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Journal of Corporate Law Studies Volume 23, 2023 - Issue 1
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Original Articles

Banking on cultural change: individual accountability in the financial services sector in Ireland

Ciaran Walkera Eversheds Sutherland, Dublin 2, IrelandView further author information
&
Joe McGrathb Sutherland School of Law, University College Dublin, Belfield, Dublin 4, IrelandCorrespondence[email protected]
View further author information
Pages 69-103 | Received 18 May 2023, Accepted 11 Aug 2023, Published online: 07 Sep 2023
 
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ABSTRACT

Modelled on the Senior Managers and Certification Regime (SMCR) in the UK, the new individual accountability framework (IAF) in Ireland aims to drive positive cultural change and restore trust in financial institutions. This article analyses the potential strengths and weaknesses of the IAF and explores how it might achieve its aim of improving behaviours and culture. Whilst sanctioning individuals to deter future misconduct is an important part of any successful regulatory strategy, it is argued that the focus should be on ensuring that individuals in the financial services industry internalise the norms of behaviour expected under the new IAF. This article is relevant to audiences in various jurisdictions, including the UK and Australia, which operate comparable individual accountability regimes. In particular, it is relevant to researchers and policy-makers in the UK, in light of the Call for Evidence from HM Treasury ‘to consider future reforms to the regime’.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Central Bank (Individual Accountability Framework) Act 2023<https://www.irishstatutebook.ie/eli/2023/act/5/enacted/en/html>

2 Pursuant to the Central Bank (Individual Accountability Framework) Act 2023 (Commencement of Certain Provisions) Order 2023 (S.I. No. 176/2023), certain provisions of the Act came into operation on 19 April 2023.

4 Press release, Minister Paschal Donohoe, 27 July 2021, on the publication of the General Scheme of the Bill which was the foundation of the Act <http://paschaldonohoe.ie/minister-donohoe-secures-agreement-to-draft-central-bank-individual-accountability-framework-bill/>

5 Central Bank of Ireland, ‘Behaviour and culture of the Irish retail banks’ (Central Bank of Ireland, 2018) <www.centralbank.ie/docs/default-source/publications/corporatereports/behaviour-and-culture-of-the-irish-retail-banks.pdf?sfvrsn=2>. For further background on Irish banking culture, see: Joe McGrath, ‘Walk Softly and Carry No Stick’: Culture, Opportunity and Irresponsible Risk-Taking in the Irish Banking Sector’ (2020) 17(1) European Journal of Criminology 86–105.

6 This term derives from a 2013 UK Parliamentary Commission on Banking Standards report. See: UK Parliamentary Commission on Banking Standards, Changing Banking for Good (Vol I) (The Stationery Office Limited, 2013 <https://publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27.pdf>. It is discussed further in Section E of this paper.

7 ‘Supervision of Behaviour and Culture: Foundations, Practice & Future Developments’, De Nederlandsche Bank, 50 <https://www.dnb.nl/media/1gmkp1vk/supervision-of-behaviour-and-culture_tcm46-380398-1.pdf>

8 J McGrath and C Walker, ‘Regulating Ethics in Financial Services: Engaging Industry to Achieve Regulatory Objectives’ (2023) 17 Regulation & Governance 791–809.

9 The Hong Kong Manager in Charge Regime was introduced by way of regulatory circular from the Hong Kong Securities and Futures Commission in December 2016; see: ‘Circular to Licensed Corporations Regarding Measures for Augmenting the Accountability of Senior Management’, 16 December 2016 <https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/licensing/doc?refNo=16EC68>. In September 2020, the Monetary Authority of Singapore (‘MAS’) issued Guidelines on individual accountability and conduct (https://www.mas.gov.sg/-/media/MAS/MPI/Guidelines/Guidelines-on-Individual-Accountability-and-Conduct.pdf), together with a set of FAQs (https://www.mas.gov.sg/-/media/MAS/MPI/Guidelines/FAQs-on-Guidelines-on-Individual-Accountability-and-Conduct.pdf). In December 2019, the Central Bank of Malaysia, Bank Nagara Malaysia (‘BNM’), issued a draft ‘Responsibility Mapping’ document (‘Proposals’), setting out proposed requirements and expectations to be introduced by the BNM in relation to individual accountability. The proposals have not yet been adopted; they are intended to come into force one year after formal adoption. The proposals are available at: ‘Responsibility Mapping’, Exposure Draft, 26 December 2019, BNM <https://www.bnm.gov.my/documents/20124/52006/ed_responsibility+mapping_dec2019.pdf/73187c28-8465-fdd2-7fcf-0ddefa2e8bb2?t=1578645662143>.

