An Individual Accountability Sandbox

The Central Bank (Individual Accountability Framework) Act 2023 introduced an Individual Accountability Framework (IAF) for financial services firms regulated by the Irish financial services regulator, the Central Bank of Ireland (CBI). The new regime includes a Senior Executive Accountability Regime (SEAR), based on the UK’s Senior Managers and Certification Regime, requiring the completion of Statements of Responsibilities and Management Responsibilities Maps for certain in-scope firms and imposing a statutory duty of responsibility. The IAF also establishes a set of Conduct Standards for all regulated firms and specified role holders therein, enhances the Fitness and Probity Regime and provides for a unified enforcement process to apply to all contraventions by firms or individuals of financial services legislation.  

In a recent paper, we reflect on the fact that while generally welcomed as a positive initiative, questions have arisen about how various aspects of the framework will be implemented by the CBI, particularly in challenging and complex circumstances where judgment will be required. We argue that ‘a process sandbox’ presents an opportunity to increase mutual understanding of regulatory expectations and to provide guidance on how the regime is best implemented in practice, thereby enhancing the probability that regulatory objectives will be met.

Having outlined the key features of the IAF and the rationale for its introduction, describing its historical and regulatory backdrop which included a tracker mortgage scandal involving the Irish retail banks, the paper introduces the concept of a process sandbox. Drawing on a comparative examination of various sandboxes operating internationally, it identifies the key indicia of a sandbox and emphasises the importance of dialogue and deliberation to allow for the continuous refinement and improvement of regulatory and industry approaches to compliance. This experiment in new governance would more explicitly recognise that regulators could also learn from this ongoing dialogue and communication and that it could generate better regulatory decision making and facilitate learning opportunities before a crisis occurs. This advances an evolving view of regulation as more of an iterative and reflexive relationship between regulator and industry. The sandbox proposed seeks to improve compliance with the Conduct Standards and SEAR with resulting benefits to consumers, the market and the economy more broadly. It could be operated by the CBI in cooperation with an independent body such as the Irish Banking Culture Board (IBCB) or with a university research centre. Firms would be encouraged to submit for discussion issues and challenges they had encountered or anticipated, with the implementation of SEAR or the Conduct Standards. These issues would be discussed in workshops including relevant specialists from the CBI, legal advisers, compliance officers, academics, and representatives from industry bodies and consumer representative groups. The IAF Sandbox should articulate clear outputs at the end of each programme. A report could be published sharing key learnings and this could also feed into a more dynamic Q&A Manual as well as workshops and seminars. In this way, the programme would benefit not only the participants, but the whole financial services sector. To start, it is proposed that the IAF Sandbox could use one of the two case studies published by the IBCB in 2024, and on which the authors collaborated, focusing on the two Common Conduct Standards: Acting with Honesty & Integrity and Acting with Due Skill, Care and Diligence. 

The Paper then proceeds to critically analyse four areas where the sandbox could provide particular value in clarifying the expectations of regulators: the relationship between collective decision making and individual accountability; the role to be played by non-executive directors and their ability to demonstrated fulfilment of their responsibilities under SEAR; the management of potentially overlapping duties to customers and to firms; and the reporting obligations.

Finally, the paper draws on research in behavioural psychology to argue that the sandbox could address these challenges in valuable ways by encouraging dialogue, clarifying expectations, and supporting reflective and integrative learning. It suggests that the process sandbox would have significant positive implications for the financial services sector, by improving behaviours, increasing trust, and enhancing regulatory outcomes. The paper concludes by identifying a number of steps which would be needed to ensure that the sandbox could be framed and operated to avoid any potential drawbacks that could otherwise arise.

Their paper can be accessed here.

Blanaid Clarke is the McCann FitzGerald Chair of Corporate Law at School of Law, Trinity College Dublin and Deputy Chair of the Irish Banking Culture Board

Joe McGrath is an Associate Professor of Law at Sutherland School of Law, University College Dublin