Enhanced governance, performance and accountability in nancial
services: the Individual Accountability Framework - address by Deputy
Governor Derville Rowland
18 April 2023 Speech
The following address was delivered by Deputy Governor Derville Rowland at a joint Central Bank of
Ireland / Law Society breakfast seminar, in Blackhall Place, Dublin, on 17 April 2023.
It is a pleasure to be with you this morning to discuss the Central Bank consultation on key aspects of the Individual
Accountability Framework (IAF), and I'm grateful to the Law Society and its members for kindly hosting us.
At its core, nancial regulation is about supporting positive outcomes, protecting consumers and investors, and,
ultimately, contributing to the economic well-being of the community as a whole.
The regulatory expert Malcom Sparrow, Professor of the Practice of Public Management at the Harvard Kennedy
School, notes the challenge for all regulators of "reducing harms on the one hand, and respecting the traditional
regulatory values of fairness, consistency, proportionality and predictability on the other".1
Since day one in framing the IAF, this is a challenge we have been acutely conscious of.
The purpose of the IAF is to promote sound governance throughout the regulated nancial services sector. The
framework is very much in keeping with the key themes of the Central Bank's strategy, namely: (i) safeguarding; (ii)
future-focused; (iii) transforming; and (iv) open and engaged.
Safeguarding reects our commitment to strengthen the design, implementation and operation of our core policy and
supervisory frameworks.
By being future-focused, we are regulating for a rapidly evolving nancial system - ensuring that the opportunities
presented by change and innovation can be realised for citizens and the economy while the risks are managed.
Through transforming, we aim to be a more agile, resilient, diverse and intelligence-led organisation.
The IAF embodies these themes. Where rms and individuals take and demonstrate enhanced responsibility for
customer and client outcomes, we can focus more on outcomes-based supervisory engagement, underpinned by clarity
as to accountabilities.
The fourth theme of our strategy is being an open and engaged regulator. Which brings me to this event, and our desire
to engage on as wide a basis as possible with interested stakeholders, including the public, regulated rms, nancial
services staff and industry representatives, members of the legal and compliance professions, members of professional
services rms, and beyond.
I'm delighted to see so many of you here this morning, and I emphasise the Central Bank's desire to hear your views.
Both in this consultation exercise, and on an ongoing basis, we want to hear from stakeholders on how the IAF is working
and how it might be improved.
To help that discussion, I will briey outline our proposed approach to implementation as set out in the Consultation
Paper, including the rationale for key aspects of the IAF, and next steps - which I know is a major focus for rms and
professional advisors in the period ahead.
Background
The IAF had its genesis in our Report on the Behaviour and Culture of the Irish Retail Banks, which identied poor
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governance, lack of consumer-focused cultures, and weak structures of accountability within rms. Those ndings
were consistent with issues we had seen in the wider nancial services sector.
These issues were not unique to Ireland. As noted by the Bank of International Settlements, "two lasting imprints of the
Great Financial Crisis were widespread failures in corporate governance and systemic breakdowns in corporate
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accountability and ethics".
It is important to acknowledge here that most rms and individuals aspire to high standards. That is why we have said
that the majority of rms and staff will see nothing to fear in the IAF - because its principles are ones to which they
already adhere. Nevertheless, the minority who do not aspire to such high standards cause reputational issues for the
sector as a whole, and pose a risk to consumers, investors and wider society.
Hence, we proposed the IAF with a view to driving improved governance and accountability across the sector. In doing
so, we emphasised from the outset that effective culture is, in the rst instance, a matter for each individual rm to
dene, embed and own. As a regulator, we work to monitor, assess and inuence culture within rms to guard against
risk and drive better outcomes for consumers, investors and the system as a whole.
We worked closely with the Department of Finance to progress the proposals, and on 9 March, the Central Bank
(Individual Accountability Framework) Bill 2023 was enacted. Shortly after enactment, we launched a three-month
consultation on implementation of the IAF, including the publication of draft Regulations and guidance.
The Act provides for the introduction of the IAF, which is designed to improve governance, performance, and
accountability in rms by establishing a framework of enhanced clarity as to who is responsible for what within rms. It
also claries the standards to be met by individuals holding these responsibilities, with a particular focus on senior
executives. As you are no doubt aware, the four key areas covered by the legislation are:
A Senior Executive Accountability Regime (SEAR) which ensures clearer accountability by imposing obligations on in-
scope rms and senior individuals within them to set out clearly where responsibility and decision-making lies for
their business;
Conduct Standards, which set out the standards of behaviour the Central Bank expects of rms and the individuals
working within them;
Enhancements to the current Fitness & Probity (F&P) Regime to address some current limitations of that regime; and
Enhancements to our Administrative Sanctions Procedure (ASP), including a key change regarding our ability to take
enforcement directly against individuals for breaches of their obligations rather than only for their participation in
breaches committed by a rm.
