The publication of the CBI’s consultation response statement and finalised IAF guidance have been welcomed. It was broadly agreed that the implementation of the IAF would provide clarity of responsibilities, which would underpin sound governance across the financial sector, enhance the culture of accountability in firms, and bring clarity to individuals in respect of the standards of conduct they would be expected to meet.
A review of the IAF will take place three years after implementation. This three-year review will provide an opportunity to assess the functioning of the framework, how the benefits and costs are being realised in practice, and whether any changes should be introduced. During this period, it will be important to maintain ongoing two-way engagement on the implementation experience.
It is important that the implementation of this framework is not approached as an exercise only to achieve seeming compliance, but rather that it is internalised throughout firms’ culture, approach and practices to ensure its successful and sustainable adoption.
Deputy Governor Derville Rowland: “This is about setting high standards in governance in firms. Main aim is that consumers and investors will be better protected. It should translate into better outcomes”.
- Conduct Standards to apply from 29 December 2023;
- The F&P Regime – Certification and inclusion of Holding Companies to apply from 29 December 2023; and
- Regulations prescribing responsibilities of different roles and requirements on firms to clearly set out allocation of those responsibilities and decision making to apply to in-scope firms from 1 July 2024.
Welcome that the final guidance has arrived. The introduction of the IAF is a positive development, and it will provide clarity of responsibilities, which will underpin sound governance across the financial sector. This should enhance the culture of accountability in firms, and bringing clarity to individuals in respect of the standards of conduct they are expected to meet.
The practical impact of implementing the IAF has been recognized by the Central Bank, and it has listened to public feedback, as reflected in the deferred timing of certain elements, not least in the deferral of the application of SEAR on (I) NEDs.
Practical implementation will require patience and understanding from both industry and the Central Bank of Ireland. Regulated providers in Ireland comprise a variety of business models, in nature scale and complexity. The practical application of the principles of “proportionality and predictability” in particular by the Central Bank will be critical.
Many firms have invested a lot of time already in preparing, and this will serve them well in implementation. It is imperative that firms keep focused and continue implementation and embedding, not least ensuring all impacted staff are trained, informed and understand what IAF means.
With our deep and unrivalled experience in supporting firms across all sectors, Grant Thornton is perfectly positioned as the practical strategic partner of choice to support organisations in the implementation of IAF.
- The framework seeks to align with the way that firms have chosen to structure themselves, while ensuring that such structures have appropriate levels of governance and clarity. Proportionality also demands that the application of the framework to smaller, less complex and/or less risky firms reflects that context.
- SEAR delayed on INEDs and NEDs until July 2025. Other elements of IAF (Conduct Standards and F&P) will apply from December 2023.
- SEAR and Outgoing Branches: Confirmed that SEAR will only apply to certain outgoing branches. A threshold of materiality will be introduced in the coming weeks (no dates) and the SEAR Regulations will be amended accordingly.
- SEAR Responsibilities: Reduction in the number and language refined for greater clarity in some remaining responsibilities:
- Certain Prescribed Responsibilities have been removed and others have been merged or moved from the General list of Prescribed Responsibilities to the Sector or Circumstance Specific list of Prescribed Responsibilities.
- Editorial changes have been made to certain Inherent Responsibilities and Prescribed Responsibilities where respondents raised issues with specific wording.
- Specific Responsibilities introduced for 3rd country branches.
- Statements of Responsibilities to be signed by PCF role-holder and approved. CBI not prescribing who should approve – should align with how firm seeks to structure itself in terms of governance.
- Sharing/Splitting of Roles: Sharing of roles may be permitted in very limited circumstances – Only the following PCF roles potentially could be shared based on the business line:
- PCF-18 Head of Underwriting taking into consideration retail and corporate business lines;
- PCF-19 Head of Investment (applicable to insurance undertakings); and
- PCF-29 Head of Trading and PCF-30 Chief Investment Officer (applicable to investment firms) taking into consideration different investment types i.e. equity and bonds.
- Certification: Scope of the enhanced due diligence aspect of the certification requirement limited to PCFs, CF1s and CF2s and to facilitate self-certification in respect of CF3 – CF11. This is a significant shift in process. In addition, firms now have until 1 January 2025 to report confirmation that all CFs are certified. This is a shift in the deadline for firms, as draft regulations had required firms to submit by end February 2024.
- To reduce administrative burden, enhanced due diligence requirements will only apply to PCFs, CF1s and CF2s – self-certification will continue for CF3-CF11.
- First round of certification will relate to the calendar year 2024 and confirmation submission will be expected in 2025.
- New PCF roles – for those in-situ/already performing role, IQ submission will not be required.
- Disciplinary Actions: CBI has removed the additional obligation for a firm to report to the Central Bank where formal disciplinary action has been concluded against an individual in respect of a breach of the Conduct Standards.
- Supervision Approach: CBI will limit the extent of mandatory periodic reporting under the framework to the Central Bank. We will require instead that firms take responsibility for relevant documentation and make it available to us on request. Further, in line with feedback received, we have made amendments to minimise the administrative burden.
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