The Central Bank of Ireland and other international regulators such as the FCA in the UK and MAS in Singapore have prioritised 'individual accountability for several years. The proposals and now the draft legislation to introduce the Senior Executive Accountability Regime (SEAR) in Ireland are significant steps in that development.
When implemented, the new regime will introduce significant changes for regulated firms and their senior managers. The Central Bank of Ireland will hold these senior managers accountable for wrongdoing when it occurs under their supervision.
The rules will require firms to set out clearly who makes decisions and who is responsible. In addition, the regime requires that senior managers take all reasonable steps to ensure their responsible areas of the business complies with all regulatory requirements. Furthermore, the regime will enhance other Central Bank reforms to the current Fitness and Probity and Enforcement processes.
While the regime will yet take some time to be implemented, it's a 'multi-year project' described by the Minister for Finance Paschal Donohoe, firms should start to prepare.
"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", said the Minister in a recent interview to the Irish Times.
Therefore, legal, compliance and HR teams must begin to consider the scope of the regulation and begin preparations to simplify the implementation before the regime comes into force. The SEAR will require firms to review the roles and responsibilities of their senior management and better understand the firm's governance structures and HR processes.
SEAR – Practical steps to prepare now
- Understand the project and responsibilities
Specialists say it isn't too early to prepare. However, many firms have not yet decided who will be responsible for the regime in the organisation. However, it's a crucial step that needs to be taken in the early stages. Firms should also be looking at resources required for when the project starts, including new hires, consultancy, system and controls.
- Collect information
Before designing an implementation plan, firms should begin to look at the roles and responsibilities of Senior Managers, consider how the firm will approach the proposed increase in mapping and documentation of responsibilities, including policies under the regime framework.
At the moment, firms must review their policies and procedures and assess if they cover enforcement actions against individuals.
- Review similar regimes implemented in other countries
Irish firms can look at insights from similar regimes and take some advice from other firms that have been through similar implementation in other countries. If you are looking for more information, we have many resources on SMCR – have a look and get some insights on the UK Regime.
Blog – Overview of SMCR and Lessons from SMCR Implementation
Blog - Five Key Steps Towards SMCR Compliance
Webinar - The UK SMCR & Enforcement Investigations
Potential penalties under the regime
The Central Bank view enforcement as an integral part of its engagement with its regulated firms. It is a complementary strategy to regulation and supervision. Enforcement actions can take several forms and result in the application of the Administrative Sanctions Procedure (ASP). The Central Bank can impose various sanctions such as issue prohibition notices against individuals and revoke a firm's authorisation.
"Since the beginning of 2016, the Central Bank of Ireland ("CBI") has concluded 44 settlement agreements with regulated entities/individuals, resulting in the payment of €85.7m in fines. CBI's recent imposition of a fine of €4.1m on Davy Stockbrokers serves as yet another reminder of the importance of CBI's role as a watchdog of the financial services sector", Ronan Daly Jermyn talking about the SEAR regime.
Historically, enforcement actions in Ireland suggest that the Central Bank is pursuing penalties in circumstances where an individual can be held directly accountable for a breach at the firm when the executive played an important role. However, not many Administrative Sanctions Procedure were applied since 2016, which is due to change with the introduction of the fitness and probity regime and Senior Executive Accountability Regime.
The Central Bank of Ireland will then be able to sanction senior managers for breaches without proving that the individual participated in a regulatory violation by their firm. When the regime is implemented, the Central Bank of Ireland can impose various sanctions on individuals, including disqualifications and fines of up to EUR1 million.
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