Regulatory update: Central Bank of Ireland’s financial regulation and supervisory priorities for 2023

In a recent letter to the Minister for Finance, the Governor of the Central Bank of Ireland (CBI), Gabriel Makhlouf, sets out the CBI's financial regulation and supervisory priorities for 2023 (Priorities). 

The Priorities are influenced by two key considerations:

  • the current challenging macro-financial environment; in particular, a build-up of potential vulnerabilities across parts of the global financial system, including in non-bank financial intermediaries and segments of global financial markets; and
  • the evolving financial system; in particular, rapid growth in the financial sector, complemented by rapid change through digitalisation and technological innovation, which is supporting the entry of new players and business models.

The focus of the Priorities is to ensure that the financial system and firms operate to support the interests of consumers and users as they cope with the challenges that arise, and on ensuring that the system itself remains robust and stable.

Regulated firms should have regard to the Priorities as part of their horizon scanning and regulatory planning for this year and, to assist, below we provide an overview of the Priorities whilst highlighting, in particular, any new/increased areas of CBI focus this year. 

The Priorities

Many of the Priorities broadly align with last year's priorities and can be similarly grouped into key areas of focus. However, it is evident that there is an increased focus on funds; with two new funds-specific priorities concerning ESG (and greenwashing), and the UK's Overseas Fund Regime. There is also a renewed focus on market abuse as a CBI supervisory priority this year.

Changing financial services landscape

Overseeing the withdrawal of Ulster Bank and KBC from the Irish market remains a key CBI supervisory priority this year.

In addition, the CBI plans to publish a consultation paper on its Innovation Hub, which will include an exploration of new ways of engagement with innovators and their products.

Resilience

The assessment and management of risks to financial and operational resilience remains an important CBI supervisory priority this year, together with a focus on implementation of the Regulation on Digital Operational Resilience (DORA). DORA entered into force on 16 January and its measures must be transposed into national law by 17 January 2025.

Driving fair outcomes for consumers and investors

Continuing to drive for fair outcomes for consumers and investors is an evergreen CBI supervisory priority, which will be progressed through the CBI's planned consultation and engagement on the development of its consumer protection framework this year. This consultation is expected in Q4 2023, and will build upon the CBI Discussion Paper on its review of the Consumer Protection Code, published last October. 

The CBI will also continue to progress actions on the systemic risks generated by non-banks (in particular advancing the development/operationalisation of a macro-prudential framework for non-banks, improvements to the CBI's legislative frameworks, and investor protections in the investment fund sector).

Enhancing the regulatory framework

Unsurprisingly, the CBI's continued work on the introduction of the Individual Accountability Framework (IAF) remains a significant CBI priority this year. The CBI plans to consult and engage on the operationalisation of the IAF, to ensure it is properly embedded by firms and individuals in order to enhance governance and standards of behavior in financial firms. The Central Bank (Individual Accountability Framework) Bill is currently progressing through the legislative process with enactment expected in Q1 2023.

Other CBI initiatives to enhance the regulatory framework this year include:

  • implementing changes to credit union regulations/guidance arising from the Department of Finance-led Policy Framework Review, including through engaging with sectoral stakeholders;
  • ensuring that the EU's Anti-Money Laundering Action Plan, including the establishment of a single supervisory authority (AMLA), results in a consistent and robust EU-wide framework;
  • contributing to the review of the Payment Services Directive (PSD2) and the functioning of open banking; and
  • implementing the Regulation on Markets in Crypto-assets (MiCA), which is expected to enter into force end Q1 2023 at the earliest.

Climate change (ESG)

ESG remains a key CBI regulatory priority this year, with a focus on strengthening the resilience of the financial system to climate change risks and its ability to support the transition to a climate-neutral economy, along with implementing the EU's Sustainable Finance Disclosures Regulation (SFDR).

This year, the CBI also has a sector-specific ESG priority, which is to enhance the governance, oversight and investor outcomes in the funds sector, including the implementation of new ESG requirements and measures to mitigate greenwashing risks. 

UK Overseas Fund Regime

A newly introduced CBI priority this year is a focus on the implications of the UK's Overseas Funds Regime (OFR) (including the ongoing equivalence process), to ensure that Irish domiciled funds can continue to service UK investors. The OFR is now largely in force; however, whilst the UK has commenced its equivalence assessment of the EU and the EEA under the OFR, it is yet to make any equivalence decisions, and the Financial Conduct Authority (FCA) is still to publish details about how the OFR will work in practice. 

Market abuse

Detecting and sanctioning market abuse is a CBI supervisory priority this year. This follows on from the CBI's first market abuse adverse assessment last year, which resulted in the sanctioning of an individual for insider dealing, contrary to the Market Abuse Regulation.

Next steps

Regulated firms should bring the Priorities into their horizon scanning board updates and their regulatory and compliance plans. Many of the Priorities align with the European Supervisory Authorities' priorities for 2023, for example, consumer and investor protection, digital operational resilience, and ESG. It is therefore essential that regulated firms ensure that these developments are captured, impact assessed and monitored on an ongoing basis.

For further information in relation to this topic, please contact Patrick Brandt, Partner, Dario Dagostino, Partner, Mark Devane, Partner, Christopher Martin, Of Counsel, Sian Langley, Knowledge Lawyer or any member of ALG's Financial Regulation or Regulatory Investigations teams.

Date published: 31 January 2023