The objective of the IAF is to achieve better outcomes for consumers and users of nancial services and for the ongoing
functioning of the economy. It will do this by supporting rms in being well run and having sustainable business models.
The framework is built on proportionality, predictability and reasonable expectations. Our approach to implementation
also embeds these features.
Of course, the Irish nancial system serves not only the Irish but also the European and global economies. The IAF,
implemented in a high quality manner, should support the Irish nancial system in further fullling this role while
ensuring further protection for consumers and investors.
Context
In developing our proposals, we have considered the legislative, regulatory and policy framework in which they will
operate. The IAF is, as mentioned, aligned to our strategy and rooted in our regulatory philosophy whereby regulation
should be forward-looking, connected, proportionate, predictable, transparent and agile.
We have considered the changing nancial services landscape and international developments in the area of individual
accountability. We have noted the evidence of the effectiveness of related regimes introduced in other jurisdictions
from the perspective of both the relevant regulators and the rms to which such regimes apply.
Notably, in the UK, senior managers and rms surveyed about the Senior Managers Regime in that jurisdiction say it has
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had positive effects on behaviours and working practices.
We have also been informed by the work of European and international bodies such as the European Commission and
the Financial Stability Board, which recommend identifying key responsibilities and clearly assigning them to the holders
of various positions within a rm.
From the international experience, we believe the IAF will not just assist the Central Bank in our mission as regulator -
but assist rms in achieving their objectives too, with the longer term outcome of a more trusted nancial services
sector, which is in everybody's interest.
Cost Benet Considerations
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While the IAF is designed to bring substantive benets , we are conscious that there will also be costs associated with
its introduction. Some of these will be inherent; others will depend on the manner in which the framework is
implemented. Overall, it is important that the benets outweigh the costs. We have carefully considered this aspect
upfront but also recognise the importance of ongoing review, as is currently under way in the UK.
While the initial scope of SEAR will apply to approximately 150 rms, the Conduct Standards and enhancements to the
F&P Regime and ASP procedures will apply to all regulated rms.
In the context of rms within the scope of the SEAR, there will inevitably be an increased, but necessary and
proportionate, administrative burden during the implementation phase due to the requirement to prepare Statements
of Responsibilities and the Management Responsibilities Map.
For the broader population of rms there will be a requirement to notify and train individuals in respect of the Conduct
Standards and to provide an annual conrmation in respect of the certication of Controlled Functions (CFs), which
includes Pre-approval Controlled Functions (PCFs), to the Central Bank.
We expect that, after the initial measures to comply with the legislation, the ongoing cost of compliance will be less as
rms become more familiar with their obligations and ne-tune the necessary processes.
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This assessment of cost is borne out in the Regulatory Impact Assessment carried out by the Department of Finance at
the time of publication of the General Scheme.
Concerns have been voiced to us about the potential for the IAF have a deterring effect in relation to the recruitment
and retention of high quality individuals to important roles in the nancial system. We consider the framework to be
well designed and balanced and therefore unlikely to produce such effects. Nonetheless, this is another of the aspects
we will monitor in our review process.
Best practice provides that new and signicant regulatory frameworks should be reviewed after an initial period of
operation. Accordingly, it is our intention to prepare and publish a report on the operation of the new framework based
on its rst three years of operation. In our review, we will consider the functioning of the framework, how the benets
and costs are being realised in practice, and whether any changes should be introduced.
SEAR
Turning to some specic aspects, it is proposed that SEAR will initially apply to a dened range of regulated rms,
namely credit institutions (excluding credit unions), certain insurance undertakings and investment rms and incoming
third country branches of these rms.
Taking into account nature, scale and complexity, it is intended to apply a proportionate approach to low-impact-rated
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in-scope investment rms and incoming third country branches. In this regard, a reduced number of Prescribed
Responsibilities are applicable to such rms. All other elements of the SEAR apply, including Statements of
Responsibilities and the Management Responsibilities Map.
The Central Bank will have power via regulations to rollout the SEAR to other sectors in due course. It is our intention to
increase the scope of application of the SEAR over time, with lessons from the initial roll-out to be incorporated as the
scope is extended.
