Individual Accountability Framework Series: Part 4 - Management Responsibilities Map Step-Plan
In this Part 4 of our ongoing Individual Accountability Framework (IAF) Series, we provide a practical step-plan for regulated financial services providers (RFSPs) who are in-scope of the Senior Executive Accountability Regime (SEAR) to follow when preparing their Management Responsibilities Map (MRM).
The following step-plan should be read in conjunction with Parts 2 and 3 of our IAF Series: Part 2 - SEAR: Where do we start? 8 Step Employment Law Project Plan and Part 3 - Statement of Responsibilities: Key Components and Practical Steps.
Step 1: Consider the Purpose of the MRM
All in-scope RFSPs will be required to establish and maintain an updated comprehensive MRM to clearly detail and illustrate the management and governance arrangements in place in respect of its activities, business areas and management functions.
A well-presented MRM should clearly demonstrate in one composite document the governance structure of the RFSP and readily identify the individuals / sub-committees in key decision making roles, who have oversight for such decisions and who are responsible for their implementation.
A key requirement of an MRM is to show that no material gaps exist in the governance structure or within the key functions of the in-scope RFSP. To that end, any gaps identified when drafting or updating the MRM must be rectified.
Step 2: Consider How Best to Present the MRM
The Central Bank has not provided a template MRM on the basis that each in-scope RFSP's MRM will be drafted to reflect its individual nature, scale, complexity, legal and group structure. It is, therefore, up to each RFSP to determine the optimum way to present the requisite information. Although additional guidance may be forthcoming, the absence of a template provides the relevant in-scope RFSPs with flexibility to present their MRM in a way that best represents and demonstrates their operating model and governing structures.
Based on our experience and that of UK regulated entities who are in-scope of the similar accountability framework known as the Senior Managers and Certification Regime (SMCR), MRMs are best presented as one single document comprising of a combination of text and visual aids (such as graphs and charts). It is likely that the MRM will either augment, enhance or indeed replace the existing governance framework for RFSPs.
Step 4: Summarise the Operating Structure and Governance Arrangement
The MRM must set out the in-scope RFSP's activities, business areas and management functions and detail how each aspect operates within the overall business. The MRM should also illustrate the reporting lines and the lines of responsibility within each significant activity, business area and management function listed, and clearly detail how decision-making and governance operate in respect of such matters.
Many in-scope RFSPs will be able to build on existing documentation already in place and from our experience, the easiest way of ultimately presenting this information will likely be via an infographic (a visual aid that combines text and graph).
Step 3: Prepare an Updated Organisation Chart
To the extent relevant, the MRM must contain a detailed and up-to-date organisation chart for the in-scope RFSP illustrating where the in-scope RFSP sits within the overall company group structure (the Group) and how the management and governance arrangements detailed in an MRM relate and interact with similar arrangements at the Group level, including the extent to which such arrangements are provided by, or shared with, other Group entities and an overview of any intra-group reporting lines, as applicable. In addition, where the activities of unregulated entities interlock with the in-scope RFSP, the MRM should describe, in practical terms, how this operates in practice.
In-scope RFSPs will almost certainly already have provided the Central Bank with an organisation chart in the course of the Central Bank's supervisory engagement.
Step 5: Board Composition and Decision Making
The composition and membership of the Board is an important element of the MRM and each in-scope RFSP should set this out, together with a clear overview of the responsibilities that come within its remit.
The MRM should also clearly document how the Board's sub-committees and / or other senior level committees contribute to decision-making at Board level, and align to the Terms of Reference of each relevant committee. Such committees may include an audit committee, a risk committee, a remuneration committee and a succession committee.
Step 6: Reporting Lines
The MRM should clearly illustrate the reporting lines in place for each PCF role holder to individuals and / or committees, both within the RFSP and / or within Group (if applicable). Where multiple reporting lines exist, it is important that the distinction between reporting lines is made clear so that, for example, it is clear who reports into whom in relation to the various responsibilities outlined.
