The Central Bank of Ireland’s proposals on the Individual Accountability Framework and Senior Executive Accountability Regime (SEAR) will impact employees at all levels across a broad range of financial services providers (“FSPs”), writes Gillian Kelly of our Risk Consulting practice.
Although we are still awaiting draft legislation, we expect that this will occur imminently. There are a number of legal issues and questions that need to be considered now to ensure FSPs are adequately prepared to adapt to the changes the new regime will introduce. These include matters such as review of employee contracts and disciplinary procedures in light of the new conduct rules, indemnities for senior staff who may be taking on additional risk as a result of SEAR, directors’ and officers’ insurance and provision of legal support to employees and former employees during regulatory investigations.
To assist you and your teams in preparing for these changes we have compiled a list of some of the major themes and frequently asked questions considered by some of our clients who have implemented individual accountability regimes in other jurisdictions. It should be noted that the solutions implemented are different depending on the jurisdiction, and therefore, need to be fully analysed when applying to the Irish market and legal environment. We hope that that these points below can help you understand the potential issues you may face, and more importantly, position your business to address these questions effectively.
Formal consideration will need to be given to the scope of the role of NEDs on the board of directors and the functions they perform in respect of governance, oversight and influence on decision making. In addition, the following questions will need to be considered:
Where firms have outsourced certain processes or functions to either offshore teams or third parties, responsibility with ensuring compliance with the new regime will still remain with the firm themselves. They will therefore need to consider:
In the event of a regulatory breach, how will each SEF demonstrate that s/he has taken ‘reasonable steps’ to meet the relevant conduct standards accordingly?
Although the concept of ‘reasonable steps’ is a subjective term, the Central Bank has been explicit in saying that strict adherence to the legislation may not be a sufficient defence to what constitutes ‘reasonableness’. Instead, it will take a holistic approach to looking at whether or not the ‘spirit’ of the legislation was complied with in determining whether or not a breach of conduct standards has occurred.
In order to successfully defend an enforcement action and demonstrate reasonable steps, based on the experience of the UK’s Senior Manager Regime, as well as Australia’s Banking Executive Accountability Regime, senior executives and FSPs will have to take into account the roles and responsibilities of the SEF and the nature, scale and complexity of the FSP’s business. They will also have to take into account whether the SEF:
In order to assist with demonstrating reasonable steps, firms will have to consider the robustness of their policies and procedures, and consider the following:
KPMG has a multi disciplinary team across legal, risk and regulatory matters with experience of implementing similar Individual Accountability regimes in other jurisdictions such as the UK’s Senior Manager and Certification Regime and Australia’s Banking Executive Accountability Regime. We can assist with the points listed above as well as matters ranging from: gap analysis, design and implementation, advice on contracts as well as technology implementation and provision of assurance.
We hope that you find these insights useful. Should you have any queries, please do not hesitate to contact us.