication Officer & Ors (Zalewski). In summary the changes:
- Introduce structural changes to the process of an investigation by the Central Bank into an individual's fitness and probity. This includes requirements that individuals be kept informed as to the progress of the investigation and the information to be contained in a notice commencing an investigation.
- Introduce additional structure around confirmation of a 'prohibition notice' by the High Court, including the threshold for confirmation.
- Seek to ensure independence of decision-makers and separate the investigative and adjudicative functions of the Central Bank under the F&P regime. This arises as a result of mandated standards of fairness in the administration of justice required in light of Zalewski.
In addition, as expected, the IAF Bill requires that regulated firms confirm that CFs and PCFs in the organisation remain fit and proper by way of a 'certificate of compliance'. This would be held by the regulated firm and revoked if the firm ceases to be satisfied on reasonable grounds that the person concerned complies with the F&P Standards.
The power of the Central Bank to investigate the fitness and probity of a person performing a CF will be extended to apply to any person who performed a CF up to six years before the commencement of the investigation.
The Administrative Sanctions Procedure
While the Draft Scheme had outlined amendments to the ASP, including as to breaking the 'participation link' and putting the commencement of an ASP investigation on a statutory footing, the IAF Bill contains a number of additional provisions as well as further detail on previously-flagged provisions.
- The IAF Bill provides for High Court oversight of the 'settlement process' under the ASP. It is proposed that any sanction imposed by the Central Bank, whether by way of settlement or formal inquiry, will not have effect unless confirmed by the High Court.
- The IAF Bill now also proposes that a settlement may take place under the ASP without any acknowledgment of the prescribed contraventions by the party under investigation. If that occurs, any sanctions imposed do not require confirmation by the High Court.
- The IAF Bill now provides a statutory list of relevant considerations that the Central Bank is mandated to take into account in determining monetary penalties as part of an investigation outcome. This list of relevant considerations largely reflects those sanctioning factors set out in the Central Bank's Outline of the Administrative Sanctions Procedure, Inquiry Guidelines and Sanctions Guidance.
Timing, Consultation and Guidance
The Government has indicated that the IAF Bill will progress through the Oireachtas when it returns in September, so we can anticipate the IAF Bill potentially becoming law in the latter part of 2022.
The Central Bank has indicated that, once the IAF Bill is enacted, it will move quickly to consult and engage with key stakeholders on the operationalisation of the IAF. This consultation is expected to include draft regulations and accompanying guidance on key components of the IAF, such as 'inherent' and 'prescribed' responsibilities, the Statements of Responsibilities and Management Responsibility Maps and 'reasonable steps'.
A&L Goodbody has been preparing for the IAF and SEAR for some time, developing systems and processes to assist clients in assessing their current frameworks and understanding and implementing the requirements in the proposals. We have also been working closely with clients on commencing implementation projects and considering key issues to input into upcoming consultation processes.
We will be publishing a detailed analysis of the IAF Bill shortly and further insights as the legislation and guidance develops.
For further information on the IAF and SEAR, and how ALG can assist your business, please contact Mark Devane, Partner, Dario Dagostino, Partner, Patrick Brandt, Partner, Kevin Allen, Partner, Sian Langley, Knowledge Lawyer, Duncan Inverarity, Partner, Noeleen Meehan, Partner, Michael Doyle, Partner, James Grennan, Partner, Laura Mulleady, Partner, Sinéad Lynch, Partner, Emma Martin, Of Counsel, Kerill O'Shaughnessy, Partner, Charlie Carroll, Partner, Gillian McDonald, Partner or your usual contact on the ALG SEAR team.
Date published: 29 July 2022