Regime will require firms to set out who makes decisions and where responsibility lies
It may be a further 18 months before long-planned new rules are in place to make it easier for regulators to hold senior managers in banks and other financial firms accountable for failings under their watch, Minister for Finance Paschal Donohoe said.
Speaking to reporters on Tuesday after securing Cabinet approval to publish the heads of the Central Bank (Individual Accountability) Bill, Mr Donohoe said it will take up to six months for the planned laws to go through pre-legislative scrutiny with the Oireachtas Finance Committee.
It could take a further six months for the Bill to pass through the Oireachtas, and additional time would be required for the Central Bank to enforce the rules. “Overall, I’d say we’re looking at a 12 to 18 month cycle for that to take place,” he said.
The publication of the heads of the Bill comes more than two years after Mr Donohoe secured permission from the last government to press ahead with drafting the shape of legislation – and three years after the Central Bank of Ireland asked for the additional powers.
A central aim of the planned senior executive accountability regime (SEAR) is to do away with a key part of the existing regime, or what is known as the “participation link”, where regulators must first find that a financial firm committed regulatory breaches before they can take individuals to task. The Central Bank’s current sanctions toolkit, ranging from barring executives from senior financial roles to fines of up to €1 million, will apply.
The rules will require firms to set out clearly who makes decisions and where responsibility lies. They will impose a requirement that senior executives take all reasonable steps to ensure the area of the business for which they are responsible is controlled effectively and complies with any regulatory requirements.
The rules will apply to senior management, board members at lenders, excluding credit unions, and most insurance firms and investment firms, Mr Donohoe said. Additional sectors may be included in time.
“This legislation will raise the stakes significantly for senior individuals in financial institutions,” said Shane Kelleher, head of financial regulation at law firm William Fry. “It is designed to do away with the Murder-on-the-Orient-Express defence of ‘it may have been one of us, but it wasn’t me’ when things go wrong.”
However, Mr Kelleher said challenges remain “in striking the correct balance between individual accountability and the constitutional rights of individuals who are at the receiving end of career-limiting or career-ending regulatory enforcement action”.
The Bill will also provide for the introduction of “common conduct standards” to apply to all individuals in controlled function roles as well as business conduct standards for general employees of financial firms.
Bank of Ireland chief executive Francesca McDonagh, who joined the group in late 2017 from a senior position at HSBC in the UK, said that a similar bankers’ accountability regime introduced in the UK has had a positive effect in that market.
“I have first-hand experience of working within the type of framework envisaged under SEAR,” she said. “To this day, I remain accountable for the decisions I took when working in the UK. That’s right and proper.”
Banking & Payments Federation Ireland chief executive Brian Hayes also welcomed the announcement, but cautioned: “We believe that as the framework evolves, it should be proportionate and should neither hinder the attraction of talent to the sector nor impact in a negative way on mobility and diversity within banks.”
The Central Bank’s director general for financial conduct, Derville Rowland, said that experience has shown that, for a regulatory framework to work well, it should stimulate strong and effective governance within firms.
“Culture is developed and evolves within individual firms. As regulators, we cannot prescribe or mandate a culture for firms,” she said. “We can, however, monitor, assess and seek to influence culture within firms in order to guard against conduct risk and drive better outcomes for consumers and investors.”