PLANNING FOR INDIVIDUAL ACCOUNTABILITY

What should firms be doing now?

In advance of the publication of the Central Bank (Individual Accountability Framework) Bill, which we expect to see shortly, Central Bank Director General (Financial Conduct) Derville Rowland has encouraged regulated financial services providers (RFSPs) to:

• “take real ownership” of the work needed to embed the impending individual accountability framework (IAF) into their businesses;
• examine their governance structures, assess where responsibilities currently lie, and implement any changes to their business models that might be needed to ensure that they are well-positioned to comply with the IAF;
• look at what enhancements, training and monitoring will be needed to ensure that the well-signposted change to the Fitness and Probity regime, whereby an annual certification requirement will be introduced, can be embedded within RFSPs; and
• reflecting the high priority given to culture, conduct and accountability by the Central Bank, look at their internal culture, values and engagement with staff, as well as their engagement with customers and other stakeholders, to see how best to embed behaviours and standards in line with the impending IAF.

As mentioned in recent updates from our Financial Regulation: Individual Accountability and SEAR team, we expect to see the Bill in the next few weeks.  The Government hopes that that the Bill will complete its passage through both Houses of the Oireachtas before the summer recess in mid-July, and commencement is planned for January 2023.  The Central Bank will publish its related draft regulations and guidelines for consultation once the Bill is finalised.

How our team can help

Our team provides advice on all aspects of the IAF, including on the scope and implications. We offer practical help to clients as they position themselves for the introduction of the new framework including: the preparation of management responsibility maps and statements of responsibility; guidance and training on the proposed new conduct standards for individuals and for RFSPs; and navigation of the new fitness and probity certification process. We also provide advice to executives and other employees on the new “duty of responsibility” and on the new conduct standards.

GENDER DIVERSITY

“[f]irms must simply speed up” and all types of diversity are key to improving culture 

The importance of gender diversity at senior levels within RFSPs was also the focus of remarks by Derville Rowland on International Women’s Day, to coincide with the launch by the Central Bank of its latest Demographic Analysis Report. Progress on gender diversity within RFSPs has been slow – only 31% of applications for Pre-Approval Control Function (PCF) roles in 2021 were in respect of female applicants, while 84% of the applicants for revenue-generated PCF roles were male. At board level, there has been some improvement in rectifying gender imbalance, with female representation now averaging 28%, but some sectors (notably the asset management sector and credit unions) perform better than others in this area.  Gender balance among existing RFSPs is better than with new firms.

While the Report is limited to one type of diversity, the Central Bank’s press release noted that it is “strongly indicative of wider diversity trends”.  In her comments, Derville Rowland observed that “firms must simply speed up” their progress and that a lack of diversity at senior levels within RFSPs is indicative of increased behaviour and conduct risks. She also emphasised the importance of diversity beyond gender diversity within RSFPs, with different ethnicity, ages, backgrounds and other characteristics being key to mitigating group-think, improving culture, enabling behaviours to be challenged, and improving decision-making.

We expect diversity to continue to be a key focus for both the Central Bank and the ECB over the next 12 months – the ECB recently reiterated how important a diverse management body is to enabling banks to meet the challenges that they face.

“If firms do the work to embed the IAF properly – if they embrace its spirit rather than doing the least amount possible to comply – it should ideally result in fewer serious issues in the sector, meaning fewer enforcement actions, not more of them.”