Understanding the Individual Accountability Regime in Ireland: A Comprehensive Guide

Understanding the Individual Accountability Regime in Ireland: A Comprehensive Guide

In recent years, the financial crisis has prompted various regulatory bodies worldwide to take a closer look at the conduct of individuals within the financial sector. In Ireland, the Central Bank has introduced the Individual Accountability Regime (IAR) in its quest for ensuring proper behavior within financial institutions. In this article, we will highlight the main components of the IAR, its purpose, implementation plan, and impact on the financial industry in Ireland.

IAR: The Basics

The Individual Accountability Regime (IAR) is a set of measures that the Central Bank of Ireland has introduced to ensure that individuals within the financial sector, who hold high-ranking positions, are held accountable for their actions. The main objective is to promote a culture of responsibility and integrity within the sector, thereby minimizing risks of misconduct.

The regime encompasses principles of conduct, behavioral standards, and provides fallout provision in the event of individuals failing to meet their responsibilities. There are six key elements to the IAR:

1. Senior Executive Accountability Regime (SEAR): This applies to high-ranking individuals in institutions, including the CEO and other senior executives responsible for significant decisions and risk-taking. These top-level executives are expected to ensure that adequate risk management, compliance and supervisory structures and processes are in place, and are held accountable if their actions lead to regulatory breaches.

2. Fitness and Probity Standards: This requires individuals in key controlled functions, such as board members and senior executives, to assess their fitness and probity annually. These assessments are regulatory requirements that assess an individual’s honesty, integrity, and reputation, and take into consideration a person’s previous conduct, criminal convictions, bankruptcy, and disciplinary sanctions.

3. Conduct Standards: This applies to all staff within regulated financial firms and incorporates the core principles of acting with integrity, due care, diligence, and the best interests of the customer.

4. Individual Responsibility Maps (IRMs): This is a mandatory requirement for individuals in senior executive positions. An IRM is a visual representation of an individual’s roles and responsibilities to ensure that all individuals know and understand their areas of responsibility and how their actions could impact the organization.

5. Regulatory References Requirements: This requires all regulated firms to take into consideration the context of previous employment of a prospective employee before recruiting them. It means employers must request relevant references from previous employers before offering a new position.

6. Enhanced Enforcement Framework: This enables the Central Bank to take action against an individual who breaches the IAR and hold them personally accountable. This includes fines, regulatory restrictions, and prohibition orders.

The IAR Implementation Plan

The IAR implementation plan was introduced in two phases. The first phase applied to all credit institutions, insurance companies, and Solvency II regulated insurance companies on December 1, 2018. The second phase applied to all other regulated financial service providers on July 1, 2019.

Since the implementation of the IAR, regulated firms have implemented the new six key elements. Regulated firms are required to submit annual reports to the Central Bank on their compliance with the IAR.

Impact of IAR on the Financial Industry

The IAR has introduced an additional layer of scrutiny in the financial services industry in Ireland, which has increased the focus on individual responsibility. It has impacted senior executives in regulated firms, who now have increased accountability and liability to comply with the new regime. The introduction of IRMs has ensured that senior executives have a clear understanding of their roles and responsibilities. The detailed regulatory references requirement has increased the scrutiny in the recruitment process and eliminated the ‘recycling’ of individuals who previously broke the rules.

Conclusion

The Individual Accountability Regime (IAR) by the Central Bank of Ireland aims to promote a culture of responsibility and ethical behavior within the regulated financial services sector. With six key principles, including the senior executive accountability regime, fitness and probity standards, enhanced enforcement framework, amongst others, it ensures that every senior executive and controlled function employee is accountable for their actions. The implementation of the regime in two phases, with reporting requirements, has placed an additional layer of scrutiny on regulated firms. The IAR has created greater individual accountability and transparency in the financial industry in Ireland and has been received positively as a move towards greater accountability and transparency.