10 R Oliveira, R Walters and R Zamil, ‘FSI Insights on Policy Implementation No 48: When the Music Stops – Holding Bank Executives Accountable for Misconduct’ Bank for International Settlements (2023) <https://www.bis.org/fsi/publ/insights48.pdf>

11 A report to the Minister for Finance by the Governor of the Central Bank, The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003–2008, 43 <https://www.socialjustice.ie/system/files/file-uploads/2021-09/2010-06-08-thehonohanreport-theirishbankingcrisisregulatoryandfinancialstabilitypolicy2003-2008.pdf>

12 Ciaran Walker, ‘The Role of the Board of Financial Services Firms in Improving Their Firm’s Culture’ (2019) 43 Seattle UL Rev. 723; Ciaran Walker, ‘The Role of the Regulator in Supervising Culture in Financial Services Firms’ in Joe McGrath (ed.), White Collar Crime in Ireland: Law and Policy (Clarus Press 2019) 1–12.

13 Minouche Shafik, From ethical drift’ to ethical lift’: reversing the tide of misconduct in global financial markets, speech, 20 October 2016 <https://www.bankofengland.co.uk/-/media/boe/files/speech/2016/from-ethical-drift-to-ethical-lift-reversing-the-tide-of.pdf?la=en&hash=C120FF0FF7E00FB7DE07858D2CD7DE95CC1BA695>

14 Letter from Mark Carney, Chairman Financial Stability Board to G20 leaders, 30 August 2016 <https://www.fsb.org/wp-content/uploads/P20160831.pdf>

15 ECB, Implications of bank misconduct costs for bank equity returns and valuations, 19 November 2019 <https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/2019/html/ecb.fsrbox201911_03~511ae02cc5.en.html>

17 ibid 6.

18 ibid. Some reports indicate that the overall cost of the scandal to the banks has been around €1.5 billion; see e.g.: <https://www.rte.ie/news/business/2021/0326/1206353-ulster-bank-tracker-mortgage-fine/>

19 CBI announcement of fine imposed on The Governor and Company of the Bank of Ireland, 29 September 2022; available at: Ulster Bank Ireland DAC, 25 March 2021 <https://www.centralbank.ie/docs/default-source/news-and-media/enforcement-action-against-governor-and-company-of-the-bank-of-ireland.pdf?sfvrsn=954e951d_12>

20 Daniel McConnell, Banks engaged in a ‘reign of terror’ on tracker mortgages, committee to hear (Irish Examiner, 21 June 2021) <https://www.irishexaminer.com/news/arid-40318232.html>; The Irish Times view on individual accountability in the financial services sector (Irish Times, 2 August 2021) <https://www.irishtimes.com/opinion/editorial/the-irish-times-view-on-individual-accountability-in-the-financial-services-sector-1.4637016>

22 ibid.

25 ibid, 9.

26 Patrick Honohan, ‘The Irish banking crisis: Regulatory and financial stability policy 2003–2008’, May 2010, at para. 1.6 <https://www.socialjustice.ie/sites/default/files/attach/policy-issue-article/3077/2010-06-08-thehonohanreport-theirishbankingcrisisregulatoryandfinancialstabilitypolicy2003-2008.pdf>. Also, the Irish banking crisis: Causes of the systemic banking crisis in Ireland (Nyberg Report) (2011): ‘Bank loans [in the pre-GFC era] seem to have expanded so rapidly because neither banks nor borrowers apparently really understood the risks they were taking. Many banks were increasingly led and managed by people with less practical experience of credit and risk management than before’, p. ii <https://assets.gov.ie/42234/b40d2827610943fbb78e9120fa70e719.pdf>. See also, the Oireachtas Joint Committee Report into the banking crisis (2016) <https://inquiries.oireachtas.ie/banking/wp-content/uploads/2016/01/02106-HOI-BE-Report-Volume1.pdf>.

27 Honohan (n 26) para. 1.30.

28 J McGrath and C Walker, New Accountability in Financial Services: Changing Individual Behaviour and Culture (Springer Nature 2022).

