The Senior Executive Accountability Regime – Is your firm ready to comply from 1 July 2024?

29th May 2024

The Senior Executive Accountability Regime (“SEAR”) comes into force in July 2024. The aim of SEAR is to ensure clearer accountability by imposing obligations on firms to set out clearly who is responsible for specific functions within the firm. 

SEAR will initially apply to credit institutions, certain insurance undertakings (excluding reinsurance undertakings, captive (re)insurance undertakings and Insurance SPVs), investment firms which underwrite on a firm commitment basis and/or deal on own account and/or are authorised to hold client assets, incoming third country branches. It is anticipated that the CBI will apply SEAR to other sectors in due course, similar to what has been done in the UK with the Senior Managers and Certification Regime. 

Individual Accountability Framework Act 

The Central Bank (Individual Accountability Framework) Act 2023 (the “IAF Act”) signed into law on 9 March 2023 confers powers on the Central Bank of Ireland (“CBI”) to strengthen and enhance individual accountability in the financial services industry by providing for the allocation of responsibility and accountability for the management and operation of in-scope firms to individuals while maintaining a balance with the responsibilities that properly belong to the firms themselves. The IAF Act partially commenced on 19 April 2023 with the final provisions being commenced on 29 December 2023.  

To hold individuals accountable for their actions, the IAF Act intends to break the existing “participation link” which requires wrongdoing by a firm to be demonstrated before enforcement action can be taken against those persons involved in the management of the firm who participated in that wrongdoing. A new “duty of responsibility” will oblige senior executives to take reasonable steps to ensure that the firm does not breach its obligations under financial services legislation.  

 The Individual Accountability Framework (IAF) is made up of four crucial pillars:  

  • Senior Executive Accountability Regime (“SEAR”): This will require in-scope firms to set out clearly and fully where responsibility and decision-making lie within the firm’s senior management. 

 

  • Conduct Standards: These include the Common Conduct Standards, which are a set of expected standards of conduct which apply to certain individuals in all regulated firms, and the Additional Conduct Standards which apply to senior executives in all regulated firms, which applied from 29 December 2023. 

 

  • Enhancements to the current Fitness & Probity (“F&P”) Regime: The enhancement will include clarifying firms’ obligations to proactively certify that individuals carrying out certain specified functions are fit and proper. 

 

  • Amendments to the Administrative Sanctions Procedure (“ASP”): A key change will be the CBI’s ability to take enforcement action under the ASP directly against individuals for breaches of their obligations rather than only for their participation in breaches committed by a firm. 

The Senior Executive Accountability Regime  

SEAR is a key element of the IAF. SEAR will apply from 1 July 2024. 

In April 2024, the CBI published the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Senior Executive Accountability Regime)) Regulations 2024 (the “SEAR Regulations”). It has also published the final Guidance on the IAF (the “Guidance”). It is expected that the CBI will also shortly issue Frequently Asked Questions concerning the IAF and a system “How To” Guide for submitting IAF documentation. 

SEAR mandates that firms clearly define and allocate specific responsibilities and decision-making powers to various roles within in-scope firms. SEAR provides different classifications of responsibilities set out below.   

Inherent and Prescribed Responsibilities of Pre-Approval Controlled Functions 

Inherent Responsibilities:

  • Each Pre-Approval Controlled Function (“PCF”) role has core responsibilities intrinsic to that specific PCF role. The PCF role holder is deemed responsible for the Inherent Responsibilities associated with the PCF Role by virtue of occupying that role.  

 

Prescribed Responsibilities:

  • Unlike the Inherent Responsibilities, the Prescribed Responsibilities are those which an in-scope firm must allocate to an individual in a PCF role. These mandatory responsibilities, which include the management and oversight of key risks, ensure that each responsibility is allocated to an individual in a PCF role, providing clarity on who is responsible for key activities of the firm. The responsibilities prescribed by the CBI for individuals in PCF roles at in-scope firms are listed as either general Prescribed Responsibilities or ‘Sector or Circumstance Specific Responsibilities’ in Appendix 2 of the Guidance 

 

Other Responsibilities:

  • These are, for example, any functions, business areas, or projects that are not captured under the Inherent and Prescribed Responsibilities outlined above. It is the firm’s responsibility to determine what the Other Responsibilities are and allocate them to an individual in a PCF role at an in-scope form.  

