INED’s & The Senior Executive Accountability Regime (SEAR)

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Individual accountability of senior individuals within the financial services industry has become a particular interest for regulatory authorities around the world. They are looking to introduce measures to strengthen individual accountability in an effort to improve culture and drive the right behaviors.

The Central Bank of Ireland is once such regulator who is putting a strong focus on individual accountability since 2018 as they have strongly recommended that reforms assigning responsibility to senior personnel be adopted in Ireland.

The planned introduction of the Senior Executive Accountability Regime (SEAR) in 2019 will bring with it a strong focus to ensure responsibility and accountability through:

  • Placing obligations on firms & senior individuals within them to set out clearly where responsibility and decision making lie for the business
  • Having every senior manager to present a statement of responsibilities that clearly states the matters of which they are responsible and accountable
  • Firms providing a map setting out responsibilities & accountabilities at an individual and an organizational level
  • Requirements will assist the Central Bank in assigning responsibility to individuals

With the introduction of SEAR there will be no doubt as to where responsibilities lie and the ability for senior individuals to avoid liability for regulatory wrongdoing will be constrained.

What SEAR Means For INED’s

1. Change Of Mindset

The introduction of SEAR will have implications for all Independent Non-Executive Directors (INED’s). The recent increase in the demands and responsibilities for INED’s has meant the role has moved from being an “honour” or being part of an “exclusive club” to being a professional responsibility. More and more INED’s will now be carrying out their own extensive due diligence on organizations who offer them a role as an INED.

It has become very important for the INED to carry out research to and consider if the role offered is a proper fit for their skill-set as well as formulating a picture of the business model, corporate governance standards and the overall culture that drives the business.

2. Culture Change

INED’s will have to take a keen interest in the culture of the organization, a truly independent non-executive director will help foster a good culture within an organization and can help aspects of culture which may not be best practice. INED’s can be a positive influence, shaping the values, behaviours and standards the firm aspire to achieve.

In a recent presentation, Sylvia Cronin, Director of Insurance Supervision at The Central Bank of Ireland outlined how INED’s can help to change a culture positively in a three step approach:

A) Formulate a view on the prevailing attitudes and behaviors of the organization by using a combination of observation, examination and analysis of policies, procedures and approaches to decision making. This way INED’s can form a holistic view of the organization including any underlying problems.

B) The second stage is where they establish a vision for the culture they desire by asking themselves what an effective culture looks like for them. They can also go even further by considering what behaviours they wish to promote which will drive a more effective culture.

C) The third stage and probably the most difficult stage is where the INED looks at translating their vision into meaningful actions that will influence individual’s perception of culture an attitudes and behaviours necessary to achieve their vision.

3. Personal Accountability

Under SEAR, INED’s will be personally accountable for failings under their watch. According to the Minister for Finance, Paschal Donohoe “Accountability means not only being responsible for something but also ultimately being answerable for one’s actions”.

A problem which exists for INED’s at the moment is they are often presented with a 500 page Risk & Compliance Board report which they are expected to have read through and know the “in’s & out’s” of every aspect of the business. This is unrealistic and INED’s are often unaware of a lot of what is happening in the organization.

As INED’s are now personally accountable for what they sign off on they must find a way to mitigate this problem of information overload. They will need to take the time to meet with the relevant internal personal to get an overview of what is contained in these 500 page Board reports.

Alternatively, what we have seen lately is an increase in the number of organizations utilizing Regtech to help reduce this burden. We’ve seen organizations automate to collection and collation of their Risk & Compliance data and present it on a live dashboard for INED’s to view. This dashboard will highlight any areas of concern and the reasons as to why they are a concern.

Innovative uses of technology like this is one way INED’s can ensure they have a clear picture of the compliance levels of the business before they sign off on anything.

Conclusion

Individual accountability will continue to be a key area of focus for regulatory authorities and SEAR will be The Central Bank Of Ireland’s way of policing it. INED’s will have to pay particular attention to and conduct research on the companies they are asked to sit on the Board for. There will be an increased focus on organizational culture and how an INED might help shape it.

Finally INED’s will have to be fully aware of the details contained in Board packs and reports so they can have a holistic view of what is happening in the organization before they sign off on anything they can be help personally accountable for. Technology will play an important role in all of this.

Before You Go

Why not book a demo of ViClarity’s Audit, Risk & Compliance system and see why it’s the system of choice for over 200 Financial Services organizations. Contact neil.osullivan@viclarity.com to book a demo slot.

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