The Central Bank of Ireland (CBI) has introduced the Senior Executive Accountability Regime (SEAR), which from 1 July 2024 will apply to senior individuals within certain financial institutions, namely credit institutions, insurance undertakings and certain investment firms. From 1 July 2025, SEAR will apply to independent non-executive directors.

SEAR draws heavily upon the UK Senior Manager and Certification Regime (SMCR) as implemented by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). However, there are differences between the two approaches, with further points of differentiation continuing to emerge.

The purpose of both SEAR and SMCR is to increase accountability for senior individuals within firms, encourage individuals to take personal responsibility for their actions, and to promote good culture and governance. Both regimes seek to achieve these aims in very similar ways. The most senior individuals carrying out defined senior manager or controlled functions must be assessed for fitness and propriety (in the UK) or fitness and probity (in Ireland) and confirmed to meet those standards by the relevant regulators. While there are nuances, both involve considerations around honesty and integrity, competence and capability, and financial soundness. Any individual found not to meet the fitness and propriety standard is unlikely to meet the fitness and probity standard and vice versa.

Firms must allocate prescribed responsibilities, as specified by the regulators in each jurisdiction, to individuals carrying out these functions. The individuals must also comply with conduct standards (in Ireland) and conduct rules (in the UK). With the exception of the new consumer duty conduct rule in the UK, the standards/rules are very similar.

Despite the significant similarities between the two regimes, firms should not be complacent and assume that compliance with one regime automatically means compliance with the other. There are differences between SMCR and SEAR of which firms should be mindful. These differences include:

• Individuals within scope: Anyone familiar with SMCR will know it is made up of a pyramid structure with senior managers at the top, certification staff in the middle and conduct rules staff at the bottom. The higher up in the pyramid a person is, the more rules apply to their conduct. Additional conduct rules apply to senior managers, with regulators having the ultimate say in the assessment of their fitness and propriety. Individuals carrying out certification functions must be assessed as fit and proper by their firms. Finally, all staff with the exception of ancillary staff must comply with the conduct rules. The position under SEAR is different. From 31 December 2023, all controlled functions must comply with the common conduct standards, with the additional standards applying to those in pre-approved controlled function roles or controlled function 1 roles. We can see the influence of SMCR on SEAR as firms must now provide a certificate of compliance in respect of the standards of fitness and probity for individuals performing any controlled function role.
• Prescribed responsibilities: Both regimes have lists of prescribed responsibilities which, for the most part, overlap. While there are slight differences and nuances in the language used, both require a senior individual to be allocated responsibility for compliance, training and development, the independence of various functions, outsourcing and whistleblowing. However, there are two prescribed responsibilities unique to SEAR. These are: (i) responsibility for managing the firm's approach to identifying, assessing and managing climate-related and environmental risks across the firm; and (ii) responsibility for overseeing the adoption of the firm's policy on diversity and inclusion. Sustainability and diversity are key focus areas for the UK regulators and it remains to be seen whether they will draw inspiration from the CBI in imposing additional prescribed responsibilities to reflect that focus. To date, FCA's approach in relation to diversity in particular has emphasised the need for all senior managers to jointly strive towards the necessary cultural changes required, whereas the CBI has determined that assigning responsibility to specific senior officers is more likely to result in positive cultural change within regulated organisations (this is similar to the culture-related prescribed responsibilities which PRA-regulated firms are required to allocate to their senior managers).
• Regulatory reporting requirements: In the UK, there are prescriptive reporting requirements with firms required to report annually to the FCA details of conduct rule breaches resulting in disciplinary action. Concerns around fitness and propriety must be escalated to the FCA within seven days. In contrast, the CBI takes a more subjective approach, giving firms flexibility with the requirement being to report issues promptly and appropriately. Unlike the UK where conduct rule breaches are reported after a disciplinary process has been completed (other than in very serious cases which trigger a requirement to inform the FCA or PRA under Principle 11 or Fundamental Rule 7), in Ireland a suspected breach of a common conduct standard or additional conduct standard must be reported to the CBI as a "prescribed contravention" under the Central Bank Reform Act 2010.
• Regulatory references: Firms appointing individuals to senior manager or certification functions in the UK are required to seek regulatory references from that person's previous employers dating back six years. When asked, regulated firms are required to provide a fair response in a prescribed form. There is no equivalent requirement in Ireland. The CBI concluded that there was a risk that individuals' constitutional rights would be impacted if firms were required to give and seek references. However, in practice the level of due diligence that is required by firms to certify the fitness and probity of a person for controlled functions might result in firms having to contact former employers.
• Sanctions regulators can impose: There is scope for regulators in Ireland and the UK to impose sanctions on individuals under SEAR and SMCR, including the ability to disqualify individuals from performing regulatory functions. However, there are differences in the powers to sanction individuals. In Ireland, fines are capped at €1 million, whereas there is no such cap in the UK – instead a framework is used based on a percentage of the remuneration an individual received with aggravating or mitigating factors applied to increase or reduce the level of fine imposed.

While the CBI has clearly used SMCR as a starting point for SEAR, the two are already starting to diverge. In recent proposals from the FCA, it has proposed that instances of non-financial misconduct that occur outside work may become more prescriptively relevant to the question of fitness and propriety, a position that has not been adopted by the CBI. We have previously written on the FCA's proposals around non-financial misconduct in more detail. Equally, there are suggestions that the CBI has taken more active steps to promote diversity within firms, with our market insights indicating that the regulator views lack of diversity as a risk factor for regulated firms and may decline to approve individuals carrying out controlled functions if there is a lack of diversity at board level. This is not something that we have observed yet in the UK.

What is clear is that both regulators are determined to drive cultural change, accountability and better governance through regulation, and firms with a presence in Ireland and the UK should remain engaged with both regimes as they continue to develop, appreciating the similarities but also adjusting their internal processes to ensure compliance with both regimes. Regular training and horizon scanning will be invaluable to achieving this.