Introductory statement by Director Gerry Cross, Director of Financial Regulation - Policy and Risk, at the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach

18 April 2019 Speech

Gerry Cross

Mr Chairman, Honourable Members of the Committee,

Thank you for inviting us here today to discuss the future framework for Accountability in the Banking Sector. As this is an issue inextricably linked to various aspects of the Central Bank’s responsibilities I am joined here today by Seána Cunningham, Director of Enforcement and Mary Elizabeth McMunn Director of Credit Institutions.


Ineffective governance, low standards, and poor corporate culture are widely accepted as a root cause of a number of significant failings within the financial industry in recent years.  These failings have had severe consequences for customers and shareholders and also, in the case of the financial crisis, for the stability of the financial system as a whole. It is important that standards are driven up.

Global and national experience indicates that in order for a regulatory framework to work well, it needs to drive strong and effective governance within firms. To achieve this, the allocation of responsibilities within firms needs to be clear and comprehensive, individuals need to know what they are responsible for, to be clear what standards are expected of them, and to recognise that if their actions fall short, they will be held accountable.

Failings in the Irish banking sector have been well documented and there is a deficit of trust as a result. One component necessary to restore trust in the banking system is ensuring that firms are well-run and organised, with clarity regarding individual responsibilities and expected standards, and accountability when decisions are poorly made or poorly implemented.

The mission of the Central Bank is to serve the public interest by safeguarding monetary and financial stability and by working to ensure that the financial system operates in the best interests of consumers and the wider economy. We have accordingly put forward a proposal for a new framework of conduct standards and senior level accountability. We believe the proposed changes will be an important step in delivering better outcomes for consumers, ensuring that firms are well-run and improving confidence in the financial sector.

That is why in our response to the Law Reform Commission’s Issues Paper on Regulatory Enforcement and Corporate Offences in January 2018 we recommended a number of changes to the existing framework. We indicated that we supported reforms such as legislating for an offence of egregious recklessness, assigning responsibility to senior personnel, enhancing individual accountability, and introducing conduct standards that would set clear expectations as to behaviour and conduct in the financial sector.

We built on those proposals in our July 2018 report to the Minister for Finance on the Behaviour and Culture of the Irish Retail Banks. We recommended the introduction of an enhanced Individual Accountability Framework, key components of which would apply to all regulated financial services providers.

These proposals are in line with recent recommendations of the Financial Stability Board that national authorities identify and assign key responsibilities, hold individuals accountable and assess the suitability of individuals’ assigned key responsibilities including their responsibility for following conduct standards. They have much in common with frameworks introduced in recent years in other jurisdictions such as the UK and Australia which place obligations on firms and senior individuals within them to set out clearly where responsibility and decision-making lies for their business and to adhere to certain conduct standards.

Existing Approach

It is important to mention that individual accountability is not a new area of focus for the Central Bank. We already have a range of strong powers and we use them – both to keep unfit individuals out of the financial services industry and to pursue wrongdoing where it occurs.

The Fitness and Probity regime was introduced in 2011. The key objective of the regime is to ensure that individuals who hold certain positions in regulated firms are committed to high standards of competence, integrity and honesty. For the most senior roles in the industry the Central Bank acts as gatekeeper, and must approve proposed appointments. This regime has been instrumental in the Central Bank’s work to ensure that the right people occupy senior management roles in the financial services sector. We have also conducted investigations in respect of existing role-holders where suspicions have arisen.

We have also taken action against individuals under the Administrative Sanctions Procedure (the ASP), and when carrying out enforcement investigations, we consider all possible angles, including individual accountability. Since 2006, sanctions have been imposed under the ASP against individuals, which have included monetary penalties and lengthy disqualifications from being a person concerned in the management of a regulated firm.

In short, our system of assertive supervision is underpinned by robust enforcement.

However, enforcement actions against individuals can be challenging and complex. Management in regulated entities may seek to insulate themselves, or be at a remove, from apparent misconduct. Senior individuals can seek to escape liability for wrongdoing by hiding behind the collective. This experience is directly relevant to our proposals for an Individual Accountability Framework.

Individual Accountability Proposals

Turning now to the key elements of our proposals:

First, we have proposed enforceable Conduct Standards setting out the behaviour expected of regulated firms and individuals working within them, including relatively straightforward obligations to conduct themselves with honesty and integrity, to act with due skill, care and diligence, and in the interest of consumers, and to co-operate with regulatory authorities.

It is proposed that additional Conduct Standards would be imposed on those individuals in senior roles, including the requirement to take all reasonable steps to ensure the area of the business for which they are responsible is controlled effectively and complies with any regulatory requirements. There will also be principles for businesses applicable to all regulated firms.

Where firms or individuals fall below these basic standards, the Central Bank may decide to take regulatory action and impose sanctions where necessary. They will also provide a sense of shared values and empower individuals at all levels in the organisation to speak up and challenge issues that arise in their firms. We believe that that these are standards of behaviour that well-run firms already expect of their staff.

Second, we have proposed a Senior Executive Accountability Regime (SEAR). This will require firms to set out clearly where responsibility and decision-making lie. It will foster better governance by identifying a set of Senior Executive Functions with clear responsibilities, for which Statements of Responsibility will be put in place and supported by Responsibility Maps within each relevant organisation.

Taking a risk-based approach, it is proposed that the initial introduction of a SEAR would focus on a sub-set of the financial services industry including credit institutions, certain insurance undertakings and investment firms. Over time it would be rolled out more widely. This phased approach will help ensure efficiency, effectiveness and proportionality.

Thirdly, we propose a new simplified unified enforcement process. The current hurdle of “participation” should be removed such that the Central Bank could hold individuals to account directly for their misconduct under the Administrative Sanctions Procedure, rather than only where they are proven to have participated in a firm’s breach of rules. Removal of the participation requirement is essential to enhancing the accountability of individuals for failing to maintain basic standards of conduct.

Finally, the Fitness and Probity framework would be enhanced including a requirement for firms to certify the ongoing fitness and probity of individuals in key roles.


The proposals we have set out will clarify the lines of responsibility within relevant firms, build on our existing powers, and enhance our ability to hold senior and other individuals in such firms to account. This will, over time, result in improved governance across the financial sector.

Following the financial crisis the Central Bank has adopted a more intrusive approach to supervision combined with a credible threat of enforcement. The legal and regulatory framework has been greatly enhanced. However, as recent events show, there is more to be done. In particular in the areas of conduct, culture, and individual accountability.

We welcome the Minister for Finance’s indication that he will bring forward draft legislation on these proposals for Oireachtas consideration.

My colleagues and I very much look forward to hearing the views of Members of the Committee and to answering your questions.