Good corporate governance has been a key area of focus in the wake of the last financial crisis and subsequently as a result of a series of “scandals on money-laundering… tax evasion… manipulated market benchmarks and … mis-selling to retail clients”*.
Many national competent authorities established or enhanced their fitness and probity regimes in response to this and in 2017 the EBA and ESMA published Fitness and Probity Standards requiring Senior Executives to have a more defined role in identifying, managing and mitigating risk. In parallel, changed business and operating models require more expertise at Board level in relation to technology, cyber and digitalisation. In Ireland concerns were raised about the lack of effective implementation of the existing Fitness and Probity standards by the Central Bank in 2019 – and set out in a Dear CEO letter to banks. A similar letter was recently issued to insurance companies, so some work is needed to meet existing standards in some financial services firms.
In addition to general standards on fitness and probity, individual accountability regimes for senior role holders have been established in the UK (2016), Hong Kong (2017), Singapore (2018) and Australia (2018). In Ireland, a Senior Executive Accountability Regime (SEAR) was announced in 2018 on the back of the Tracker Mortgage scandal and is likely to be passed into law in 2021.
Firms’ responses to Covid-19 has brought into sharper focus the roles individuals play in decision making during times of crisis. Given developments, regulators expect banks to ensure that changes to accountabilities are made and material decisions being taken are appropriately documented, particularly risk acceptances.
EY has worked with a broad range of clients across Ireland in establishing and operationalising Fitness and Probity frameworks. We are currently working with clients to support their preparations for and amendments to their operating models to comply with their obligations under the Senior Executive Accountability Regime. Download our background summary and recommendations below, and reach out if you have a question.
*Andrea Enria, Chair of Supervisory Board ECB, June 2019