29 Honohan (n 26) 55. See further: Joe McGrath, Corporate and White-Collar Crime in Ireland: A New Architecture of Regulatory Enforcement (Manchester University Press, 2015) and Joe McGrath (ed), White Collar Crime in Ireland: Law and Policy (Clarus Press, 2019).

30 Joe McGrath, Corporate and White-Collar Crime in Ireland: A New Architecture of Regulatory Enforcement (Manchester University Press, 2015) and Joe McGrath (ed), White Collar Crime in Ireland: Law and Policy (Clarus Press, 2019). See also: Joe McGrath, ‘Twenty Years Since the McDowell Report: A Reflection on the Powers and Performance of the Office of the Director of Corporate Enforcement’ (2018) 60(60) Irish Jurist 33–66.

31 D Awrey, W Blair and D Kershaw, Between Law and Markets: Is there a Role for Culture and Ethics in Financial Regulation (2013) Del. J. Corp. L. 38, 191.

32 Zanna Iscenko, Chris Pickard, Laura Smart and Zita Vasas, Behaviour and Compliance in Organisations. FCA Occasional Paper 24 (FCA, 2016) 15.

33 See further: Blanaid Clarke, ‘Individual Accountability in Irish Credit Institutions – Lessons to be Learned from the UK’s Senior Managers Regime’ (2018) 47(1) Common Law World Review 35–52.

34 Joe McGrath, ‘From Responsive to Meta-Regulation: A Critical Review of the Enforcement Powers and Performance of the Central Bank of Ireland’ (2021) 66(1) Irish Jurist 1–35.

35 Central Bank Reform Act 2010, s 21.

36 Central Bank Reform Act 2010, ss 22, 23. The CBI’s list of PCF roles <https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/authorisation/fitness-probity/regulated-financial-service-providers/regulatory-requirements/gns-4-1-1-3-1-1-list-of-pre-approval-controlled-functions.pdf?sfvrsn=6>. Since 2014, the ECB is exclusively competent for fitness and probity assessments of the management board and key function holders of significant credit institutions and those of all credit institutions seeking authorisation.

37 Central Bank Reform Act 2010, ss 25, 43.

39 The Central Bank and Financial Services Authority of Ireland Act 2004 amended the Central Bank Act 1942 by introducing a new Part IIIC of that Act, which set out the Administrative Sanctions Procedure.

42 CBI, Behaviour and culture of the Irish retail banks, 2018 <https://www.centralbank.ie/docs/default-source/publications/corporate-reports/behaviour-and-culture-of-the-irish-retail-banks.pdf?sfvrsn=2>. The CBI had also, in a December 2017 submission to the Law Reform Commission, recommended, albeit in less detailed terms, the introduction of an Individual Accountability Framework in Ireland, modelled on the UK SMCR (see: <https://www.centralbank.ie/docs/default-source/publications/correspondence/general-correspondence/central-bank-of-ireland-response-to-the-law-reform-commission-issues-paper-%27regulatory-enforcement-and-corporate-offences%27.pdf> para. 24).

44 UK Parliamentary Commission on Banking Standards, Changing Banking for Good (Vol I) (The Stationery Office Limited, 2013) <https://publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27.pdf> (Vol II) <https://www.parliament.uk/globalassets/documents/banking-commission/Banking-final-report-vol-ii.pdf>

45 PCBS Report, Vol I, para. 14.

46 Ibid., para. 14.

48 CP153, 17.

49 Section 6 of the Act, which inserts a section 53B(2) into the Central Bank Reform Act 2010.

50 Section 79 of the Act.

52 For a discussion of exclusion of certain non-executives from the presumption of responsibility in the SMCR, see: Blanaid Clarke, Individual Accountability in Irish Credit Institutions – Lessons to be Learned from the UK’s Senior Managers Regime (2018) 47(1) Common Law World Review 35–52. See also: Blanaid Clarke, Senior Executive Accountability and Responsibility in Financial Institutions, (2021) 66(66) Irish Jurist 74–100.

53 Section 5 of the Act, inserting a Section 17A into the Central Bank Reform Act 2010.

54 Section 6 of the Act, inserting a Section 53E into the Central Bank Reform Act 2010.

55 Section 6 of the Act, inserting a Section 53F into the Central bank Reform Act 2010.

56 Section 6 of the Act, inserting a Section 53C into the Central Bank Reform Act 2010.

57 Central Bank Reform Act 2010, which has been amended by the Act.

60 The General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021, 17.

61 CP153, Table 1, 26.

62 ibid, para. 2.4.11.

