Minister for Finance Paschal Donohoe plans on Tuesday to publish a long-delayed outline of proposed laws to make it easier for the Central Bank to fine and disqualify senior managers in banks, insurers and other financial firms for failings under their watch.
The expected publication of the heads of the Central Bank (Individual Accountability) Bill after a Cabinet meeting comes more than two years after Mr Donohoe secured permission from the last government to press ahead with drafting the shape of legislation – and three years after the Central Bank of Ireland asked for the powers.
A central aim of the planned rules is to do away with a key part of the existing regime, or what is known as the “participation link”, where regulators must first find that a financial firm committed regulatory breaches before they can take individuals to task.
The rules will require firms to set out clearly where responsibility and decision-making lie. They will impose a requirement that senior executives take all reasonable steps to ensure the area of the business for which they are responsible is controlled effectively and complies with any regulatory requirements.
"The Central Bank is increasingly focusing its attention on going after individuals who engage in, or tolerate, misconduct," said Ciaran Walker, a consultant in financial services regulation and governance with law firm Eversheds Sutherland, adding that individual accountability should improve governance and behaviours in financial firms.
“It will focus the minds of individuals at all levels of a regulated firm, from board members and senior management to those in less senior positions, on the risks to them individually, in terms of professional reputation, employment prospects and Central Bank sanctions, of engaging in, facilitating or turning a blind eye to misconduct.”
In June 2018, the Central Bank called for a senior executive accountability regime, similar to one introduced in the UK two years earlier, as it published a scathing report on the culture of banks in the wake of the tracker-mortgage scandal. While Mr Donohoe committed in October 2018 to introducing draft laws in early 2019, the Department of Finance’s subsequent focus on Brexit meant that it would be the following June before he even got Cabinet approval to proceed with drafting the heads of a Bill.
Delay until 2022
A change in government and Covid-19 have further delayed the process. Meanwhile, the department said late last year that its officials were seeking the advice of the Attorney General’s office to make sure the planned regime would not be open to challenge for impinging on individuals’ constitutional rights.
It is unlikely that the new rules will be in place until well into 2022 – four years after the Central Bank called for the new powers. That’s because the regulator aims to put the mechanics of its intended senior executive accountability regime out to public consultation after the Bill is enacted.
The planned legislation will also see the introduction of conduct standards for individuals and firms in the financial sector and enhance the Central Bank’s existing fitness and probity regime that assesses the suitability and standing of senior staff in regulated firms, the Minister has previously said.