Central Bank’s new supervisory framework – what’s new?

The Central Bank of Ireland (Central Bank) recently outlined its new supervisory approach in a document titled ‘Our Approach to Supervision’, which was published alongside its Regulatory and Supervisory Outlook Report 2025.

The new supervisory framework was implemented in January 2025 and replaces the Central Bank’s previous risk-based supervisory framework, PRISM. The change was required to adapt and respond to the increasingly complex, interconnected and digitalised financial services sector.

All regulated firms will need to take stock of the new framework and engage with their supervisory teams and contacts to ensure that they fully understand the changes and how they will impact their dealings with the Central Bank going forward.

What remains unchanged under the revised framework?

The overarching objectives and supervisory tools are not changing under the new framework.

1. Safeguarding outcomes

The Central Bank’s supervisory objectives, which it refers to as its “safeguarding outcomes”, remain unchanged under the new supervisory framework:

• protection of consumer and investor interests
• integrity of the financial system
• safety and soundness of firms
• financial stability

2. Risk-based supervision

Supervision will remain risk-based and outcomes focused and the Central Bank will continue to:

• take a proactive and forward looking approach
• set clear objectives
• identify and respond to key risks
• remediate issues.

The Central Bank’s annual Regulatory and Supervisory Outlook Report will be a key document for regulated firms to understand the Central Bank’s objectives and the key risks it identifies (see our recent insight on the 2025 Outlook Report here).

3. Supervisory tools

Supervision will continue to be supported by the Central Bank’s full supervisory toolkit, including for example, direct engagement, communicating best practices, thematic reviews and firm-specific assessments.

Where issues are identified, the Central Bank will address these through the usual means, including by communicating supervisory expectations via ‘Dear CEO’ letters, issuing risk mitigation programmes, requiring preparation of skilled persons reports, increasing the frequency of supervisory engagement and utilising enforcement powers.

What is new under the revised framework?

While the Central Bank’s safeguarding outcomes are unchanged, how the Central Bank works to achieve these safeguarding outcomes has evolved, consisting of a number of inter-related areas, as outlined below.

1. Supervisory Principles

The new supervisory framework is based on five new “supervisory principles” which underpin how the Central Bank will deliver on the safeguarding outcomes:

• Risk-based – directing supervisory efforts towards areas that pose the greatest risk to the Central Bank’s safeguarding outcomes.
• Outcomes focused – communicating supervisory concerns to sectors and firms and highlighting the outcomes expected and timelines for them to be achieved.
• Forward looking – anticipating the impact of current trends and emerging risks in a national and international context to be better positioned to respond quickly and effectively.
• Judgement-led – using data, analysis and information received to inform professional judgement.
• Firms’ responsibilities – ensuring the board and management teams of firms take responsibility for risk identification, management and mitigation.

2. Integrated sectoral supervision

The Central Bank will supervise regulated firms grouped under three overarching industry categories:

• Banking and Payments
• Insurance
• Capital Markets and Funds.

Each industry category contains several sectors. Each sector will be supervised in an integrated manner by multi-disciplinary teams based on a multi-year supervisory strategy which will be refreshed annually and notified to industry sectors via the Regulatory and Supervisory Outlook Report.

The new integrated approach to supervision recognises the changing nature of the financial system, which now exceeds traditional regulatory distinctions such as ‘prudential’, ‘conduct’, ‘AML’. It takes into account the risk landscape, the Central Bank’s risk appetite and tolerance, and the nature and scale of the firms, sectors and products under supervision. The Central Bank will identify and prioritise risks, focusing on the risks most likely to impact its achievement of the safeguarding outcomes and risks that are significantly beyond its risk tolerance levels.

3. Additional supervision of significant firms

Firms that could significantly impact the achievement of the safeguarding outcomes will be subject to close and continuous supervision at individual firm level by integrated supervision teams.

Supervisory engagement and continuous assessment will be conducted across four risk categories:

• business model and strategy risk
• culture, governance and risk management
• operational resilience risk
• financial resilience risk and financial crime risk.

Additionally, the Central Bank will have a set level of engagement with key individuals within these ‘significant firms’ on an annual basis.

Firms will be deemed significant based on a number of factors:

• Systemic nature – including the risk that a disorderly financial or operational failure would negatively impact financial stability directly or through potential contagion on a domestic or global level.
• Materiality of risk – the materiality of the risk that firms’ operations present to consumers and investors through scale, the nature of the products sold, the nature of the customer base and/or limitations in the timely substitutability of services.
• Nature and scale of activities – including the extent that they are exposed to heightened financial crime risks that can significantly undermine the integrity of the financial system.
• Supervisory experience – the Central Bank’s view of firms’ capacity to manage the above-mentioned risks.

Next steps

The Central Bank has indicated that it will further communicate its new supervisory approach to firms throughout the year as part of supervisory engagements at both firm and sector levels.

Firms must actively engage with their supervisory teams and contacts so that they fully understand how the framework will be applied in practice as well as the underlying supervisory priorities and key risks.

Date published: 18 March 2025