63 D Rowland, Speech, ‘Enhanced governance, performance and accountability in financial services: The Individual Accountability Framework’ 2023 <https://www.centralbank.ie/news/article/speech-derville-rowland-enhanced-governance-performance-and-accountability-in-financial-services-18-april-2023>

64 See, e.g. Chapter 22 of the FCA’s Handbook on ‘Regulatory references’ <https://www.handbook.fca.org.uk/handbook/SYSC/22.pdf>

66 Central Bank (Individual Accountability Framework) Bill 2021 – Regulatory Impact Analysis, 4 <https://www.gov.ie/en/publication/ed2ba-regulatory-impact-assessment-central-bank-individual-accountability-framework-bill/>

68 FCA, A new Consumer Duty: Feedback to CP21/36 and final rules, July 2022 <https://www.fca.org.uk/publication/policy/ps22-9.pdf>. See also, Sheldon Mills, FCA, Countdown to the Consumer Duty, speech, 10 May 2023 <https://www.fca.org.uk/news/speeches/countdown-consumer-duty>

69 CP153, 4.

70 The IAF template Statement of Responsibilities is set out in Table 10 of the draft Guidance in CP153. It is a 1-page template. Also, the CBI considers that a word-count of 100–200 words to be appropriate for purposes of providing information on prescribed and/or other responsibilities (Guidance, 33). By contrast, the FCA’s template Statement of Responsibilities for dual-regulated firms (https://www.handbook.fca.org.uk/form/sup/SUP_10C_ann_10_SOR_dual_regulated.pdf) is some 26 pages; this template also indicates that a word count to describe each allocated responsibility of up to 300 words per allocated responsibility would be appropriate.

71 CP153 states ‘To reflect the enhanced approach to supervision reflected in the IAF, it is proposed not to impose initial or regular/periodic reporting requirement on firms in respect of Statements of Responsibilities and the Management Responsibilities Map’ (CP153, 31). By contrast, under the SMCR, significant changes to the Statement of Responsibilities must be reported to the regulator (see, template Statement of Responsibilities, 1 <https://www.handbook.fca.org.uk/form/sup/SUP_10C_ann_10_SOR_dual_regulated.pdf>).

72 CP153, 36.

73 HM Treasury, Financial Services: The Edinburgh Reforms, December 2022 <https://www.gov.uk/government/collections/financial-services-the-edinburgh-reforms>

74 HM Treasury, Senior Managers & Certification Regime: Call for Evidence, March 2023 <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147932/SMCR_Call_for_Evidence.pdf>

75 PRA and FCA, Review of the Senior Managers and Certification Regime, DP1/23, March 2023 <https://www.bankofengland.co.uk/prudential-regulation/publication/2023/march/review-of-the-senior-managers-and-certification-regime>

76 The industry responses to the DP that are currently publicly available indicate that there is general support for the principal aims of the SMCR. Thus, for example, the joint response of the industry bodies UK Finance and the Association for Financial Markets in Europe notes that, ‘overall, our members’ experience of the SMCR has been broadly positive, with benefits seen in executive accountability and firm-wide conduct standards’, whilst recommending a number of operational changes (see, Finance UK and AFME Consultation Response <https://www.ukfinance.org.uk/system/files/2023-05/UK%20Finance%20response%20to%20PRA-FCA%20DP1.23%20SMCR.pdf>). See also, e.g. response of the Building Societies Association <https://www.bsa.org.uk/BSA/files/64/64238f1f-a457-4269-8522-aa206d85efcd.pdf>

77 UK Government press release, Rocket boost for UK economy as Financial Services and Markets Bill received Royal Assent, 29 June 2023 <https://www.gov.uk/government/news/rocket-boost-for-uk-economy-as-financial-services-and-markets-bill-receives-royal-assent>

78 Section 26 of the Financial Services and Markets Act 2023.

79 Section 5 of the Central Bank and Financial Services Authority of Ireland Act 2003. This ‘promotion’ objective was removed by the Central Bank Reform Act 2010, Schedule 1, Part 1.

