28/04/2022
Insights Blog

How should regulated firms prepare for the IAF?

In remarks at yesterday’s Institute of Banking/Compliance Institute seminar, Central Bank Director General Financial Conduct, Derville Rowland, looked at what steps regulated financial services firms (RFSPs) should be taking now in light of the impending Individual Accountability Framework (IAF). The Central Bank expects RFSPs to:

  • Review their fitness and probity procedures to assess what enhancements may be needed to meet the planned annual certification requirement under the IAF.
  • Think about what training and monitoring will be needed to embed the IAF conduct standards within their businesses. 
  • Examine their internal culture and values by reference to the IAF, and look at whether they could be better reflected in practice. 
  • Look at how they can effectively engage with staff, customers and other stakeholders to promote awareness of conduct standards and positive behaviours.

Women in Finance

Culture, conduct and governance are central to the IAF proposal and to the future of the Irish financial services sector.  This was also evident yesterday at the launch of the first Women in Finance Charter, which aims to promote increased participation of women at all levels within Irish RFSPs.  The increasing, but still insufficient, level of gender diversity among senior roles in RFSPs was also highlighted by the Central Bank in its most recent Demographic Analysis Report in March of this year. Ms Rowland’s comments at the time underscored the importance that the Central Bank attaches to diversity more generally (and not just gender diversity): “[while] it is encouraging to see progress, it has been incremental over a decade, and firms simply must speed up. Diversity extends beyond gender. Diversity, including age, ethnicity, educational and professional background, amongst other characteristics, is critical to developing an effective culture. Higher levels of diversity of thought can mitigate the risk of groupthink, improve decision-making, and increase the effectiveness of internal challenge and openness to change within firms.”

Climate Change and Sustainable Finance 

Key take-aways from yesterday’s remarks also included the Central Bank’s commitment to increase its work on climate change and sustainable finance.  The Central Bank attaches particular importance, from a supervisory perspective, on RFSPs: 

  • fully reflecting climate and transition risks in their business 
  • meeting high disclosure and quality standards when developing and marketing ‘green’ products and services
  • demonstrating clear ownership of climate risks that impact their firms
  • promoting a culture that places emphasis on climate and other ESG risks
  • having appropriate risk management frameworks in place
  • undertaking scenario analysis and stress testing as appropriate
  • assessing their business models for climate risks

The Central Bank’s Climate Risk and Sustainable Finance Forum, which will bring stakeholders in climate change and sustainable finance together to share knowledge and best practice, is expected to meet for the first time on 29 June (the Central Bank issued a call for those interested in membership of that forum last week).

The Central Bank is very much training its supervisory lens on what RFSPs can and should be doing to prepare for the IAF, to embed positive cultural behaviours, to progress their work on diversity, and to recognise and address the importance of climate change and sustainability to their businesses.  We can expect increasing public comment, and supervisory engagement, on these issues in the months ahead. 

Please get in touch with any member of our market-leading Financial Regulation: Investigation and Enforcement team, or our market-leading Financial Regulation Group, if you wish to discuss the potential impact of the above on your business.     

“our message to firms is that they should be taking preparatory steps [for the individual accountability framework] now”

https://www.centralbank.ie/news/article/the-importance-of-effective-governance-culture-and-agility-in-a-changing-environment—remarks-by-derville-rowland-director-general-financial-conduct-at-the-institute-of-banking-compliance-institute-seminar-27-april-2022