On 9 March 2023, the Central Bank (Individual Accountability Framework) Act 2023 (IAF Act 2023) was signed into law.
This legislation provides a substantial change in the governance of financial firms by the Central Bank of Ireland arising from the global financial crisis, when cultures of responsibility in financial institution sectors were found to fall short. The IAF Act 2023 (here) is designed to ensure clear management structures are in place, holding individuals in senior management and the financial firms in which they work accountable for the effective running of financial firms.
This is a framework piece of legislation, the detail of which is to be implemented by the Central Bank through Regulations and guidelines.
The Central Bank has announced a three-month consultation process with industry stakeholders on these implementing measures, which are to take effect as follows:
As previously outlined in our Insights series, these are substantial changes to the current governance requirements for financial service providers and need to be reviewed and implemented with sufficient time across Regulated Financial Services Providers (RFSPs).
This consultation process gives us an opportunity to engage with the Central Bank to devise a workable regime and make representations on behalf of our clients. It will run from 13 March 2023 to 13 June 2023.
As noted in the Explanatory Memorandum to this legislation (here), the focus of the Central Bank is to ensure a high level of governance in Irish financial services entities. This will be achieved through the clear identification of responsibilities and roles, the lines of management and decision-making and ensuring that the persons exercising these responsibilities are sufficiently fit and proper to carry out their roles.
Requirements for increased and ongoing engagement with the Central Bank are set out in the IAF Act 2023, as are high level requirements for honesty and integrity, due skill, care and diligence and acting in the best interest of customers.
Enforcement provisions and sanctions are also enhanced from the current regime, which aim to ensure a culture of compliance from senior management down. These sanctions are to be applied at RFSP level and also on the individuals carrying out Controlled Functions (CF) and Pre-Approved Controlled Functions (PCFs), including persons exercising “significant influence”.
The scope of RFSPs is yet to be defined but is expected to include:
Additional providers may yet be included, as was seen in the equivalent UK legislation, to which this IAF is similar (see here).
Within these RFSPs, senior management and persons carrying out Controlled Functions will need to have clearly defined roles and responsibilities in a clear management structure and with effective oversight.
Again, responsibility will lie at both the level of the RFSP and also those carrying out Controlled Functions and Pre-approval Controlled Functions.
While this period of consultation is on-going, we would suggest in-scope firms establish a team to oversee the implementation of the IAF, to map and document current management and responsibilities and, in due course, to roll out the enhanced framework. Boards of directors and senior executives will need to be aware of these changes and ensure the appointment of an appropriately resourced oversight team.
Our Asset Management and Investment Fund team can advise on the implementation of these measures, which will include reviews of management structures, defined roles and responsibilities, the assessment of persons carrying out CFs and PCFs and their certification.
Employment contracts and training will also need to be reviewed, given the increased level of responsibility and reporting. Our Employment Team will be happy to help with this.
We understand a further consultation will be held later this year in relation to the changes to the Administrative Sanctions Procedure. We will continue to update you on this and the current consultations as we review and engage with our clients and the Central Bank.
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