Update for Funds and Fund Management Companies: Central Bank publishes Feedback Statement on CP153
The Central Bank of Ireland (the Central Bank) has today (16 November 2023) published a Feedback Statement (the Feedback) in respect of its Consultation Paper 153 – Enhanced governance, performance and accountability in financial services (CP153). The Feedback provides important clarification on the application of the Individual Accountability Framework (IAF) regime to (Independent) Non-Executive Directors ((I)NEDs) following on from the Central Bank’s comments at its Financial System Conference last week.
The Central Bank noted that respondents to the consultation were broadly supportive of the IAF and the core objectives of achieving better outcomes for consumers and users of financial services and the functioning of the economy. The Feedback includes a number of changes and clarifications in respect of the original proposals, the key points of which we have outlined below.
In conjunction with the Feedback, the Central Bank also issued draft Regulations and final Guidance to firms on the IAF. The Guidance provides clarity regarding the Central Bank’s expectations for the implementation of three aspects of the framework: the Senior Executive Accountability Framework (SEAR), the Conduct Standards and enhancements to the Fitness & Probity (F&P) regime. The Central Bank has retained the substance of the Guidance on the IAF as drafted in March 2023. Suggested technical updates to language were considered and the draft Regulations and Guidance have been amended to provide clarity where deemed appropriate.
- In the Feedback, the Central Bank addressed the application to (I)NEDs. It confirms a deferral of the introduction of the SEAR for (I)NEDs until 1 July 2025, to enable both the Central Bank and regulated firms to learn from the introduction of the new framework to executives in the first instance. The Central Bank confirmed that other parts of the IAF, including the Common Conduct Standards and Additional Conduct Standards, will apply to (I)NEDs as to other Controlled Functions (CFs) and Pre-Approval Controlled Functions (PCFs) respectively from 29 December 2023.
- Another clarification relates to reporting of disciplinary actions in respect of a breach of the Conduct Standards. Taking the existing and other new reporting obligations into account and given the nature of the responses received, the Central Bank has removed the obligation for a firm to report to the Central Bank where formal disciplinary action has been taken against an individual in respect of a breach of the Conduct Standards.
- In order to address issues raised on the potentially onerous nature of the new certification requirement, and to align with the approach adopted under the F&P regime, the Central Bank has amended the Guidance to limit the scope of the enhanced due diligence aspect of the certification requirement to PCFs, CF1s and CF2s and to facilitate self-certification in respect of CF3 – CF11.
- The Feedback confirms that proposed changes to the F&P regime – certification and inclusion of holding companies – will also apply from 29 December 2023. The supporting Regulations for the implementation of the F&P Regime are timed to coincide with the date on which the primary law comes into effect.
In relation to the Business Standards, the IAF Act provides the Central Bank with regulation-making power to prescribe such standards. These standards are currently set out in the Consumer Protection Code and are currently being reviewed and updated. The Feedback confirms that the Business Standards will not be effective until the revised Consumer Protection Code is being implemented.
Firms should continue to work on implementing the IAF requirements, including Conduct Standards training, in advance of 29 December 2023. To discuss any aspect of the Feedback further, please get in touch with your usual Arthur Cox contact.