The latest SEAR updates and where systemisation can help
On June 23rd 2022, Gerry Cross, CBI’s Director of Financial Regulation: Policy and Risk, made a comprehensive speech about the upcoming SEAR and IAF bills that Ireland has long been awaiting.
It reminds us all of the core motivation behind these changes; the “deficiencies of governance culture and accountability that were revealed” by the recent events, but there is also a wider purpose focused on safeguarding consumer interests and the overarching stability of the financial system.
Maybe most importantly, Cross emphasises the importance of the CBI taking a future-focused approach. This is something that regulated entities in Ireland should also take to heart. As the financial system evolves rapidly, and regulation follows suit, organisations must be proactive about their preparation and systemisation of new regimes.
As the implementation date draws closer organisations should not delay their efforts to digitalise frameworks and embed new operational process to meet the new requirements. Doing otherwise will undoubtedly result in increased risk, costs, and complexities down the road.
Speech by Gerry Cross
To strengthen regulator transparency, Cross has exhaustively iterated the CBI’s expectations and further defined some key details for various sections of SEAR. Here are some of the highlights:
Senior Executive Functions (SEFs)
- Organisations should determine the relevant SEF population
- The function rather than the job title of the person performing that function that determines which PCF/SEF category, if any, it falls under
- Firms will not be required to create new roles
- Responsibilities fall into ‘inherent’ or ‘prescribed’ and ‘other responsibilities’
- Inherent responsibilities are core to SEAR
- Prescribed responsibilities will be set out in regulations and for specific industries
- These must be allocated to SEFs (although not all of these will be relevant to every firm)
- SEAR will be applied to incoming third-country branches
- It will not be applied to incoming EEA branches
- All (I)NEDs will be SEFs under SEAR
- Their responsibilities will be limited to non-executive responsibilities
Duty of responsibility
- SEAR introduces the following new circumstances of breach: they were performing a SEF role, the regulated firm committed a prescribed contravention, the individual was responsible for the relevant business area, and the individual did not take reasonable steps to avoid the prescribed contravention occurring or continuing
- The scheme provides a non-exhaustive list of factors for evaluating reasonable steps
- Further guidance will be provided
- The three areas of conduct standards – Common Conduct Standards for individuals carrying out controlled functions (CFs), Additional Conduct Standards for senior executives, and the Standards for Businesses – will apply to all regulated firms.
Consultation and implementation
- The bill will be published in the next few months (2022)
- The Central Bank will be provided will regulation- and guidance-making powers
- Operationalisation of the IAF is expected to be implemented in 2023, upon which firms should be well under way to embedding IAF into their processes
What you can do now through systemisation
“I would encourage firms to use this time to prepare to implement the new framework by understanding their obligations and assessing their current governance structures in order to identify clearly who is responsible for what within the firm.”
As the bill is not fully enacted, organisations may be uncertain about how to proceed. Cross has helpfully outlined several ways organisations can, and should, start to prepare. In fact, organisations should take this preparation time as an opportunity to systemise good practices and procedures, now.
“Firms should review their current Fitness and Probity processes to assess any enhancements required to meet the annual certification requirements”
With a digital solution, many of the capabilities or requirements you need will already be built in. Organisations can begin preparing critical documentation, frameworks and workflows ahead of implementation. Plus, you can start to see potential outputs from a much earlier stage, which gives you the time to assure, assess, and adapt accordingly.
This will be much less risky than doing things manually and much more efficient, as organisations can implement automation, templates and record keeping ahead of time.
“Examine their internal culture and values as compared to the IAF principles and identify areas of focus”
With all the operational administration already completed, systemisation allows senior management to focus on what’s most important to them and what regulators want to see, such as cultural change and corporate transparency, rather than the nitty gritty.
Plus, built-in communication and flexible reporting tools from systemising will support better transparency across individuals, departments and entities.
Roles and responsibilities
“Firms will need to clearly define the roles and responsibilities of the SEFs”
Digital tools can be used to create and establish hierarchy maps. This helps individuals identify what their role is and where this fits into the organisational structure. This hierarchy can then be translated into digital processes and frameworks.
Systemising upfront give allows you to embed the right resources, guidance, and infrastructure to ensure SEFs are equipped to fulfil their roles. Waiting to do this only increases the risk of human error, breach, and poor compliance because staff haven’t been made aware of their expectations in advance.
“Ensure clarity over reporting lines and any delegation of tasks”
Line managers, reporting lines, and even dependencies can be integrated within a digital tool. With a comprehensive timeline of actions and accountability for every task or document, organisations can evidence compliance for any issue.
Systemising this way not only improves transparency, but it proactively reduces risk by clearly and automatically assigning tasks. This means that throughout any period of training and uncertainty, there’s a safety net in the form of your digital framework.
Want advice on systemising SEAR?
Talk to one of our consultants today to explore how you can start planning for systemisation. Just get in touch here.