IAF/SEAR Bill MOVES THROUGH irish parliament

I strongly urge all industry participants to engage constructively with this consultation process. Before the main provisions of the Bill are outlined, I will take this opportunity to flag the Minister's intention to propose a number of minor amendments on Committee Stage.

On 19 October 2022, the Central Bank (Individual Accountability Framework) Bill 2022 ("Bill") commenced its journey to the Third Stage after being referred to the Select Committee on Finance, Public Expenditure and Reform, and Taoiseach pursuant to Standing Orders 95 and 181.

The Bill passed through the Second Stage on 18th and 19th October. On 18th October Minister for State at the Department of Finance (Deputy Sean Fleming) moved that the Bill be now read a Second Time.

Much of the detail of the individual accountability framework, including the initial scope of the SEAR, will be included in future Central Bank regulations. You will not find that detail in the current draft of the Bill.  Ahead of making such regulations, the Central Bank intends to conduct a comprehensive consultation exercise. The Minister said "I strongly urge all industry participants to engage constructively with this consultation process. Before the main provisions of the Bill are outlined, I will take this opportunity to flag the Minister's intention to propose a number of minor amendments on Committee Stage."

The Minister also stated that the Bill:

• "is a further step in enhancing existing regulatory powers" and that it will "play a key role in driving the positive cultural change in financial services organisations". 
• "will make individuals in financial services firms more responsive and responsible by enhancing individual accountability in decision-making at all levels, particularly at senior levels in financial institutions."
• "introduces the individual accountability framework, comprising the senior executive accountability regime, SEAR, conduct standards for firms and for individuals performing controlled functions and the duty of responsibility. By ensuring that there is clarity about who is responsible for what, the senior executive accountability regime will ensure that, in the event that there is wrongdoing in a firm regulated by the Central Bank, the resulting investigation can be focused and effective."
• "serves as a clear declaration of the standards of behaviour expected of those working in the financial services industry, providing conduct standards for regulated financial services providers, RFSPs, and individuals performing related functions and providing for the sanctioning of individuals who breach these responsibilities. The conduct standards are, in and of themselves, unremarkable. They outline the expectations of financial sector executives to act with honesty and integrity, due skill, care and diligence, to co-operate with the regulator, to treat customers fairly and to comply with standards of market conduct."
• will be "an additional enforcement tool for the Central Bank.  While the enforcement and penalty decisions of the bank will continue to be guided by considerations of fairness and proportionality, the Bill will introduce enhancements to the Central Bank's existing supervisory and enforcement frameworks. There will be changes to the administrative sanctions procedure under Part IIIC of the Central Bank Act 1942 and to the fitness and probity regime under Part 3 of the Central Bank Reform Act 2010. The fitness and probity regime will be extended to cover various categories of financial holding companies. To facilitate holding individuals accountable for their actions, the Bill will break the existing participation link which requires wrongdoing by a firm to be demonstrated before enforcement action can be taken against an individual person in the management of that particular firm."
• "provides an opportunity to review the Central Bank's processes in light of the Supreme Court's decision in the case of Zalewski v. Adjudication Officers and others (Link 1 / Link 2 / Link 3 / Link 4). The changes included in the Bill will ensure these processes conform to the standards of fairness required by the Constitution in the administration of justice and provide for enhanced oversight by the High Court. Given that the Central Bank's enforcement powers will be extended to a wider cohort, including more junior members of staff, due regard has to be given to the constitutional rights of all concerned in preparing the Bill for publication. The complexity of certain elements of the Bill is necessary to achieve this important objective and to include appropriate safeguards.and will introduce enhancements to the Central Bank's existing supervisory and enforcement frameworks. There will be changes to the ASP and to the F&P regime including extending the fitness and probity regime to cover various categories of financial holding companies and breaking the existing participation link which currently requires wrongdoing by a firm to be demonstrated before enforcement action can be taken against an individual involved in the management of the firm." [Note - The Central Bank Act 1942 was amended in 2004 to provide for administrative fines in the financial sector. This was found constitutional in Purcell v Central Bank of Ireland [2016] IEHC 514 , but that case may have to be reconsidered in the light of Zalewski.]

Central Bank Consultation Process (as noted above): The Minister said "Much of the detail of the individual accountability framework, including the initial scope of the SEAR, will be included in the Central Bank regulations. Ahead of making these regulations, the Central Bank intends to conduct a comprehensive consultation exercise. I strongly urge all industry participants to engage constructively with this consultation process. 

Amendments Proposed at Committee Stage (as noted above): The Minister said "Before the main provisions of the Bill are outlined, I will take this opportunity to flag the Minister's intention to propose a number of minor amendments on Committee Stage."

Locate a copy of the Bill as initiated on 28 July 2022 and the accompanying Explanatory Memorandum here.

Posted by: Peter Oakes, Founder of CompliReg a leading specialist governance, regulatory and compliance strategy firm.  Peter established and led the Enforcement and AML/Supervision Directorate of the Central Bank of Ireland as its inaugural Assistant-Director General, then later Director of Enforcement and AML/CFT Supervision. ​