Central Bank of Ireland issues guidance on the Individual Accountability Framework

Background

Following the signing into law of the Central Bank (Individual Accountability Framework) Act 2023 in March 2023, the CBI launched a three-month consultation period calling on relevant stakeholders to provide feedback on their Consultation Paper on enhanced governance, performance and accountability in financial services (the “IAF Consultation Paper”). The CBI received 26 responses to the IAF Consultation Paper, which included submissions from major industry stakeholders including the Banking and Payment Federation Ireland, the Compliance Institute, Financial Services Ireland, the Institute of Directors Ireland and Insurance Ireland.

Stakeholder Feedback and CBI Responses

Stakeholders responses illustrated a number of shared concerns. In their feedback statement, the CBI have provided responses to these overarching concerns and have made some key changes on foot of the stakeholder feedback.

• Application of SEAR to (I)NEDS

Non-Executive Directors and Independent Non-Executive Directors (“(I)NEDS”) are subject to the Senior Executive Accountability Regime (“SEAR”) which forms part of IAF. The application of SEAR to (I)NEDS will be delayed by 12 months, applying from 1 July 2025. This decision comes as a direct response to concerns raised by stakeholders during the consultation process.

Amongst the concerns raised was a concern regarding the ‘information asymmetry’ between directors who undertake day-to-day management activities and (I)NEDS who, as a result of this information asymmetry, provide objectivity as part of their role. Respondents also flagged that there was potential for a ‘chilling effect’ on recruitment of (I)NEDS as an unintended consequence of the introduction of SEAR.

While the CBI did not agree that there would be ‘chilling effect’ on recruitment as this has not been the case in other jurisdictions with analogous regimes, they  conceded to delaying SEAR’s application to (I)NEDS by 12 months to provide a learning opportunity for both the in-scope firms and the CBI.

• Shared Roles and Responsibilities under SEAR

Many respondents raised concerns around the proposed restriction on the sharing of roles and responsibilities in firms which are subject to SEAR to job-sharing arrangements only and that in certain circumstances sharing of roles should be permitted. The CBI restated that that the most senior individual should be accountable for relevant responsibilities. However, the CBI has made an exception in the case of (a) PCF-18 Head of Underwriting and (b) PCF-19 Head of Investment, which can be shared in certain circumstances. In the case of all other PCF roles, role-sharing is not permitted.

• Certification

Respondents flagged that the certification of individuals carrying out CF roles may result in technological, logistical and administrative challenges. In response, the CBI has amended the IAF Guidance to limit the scope of the enhanced due diligence requirements to PCF roles, CF1s and CF2s. CFs 3-11 will be able to self-certify. 

• Disciplinary Action

Respondents sought clarity on a number of issues relating to the provisions regarding disciplinary action, in particular who is responsible for reporting disciplinary actions, reporting timelines and the method for making reports. The CBI has removed the obligation for in-scope firms to report to the CBI where disciplinary action in respect of a breach of the conduct standards has completed.

• Proposed Materiality Threshold for Outgoing Branches

The CBI is considering whether the application of SEAR to managers of  outgoing branches of in-scope firms can be made subject to a materiality threshold. They will release guidance in relation to this proposal in the coming weeks.

Next steps

In-scope firms will need to familiarise themselves with the IAF Guidance and Regulations to ensure they are in a position to meet their obligations. Our financial services team in Dublin are fully equipped to assist in-scope firms with all aspects of IAF and SEAR, whether that  responding to a discrete queries or providing guidance on  full-scale IAF projects. If you would like to discuss any of the above developments with us, please get in touch with Eimear O’Brien, Eoin O’Connor, Bill Laffan, Hannah Vero or your usual Hogan Lovells contact.

Authored by Eimear O’Brien and Hannah Vero.