SEAR: Director Update

In this piece, Mary Elizabeth comments on how it is an important addition to the regulatory framework to enhance governance, performance and accountability, and to ensure clarity of responsibilities in financial services. 

The Senior Executive Accountability Regime 

SEAR was introduced in 2024 to enhance governance, performance and accountability of senior role-holders in financial services firms, and to ensure clarity of responsibilities. The SEAR imposes binding legal requirements on certain financial services firms.  Requiring them to prepare Statements of Responsibilities for each holder of a ‘pre-approval controlled function’ (PCF) role, and to prepare Management Responsibilities Maps. For PCF role-holders, the Statement of Responsibility is underpinned by the Duty of Responsibility, which is an enforceable legal duty imposed on PCFs in relation to their allocated responsibilities. The SEAR took effect for executive PCF role-holders on 1 July 2024. It will apply to non-executives from 1 July 2025, when a Statement of Responsibilities will be required to maintained for all non-executive PCF role holders.

What is a Statement of Responsibilities?

A Statement of Responsibilities is a single stand-alone document that includes a PCF role-holder’s: Inherent responsibilities (core responsibilities to that role); Prescribed responsibilities (those responsibilities that are assigned to the role-holder); and, Other responsibilities. The inherent responsibilities and prescribed responsibilities are set out by the Central Bank in the SEAR framework regulations.

From 1 July 2025, Statements of Responsibilities must be submitted to the Central Bank with new applications for appointments as director, along with the Individual Questionnaire (IQ). In other instances, the Central Bank may request the submission of Statements of Responsibilities as part of its ongoing supervision.

Duty of Responsibility

The Duty of Responsibility requires PCF role-holders to take reasonable steps to ensure that the aspects of the firm’s affairs for which they are responsible are conducted so that the firm does not contravene its obligations under financial services legislation. Where a PCF holder takes reasonable steps to ensure the firm complies with its obligations under financial services legislation, the Duty is discharged. 
The Duty of Responsibility applies to both executives and non-executives, recognising that non-executive directors individually do not manage a firm's business in the same way as executives. The responsibilities for which non-executive directors are accountable relate to their responsibilities in respect of governance, oversight and challenge, and considerations in respect of reasonable steps will be limited to what should reasonably be expected of individuals in that context. 

Allocation of Prescribed Responsibilities

The key change in the application of the SEAR to non-executive directors is the need for a Statement of Responsibilities and the allocation of the non-executive Prescribed Responsibilities. Firms have a flexibility to allocate responsibilities in a manner that accommodates different business models and organisational structures. The Central Bank has provided some clarity on this in its Questions from Stakeholders. 

It is worth noting the alignment between the non-executive Prescribed Responsibilities and the Inherent Responsibilities of the Chairs of the Audit, Risk, Nomination and Remuneration Committees (where these exist). The Central Bank’s Corporate Governance Requirements specify the need for such committees depending on the sector and the impact rating. If these committees do not exist, these Prescribed Responsibilities should be allocated to the most appropriate non-executive director. 

There is also an important distinction between the executive and non-executive nature of some Prescribed Responsibilities. For example, while both PR4 and PR5 (in the SEAR framework regulations) relate to culture, there are key differences in the focus and nature of these responsibilities.  

Lastly, in relation to the potential allocation of some executive Prescribed Responsibilities, such as PR16 and PR33 to non-executive directors from 1 July 2025, it is important to note that executive Prescribed Responsibilities cannot be allocated to non-executives. So, PR16 – “Responsibility for the Board’s development and maintenance of the firm’s business model” - is intended for allocation to the executive member of the Board responsible for ensuring there is appropriate Board involvement in, and contribution to, the development and maintenance of the firm’s business model. Similarly, PR33 – “Where the firm outsources its internal audit function . . .” - is a management role and is appropriate for allocation to an executive PCF role-holder only. 

Our approach to SEAR

While we have set out here the requirements of SEAR, we should not forget its purpose – which is to improve governance and responsibility in the Financial Sector. As such rather than supervising the SEAR itself, for the Central Bank it will sit alongside our suite of supervisory tools focused on good governance and risk management – helping how we assess corporate governance and risk management of firms in our day-to-day supervisory work. We know that successful long-term outcomes are dependent on continued engagement with the sector, and as the Regime comes into effect for non-executives we encourage stakeholders to submit queries regarding the implementation of the SEAR to [email protected].

This article is the view of the author and does not necessarily reflect IoD Ireland’s policy or position.