The Republic of Ireland legislature made public updated details of the country’s forthcoming individual accountability regime. In this week’s StarBlog, Senior Editor John Grgurich offers an overview of what the regulation might look like in its final form, and how regtech like Star’s can help registered firms comply
Recently in this space, we offered a preview of what registered firms that operate in the Republic of Ireland could expect when the new Senior Executive Accountability Regime, or SEAR, went into effect. We discussed how the Central Bank of Ireland—the driving institution behind the regulation—hopes to achieve better firm governance through better firm culture. We also laid out the four proposed components of SEAR, designed to achieve the Central Bank’s behavioral and regulatory objectives:
- Firms will set out clearly and comprehensively where responsibility and decision-making lie in order to achieve transparency as to who is accountable for what within firms.
- Firms will be expected to conduct themselves with honesty and integrity, to act with due skill, care and diligence, and in the best interest of consumers.
- A greater onus will be placed on firms to proactively certify that certain staff are fit and proper and capable of performing their roles with integrity and competence.
- The Administrative Sanctions Procedure will be strengthened to ensure that individuals can be pursued directly for misconduct rather than only for participation in firm wrongdoing.
On 28 July, the Irish legislature made public an updated version of the bill, formally known as the Central Bank (Individual Accountability Framework) Bill 2022. It’s currently before the Dáil Éireann, Ireland’s lower house of parliament. So far the bill’s four major components, as listed above, remain intact. It must be noted, however, that the bill is only in stage three of an eleven-step lawmaking process. As with any democratic lawmaking process, changes to the bill before it’s signed into law can be expected.
But the bill is expected to make it into law, and this updated version offers more detail than what was previously available. As such, it’s worth a close examination by compliance officers at registered firms operating in the Republic of Ireland as an actionable guide for getting a fit-for-purpose SEAR compliance program into place sooner rather than later. Here are the updated bill’s top takeaways and key points.
KNOW THE EXISTING LAW
The Central Bank Bill 2022 is actually a collection of amendments and insertions to three existing acts that cover the breadth and depth of Irish central banking: the Central Bank Act of 1942; the Central Bank Reform Act 2010; and the Central Bank (Supervision and Enforcement) Act 2013. As such, the final form of the new bill will have to be understood in relation to these other elements of Irish central banking law.
KNOW THE NEW STANDARDS
Per the bill, business operating standards will apply to all registered firms. Language surrounding this notion includes “the duty to cooperate in good faith and without delay … with the [Central] Bank, and with authorities that perform functions in a jurisdiction other than the State that are comparable to one or more of the functions performed by the [Central] Bank under financial services legislation.”
Further, the Central Bank will have a mandate to regulate the systems, controls, processes, and policies registered firms must adopt to ensure compliance with the business standards. Importantly, if there’s a breach, the Central Bank will have the power to take direct enforcement action against the firm responsible. The business operating standards will also apply to any individuals performing controlled functions, as well as those performing pre-approval controlled functions.
REASONABLE STEPS AND FIRMS
Central Bank Bill 2022 obligates anyone performing controlled functions to take any “reasonable steps” necessary to ensure that conduct standards are met. The failure to do so will be a prescribed contravention, allowing the Central Bank to take enforcement action against the person responsible for the breach. Circumstances to be considered for this purpose will include: the nature of the firm’s business (including scale and complexity); the functions of the person in relation to the firm; and the level of knowledge and experience a person tasked with carrying out such functions could reasonably be expected to have.
FITNESS & PROBITY REQUIREMENTS
Under Central Bank Bill 2022, firms will not be able to allow a person to perform a controlled function unless a certificate of compliance, with standards of fitness and probity in relation to that person, is in force. The requirements for such certificates will be set out in regulations made by the Central Bank.
INDIVIDUALS SEAR WILL APPLY TO
SEAR will apply to those performing senior executive functions, or SEFs, which will be the same as those currently performing pre-approval controlled functions. Related elements will include: responsibilities which will apply automatically to a given SEF; responsibilities which firms must ensure are performed by individuals in senior roles; statements of responsibilities, or SORs; and management responsibility maps.
REASONABLE STEPS AND INDIVIDUALS
Central Bank Bill 2022 proscribes that: persons with responsibilities related to their aspects of firm affairs must take any reasonable steps to ensure that said aspects are conducted in such a manner that the firm avoids contravention of its obligations under any financial services legislation, existing or yet to be written. Individuals subject to SEAR will commit a contravention if they fail to take such reasonable steps.
THE ADMINISTRATIVE SANCTIONS PROCEDURE
The new law would make a number of amendments to the Central Bank Act of 1942 to clarify the operation of the Administrative Sanctions Procedure, or ASP. Key changes are set to include: an amendment to bring holding companies within the ASP’s scope; a requirement for the Central Bank to keep the subject of an investigation updated as to its progress; requirements for the preparation of reports of investigations; and an alternative procedure for sanctions, whereby a person can acknowledge a contravention, dispense with an inquiry by the Central Bank, and accept a sanction.
CONFIDENCE AND CLARITY THROUGH REGTECH
As currently envisioned, SEAR will not be far off from the UK’s Senior Managers and Certification Regime, or SMCR. Happily for compliance professionals everywhere, as this kind of individual accountability regulation continues popping up in more places, regtech solutions are keeping pace. These compliance software solutions come at the challenges involved in staying compliant with these complex regimes from a number of angles.
First, they eliminate the need for the manual work associated with staying compliant, through the use of highly reliable automated workflows. Manual tracking and monitoring work is typically tedious and time consuming, making it all too easy for errors to occur. This is especially true of individual accountability regimes, with a lot to keep track of and a lot at stake for both firm and employee if something is missed. Second, they centralize critical compliance information into a single place for easy viewing and analysis: giving firms visibility into the individual accountability framework for every employee, as well as complete traceability for any internal or external audits.
StarCompliance is a leader in such cutting-edge compliance technology, and has just unveiled its IAR SEAR software solution: a follow-on to its IAR SMCR and IAR IAC software solutions. IAR SEAR has been designed to meet and exceed current Central Bank guidance. (Importantly, as the reg evolves, so will the software.) You’ll be able to ensure senior executives and controlled functions satisfy fitness and probity criteria. You’ll be able to strengthen oversight of controlled functions, and reinforce standards of proper conduct amongst employees. You’ll also be able to easily and effectively demonstrate compliance with Irish Central Bank guidelines, and more easily achieve its ambitious accountability and conduct standards.
In short, regtech like Star’s IAR SEAR offers clarity on what your firm needs to do to stay compliant and operate safely and profitably, now and into the future. It provides: (1) confidence you’re up to date on SEAR requirements (which are numerous); (2) a streamlined business process; and (3) increased certainty of comprehensive and proactive firm governance and oversight. And when it comes to individual accountability regulation like the UK’s SMCR, Singapore’s IAC, and Ireland’s SEAR, certainty is good business.