Insights from the Central Bank of Ireland's 2023 Annual Report and Annual Performance Statement 2023 - 2024

1. Macroeconomic and Geopolitical Risks:

The Central Bank is closely monitoring the global and domestic macroeconomic environment, including the impact of geopolitical events. This includes factors such as economic growth rates, inflation, employment levels, and political stability both domestically and internationally.

 

2. Regulated Entities’ Response:

The Central Bank is also concerned about how regulated entities are adapting to the changing world. This includes how they manage risks, comply with regulations, and serve their customers. The Central Bank is particularly interested in how these entities are using technology and data, and how they are managing risks related to cybersecurity and data privacy.

 

3. Long Term Structural Forces:

The Central Bank is considering risks driven by longer-term structural forces. This includes demographic changes, technological advancements, climate change, and shifts in the global financial system. The Central Bank is working to understand these forces and their implications for the financial system and the economy.

 

4. Six Overarching Supervisory Priorities:

The Central Bank has identified six key areas of focus for its supervisory work. These include ensuring that firms have robust risk management frameworks, that they are resilient in the face of macroeconomic and financial shocks, and that they are serving their customers in a fair and transparent manner.

 

5. Key Upcoming Developments:

The Central Bank is preparing for several key regulatory developments in 2024, including:

EU AI Act: This act will regulate artificial intelligence in the EU, including its use in financial services. It will establish legal requirements for AI systems to ensure they are safe and respect existing laws and values. The requirements will apply across the entire lifecycle of AI systems, from design and development to use

EU AML/CFT package: This package includes measures to combat money laundering and terrorist financing. It will strengthen the EU’s legal framework to prevent, detect, and investigate these crimes. The package will also enhance cooperation between Financial Intelligence Units in the EU.

Final Basel III implementation package (CRR 3 and CRD VI): This package includes new regulations for banks to ensure they have sufficient capital to withstand financial shocks. It will implement the final elements of the Basel III framework in the EU, including a leverage ratio requirement and a net stable funding ratio requirement.

DORA implementation: The Digital Operational Resilience Act (DORA) aims to strengthen the digital operational resilience of the EU financial sector. It will establish a comprehensive legal framework for digital operational resilience, including requirements for ICT risk management, incident reporting, digital operational resilience testing, and information sharing.

ESAP: The European Single Access Point (ESAP) will provide a single access point to company data across the EU. It will make it easier for investors to access and compare information about companies, promoting transparency and market efficiency.

Upcoming Instant Euro Credit Transfers Regulation: This regulation will facilitate instant credit transfers across the Eurozone. It will make it easier for consumers and businesses to make and receive payments, promoting economic activity.

MiCA implementation: The Markets in Crypto-assets (MiCA) Regulation will regulate crypto-assets in the EU. It will establish a comprehensive legal framework for crypto-assets, including requirements for issuers and service providers. The Central Bank announced that it will host an industry event in July 2024. This event will outline the authorisation and supervisory standards expected of firms within its regulatory scope. Furthermore, the Central Bank plans to launch its “authorisation gateway” in the third quarter of 2024. Additionally, the Central Bank has issued a recent notice discussing the implications of the MiCA Regulation on entities that currently hold registrations as virtual asset service providers (VASPs).

Proposals to update the Payment Services Directive: This includes a new directive and regulation to combat authorised push payment fraud. It will strengthen the security of electronic payments and protect consumers.

European Commission’s Retail Investment Strategy: This strategy aims to improve the retail investment environment in the EU. It will promote a more integrated market for retail investment products and services, enhancing consumer protection and market efficiency.

Solvency II review: This review will update the Solvency II directive, which regulates insurance companies in the EU. It will ensure that the directive remains fit for purpose and continues to protect policyholders.

 

6. Consumer Protection Code Revision:

The Central Bank is revising the Consumer Protection Code to ensure that it remains fit for purpose and continues to protect consumers. The Central Bank has launched Consultation Paper 158 titled “Consultation Paper on the Consumer Protection Code”, and includes proposals relating to digitalisation, informing effectively , mortgage credit and switching, unregulated activities, frauds and scams, vulnerability, and climate risk. The consultation shall run until 7 June 2024. Subsequent to this, it is anticipated that the final draft of the ‘Conduct of Business’ Regulations will be published by the close of Q4 2024. These impending regulations are set to supersede the current CPC and will incorporate several other codes, inclusive of the Code of Conduct on Mortgage Arrears.

 

7. Individual Accountability Framework / SEAR:

The Central Bank is continuing to implement its Individual Accountability Framework (IAF). The Senior Executive Accountability Regime (SEAR) is set to be implemented on 1 July 2024. In preparation for this, the Central Bank has released an updated Guidance on the Individual Accountability Framework (IAF), in conjunction with the SEAR Regulations. These regulations will be effective from 1 July 2024, with the exception of the provisions pertaining to non-executive directors, which will come into effect a year later, on the 1 July 2025.

 

8. Non-Bank Sector Risks:

The Central Bank is working to address systemic risks in the non-bank financial sector. This includes monitoring and assessing risks related to asset management, insurance, and other non-bank financial activities.