In the meantime, our view is that there is much in the spirit of the SEAR that rms not initially falling within scope should
recognise as aligned with good quality governance.
Responsibilities
We have designed the framework such that, for consistency and coherence, the roles to which the SEAR applies at in-
scope rms align with those existing PCF roles to which the F&P Regime applies.
As is the case under the F&P Regime, rms will not be required to create new roles. Therefore, while bringing enhanced
clarity, the SEAR is not expected to alter the existing governance structures of well-run rms.
There are two main types of responsibilities imposed under the framework:
1) Inherent Responsibilities: These are the responsibilities which automatically align to any given PCF role at an in-scope
rm. Our proposed description of such Inherent Responsibilities is set out in the draft SEAR Regulation.
2) Prescribed Responsibilities: These comprise a list of responsibilities which it is proposed that each in-scope rm must
allocate among individuals in PCF roles. Again, our proposed list of Prescribed Responsibilities is set out in the draft
SEAR Regulation.
While rms must allocate all applicable Prescribed Responsibilities among PCFs at in-scope rms, the Central Bank does
not intend to be overly prescriptive in terms of the allocation of Prescribed Responsibilities to specic PCF role-holders.
This approach gives rms the exibility to allocate responsibilities in a manner that accommodates different business
models and organisational structures.
Non-Executive Directors
One aspect that has generated some debate already is the proposed inclusion of Non-Executive Directors (including
Independent Non-Executive Directors) within the scope of SEAR. We have given this careful consideration.
It is important to recognise that Non-Executive Directors have existing responsibilities under the corporate governance
framework, including, for example in respect of governance, oversight and challenge. We consider that responsibility
under the SEAR is fully consistent with those existing responsibilities and should not impose increased obligations in
that regard.
Importantly, the standards to be met by these individuals in their role as Non-Executive Directors will relate purely to
their non-executive oversight functions and will, of course, be limited to what should reasonably be expected of
individuals in that context.
Duty of Responsibility / Reasonable Steps
The SEAR introduces a duty of responsibility for individuals performing PCFs at in-scope rms to take reasonable steps
to ensure that their areas of responsibility conform to legislative and regulatory requirements.
To provide clarity about what is expected in this context, and given that reasonable steps also apply in respect of the
Conduct Standards, we have provided guidance on the meaning of "reasonable steps".
In assessing the steps that an individual took, the Central Bank will consider what steps an individual, in that position,
could reasonably have been expected to take at that point in time. This will include, for example, taking account of
whether the individual is a recent appointment to the role and their overall level of experience in the context.
Conduct Standards
The Common Conduct Standards will impose a single set of readily understood, basic obligations on individuals carrying
out CFs within rms. We consider these standards to be straightforward and in line with what would be considered as
good practice by individuals carrying out such functions.
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For individuals carrying out PCF and CF1 roles, a small number of Additional Conduct Standards are imposed relating
to the individual's responsibilities as a senior executive.
You will nd that the legislation itself sets out a range of helpful detail as to what is required under the different Conduct
Standards. Once again, the concept of reasonable steps is at the heart of the Conduct Standards, with the expectation
that an individual subject to the Conduct Standards shall take reasonable steps to achieve compliance.
The draft IAF Guidance sets out the Central Bank's expectations in relation to the Conduct Standards and some non-
exhaustive examples of the steps it may be reasonable in the circumstances for an individual to take to ensure they are
met.
Interaction with the Fitness and Probity (F&P) Regime
The F&P Regime and the IAF can be thought of as two aspects of one overall framework of sound governance and
accountability - with the F&P Regime being about suitability of individuals and the IAF about their clear responsibilities
and ongoing conduct.
For reasons of clarity, familiarity and convenience, they can continue to be considered separately. The operation of the
F&P Regime, including the F&P gatekeeper function and the systems in place to support the F&P Regime, will remain
substantially unchanged.
While the F&P Standards are relevant to assessing individuals prior to their appointment (and on an ongoing basis while
performing the controlled function), the Conduct Standards only apply once the individual is in the role.
The IAF also introduces a number of enhancements to the F&P Regime to, amongst other things, strengthen the onus on
rms and holding companies to proactively certify that individuals in controlled functions are t and proper on an
ongoing basis, and to address some current limitations of the F&P investigative function.
The need for rms to take ownership
Central to successful implementation - and driving a permanent uplift in governance standards - is the need for rms to
take real ownership of the framework. This will make the fundamental difference. If rms embed the framework
properly, it should ideally result in fewer serious issues in the sector over time - and, from our perspective, less need for
enforcement actions.
