Central Bank confirms its regulatory and supervisory priorities for 2024

On 29 February, the Central Bank of Ireland (Central Bank) published its new Regulatory and Supervisory Outlook Report 2024 (Outlook Report), together with a letter from Governor Makhlouf to the Minister for Finance setting out his views on the macro-financial environment and the financial services landscape and the Central Bank’s financial regulation priorities for the year ahead.

The Outlook Report is the Central Bank’s first annual report setting out the Central Bank’s perspective on the key trends and risks facing the financial sector, along with the regulatory and supervisory priorities it has set in the context of those risks. The Outlook Report also contains three ‘Spotlight’ chapters covering consumer protection outlook, artificial intelligence (AI) and financial crime, topics of particular significance at this time.

Risks shaping the Central Bank’s regulatory and supervisory priorities for 2024

The risk outlook includes consideration of the global environment, along with the broad risk landscape facing the financial system, grouped broadly into the following three themes: risks driven by the macroeconomic and geopolitical environment; risks driven by the way regulated entities operate and respond to today’s changing world; and risks driven by longer term structural forces at play.

These risks have shaped the Central Bank’s financial regulatory and supervisory priorities for 2024, including six overarching supervisory priorities, complemented by more detailed supervisory strategies for each of the financial sectors within the Central Bank’s remit. These provide firms with detail on the Central Bank’s expectations of their sector, as well as what each sector can expect in terms of focused supervisory work.

Regulatory priorities

Governor Makhlouf’s letter identifies the regulatory priorities of the Central Bank, with the Outlook Report noting that a strong and effective framework of financial regulation and legislation is essential to the safeguarding of the financial system and the protection of consumers and investors.

The Central Bank’s domestic regulatory priorities for the year ahead are:

  • working with the Department of Finance on priority policy areas: these include continuing implementation of the Retail Banking Review; framework to protect consumers’ and businesses’ access to cash services; the National Payments Strategy; completion of the 2030 Funds Review; and the National Financial Literacy Strategy
  • implementing a revised Consumer Protection Code to ensure that consumers are protected in a more digitalised financial services sector
  • work (internationally and domestically) to address systemic risks from the non-bank sector and deepening Central Bank analysis and understanding of macroprudential risks in this sector
  • implementing the Individual Accountability Framework and supporting external stakeholders to embed the new standards
  • implementing the Credit Unions (Amendment) Act 2023, including updating the Credit Union Handbook and amending related Regulations
  • developing policy work and supervisory expectations related to the use of AI in financial services, including preparing for the implementation of the EU's AI Act

The Central Bank acknowledges that the majority of the current regulatory policies and legislative initiatives are coming from the EU, which are being developed to respond to the evolving financial system and operating environment. The Central Bank’s EU-driven regulatory priorities for 2024 are:

  • preparing for the implementation of the Digital Operational Resilience Act (DORA), in particular, in the context of Ireland’s large technology sector
  • implementing the Markets in Crypto Asset Regulation (MiCA), including technical standards and engaging with firms seeking authorisation under the new regime

The Outlook Report also sets out the following key EU-driven regulatory initiatives:

  • the modernisation of the existing Payments Service Directive and establishment of a new Payment Services Regulation
  • the European Single Access Point, which aims to provide a single point of access to public financial and non-financial information to give companies more visibility towards investors
  • the new anti-money laundering and countering the financing of terrorism legislative package that will transform the existing framework
  • finalisation of the Basel III reforms via the Capital Requirements Directive 6 and Capital Requirements Regulation 3
  • the proposed instant payments regulation, which will improve the availability of instant payment options in euro to consumers and businesses in the EEA
  • the Retail Investment Strategy, which will make amendments to AIFMD, Insurance Distribution Directive, PRIIPS, MiFID II and UCITS legislation
  • the review of Solvency II, which aims to enhance insurance supervision, address potential sectoral risks and improve protection for policyholders and beneficiaries

Supervisory priorities

The Central Bank’s supervisory priorities, outlined below, apply across all financial sectors within the Central Bank’s remit and to the various aspects of the Central Bank’s financial regulation responsibilities. They frame the more detailed supervisory strategies for each of the financial sectors, and specific supervisory activities, as described in detail in the Outlook Report.

The supervisory priorities are aligned with the corresponding priorities of the European System of Financial Supervision and ECB Banking Supervision, and are informed by the wider risk environment, as well as sector specific trends, risk and vulnerabilities.

The Central Bank’s supervisory priorities for the year ahead include ensuring:

  • proactive risk management and consumer-centric leadership of firms so that the leadership adopt a more proactive and forward-looking approach to managing the risks and uncertainties facing their organisations and their customers
  • firms are resilient to the challenging macro environment including the impact of the further pass-through of interest rate rises, economic uncertainty and the potential for further deterioration in asset values
  • firms address operating framework deficiencies that are identified in the governance, risk management and control frameworks to ensure that the frameworks are effective, both in the current environment and into the future
  • firms manage change effectively to keep pace with changes in the financial system and consumer needs and expectations through the well-managed evolution of their business strategies
  • climate change and Net Zero transition risks are addressed through an improved response to climate change and implementation of risk management practices for physical and transition risks
  • enhancement by the Central Bank in respect to how it regulates and supervises firms by continuing to:
  • enhance its authorisation processes, ensuring there is clarity, predictability and transparency for firms seeking to be authorised.
  • develop a tailored, proportionate and responsive regulatory framework, taking account of the provisions in forthcoming legislation, including new legislative developments such as DORA and MiCA
  • implement the new Individual Accountability Framework that is designed to improve governance, performance and accountability in firms
  • deliver an updated and modernised Consumer Protection Code that reflects recent developments and enhances clarity and predictability for firms on their consumer protection obligations
  • enhance the Central Bank’s overall supervisory framework so that it is effective and efficient and to evolve its risk-based supervisory approach, such that it becomes more data-driven, agile and scalable
  • engage with its stakeholders, including with regulated entities and financial service innovators

For more information, please contact Dario Dagostino, Partner, Mark Devane, Partner, Chloe Culleton, Partner, Patrick Brandt, Partner, Sarah Lee, Senior Knowledge Lawyer, or your usual ALG contact.  

Date published: 05 March 2024