Cian O'Gorman
Associate | Legal
Ireland
Associate
Ireland
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Insight
27 May 2024
3 min read
ON THIS PAGE
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The Central Bank (Individual Accountability Framework) Act 2023 (IAF) was signed into law on 9 March 2023. The IAF was introduced to enhance individual responsibility in regulated financial services providers. It has established the Senior Executive Accountability Regime (SEAR), which sets out clear responsibilities for senior management decision-making.
The IAF also introduces common and additional conduct standards for certain individuals and senior executives in regulated firms. Furthermore, it enhances the Fitness & Probity (F&P) Regime, obligating firms to certify individuals in specified roles as "fit and proper".
A number of Statutory Instruments were enacted which give effect to certain Regulations in the IAF, summarised as follows:-
The key future deadlines for compliance with IAF and SEAR which in-scope regulated financial services providers need to be aware of are as follows:-
The IAF increases the personal risk for individuals in significant positions within regulated companies, including directors and those in the role of PCF and CF. The SEAR regulations introduce comprehensive duties for various positions within companies. These responsibilities cover prevalent areas including anti-money laundering compliance and financial risks associated with climate change. These regulations extend specific duties to company branches in third countries, ensuring adherence to the regulatory framework.
The increased risks for specific individuals highlights the critical need for Directors and Officers (D&O) insurance and corporate indemnities as safeguards. D&O insurance provides cover to individuals with managerial responsibilities from legal and other costs resulting from potential litigation Given the complexity of risks, it is essential for companies and insured individuals to verify that their D&O insurance policies are appropriately designed to encompass SEAR investigations and penalties.
Directors should take several steps to ensure compliance with the IAF to include:
There is a real risk that the implementation of the IAF Act may impact in-scope firms' D&O insurance by introducing additional risk. Therefore, care must be taken to that the "insured person" definition covers all individuals within the SEAR regime and that the policy provides adequate coverage for SEAR investigations and sanctions.
The following are examples of the types of claims that in-scope firms may see arising from the duties imposed by IAF and SEAR:-
The recent publicity surrounding Start Mortgages' change in its insurance coverage in which it faced criticism from the Irish Independent and subsequently changed its position in relation to its retaining of professional indemnity insurance, acts as a cautionary tale. This emphasised the ongoing need for robust professional indemnity and D&O insurance coverage and concomitant risk of public scrutiny, against the backdrop of regulatory scrutiny and potential legal challenges. It underscores the importance of maintaining adequate insurance coverage as a means of ensuring that customers and clients have legal recourse, while also protecting the interests and personal assets of those in managerial and decision-making roles.
The IAF, together with the SEAR regulations are not merely a regulatory update but a shift towards greater accountability and governance within the financial sector. It necessitates a proactive approach from regulated, in-scope firms to ensure compliance, necessitating a thorough review and potentially significant adjustments to D&O insurance policies.
This initiative, although challenging, serves to foster a culture of high-quality governance, judgment, and decision-making within firms, contributing to the overall stability and integrity of the financial system in Ireland. For more information please contact a member of our team via their contact details below.
Cian O'Gorman
Associate | Legal
Ireland
Associate
Ireland
Contact Cian
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Stephen O'Connor
Partner | Legal
Ireland
Partner
Ireland
Contact Stephen
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Rachel Devlin
Associate | Legal
Ireland
Associate
Ireland
Contact Rachel
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Eoin McAuley
Trainee Solicitor | Legal
Ireland
Trainee Solicitor
Ireland
Contact Eoin
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Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.
This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.
Regulatory information can be found under Legal Notice
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