Central Bank clarifies application of Irish Individual Accountability Framework

The clarification covers both the conduct standards and the senior executive accountability regime (SEAR) under the IAF (146 pages /1.5 MB), and has been published in the form of a frequently-asked-questions (FAQs) document.

Lisa Carty, financial services expert at Pinsent Masons, described the FAQs document as “short but practical guidance” and said that it provides “helpful clarification for firms as to how the Central Bank expects the IAF to be applied in practice”.

The Central Bank confirmed that controlled function holders (CFs) from incoming EEA branches providing services on a freedom of services basis will be subject to the conduct standards. CFs are individuals who perform specific roles within financial institutions. It also clarified that it is not anticipated that individuals in group entities will ordinarily exercise significant influence on the conduct of a subsidiary or regulated firm’s affairs, and so they are not subject to the conduct standards in the normal course. However, if such an individual can effectively exercise significant influence on key aspects of the regulated firm’s business, then they will be subject to the conduct standards. The document also made it clear that firms cannot outsource their responsibility for providing training on the conduct standards.

The Central Bank recently signed the SEAR regulations (20 pages / 173 KB) into law, and published the final guidance for implementation of the IAF.  Under the SEAR regulations, firms are required to allocate prescribed and inherent responsibilities to individuals in pre-approval controlled function roles (PCFs) – including chief executives and directors.

In its FAQs, the Central Bank indicated that while it will not be prescriptive regarding the allocation of prescribed responsibilities to senior executive roles on the PCF list, it may publish sector specific guidance for regulated firms. “This provides firms the flexibility to allocate responsibilities in a manner that accommodates different business models and organisational structures,” the Central Bank said in its response.

It was also confirmed that regulated firms are not required to appoint a head of anti-money laundering and counter terrorist financing (AML/CTF) compliance, known as a PCF52 role, where this is not appropriate for the firm. However, in the absence of a PCF52, firms should allocate the prescribed responsibility PR20 of allocating the management of the AML/CTF compliance function to the most senior individual with the appropriate authority who is responsible for these matters. Firms must allocate such responsibility even where the firm is not a “designated person” for the purposes of the Criminal Justice Act 2010.

Lastly, the Central Bank provided more information on the application of responsibilities known as PR34 within SEAR, which involve managing the operation of a steering committee and providing comprehensive and timely reporting to senior management and to the board of directors. It is now clear that this function is intended to apply to specific, non- standard regulatory events, such as implementation projects or specific actions required by the firm following engagement with the Central Bank.

The application of SEAR to most senior executives at in-scope regulated firms started on 1 July 2024, and it will become applicable to non-executive directors on 1 July 2025.