The Individual Accountability Framework (IAF) commenced on 29 December 2023 introduced four key elements:
1. The Senior Executive Accountability Regime (SEAR): SEAR applied from 1 July 2024 to all in-scope firms (credit institutions, investment firms, insurance firms and 3rd country branches thereof). It imposed a statutory Duty of Responsibility on those in Pre-Approval Controlled Functions (PCFs) to ensure that senior executives took reasonable steps to meet their responsibilities within the firm. This was demonstrated through PCF Statements of Responsibility (SoRs) and a firm's Management Responsibility Map (MRM). Other documents such as those that evidence the reasonable steps of PCFs or delegation matrices showing how responsibilities are delegated within the firm, were also required. Non-executive and independent non-executive directors ((I)NEDs) are out of scope of SEAR until 1 July 2025.
2. Conduct Standards: The Common Conduct Standards were introduced and apply to all those in Controlled Functions (CFs) (including PCFs as this is a subset of the Controlled Functions). Additional Conduct Standards were also introduced and apply only to those in PCF roles and those in CF1 roles (persons that may exercise a significant influence on the firm's affairs). Unlike SEAR the Conduct Standards apply to all regulated firms regardless of sector. Firms are required to incorporate the Conduct Standards in their internal policy documentation and provide training on them.
3. Enhancements to the Fitness & Probity (F&P) Regime: Firms are now required to proactively certify that those in CF and PCF roles meet the Central Bank's F&P standards.
4. Enhancements to the Administrative Sanctions Procedure (ASP): The Central Bank (CBI) now has the ability to take enforcement action directly against those that may breach their Duty of Responsibility or those that may fall short of the Conduct Standards.
All in-scope firms of SEAR were legally obliged to implement elements 1-3 above. This was not an insignificant undertaking. Many firms will have had complex group structures with employees in distant jurisdictions being informed that they were now subject to Conduct Standards in a country they may never have even visited! In those same firms, PCF mapping to the relevant inherent, prescribed and other responsibilities will have proved challenging. Drafting SoRs that clearly define a PCF's remit of responsibility and for the said PCF to agree, is no small ask. Moreover, setting up a first-time MRM for large group structures will have been a difficult and complex task.
Therefore, these regulations have placed a much higher regulatory burden on in-scope financial service providers and the senior executives within these firms. The regulations have also bolstered the CBI's ability to take enforcement actions against those who have breached their statutory duty of responsibility or those that may fall short of the required obligations under the Conduct Standards. Such enforcement actions may result in sanctions including monetary or other penalties. It remains to be seen how the CBI will deploy its enforcement powers to enforce the provisions of IAF/SEAR.
It is anticipated that in due course the CBI will require in-scope firms to demonstrate that they meet all their legal obligations under IAF/SEAR and this is likely to happen sooner rather than later before SEAR is extended to other regulated entities within the financial services sector.
