The financial industry is bracing for long-awaited measures to hold senior financial executives personally accountable for misconduct, as new legislation signed off by Cabinet last summer is weeks away from being enacted.
ut the new individual accountability framework may not be the cure-all for the problems in the financial services sector that led to the tracker mortgage scandal and other high-profile examples of wrongdoing.
"The individual accountability regime is an important factor that will lead to change, just not necessarily in the way people are expecting,” said Ciaran Walker, a consultant in financial services regulation with global law firm Eversheds Sutherland.
"It's really all about achieving cultural change in the industry through various means, not simply about ‘going after’ individuals through sanctions."
While the new law was sold as putting bankers in the firing line when their companies break the rules, Mr Walker – who spent five years as the Central Bank’s deputy director of enforcement – said there is a lot of confusion about what that will mean in practice.
In the UK, which has operated a similar senior executive accountability regime for the last seven years, just one individual has been fined for misconduct.
According to Mr Walker, anyone expecting a flurry of Central Bank actions against rogue bankers is missing the point.
By placing specific responsibilities onto the individuals running the firms, the new law forces firms to do the dirty work for them – catching and expelling bad actors before the regulator has to intervene.
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"The question is 'how do you get people to change their behaviours?'", he said. “Fines, whilst important, may not move the dial enough. Regulatory investigations against individuals can be complex and very time-consuming, so there is little likelihood of a large volume of fines against individuals. This is borne out in the UK, where there has only been one case of fines imposed on an individual under the equivalent individual accountability regime since its introduction in 2016.”
The regulator cannot force culture change on the industry
Mr Walker, whose book New Accountability in Financial Services: Changing Individual Behaviour and Culture covers the topic in detail, sees industry cooperation with the Central Bank as key to the new regime working effectively.
"Ultimately, the regulator cannot force culture change on the industry,” he said.
“Industry itself also has an onus to continue to do more to improve professional standards across the industry.”
He sees the new regime working on three levels: going after individual misconduct, improving governance at the firm level, and getting the industry to self-inoculate.
Even with the appropriate level of cultural change, the law still means individuals could face fines of up to €1m and face disqualification even if their companies are not found guilty of breaking any rules.
The new law will therefore allow Central Bank officials to act against executives who break financial rules even if their firms are not implicated – something they currently cannot do under existing law.
Industry sources said the “real meat” of the regime will be in the Central Bank’s consultation once the new law is enacted in the coming weeks.