On 1 July 2024, being the commencement date of the Senior Executive Accountability Regime (“SEAR”) for certain regulated financial entities, the Financial Risks and Governance Policy Division of the Central Bank of Ireland (“Central Bank”) published the Questions from Stakeholders to address some of the queries raised by stakeholders on the application of the Individual Accountability Framework (“IAF”), components of which include the Common and Additional Conduct Standards (“Conduct Standards”), SEAR, the Administrative Sanctions Procedure and the enhancements to the Fitness and Probity regime.
The Central Bank released its final IAF Guidance in April 2024 (“IAF Guidance”) and they confirmed this document will form part of that guidance when it is updated from time to time.
The questions are set out under two sections namely Conduct Standards and SEAR.
1. Conduct Standards
There are three questions relating to the topic of the application and scope of the Conduct Standards:
- The Central Bank confirmed that Controlled Function (“CF”) role holders who provide incoming services on a freedom of services basis are subject to the Conduct Standards (Question 1.1 refers).
- The Central Bank noted that, ordinarily, it does not expect individuals within group entities to exercise significant influence on the conduct of the affairs of the subsidiary or related regulated financial services provider (“RFSP”), and therefore are unlikely to hold a CF-1 role. However, in circumstances where individuals can effectively direct / exercise a significant influence on key aspects of the business of the RFSP, this will constitute a CF-1 role, and the individual will be subject to Common and Additional Conduct Standards (Question 1.2 refers).
- The Central Bank confirmed that the firm in scope of IAF is responsible for providing the training, but that the training may be delivered by a third party (Question 1.3 refers).
2. SEAR
There are also three questions relating to scope and the allocation of prescribed responsibilities (“PR”) under SEAR:
- The Central Bank confirmed that it will not adopt a prescriptive approach to the allocation of PR to specific Pre-Approved Control Functions (“PCF”) role holders. However, in circumstances where there is relevant sectoral / or guidance, in-scope firms should take this into consideration in allocating the PRs appropriately. This approach will ensure that firms have the flexibility to allocate responsibilities in a way that is appropriate to their business model and organisational structure (Question 2.1 refers).
- The Central Bank confirmed that it is not necessary for firms to allocate a PCF-52 (Head of AML/CFT Legislation Compliance) role in order to allocate PR20 (see below).
"PR20 relates to managing the anti-money laundering and countering the financing of terrorism (‘AML/CFT’) compliance function (Responsibility for managing the anti-money laundering and countering the financing of terrorism (‘AML/CFT’) compliance function in order to address the firm’s money laundering and terrorist financing risks including:
- the development and oversight of a robust AML/CFT framework; and
- overseeing the implementation and effective application of AML/CFT systems and controls). What are the Central Bank’s expectations with regard to the allocation of PR20 where a firm does not have a PCF-52 (Head of Anti-Money Laundering and Counter Terrorist Financing Compliance) and/or where a firm is not deemed a designated person under the Criminal Justice Act 2010?”
However, the Central Bank expects that PR20 should be allocated to the most senior individual, with appropriate authority and responsible for such matters within the governance structures of the firm. The Central Bank also noted that it would be prudent for firms that are not obligated under the Criminal Justice Act 2010 to have an AML / CFT control function, to assess the applicable risk exposure and assign PR20 to the most appropriate person. The assigned person should consider the PR20 responsibilities and record whether an AML / CFT framework is required and the reasoning for this decision (Question 2.2 refers).
- The Central Bank envisages that PR34 (Where the firm has established a specific steering committee to address regulatory matters, responsibility for managing the operation of the committee and for providing comprehensive and timely reporting to senior management and to the board) applies in relation to specific, non-standard regulatory events (such as implementation projects or specific regulatory engagement initiatives) and should be allocated to the most senior individual, with the appropriate authority, responsible for such matters. It also confirmed that, other than the limited circumstances specified in the Guidance, PRs cannot be shared (Question 2.3 refers).
This document should be read in conjunction with pre-existing legislation, regulations and guidance, including, but limited to, the Central Bank Acts, the IAF Guidance, the Fitness and Probity Standards 2023 and the Guidance on Fitness and Probity Standards 2023.
For more detail on Conduct Standards and SEAR please do not hesitate to contact any member of our dedicated IAF team.