80 A report to the Minister for Finance by the Governor of the Central Bank, The Irish Banking Crisis: Regulatory and Financial Stability Policy 2003-2008, 44 <https://www.socialjustice.ie/system/files/file-uploads/2021-09/2010-06-08-thehonohanreport-theirishbankingcrisisregulatoryandfinancialstabilitypolicy2003-2008.pdf>

81 Evaluation of the Senior Managers and Certification Regime, PRA, December 2020, 25.

82 UK Finance describes itself, on its website, as ‘the collective voice for the banking and finance industry’ in the UK (see: https://www.ukfinance.org.uk/about-us).

83 SMCR: Evolution and reform, September 2019, UK Finance <https://www.ukfinance.org.uk/system/files/SMCR%20-%20Evolution%20and%20Reform.pdf>

84 ibid, 8.

85 Elizabeth Sheedy and Dominic Canestrari-Soh, Regulating Accountability: An Early Look at the Banking Executive Accountability Regime (Bear), (2020) SSRN 6, <https://doi.org/10.2139/ssrn.3775275>.

86 See, Daniel Kahneman, Thinking, Fast and Slow (Penguin 2012).

87 Elizabeth Sheedy and Dominic Canestrari-Soh, ‘Does Executive Accountability Enhance Risk Management and Culture?’ (2023) Accounting & Finance 3, online version <https://onlinelibrary.wiley.com/doi/epdf/10.1111/acfi.13087>.

88 ibid 6.

89 FCA, ‘Senior Managers and Certification Regime banking stocktake report’, 5 August 2019, <https://www.fca.org.uk/publications/multi-firm-reviews/senior-managers-and-certification-regime-banking-stocktake-report>

90 See, e.g., Alan Brener, ‘Developing the Senior Managers Regime’ in Costanza A Russo, Rosa Maria Lastra and William Blair (eds), Research Handbook on Law and Ethics in Banking and Finance (Edward Elgar Publishing, 2019) 274–301, 284.

91 See, e.g., UK Chartered Institute of Internal Auditors: <https://www.iia.org.uk/resources/corporate-governance/application-of-the-three-lines-model/>

92 Basel Committee on Banking Supervision, ‘Corporate governance principles for banks’, 2015, paras. 13, 38, 39. The Basel Committee on Banking Supervision is comprised of representatives of national financial services regulators and the European Union. It is a global standard setter for the prudential regulation of banks and provides a forum for co-operation on banking supervisory matters. It does so through e.g. exchanges of information and establishing and promoting global standards. It does not, however, possess any formal supranational authority and its decisions do not have any legal force (see, Basel Committee Charter <https://www.bis.org/bcbs/charter.htm>). It is a matter for national and/or regional (e.g. European Union) authorities to determine the nature and extent of implementation of standards adopted by the Basel Committee on Banking Supervision. In this regard, see, e.g., within the European Union, European Banking Authority Guidelines on internal governance under Directive 2013/36/EU, which adopts the three lines of defence model (https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Guidelines/2021/1016721/Final%20report%20on%20Guidelines%20on%20internal%20governance%20under%20CRD.pdf).

93 Alan Brener, ‘Developing the Senior Managers Regime’ in Costanza A Russo, Rosa Maria Lastra and William Blair (eds), Research Handbook on Law and Ethics in Banking and Finance (Edward Elgar Publishing 2019) 274–301, 276.

94 See, e.g. H Davies and M Zhivitskaya, ‘Three Lines of Defence: A Robust Organising Framework, or Just Lines in the Sand?’ (2018) 9 Global Policy 34–42.

95 See further: Institute of Internal Auditors, ‘The three lines of defence’, 2019 <https://fna.theiia.org/about-ia/PublicDocuments/3LOD-IIA-Exposure-Document.pdf>

96 Elizabeth Sheedy and Dominic Canestrari-Soh, ‘Does Executive Accountability Enhance Risk Management and Culture?’ 2023 Accounting & Finance 7, online version <https://onlinelibrary.wiley.com/doi/epdf/10.1111/acfi.13087>.

97 Peter Grabosky, ‘Meta-Regulation’ in Peter Drahos (ed), Regulatory Theory: Foundations and Applications (ANU Press 2017) 149–62; Colin Scott, ‘The Regulatory State and Beyond’ in Peter Drahos (ed), Regulatory Theory: Foundations and Applications (ANU Press, 2017) 265–88; Julia Black, ‘Regulatory Styles and Supervisory Strategies’ in Niamh Moloney, Eilis Ferran and Jennifer Payne (eds), The Oxford Handbook of Financial Regulation (Oxford University Press, 2015) 218–48.