Our approach to enforcement - both in relation to the IAF and more generally - is based on the key concepts of
proportionality and targeted deployment with a rigorous focus on outcomes.
Enforcement is a critical component of our regulatory framework - but just one component. We have a broad range of
powers, and we escalate as appropriate depending on the scale and gravity of an issue.
We think of it like a pyramid, whereby, at the wide base, we most commonly use our soft powers of education,
persuasion and similar to promote compliance. Further up - and less frequently used - are our 'hard powers'. Nearing
the peak are the more punitive measures, such as administrative sanctions. We use those powers judiciously and
sparingly, but we will act where warranted.
I provide this context to again underscore an important point: the IAF, in our view, is about encouraging the good, not
just focusing solely on stopping the bad.
While robust enforcement action will continue to underpin our powers, we would far rather that rms focus on
preventing, identifying, and acting upon issues in the rst place - and we believe the IAF will assist rms in that purpose.
Implementation and Next Steps
While the key components of the IAF have been communicated for some time, we recognise that rms and holding
companies will need time to prepare for and implement the various elements of the IAF effectively. Our proposed
approach to implementation seeks to balance the need to maintain momentum by introducing the framework while
allowing appropriate time for in-scope rms to ensure its quality implementation.
In order to nalise the proposals, we are keen to receive feedback to the Consultation Paper from a wide range of
stakeholders, including those of you in this room today.
Following the receipt and review of feedback to the Consultation Paper and the publication of the related Feedback
Statement, we intend to allow for an appropriate transitional period for rms and holding companies to implement the
relevant changes introduced by the IAF. This would see:
Conduct Standards to apply from 31 December 2023;
Fitness & Probity Regime - Certication and inclusion of Holding Companies to apply from 31 December 2023; and
Regulations prescribing responsibilities of different roles and requirements on rms to clearly set out allocation of
those responsibilities and decision making to apply to in-scope rms from 1 July 2024.
I would encourage rms to use this time to prepare to implement the new framework by understanding their obligations
and assessing their current governance structures in order to identify clearly who is responsible for what within the
rm.
Firms will need to clearly dene the roles and responsibilities of individuals and ensure clarity over reporting lines and
any delegation of tasks. Firms should review their current Fitness and Probity processes to assess any enhancements
required to meet the annual certication requirements.
Firms should also examine their internal culture and values as compared to the IAF principles and identify areas of focus.
Education and training will also play an important part in the success of this framework. These steps will help rms to
assess gaps and identify the key changes needed on a timely basis.
The framework also introduces changes to the Central Bank's enforcement processes. The Central Bank will issue
updated F&P Investigations Regulations and F&P Investigations Guidance once the underlying legal provisions have
been brought into effect in the coming days.
The Central Bank intends to launch a separate public consultation on the changes to the ASP in mid-2023. This
consultation package will include consolidated end-to-end ASP Guidance which will include Investigation, Inquiry,
Settlement and Sanctions Guidance for consideration by all relevant stakeholders.
Conclusion
I will conclude here. I hope you have found it useful to hear how the new framework ts within our overall approach to
regulation, which is based on the principles of proportionality, predictability, and reasonable expectations, and which
leverages the way that rms have chosen to structure themselves, while ensuring that such structures have appropriate
levels of governance and clarity.
My colleagues and I look forward to hearing your views and taking your questions.
1
Sparrow, M. The Character of Harms (2008, Cambridge University Press).
2
Behaviour and Culture of the Irish Retails Banks
3
Oliveira, Walters and Zamil, When the Music Stops: Holding Bank Executives Accountable for Misconduct (2023, BIS
Financial Stability Institute).
4Bank of England, Evaluation of the Senior Managers and Certication Regime
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Acting as a driver of high quality governance and performance amongst all rms; supporting positive outcomes
including helping rms to secure the interests of their customers while ensuring sustainable business models; enhancing
levels of trust and condence in the nancial system so that it fulls its potential in supporting the Irish and European
economy; and advancing the maturity of the regulatory system so that where levels of responsibility and accountability
within rms are increased, supervision can focus more on performance and outcomes.
6Central Bank (Individual Accountability Framework) Bill 2022, Regulatory Impact Analysis
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The Probability Risk and Impact System (PRISM) is the Central Bank's risk-based framework for the supervision of
regulated rms.
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Those individuals who may exercise a signicant inuence on the conduct of the rm's affairs.
©2023 Central Bank of Ireland