The SEAR Is Here
In recent years, the Central Bank of Ireland (‘CBI’), has placed a greater focus on governance and cultural behaviour within the financial services industry. The proposal of new legislation, the Senior Executive Accountability Regime (‘SEAR’), is part of the CBI (Amendment) Bill, 2019. A draft bill is expected in December 2019, followed by a consultation process by the CBI in 2020, after the planned legislation is enacted.
Firstly, let us give you a high-level overview of what SEAR is. SEAR applies to certain individuals, such as those at senior executive and board level, who are ultimately responsible for the oversight and management of a firm. In more context, they will be held accountable for any form of misconduct allowing the CBI to immediately identify the person held accountable instead of the firm. This places an urgent need for a revised structure of clearer responsibilities and how functions are assigned. Due to increased transparency, decision making is ultimately affected by the board and executive committees and understandably, senior executives cannot afford the risk of being held personally accountable/sanctioned for any wrongdoing in their area of responsibility. If there is a slip up by a senior individual, it impacts their reputation and entire financial services career.
To avoid this, some of the drafted requirements of SEAR have been introduced to support executives and promote a proactive management style to address hotspots and prevent issues before they occur.
Elements of SEAR
· Mandatory Responsibilities and Comprehensive Statements of Responsibilities — Derville Rowland, Director General, Financial Conduct, CBI, suggests that senior executives submit a statement of responsibilities making clear the duties for which they are accountable. This will make it harder for individuals to argue that their role lay elsewhere if any wrongdoing.
· Responsibility Maps — Documenting key management and governance arrangements, ensuring that those in senior positions are complying with the Fitness and Probity Regime (‘F&P’.)
The Existing Regime: Fitness & Probity (F&P)
Those of you who work within the financial services industry, will be very much aware of F&P and what it entails. For those who don’t, it was implemented in 2010 as part of the CBI’s regulatory focus placing emphasis on persons in senior positions setting a high standard for their behaviour and to act none other than with honesty, care and diligence in the conduct of their business as well as ensuring that employees are fit and proper to carry out their role. SEAR will ultimately compliment the F&P regime.
Increasing individual accountability was born out of regulators, such as the CBI, finding it difficult to identify who was driving decision making within firms in which they regulate and supervise. Having pinpointed that this was a key cultural driver of misconduct, they want to embed a positive culture with the proposed legislation ‘SEAR’ which will support the existing F&P.
Significance of SEAR
The CBI having a strong FinTech focus are not alone on this matter as the movement towards greater governance has been implemented by regulators internationally. The Financial Conduct Authority (‘FCA’) and Prudential Regulation Authority (‘PRA’) applied a similar Senior Accountability Regime in the UK in 2016. This has been applied to the banking industry as well as building societies, credit unions and extended more recently to insurers with the hope to cover all regulated firms by December 2019. Overtime it is expected that SEAR will be extended to other firms regulated by the CBI.
Now is the time to examine the impact SEAR will have on your organisation.
How We Can Help You Prepare
GECKO Governance can help assist clients within the financial services industry in preparation for the SEAR Regime and adhere to new requirements. GECKO works collaboratively with clients for the entire process. Initially, the on-boarding phase involves identifying client’s regulatory requirements and consuming this data into our system to enable clients to monitor their regulatory process and have a step-by-step record of it. For instance, the CBI under F&P, requires regulated firms to certify annually that individuals performing executive and board roles are fit and proper to perform their functions. GECKO can house this information in a document repository which is available on request and can be accessed by those on a permissioned basis.
Our solution can speed up audits and any investigation by regulators, outlining the firms regulatory process from step one to completion of a task. A huge benefit for those in senior positions will be the identification of employees who are falling behind and missing key deliverables. Many banks are still using outdated and fragmented IT systems which do not yet provide the foundations of effective risk management. Moving towards a more sustainable business model that is appropriately governed will enhance the firm’s culture allowing staff to address weaknesses and plug any compliance gaps, having a tighter grip of their firms on-going compliance routine and avoid the consequences of misconduct.
About GECKO Governance
GECKO Governance provides a suite of Advisory, Consulting and Technology services to the crypto and asset management industries.
The company was founded in 2014 and built the first RegTech solution globally to integrate with Blockchain.
The team have over 120+ years combined financial & crypto compliance experience and are based at 3 global offices — New York, Ireland (HQ) and Sydney, Australia.
Our Advisory and Consulting business provides clients with definitive compliance solutions for their crypto and fund projects on a global basis.