By imposing the above, the SEAR Regulations ensure a new statutory duty of responsibility applies to all individuals in PCF roles at in-scope firms. This duty of responsibility requires individuals to take reasonable steps to avoid contravention of financial services legislation in the areas they are responsible for under SEAR.  

Pre-approval controlled functions are a sub-set of controlled functions (“CFs”) which by the nature of the role require the pre-approval of the CBI. Accordingly, persons performing PCF roles at in scope firms must be pre-approved by the CBI before taking up that role. A list of PCF roles is listed in Appendix 1 of the Guidance 

An in-scope firm seeking approval for an individual to perform a PCF role will be required to submit a Statement of Responsibilities with Individual Questionnaire (“IQ”).  

Personal responsibilities for Directors and INEDs from July 2024 and January 2025:

Although Non-Executive Directors (“NEDs”) and Independent Non-Executive Directors (“INEDs”) do not manage a firm’s business in an executive capacity, they play a vital role in the oversight of firms as reflected in the relevant corporate governance rules and requirements. As such, all NEDs and INEDs at in-scope firms are included within the scope of SEAR due to the significance of their roles in governance, oversight and challenge. It must also be highlighted that NEDs and INEDs are not expected to assume executive responsibilities and considerations in respect of reasonable steps will be limited to what should reasonably be expected of individuals in that context. 

Statement of Responsibilities  

Under the SEAR Regulations, a documented Statement of Responsibilities must be prepared for each individual in a PCF role. The aim of the Statement of Responsibilities is to promote clarity and transparency of individual responsibilities to both firms and the CBI. The CBI suggests that the Statement of Responsibilities should be utilised to embed an effective governance framework. 

The Statement of Responsibilities shall clearly set out the role and indicate the Inherent Responsibilities of the role, as well as any Prescribed Responsibilities and Other Responsibilities that have been allocated to the individual.  

The CBI does not require the Statement of Responsibilities to be submitted for current PCF role holders. However, for new PCF role holders, an approved Statement of Responsibilities must be submitted to the CBI along with the Individual Questionnaire when seeking approval for a PCF role. The Statement of Responsibilities must be made available to the CBI upon request.  

The Statements of Responsibilities (“SoR”) must be kept up-to-date and include the date, version control and signature of the PCF role holder. The SoR shall be reviewed on a regular basis by firms. The SoR is required to be approved on initial implementation and when it is updated. 

It is important to bear in mind that all in-scope firms must ensure that each non-executive director (“NED”) and, from 1 July 2025, each independent non-executive director (“INED”) has a Statement of Responsibilities. Where a NED or INED does not have an additional governance role, their responsibilities may be limited to those inherent in the role. The Statement of Responsibilities should list all additional non-executive responsibilities that have been allocated to NEDs and INEDs. 

Management Responsibilities Map 

In-scope firms are required to prepare and maintain a Management Responsibilities Map (“MRM”). The MRM shall be approved internally and kept up-to-date.  

Where a firm is seeking authorisation from the CBI, it will be required to prepare and submit an MRM which will be reviewed as part of an application for authorisation. 

The CBI will review MRMs as part of its ongoing supervision rather than set periodic reporting requirements. The CBI will require firms to submit MRMs from time to time. The timing and frequency of such requests will vary in line with the CBI’s supervisory engagement model and supervisory strategy. MRMs must be made available to the CBI on request. 

In the Guidance, the CBI outlines in detail the information that should be included in the MRM. The Guidance also includes key questions for consideration by firms in compiling their MRM. 

 Timeline 

How can Zeidler help?  

If you have any questions or require support, the Zeidler Legal Team is here to help. Our global team of professionals remains up to date on the latest legal, regulatory and compliance changes affecting the asset management industry.  If you require additional information or assistance, please get in touch with us. 

Co-Author

Patricia Nitschke

Co-Author

Sabir Musthafa

Co-Author

Daniel O'Leary