The delineation of clear reporting lines will assist each in-scope RFSP in embedding an effective, transparent and accountable governance framework.
Step 7: Names and Responsibilities of PCF Role Holders
The name of each PCF role holder and a summary of his / her Inherent, Prescribed and Other Responsibilities, consistent with each applicable SoR, should be included in the MRM. A copy of each Statement of Responsibility (SoR) should not be included or appended.
The MRM should confirm that all Prescribed Responsibilities have been allocated to the appropriate PCF and, where applicable, provide a summary of the Other Responsibilities allocated (see Part 3 - Statement of Responsibilities: Key Components and Practical Steps). The MRM should illustrate the management and governance arrangements relating to such Prescribed and Other Responsibilities.
Step 8: Shared Responsibilities
The MRM should explain the rationale for the allocation of any Other Responsibilities to more than one PCF role holder and detail the arrangements for the effective operation of that joint allocation of responsibility.
The sharing or splitting of Prescribed Responsibilities between two or more PCF role holders is not permitted, except in the case of job sharing.
Step 9: Identify and Summarise Role of CF1s and Individuals who Exert Significant Influence on the RFSP
CF1 role holders (within the meaning of Schedule 1 of the Central Bank Reform Act, 2010 (Sections 20 and 22) Regulations, 2011) and those individuals who exert significant influence on the RFSP should be clearly identified in the MRM. The MRM should also contain "reasonable information" about such individuals, including in respect of their employment status, role and responsibility within the RFSP and within the Group (if applicable).
Step 9: Outsourcing Arrangements
Where an in-scope RFSP outsources particular services, the MRM should detail who is responsible for oversight of the outsourced function.
Step 10: Keep the MRM Updated
In-scope RFSPs will need to establish a clear process, supported by the necessary systems, to ensure that the MRM is a dynamic document which is reviewed on a regular basis and updated, as necessary, and that version control and an audit trail of such updates is maintained. The MRM must be considered to be a live document that is continually reviewed, revised and updated.
All previous versions of an MRM are considered to comprise a key part of internal corporate governance documentation and must be dated, numbered and retained for 10 years (to be made available to the Central Bank, on request). The establishment of a clear system of reviewing and updating the MRM, and maintaining version control, will assist each RFSP in embedding an effective, transparent and accountable governance framework. This may include an obligation on the relevant PCFs that they notify Compliance or HR of any change in their role that might require an update to their SORs or the MRM.
One of the most immediate obstacles facing RFSPs in preparing their MRM is that it cannot be completed until all of the various SORs are completed. As addressed in Part 2 - SEAR: Where do we start? 8 Step Employment Law Project Plan, this can be a time consuming process and any one PCF can effectively hold up the MRM process. It is important to note that while an MRM can be substantially advanced in the meantime it cannot be fully completed until the last PCF's SOR is signed off. Employers needs to build this into their timetable and address the more complex SOR discussions early on.
Timing – When Must the MRM be in Place?
One frequent question coming up on this is when must the MRM (and the SORs) be completed. The Central Bank's Consultation Paper 153: Enhanced Governance, Performance and Accountability in Financial Services states that they can be prepared up to 1 July 2024. However, in our view, the practical requirement is that MRMs should be substantively progressed if not completed by 31 December this year.
This is because of the link between the MRM, the Conduct Standards and the changes to the Fitness and Probity Regime which RFSPs are expressly required to have implemented by 31 December 2023. If RFSPs wait until January 2024 to consider their MRMs, they may find themselves retracing or repeating 2023 IAF work in order to ensure alignment and coherence with the in-scope RFSP's compliance with Conduct Standards and the Fitness and Probity Regime. Further and in so far as the general obligation requires all relevant responsibilities to have been clearly allocated by this point, it will not be possible to confirm that this has been done without having gone properly through the full SOR and MRM process.
Keep an eye out for our next insight as part of this IAF Series.
For more detail on these services and others which we provide, please do not hesitate to contact any member of our dedicated IAF team.