"The fall in the numbers that believe the rules will bring about significant positive change is concerning”
There is growing concern that new governance rules giving the Central Bank new powers to hold individuals accountable for wilful wrongdoing in the financial sector will stymie the recruitment of senior executives in the field, with nine in ten firms in the sector saying they believe the new rules will make it difficult for firms to hire individuals into particular senior roles.
This is according to the findings of the third instalment of the Individual Accountability Framework (IAF) Awareness and Readiness survey[1] from the Compliance Institute and Mazars. The results of the survey will be presented at the Compliance Institute Annual Conference to be held tomorrow Tuesday, November 14th at the Aviva Stadium, at which Minister Paschal Donohoe - Minister for Public Expenditure, National Development Plan Delivery and Reform, and President of the Eurogroup and Sharon Donnery, Deputy Governor, Financial Regulation, Central Bank of Ireland are keynote speakers amongst others.
(See Appendix 1)
The new rules being rolled out by the Central Bank were signed into law earlier this year and will come into force on a phased basis over the next few months. The new rules are expected to underpin sound governance across the financial sector.
The research by Compliance Institute and Mazars examined the growing readiness, or otherwise, of financial services firms based on an analysis and comparison of the latest findings with those of previous surveys undertaken 12 and 18 months ago.
Highlights from the survey include:
- A growing number of survey respondents (90pc in 2023 vs 84pc in Nov 2022) noted that they believe the IAF rules will make it more difficult to recruit individuals into Preapproved Controlled Functions (PCFs) roles in the future[2].
- More than nine in ten (93pc) of respondents believe the IAF will result in increased personal risk for individuals appointed as PCFs – up from 86pc in November 2022 and 82pc in March 2022.
Michael Kavanagh, CEO of the Compliance Institute observed,
“During 2023, significant progress has been made in the formalising of the IAF requirements (See Appendix 2). While the new rules will give individuals working in financial services better guidance around what they are responsible for and should underpin sound governance across the financial services sector which ultimately, consumers should benefit from, it is understandable that there is concern about the impact of this huge and complex piece of regulation.
The new rules will clearly set out the good practices expected of regulated firms and the senior individuals running these firms. The Central Bank will also have more powers to hold individuals in key roles, such as PCFs, to account. While the legislation will drive positive changes to the wider banking culture, it is important that a balance is struck and that employees, regardless of seniority, are entitled to the same level of protection as consumers”.
Are they ready?
The Compliance Institute and Mazars research found that over the last 12 months, firms have made significant progress in their preparations for implementing the IAF requirements with almost twice as many firms as last year having now developed an approved IAF implementation plan (50pc for 2023 versus 28pc for 2022).
Mr Kavanagh added:
“Given that the IAF regulations were signed into law earlier this year and that the latter part of this year has become a crucial period for the financial services sector as it prepares to implement the rules, it is encouraging that significant progress has been made by firms in preparing for the new requirements.”
Other highlights from the Compliance Institute and Mazars survey include:
- Almost nine in ten (89pc) of survey respondents believe that their firm's readiness for IAF has improved when compared to November 2022.
- 82pc of boards of directors have now considered the impact of the IAF in the past 12 months, compared to 70pc in March 2022 and 73pc in November 2022.
- More than seven in ten (72pc) of respondents have reviewed and/ or enhanced their fitness and probity processes compared to 63pc in 2022.
- There was a slight increase in the number of respondents that reviewed and/or enhanced their corporate governance arrangements (51pc for 2023 versus 46pc for 2022).
- Interestingly, there has been a fall in the number of firms who believe the implementation of the IAF will bring about meaningful positive change in culture and behaviours in the financial services industry. Just over one third (34pc) of those surveyed said the IAF rules would bring about “significant change” in this regard this year – down from 50pc in 2022. There was an increase in the number of firms who believe the IAF rules will bring about “minor” change – with 52pc believing this to be the case in 2023, up from 39pc in 2022.
Mr. Kavanagh voiced “concern” over the fall in positive sentiment around the impact of the new rules:
“Could the fall in the numbers who believe the new rules will bring about a significant amount of positive change in the financial services sector be evidence that the industry is somewhat overwhelmed by the various regulations it has had to implement in recent years?
Further evidence that the industry might be somewhat overburdened with new regulations is that there are a few areas where we would have expected firms to have noted an increase in the specific activities undertaken that are crucial to an effective IAF implementation. For example, just over four in ten (41pc) of respondents have prepared an initial management responsibilities map this year – a slight fall on 2022 (42pc). Furthermore, only 24pc of respondents noted they have reviewed and enhanced their performance management processes this year – while a slight improvement on November 2022 (19pc), this still a very low figure.
However, we realise this a lengthy and complex piece of legislation which will take time for firms to implement and we believe our survey does show that the financial services sector is heading in the right direction in this regard.”
Appendix 1
Compliance Institute Annual Conference - Empowering Accountability (Hybrid)
Compliance Institute’s Annual Conference on November 14th, which will include the following keynote speakers discussing a range of topics including the new Individual Accountability Framework (IAF), ethics, fintech, Artificial Intelligence (AI), sustainable finance, financial crime compliance, data protection, and diversity and inclusion:
• Minister Paschal Donohoe - Minister for Public Expenditure, National Development Plan Delivery and Reform, and President of the Eurogroup
• Sharon Donnery, Deputy Governor, Financial Regulation, Central Bank of Ireland
• Tony Cahalan, Head of Anti-Money Laundering Transformation, Central Bank of Ireland
• Seána Cunningham, Director of Enforcement and Anti-money laundering (AML), Central Bank of Ireland
• Cathal Ryan, Deputy Commissioner, Data Protection Commission Ireland
Appendix 2
During 2023, significant progress has been made in the formalising of the IAF requirements, specifically:
• 9 March 2023 - Central Bank (Individual Accountability Framework) Act 2023 (Act) was signed into law.
• 13 March 2023 – The Central Bank of Ireland (CBI) launched a three-month consultation on the implementation of the IAF, including the publication of draft regulation and guidance.
• 22 June 2023 – The CBI launched a 12-week consultation on proposed updates to the Administration Sanctions Procedure.
• As of 9 November 2023, publication of the final IAF regulation and guidance, which Regulated Financial Service Providers (RFSPs or firms) will be required to implement, is awaited.
End of Appendices
