Regulatory and supervisory priorities for the financial sector in 2025

On 28 February 2025, the Central Bank of Ireland (Central Bank) published its Regulatory and Supervisory Outlook Report (Outlook Report), a letter from Governor Makhlouf to the Minister for Finance and a Dear CEO Letter.

The Outlook Report sets out the Central Bank’s supervisory priorities and key regulatory initiatives for this year and outlines its perspective on the key trends and risks that are shaping the financial services sector. It also contains three ‘Spotlight’ chapters on consumer protection, artificial intelligence and geopolitical risks, areas of particular significance for the sector. Governor Makhlouf’s letter sets out the Central Bank’s financial regulation priorities, while the Dear CEO Letter highlights the Central Bank’s new supervisory approach and summarises the industry wide supervisory priorities and key regulatory initiatives that are discussed in the Outlook Report.  

This article focuses on the Central Bank’s regulatory and supervisory priorities for the year ahead. Many of those priorities reflect the focus that we have seen the Central Bank place on regulated firms in the latter parts of 2024, in particular governance and risk management, consumer protection and operational resilience. We have also worked with many firms on their implementation of the revised Consumer Protection Code, changes to fitness and probity arising from the Enria review, the Individual Accountability Framework and implementation of the Markets in Crypto Assets Regulation. Mapping this work with industry against the new regulatory priorities, it is clear that the Central Bank will continue to focus on these in 2025.

It is important that regulated firms consider carefully these priorities. Under the Central Bank’s new supervisory approach, they provide a clear indication of the areas on which firms may expect more supervisory focus in terms of ‘outcomes focussed’ supervision and regulatory intervention, as well as through the Central Bank’s ‘integrated supervision’ approach taking a holistic view on reviewing and assessing firms’ compliance in these prioritised areas. 

Regulatory Priorities

Governor Makhlouf’s letter identifies the Central Bank’s regulatory priorities which aim to achieve four interrelated safeguarding outcomes: consumer and investor protection, safety and soundness of regulated entities, integrity of the financial system and financial stability.

The Central Bank’s regulatory priorities for 2025 are:

• finalising the revised Consumer Protection Code
• embedding the recommendations of the Enria review into the fitness and probity regime
• implementing the Markets in Crypto Assets Regulation
• delivering the first Innovation Sandbox Programme
• ensuring firms have effective governance and continue to embed the Individual Accountability Framework (where applicable)
• progressing changes to credit union legislation
• contributing to the establishment of the EU’s Anti-Money Laundering Authority and preparing for a revised approach to AML/CFT supervision
• ensuring that firms’ risk management capabilities and practices are forward-looking and fit for purpose
• enhancing operational and cyber-related resilience across the financial sector.

These regulatory priorities are further expanded on in Section 3 of the Outlook Report, and additional domestic and EU-driven regulatory initiatives are set out in Appendix A to the Outlook Report.  

Industry wide supervisory priorities

The Central Bank’s industry wide supervisory priorities are the same as those in last year’s Outlook Report. They focus on resilience, adaptability and trustworthiness, and frame the Central Bank’s more detailed supervisory priorities for the different sectors of the market (see ‘Banking’, ‘Payments and e-money’, ‘Insurance’, ‘Funds’, ‘Investments’ and ‘Retail credit’ below for detail).

The Central Bank’s supervisory priorities for all regulated firms in 2025 are:

Proactive risk management and consumer-centric leadership – Firms are expected to adopt a proactive and forward-looking approach to managing risks and uncertainties facing their organisations and customers.

Resilience to challenging macro environment – Firms should have sufficient operational and financial resources, adaptability and recoverability to be resilient to, and well-prepared for, risks in the macro environment, including those relating to the breakdown in international relations, protectionism and other economic, political, technological and environmental developments.

Addressing operating framework deficiencies – Firms are expected to address deficiencies identified in their governance, risk management and control frameworks to ensure they are effective now and into the future.

Effective change management – Firms should keep pace with changes in the financial system and consumer needs/expectations through well-managed changes to their business models and strategies, with appropriate oversight.

Preparing for climate change risks and net zero transition – Firms are expected to continue to improve their responsiveness to climate change risks by ensuring their risk management practices for physical, transition and litigation risk are fit for purpose, and avoiding greenwashing and other misrepresentation practices.

Enhancement to how the Central Bank regulates and supervises firms – The Central Bank will continue to enhance its authorisation processes, develop a proportionate and responsive regulatory framework and evolve its supervisory approach.

Sector specific supervisory priorities

Banking

As the banking sector faces continued adverse shocks and growing competition from fintechs and non-bank financial institutions, it is increasingly important that banks maintain financial resilience and demonstrate strategic management of opportunities, risks and challenges relating to the evolving landscape. In light of this, the Central Bank’s priorities for the banking sector are:

• focus on strategic oversight by boards of culture, governance and risk management practices
• continuing engagement to ensure sufficient remediation actions to address gaps in meeting the European Central Bank’s supervisory expectations on climate and environmental risks
• assessing the adequacy and effectiveness of AML/CFT risk management frameworks
• assessing the level of customer service, including the complaints handling process across relevant channels
• financial resilience assessments, including the 2025 EU stress test, capital and liquidity management, and recovery planning
• assessing banks’ ability to identify and manage new and emerging risks to the sustainability of their business models
• credit risk management and loan origination reviews, with an emphasis on vulnerable portfolios and long term mortgage arrears
• reviewing banks’ proactivity in identifying and assessing transmission channels, cross-cutting risks and cross sectoral interlinkages arising from macroeconomic and geopolitical risks
• improving operational resilience, including through implementing the Digital Operational Resilience Act (DORA)
• improving customer functionality and safety in the payments space, including through implementing the third Payment Services Directive (PSD 3), the Payment Services Regulation (PSR) and the Instant Payments Regulation (IPR).

