The government has agreed on new legislation to improve accountability in the financial sector, with the Central Bank (Individual Accountability Framework) Bill now proceeding to draft stage.

The draft law will regulate four main aspects. The first is to introduce a Senior Executive Accountability Regime (SEAR), which will place obligations on firms and senior individuals within them to set out clearly where responsibility and decision-making lies.

These will include all credit institutions except credit unions, primary insurance companies, certain classes of investment firms, and all third country branches of these.

Secondly, the Bill will specify common conduct standards to apply to all persons in controlled function roles; additional conduct standards for individuals in senior positions; and business conduct standards for all regulated firms in the financial sector.

These standards will give the Central Bank powers to set and impose binding and enforceable obligations on all Regulated Financial Service Providers (RFSPs) and individuals working within them with respect to expected standards of conduct.

In Association with

Thirdly, the Bill will enact enhancements to the Fitness and Probity Regime “to ensure the effective operation of and ability of the regime to support the Individual Accountability Framework and the conduct standards for individuals and firms”.

And finally, the Bill will break the ‘participation link’ which at present requires the Central Bank to first prove a contravention of financial services legislation against an RFSP before it can take action against an individual.

Minister Paschal Donohue (pictured) said: “The changes to Central Bank legislation will put individual accountability at the centre of decision making in financial services organisations. The provisions will ensure that there is clarity around the roles and functions of senior executives.

“The adoption of conduct standards for individuals working in financial institutions, as well as standards for businesses applicable to regulated firms, will provide for appropriate standards of conduct.

“There are also changes in respect of the fitness and probity regime and in breaking the participation link. These changes are supported by an appropriate sanctions regime in order to ensure compliance and deal with potential misbehaviour.

“Taken together, these are significant changes in the governance of financial institutions. Their aim is to drive a culture of positive behaviour among those who work in financial institutions and is part of the ongoing work to restore trust in these institutions.”

Donohue added that he hoped the new Bill would be enacted into law and the new regulatory regime would be in place within 18 months.

Ciaran Walker in law firm Eversheds Sutherland commented: "Industry feedback on the similar regimes that have been introduced in the UK (in 2016) and Australia (in 2018) suggests that new regime should result in improvements in governance and management of risks, in particular misconduct risk.

“This is not only because it serves to clarify individual responsibilities within firms; it is also because it focuses the minds of senior individuals in particular on the risks to them as individuals of engaging in, tolerating or turning a blind eye to misconduct.

“The message is clear: the CBI is increasingly focusing its attention on going after individuals who do not meet the high standards expected of them."

Sinn Féin slammed the government for taking three years to respond to the Central Bank’s call for such a regime.

Finance spokesperson Pearse Doherty said: “Though welcome, it is frustrating for consumers and the general public that the government have been so slow to produce legislation that will bring individual accountability to the financial services sector despite the misconduct and scandals that have harmed customers and broader society over the past decade.

“The minister himself continually missed self-imposed deadlines for the publication of this legislation. It is disappointing that he does not expect the new regime to be in place for another twelve to eighteen months — four and a half years after the Central Bank called for these provisions."

The full heads of the Bill are available here.