98 Ian Ayres, and John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford University Press, 1992).

99 Ayres and Braithwaite (n 98).

100 ibid 19.

101 ibid.

102 Julia Black, ‘Regulatory Styles and Supervisory Strategies’ in Niamh Moloney, Eilis Ferran and Jennifer Payne (eds), The Oxford Handbook of Financial Regulation (Oxford University Press, 2015) 218–48, 227.

103 Julia Black, ‘Paradoxes and Failures: ‘New Governance’ Techniques and the Financial Crisis’ (2012) 75(6) The Modern Law Review 1037–63, 1048.

104 Black (n 102) 218–53, 228.

105 ibid 247.

106 Iain MacNeil, ‘Regulating Instead of Punishing: The Senior Managers Regime in the UK’ in Katalin Ligeti and Stanislaw Tosza (eds) White Collar Crime: A Comparative Perspective (Bloomsbury Publishing 2018) 238.

107 See: Blanaid Clarke, ‘Senior Executive Accountability and Responsibility in Financial Institutions (2021) 66(66) Irish Jurist 74–100.

108 See, e.g. FCA ‘Dear CEO’ letter regarding non-financial misconduct in wholesale general insurance firms, 6 January 2020 <https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-non-financial-misconduct-wholesale-general-insurance-firms.pdf>.

109 Chris Hodges and Ruth Steinholtz, Ethical Business Practice and Regulation: A Behavioural and Values-Based Approach to Compliance and Enforcement (Bloomsbury Publishing 2018) 184.

110 Ian Ayres and John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford University Press, 1992) 49.

113 For example, in April 2021, Baroness Kramer stated in the House of Lords that the SMCR has been ‘holed below the waterline by decisions of the FCA not to pursue senior executives’. Baroness Kramer had sat on the Parliamentary Commission on Banking Standards, whose 2013 report, ‘Changing banking for good’ (PCBS report) contained the recommendations that led to the adoption of the SMCR.

114 See, the following CBI public notices regarding enforcement action against individuals: June 2021 (disqualification for 15 years and fine of €200,000) imposed – see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/public-statement-relating-to-enforcement-action-against-gary-mccollum.pdf?sfvrsn=4>). June 2020 (disqualification for 8 years 4 months, together with a fine of €70,000 imposed – see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/public-statement-relating-to-enforcement-action-against-rory-o'connor-former-executive-director-and-chief-financial-officer-of-rsa-ireland-insurance-dac.pdf?sfvrsn=6>). December 2018 (disqualification for 18 years and fine of €23,000 imposed – see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/public-statement-relating-to-an-enforcement-action-against-tom-mcmenamin.pdf?sfvrsn=6>). February 2018 (disqualification for 3 years and fine of €23,000 imposed – see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/public-statement-relating-to-settlement-agreement-between-central-bank-of-ireland-and-michael-p--walsh.pdf?sfvrsn=6>). In May 2017, the CBI imposed disqualification for 10 years on an individual; the CBI’s public notice stated that its proposed fine of the individual was not imposed due to bankruptcy of individual (see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/mr-tadhg-gunnell.pdf?sfvrsn=8>). October 2008 (fine of €200,000; the Chairman also stepped down as Chairman and Director – see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/settlement-agreement-between-the-financial-regulator-and-quinn-insurance-limited-and-mr-sean-quinn-senior.pdf?sfvrsn=8>). July 2006 (disqualification for 18 months – see: <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/settlement-agreements/public-statement-relating-to-settlement-agreement-between-the-financial-regulator-and-broadstone-fund-management-ltd-(in-voluntary-liquidation)-and-messrs-gerard-o-neill-and-david-murray.pdf?sfvrsn=4>).