Payments and e-money

The payments and e-money sector is expected to balance its growth and innovation with strong governance, risk management and internal control arrangements, as demonstrated by the scope of the Central Bank’s priorities for the sector, which are:

• completion of a sectoral thematic inspection on safeguarding arrangements, review of board attestations on safeguarded funds and completion of 2023 audit remediation actions
• board and executive accountability for ensuring appropriate governance, risk management and internal controls and financial and operational resilience
• implementing DORA, PSD 3, PSR and IPR  
• assessing the adequacy and effectiveness of AML/CFT risk management frameworks, including through supervisory engagements
• supervisory intervention where elevated risks (including financial crime risk) or breaches of regulatory requirements are identified.

Insurance

While noting that the (re)insurance sector has proved to be financially resilient (with strong solvency levels being maintained) in the face of the various headwinds of recent years, the Central Bank identifies a number of key risks for the sector in the coming year. These include: (1) risks posed by macroeconomic and financial market uncertainty; (2) strategic and governance risks created by rapid growth and expansion into new product areas and geographies; and (3) risks from cyber threats and interruption of services provided by outsourced service providers, exacerbated by complex operating models involving multiples parties.

The Central Bank will support the strategic priorities of the European Union, as identified by the European Insurance and Occupational Pensions Authority (EIOPA), in carrying out its key supervisory activities for 2025, including:

• monitoring the potential impacts of changes in financial markets and macroeconomic environment on the (re)insurance sector and its consumers including an examination of manual processes in life reserving and pricing in the domestic non-life sector, and disclosure of commission arrangements with intermediaries
• assessing firms’ reliance on parent groups for services and capital support
• assessing the level of customer service provided by firms, including the complaints handling process across relevant channels
• reviewing the use of AI in pricing and underwriting processes
• assessing the embedding of DORA requirements and adherence to the Central Bank’s Cross Industry Guidance on Operational Resilience
• monitoring firms’ climate risk exposures and integration within governance and risk management frameworks
• reviewing Solvency II and engaging with industry participants on an assessment of the expected impacts in terms of quantitative elements (e.g. solvency coverage) and also qualitative elements (e.g. take-up of proportionality measures)
• sectoral supervision of retail intermediaries including a focus on reviews of larger retail intermediaries owned by insurance firms and concluding the thematic inspection of fair versus limited analysis of the market.

Funds

The Central Bank identifies several areas of risk in the funds sector that will remain in supervisory focus in the coming year. These are described more fully under the topics of liquidity and leverage risks, asset valuation and market risks, operational risk and resilience, risks relating to shifting investor demand for “green products” and of global climate targets not being met, risks of increasing use of AI tools and data and modelling risks, strategic risk and risks arising from the growth in demand for complex investments.

Working with the relevant European and global regulatory bodies, such as the European Securities and Markets Authority (ESMA) and IOSCO, the Central Bank’s priorities for the funds’ sector include:

• risk-based review of applications regarding funds and fund service providers
• sectoral and thematic assessments, including completing ESMA’s common supervisory action (CSA) on compliance and internal audit functions
• continuing the focus on delegation and outsourcing arrangements in fund management companies
• focus on financial service providers’ implementation of DORA
• continuing to enhance and use fund data and risk models to deliver a data-led, agile and risk-based approach to the effective and efficient oversight of the sector.

In addition, Appendix A of the Outlook Report outlines other key EU and domestic regulatory activities. These include the Central Bank’s ongoing work to implement the Department of Finance’s Funds Review 2030 report recommendations and other funds related initiatives.

Investments

Following consumer research conducted by the Central Bank and ESMA, MiFID investment firms are expected to promote an investor protection-focused culture, comprising of robust safeguarding arrangements and sufficient customer service capacity and capability to appropriately respond to investors’ needs and enhance their trust and confidence in the sector. This is reflected in the Central Bank’s priorities for the MiFID investment services sector, which are:

• reviewing oversight of cross border service provision and complaints management processes
• assessing the effectiveness of safeguarding of client assets against enhanced rules
• thematic assessments, including completing ESMA’s CSA on sustainability requirements and progressing ESMA’s 2025 CSA on investor protection
• implementation of the Retail Investment Strategy, the Artificial Intelligence Act and the EU Accessibility Act.

Retail credit

As the retail credit sector continues to evolve through the provision of new product offerings and outsourcing activities, firms’ strategic objectives are expected to be underpinned by governance and risk management frameworks which ensure that customer interests are placed at the heart of decision making. To ensure this aim, the Central Bank’s priorities for the retail credit sector include:

• focus on operational capacity as part of loan sales/transfers
• focus on boards ensuring they meet the expectations set out in the November 2022 Dear CEO Letter and April 2023 publication on protecting consumers
• engaging on thematic reviews on early arrears and credit cards and expectations for resolving distressed debt
• targeted review of governance structures with a focus on boards’ strategic oversight, independence and accountability.

For more information, please contact Dario Dagostino, Partner, Patrick Brandt, Partner, Mark Devane, Partner, Laura Mulleady, Partner, Sinead Lynch, Partner, James Grennan, Partner, Chloe Culleton, Partner, Emma Martin, Of Counsel, Yvonne McGonigle, Knowledge Consultant, Sarah Lee, Senior Knowledge Lawyer, Nollaig Greene, Senior Knowledge Lawyer, or your usual ALG contact. 

Date published: 4 March 2025