Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I will now speak about the general scheme of the Central Bank (Individual Accountability Framework) Bill 2021, which was published in July and is currently being drafted. This Bill seeks to ensure greater levels of accountability, leading to better outcomes across the financial sector, and to provide financial institutions with the tools to address meaningful cultural change. The Bill provides for four main aspects along with the necessary technical changes to the existing legal process. All of these make up the individual accountability framework.

First, a key element of the legislation is the senior executive accountability regime, SEAR. SEAR will place obligations on firms and senior individuals within them to set out clearly where responsibility in decision-making lies, prescribe mandatory responsibility for firms which must be allocated to individuals carrying out senior roles to ensure accountability for all key conduct and prudential risk, and impose a duty of responsibility on each person in a senior role to take reasonable steps to avoid the firm committing or continuing to commit a prescribed contravention in respect of the area of the business for which he or she is individually responsible. Absolute clarity about who is responsible for what should foster a greater culture of personal responsibility. The Bill will set three sets of conduct standards: common conduct standards to apply to all staff in controlled function roles, junior and senior; additional conduct standards to apply to those in senior roles; and standards for businesses to apply to all firms.

These standards will require those to whom they apply to act with honesty, integrity and due skill, co-operate with the Central Bank, and pay due regard to the interests of customers and treat them fairly.

The legislation will also provide enhancements to the fitness and probity regime to improve the processes by which individuals are assessed for their suitability for financial services roles and investigated where there are reasons to doubt their suitability. The provisions in the Bill for breaking of the participation link will ensure an individual can be held accountable for his or her actions without the need to prove a contravention by a firm in which that individual participated. The introduction of individual accountability does not mean firms will no longer be held accountable for their actions with all responsibility shifted onto individuals. Instead, the responsibilities of firms and of individuals will operate side by side and complement each other. This is to avoid the danger of scapegoating individuals and to ensure that responsibility and accountability are properly and fairly apportioned.

The conduct standards for business underline the expectation that firms operate honestly and ethically in the best interests of their customers. However, participation in wrongdoing by a firm will continue to be a prescribed contravention. For example, where a firm engages in wrongdoing, the firm will be held accountable and the individuals who participate in that wrongdoing by the firm will also be held accountable. The duty of responsibility that will apply to senior executives under SEAR is a duty to ensure that in those areas of the business for which they are responsible, their firm complies with financial services legislation. Failure to keep their firm honest will be something for which senior executives can be held accountable alongside any wrongdoing for which they are personally responsible.

The harm done by reckless and dishonest behaviour in the financial services industry earlier this century has been enormous. Many people suffered terribly as a result and still live with the consequences. I am mindful, in particular, of those who lost their homes in the tracker mortgage scandal. Against that background, it is understandable that people would be angry and focused on the need to punish those responsible. This legislation will ensure that should similar wrongdoing occur in the future, it can and will be punished appropriately.

The objective of this legislation, however, goes far beyond this. This legislation is intended to underpin a thorough transformation of the culture in the financial services industry. With individual accountability, those working in the financial sector are likely to consider the implications of taking actions for which they can be found personally responsible with all the consequences that this involves. This should engender a shift to more responsible practices. Clearly, if a matter such as the tracker mortgage scandal were to occur in the future, it would be essential to ensure that those responsible could be held accountable but it would be far better to ensure that it does not happen again.

In conclusion, this legislation seeks to engender individual accountability to improve practices and culture within financial institutions while at the same time extending the sanctioning process.