MINISTER FOR FINANCE Paschal Donohoe has said he hopes that a new legal accountability regime for top bankers and executives at regulated firms will be fully implemented within the next 12 to 18 months.

The Fine Gael TD today announced the details of the Central Bank Individual Accountability Framework Bill, which will give the Central Bank of Ireland more powers to target individuals at regulated firms for wrongdoing.

Under the current administrative sanctions scheme, the regulator can only investigate and sanction individual executives and employees once it has proved that the company itself has broken the rules.

Today, Minister Donohoe announced the Bill would break this link by introducing a Senior Executive Accountability Regime (SEAR).

SEAR would force regulated firms to produce a statement of responsibility for each person working there, allowing the Central Bank to easily identify who is in charge when an issue arises in a particular area of the business.

Minister Donohoe said today that SEAR will apply to those in management roles such as chief operating officers, chief executives, members of the board and members of a partnership.

Firms in scope for this legislation will include credit institutions such as banks, insurance firms and investment firms.

Credit unions and certain aspects of the insurance industry including Insurance Special Purpose Vehicles will be excluded from the new regime, Donohoe said.

The Bill will also set down new standards of conduct for executives and tighten Central Bank’s fitness and probity regime.

Donohoe said he expects pre-legislative scrutiny of the Bill to take between four and six months followed by a four to six-month legislative process.

“So I would therefore hope that we will be able to position that we will this enacted and passed by the Dáil at latest in the second half of next year, and then we’ll have some time then for the Central Bank to begin enforcing it,” Donohoe said.

Altogether, he said hoped to have the new regime fully implemented within 12 to 18 months.

Commenting on the announcement, Brian Hayes, Chief Executive of the Banking and Payments Federation of Ireland said the lobby group and its member banks “fully support” the legislation.

“In fully supporting the development of an individual accountability framework, and, in the interests of delivering a fully effective SEAR, we believe that as the framework evolves, it should be proportionate and should neither hinder the attraction of talent to the sector nor impact in a negative way on mobility and diversity within banks,” Hayes said.

“Sufficient time for its implementation will be required, ensuring clarification around executive versus non-executive roles and the provision of clear guidance on the structure and responsibilities for individuals.

“BPFI looks forward to engaging with all stakeholders to ensure that the new framework works well in practice and can be effectively implemented.”

Greater obligations

SEAR was first mooted by the Central Bank in 2018 in a report on behaviour and culture in the financial services sector in the wake of the tracker mortgage scandal.

In the report, the regulator made the case for placing greater obligations on senior individuals to set out clearly where responsibility for decision-making lies within the business.

The Government of the time committed to implementing SEAR, modelled on the UK version, which was introduced in 2016.

But the legislation was held up in Cabinet until the Davy Stockbrokers scandal in March,  which put the issue of executive accountability back on the agenda.

After handing the firm a record €4.1 million fine on foot of a long-running investigation into a 2014 sale of Anglo Irish Bank bonds, Central Bank officials made it clear that regulators need an expanded toolkit to be more effective.  

In March, Derville Rowland, director general of financial conduct at the Central Bank, told the Oireachtas Finance Committee the legal framework “requires further strengthening with regard to individual accountability”.

At the time, Professor Blanaid Clarke, McCann Fitzgerald Chair of Corporate Law at Trinity College Dublin, told The Journal that under the current system, the Central Bank has to “prove the wrongdoing of the firm before you can look to the individuals.

“What [The Central Bank] has proposed is breaking that link and the effective way of breaking it would be SEAR.”