115 D Rowland, Speech, ‘The Central Bank’s evolution of enforcement’ 2021 <https://www.centralbank.ie/news/article/speech-the-central-banks-evolution-of-enforcement-derville-rowland-13-october-2021>

116 CP153, 36.

117 Mathew E Fishbein, Why Individuals aren’t Prosecuted For Conduct Companies Admit (2014) New York Law Journal 4.

118 See, An Inquiry pursuant to Part IIIC of the Central Bank Act 1942 (as amended) concerning the Irish Nationwide Building Society, Michael Fingleton, William Garfield McCollum, Tom McMenamin, John S Purcell and Michael P Walsh (the ‘Inquiry’), Opening Statement of Inquiry Chairperson, 11 December 2017 <https://www.centralbank.ie/docs/default-source/news-and-media/legal-notices/inquiry-hearings/inbs-inquiry---opening-statement-of-ms-marian-shanley-inquiry-chairperson-11-december-2017.pdf?sfvrsn=4>. For an overview of the CBI’s Administrative Sanctions Procedure, including its Inquiry process, see, Outline of Administrative Sanctions Procedure (2018) <https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/enforcement/administrative-sanctions-procedure/legislation-and-guidance/outline-of-the-administrative-sanctions-procedure.pdf?sfvrsn=8>. Also, Inquiry Guidelines prescribed pursuant to section 33BD of the Central Bank Act 1942 (2014) <https://www.centralbank.ie/docs/default-source/regulation/how-we-regulate/enforcement/administrative-sanctions-procedure/legislation-and-guidance/inquiry-guidelines-2014.pdf?sfvrsn=6>.

119 ‘ … there were 4,486 PCF applications assessed in 2020. 36 of these PCF applications were referred to the Enforcement Division [of the CBI] for assistance and consideration. Arising from this, the Enforcement Division conducted 26 Specific Interviews of proposed applicants for PCF positions and 20 applications were withdrawn by firms following referral to the Enforcement Division’. CBI correspondence with Roisin Shorthall TD, 2021 <https://www.centralbank.ie/docs/default-source/publications/correspondence/oireachtas-correspondence/response-roisin-shortall-td-davy-stockbrokers-published-28-july-2021.pdf?sfvrsn=7>

120 Joe McGrath, ‘Why Do Good People Do Bad Things: A Multi-Level Analysis of Individual, Organizational, and Structural Causes of White-Collar Crime’ (2019) 43 Seattle UL Rev. 525–53; Joe McGrath, ‘The Making of a Mismarker: The Case of the Only Banker Jailed in the U.S. for His Role in the Financial Crash’ (2020) University of Chicago Law Review Online <https://lawreviewblog.uchicago.edu/2020/01/07/the-making-of-a-mismarker-the-case-of-the-only-banker-jailed-in-the-u-s-for-his-role-in-the-financial-crash-by-joe-mcgrath/>

121 Julia Black, ‘Paradoxes and Failures: New Governance’ Techniques and the Financial Crisis’ (2012) 75 Mod. L. Rev. 1037–63, 1058.

122 Saule T Omarova, ‘Ethical Finance as a Systemic Challenge: Risk, Culture, and Structure’ (2017) 27 Cornell JL & Public Policy 797–839, 825.

123 Wieke Scholten and Naoimi Ellemers, ‘Bad Apples or Corrupting Barrels? Preventing Traders’ Misconduct’ (2016) 24(4) Journal of Financial Regulation and Compliance 366–82.

124 James O’Toole and Warren Bennis, ‘A Culture of Candor’ (2009) 87(6) Harvard Business Review 54.

125 Saule T. Omarova, ‘Ethical Finance as a Systemic Challenge: Risk, Culture, and Structure’ (2017) 27 Cornell Journal of Law and Public Policy 797, 810.

126 Milton Friedman, Social Responsibility of Capital and Labor. Capital and Freedom (The University of Chicago Press 1962).

127 See, e.g. Lynn A Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (Berrett-Koehler Publishers 2012). See also: US Business Roundtable, Press release, 19 August 2019 <https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans>

128 Björn Lindström, Simon Jangard, Ida Selbing and Andreas Olsson, ‘The Role of a “Common is Moral” Heuristic in the Stability and Change of Moral Norms’ (2018) 147(2) Journal of Experimental Psychology: General 228.

129 George A Akerlof, ‘The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism’ (1970) 84 Quarterly Journal of Economics 235–51.

130 See, e.g., Speech by then CBI Governor Philip Lane, 23 February 2017 <https://www.centralbank.ie/news/article/financial-regulation-protecting-consumers-governor-lane>

131 George A Akerlof and Robert J Shiller, Phishing for Phools: The Economics of Manipulation and Deception (Princeton University Press 2015), xii.

