Seana Cunningham, Director of Enforcement and Anti-Money Laundering at the Central Bank of Ireland (Central Bank) delivered a speech on the Central Bank's approach to individual accountability. The speech presents an interesting insight into the Central Bank's current approach to enforcement, its concern that a lack of individual accountability is a key cultural driver of misconduct and its proposals for reform.
The Central Bank is proposing an "Individual Accountability Framework". The primary purpose of this proposal is to act as a driver for positive behaviours and the recognition of responsibilities by individuals. The reforms are intended to constrain the ability of senior executives to escape liability for wrongdoing and to iincrease the Central Bank’s ability to hold individuals to account and deter misconduct. There are four elements to the proposed Individual Accountability Framework:
- Enforceable "Conduct Standards" which will set out the behaviours the Central Bank expects of regulated firms and the individuals working within them. These will include binding obligations on firms and individuals to conduct themselves with honesty and integrity, act with due skill, care and diligence in relation to the conduct of their business and co-operate with regulators. The Central Bank proposes that existing conduct standards, such as the Fitness and Probity (F&P) Regime, be enhanced as "Conduct Standards" with which regulated financial services providers and individuals must comply.
The Central Bank proposes three sets of standards:
- Common Conduct Standards for all staff in regulated financial services providers
- Additional Conduct Standards for senior management
- Standards for Businesses
A Senior Executive Accountability Regime (SEAR) which aims to ensure clearer responsibility and accountability. Firms and holders of senior executive functions (SEFs) within them will map out where responsibility and decision-making lie for their business. SEFs will have a documented statement of responsibility setting out their role and responsibilities. Taking a risk-based approach, the Central Bank proposes that the introduction of a Senior Executive Accountability Regime would initially focus on a sub-set of the financial services industry.
Further enhancements to the current F&P Regime to strengthen the onus on firms to proactively assess individuals in controlled functions on an ongoing basis. The Central Bank also proposes changes to current limitations of the Central Bank’s F&P oversight function (such as the ability to investigate people who performed controlled function roles in the past).
A unified enforcement process, which would apply to all breaches by firms or individuals of financial services legislation. Specifically the Central Bank proposes that the hurdle of participation be removed so that the Central Bank could pursue individuals directly for their misconduct under the Administrative Sanctions Procedure, rather than only where they are proven to have participated in a firm’s wrongdoing.
The speech references:
- The Financial Stability Board's recommendation in April 2018, that national authorities identify and assign key responsibilities, hold individuals accountable and assess the suitability of individuals assigned key responsibilities
- The Central Bank response to the Law Reform Commission’s Issues Paper on Regulatory Enforcement and Corporate Offences
- The Central Bank report to the Minister for Finance on Behaviour and Culture of the Irish Retail Banks (which contain significantly more detail on the proposals for reform).
The speech also gives useful insights and statistics regarding the tools currently used by the Central Bank:
- Gatekeeper function under the F&P regime, where its experience (consistent with international regulators) is that where the prospect of refusal is raised, proposed appointments are in most cases withdrawn.
- Oversight function under the F&P regime whereby the Central Bank may investigate individuals if there are F&P concerns. Such an investigation can give rise to a suspension, or to a prohibition. The Central Bank regularly investigates those subject to the regime and has issued a number of prohibition notices following such investigations.
- Administrative Sanctions Procedure, again giving statistics and examples.