Individual accountability for directors and managers in banks and other financial institutions

Thursday 16 May 2024

A session report from the IBA’s 39th International Financial Law Conference in Dublin

Reporter

Josh Hogan, McCann FitzGerald, Dublin

Session Chairs

Olayinka Edu, Udo Udoma & Belo-Osagie, Lagos

Josh Hogan, McCann FitzGerald, Dublin

Panelists

Andrew Candland, Central Bank of Ireland, Dublin

Marie-Aude Noury, Squair, Paris

Eva Schram, De Brauw Blackstone Westbroek, Amsterdam

Introduction

The panel session on individual accountability for directors and managers in banks and other financial institutions explored the benefits and drawbacks in terms of individual accountability laws and regulations, which aim to prevent misconduct by financial institutions by holding directors and managers responsible for failures in their area of responsibility. The speakers discussed the different approaches and challenges in their respective jurisdictions, as well as the best practices to minimise liability.

Individual accountability

Andrew Candland provided an overview of Ireland’s new Individual Accountability Regime, which is one of the most far-reaching regimes of its kind in the world. He explained the main features of the regime, such as the Senior Executive Accountability Regime, the Conduct Standards, the Fitness and Probity Regime, and the enhanced enforcement powers given to the Central Bank of Ireland. He also highlighted the concept of ‘reasonable steps’, which is vital for directors and managers to demonstrate that they acted with due skill, care and diligence.

Olayinka Edu questioned the justification for making individuals accountable, as opposed to regulated entities, and asked whether this approach risks stifling appropriate risk taking and innovation. Eva Schram responded by noting that there are many reasons for introducing a regime of individual accountability and that this can come in many forms. She gave some examples of recent trends in the European Union in this regard, such as the creation of dedicated anti-money laundering (AML) officers within companies, individual accountability within the scope of the European Central Bank’s (ECB) guide on fit and proper assessments and the proposed duty of care obligation for directors that did not make it into the final version of the EU Corporate Sustainability Due Diligence Directive (EU Directive 2024/1760). She expressed concern that if the relevant roles and responsibilities within organisations are not clear, it may be very difficult for financial institutions to attract new, competent board members.

Marie-Aude Noury explained the French perspective on individual accountability, which consists of two aspects: prevention and sanctions. She described the obligation placed on regulated financial institutions to implement good governance, such as ‘fit and proper’ assessments of executive managers and board members and the ‘four eyes principle’ that requires an individual’s actions to be subject to review by a second individual. She also outlined the possibility of sanctioning credit institutions and investment service providers for any breach of their professional obligations and, where applicable, executive managers. She pointed out that there are two supervisory authorities in France that can impose sanctions in regard to accountability, the French Prudential Supervision and Resolution Authority (Autorité de Contrôle Prudentiel et de Résolution or ACPR) and the French Financial Markets Authority (Autorité des Marchés Financiers or AMF), and that they have different approaches to sanctioning executive managers.

 The session concluded with a lively Q&A session, where the speakers and the audience exchanged views and experiences on the topic of individual accountability.