132 Dan Ariely, Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions (Harper Collins 2009), 209.

133 PCBS Report, Vol I, para. 94.

134 PCBS Report, Vol II, paras. 599–611.

135 Richard Lambert, Banking Standards Review (2014), <https://financialservicescultureboard.org.uk/pdf/banking-standards-review.pdf>

136 See, <https://financialservicescultureboard.org.uk/who-we-are/>. For an evaluation of the work of the Financial Services Culture Board, see Daniel Beunza and Saeid Rahanjam, Understanding best practice in industry self-regulation: the case of the Financial Services Culture Board <https://openaccess.city.ac.uk/id/eprint/30416/8/Best%20Practices%20in%20Self-Regulation%20-%20the%20Case%20of%20the%20FSCB.pdf>

137 See, FSCB wind-up statement, 18 January 2023 <https://financialservicescultureboard.org.uk/fscb-wind-up-statement/>. As indicated on its website, the FSCB ceased operations in June 2023.

138 ‘SMCR: Evolution and reform’, September 2019, UK Finance, 5.

139 See, FCA Policy Statement PS 18/18, July 2018 <https://www.fca.org.uk/publication/policy/ps18-18.pdf>

140 See, Financial Sector Reform (Hayne Royal Commission Response) Act 2020.

142 PCBS Report, Vol II., para.607.

143 ‘Supervision of behaviour and culture: Foundations, practice & future developments’, De Nederlandsche Bank, 50 <https://www.dnb.nl/media/1gmkp1vk/supervision-of-behaviour-and-culture_tcm46-380398-1.pdf>

144 For a discussion on the importance of salience and influencing choice architecture for purposes of achieving regulatory compliance, see, e.g, ‘Behaviour and compliance in organisations’, Occasional Paper 24, FCA, December 2016 <https://www.fca.org.uk/publication/occasional-papers/op16-24.pdf>

145 Stephanie Chaly, James Hennessy, Lev Menand, Kevin Stiroh, and Joseph Tracy, Misconduct Risk, Culture, and Supervision (Federal Reserve Bank of New York, 2017) <https://www.newyorkfed.org/medialibrary/media/governance-and-culture-reform/2017-whitepaper.pdf>

146 Naomi Ellemers, Morality and the Regulation of Social Behavior: Groups as Moral Anchors (Psychology Press 2017).

147 Naomi Ellemers, ‘The Group Self’ (2012) 336(6083) Science, 848–52.

148 Celia Moore and Francesca Gino, ‘Ethically Adrift: How Others Pull Our Moral Compass from True North, and How we Can Fix It’ (2013) 33 Research in Organizational Behavior 53–77.

149 Onora O’Neill, ‘Trust, Trustworthiness, and Accountability. Capital Failure: Rebuilding Trust in Financial Services’ in Nicholas Morris and David Vines (eds) Capital Failure: Rebuilding Trust in Financial Services (Oxford University Press 2014) 172–89, 187.

153 Blanaid Clarke, ‘Senior Executive Accountability and Responsibility in Financial Institutions’ (2022) 66(66) The Irish Jurist: 2021 74–100.

154 Financial Conduct Authority. COCON 1 Annex 1 Guidance on the role and responsibilities of non-executive directors of SMCR firms, 2018 <https://www.handbook.fca.org.uk/handbook/COCON/1/Annex1.html>

156 Evaluation of the Senior Managers and Certification Regime, PRA, December 2020, 28.

157 HM Treasury, Senior Managers & Certification Regime Call for Evidence, 2023 <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147932/SMCR_Call_for_Evidence.pdf>, para. 3.9.

Additional information

Notes on contributors

Ciaran Walker

Ciaran Walker is a Consultant in the Financial Services Regulation & Governance group at the Dublin, Ireland, office of the global law firm Eversheds Sutherland. He also lectures and publishes in the leading international journals in his fields. He is the co-author, with Joe McGrath, of New Accountability in Financial Services: Changing Individual Behaviour and Culture (Palgrave Macmillan, 2022). Prior to joining Eversheds Sutherland, he was the Deputy Head of Enforcement at the Central Bank of Ireland.

Joe McGrath

Joe McGrath is an Irish Research Council Scholar, a Fulbright Scholar, an Assistant Professor of Law at the Sutherland School of Law, and the Vice Principal for Equality, Diversity and Inclusion of the College of Social Sciences at University College Dublin, Ireland. He teaches banking law, corporate governance, white-collar crime, and financial regulation. He is the author of three books and publishes in a variety of leading international peer-reviewed journals.

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