knowledge 6 June 2023 |

Central Bank of Ireland Annual Report outlines key priorities for 2023 and recent authorisation activity

Background

In 2022, the CBI delivered on its strategic mandate against a backdrop of significant change and macroeconomic challenges. In the context of increased financial risk, triggered in large part by external developments, the Irish financial sector experienced ongoing growth, supported by developments in relation to digitalisation and technological innovation. In 2022, the CBI received a high volume of authorisation applications, with a total of 1,793 authorisations occurring in the year. The payments and e-money sector, in particular, continued to grow, and 2022 saw the registration of Ireland’s first authorised virtual asset service providers (“VASP”). Additionally, in the past year, the CBI continued to discharge its function regarding enforcement and imposed fines totalling more than €213.7m, the highest amount within a single year to date.

Recent Authorisation Activity

In 2022, the CBI received a high volume of new applications for various types of authorisations, with increased complexity, primarily driven by technological innovation, new mandates and regulatory change impacting all sectors.

The CBI prioritises early engagement with firms, enabling them to engage at the preliminary or speculative phase to gain information and guidance about the authorisation process, with the CBI’s authorisation standards in line with international norms.

The investment fund sector continued to grow in scale and complexity with a significant volume of fund (744) and fund service provider (23) authorisations in 2022.

As noted above, 2022 saw the registration of Ireland’s first VASP, with 4 VASPs registered in 2022.

2022 also saw the CBI begin authorisation processes for providers of hire purchase, buy-now-pay-later and consumer hire, as well as introducing new requirements for high cost credit providers (formerly known as licensed moneylenders). In addition, the CBI continued to progress with work on the implementation of the new EU regime for crowdfunding.

2022 saw continuing consolidation across the retail intermediary/broker sector as well as a significant number of new entrants, with 233 applications for authorisation approved in 2022.

In terms of its service standards, 97% of the CBI’s targets were either met or exceeded in 2022.

CBI Priorities for 2023

Building on its February 2023 “Dear CEO” letter (here), and drawing on its experience over the past year, the CBI’s annual report details key regulatory and supervisory priorities for 2023. In the context of current macroeconomic challenges, the CBI’s enduring approach is to adopt a risk-based and targeted approach towards its supervision of more than 12,000 funds and firms, seeking to secure the continued health and vitality of the financial system, while ensuring that firms operate to support the interests of consumers and users. Notable CBI priorities for the year ahead can be mapped thematically and include:

Ongoing Supervisory Work

• Continuing to assess and manage risks to the financial and operational resilience of firms, including cyber-related threats, and strengthening CBI frameworks for managing failing financial institutions and for related crisis preparation and management.
• Progressing actions on the systemic risks generated by non-banks (for example, money market funds and investment funds), including through improvements to regulatory frameworks and investor protections in the investment fund sector.
• Continuing to oversee the consolidation of the Irish banking sector, triggered by the exit of Ulster Bank and KBC from the market, and to implement changes to regulations governing credit unions, arising from a review (here) by the Department of Finance.
• Ongoing vigilance in relation to preventing misuse of the financial system through sanctioning market abuses and monitoring firms’ compliance with anti-money laundering and countering the financing of terrorism (“AML/CFT”) obligations.
• Helping to ensure that implementation of the EU’s Anti-Money Laundering Action Plan, including the establishment of the Anti-Money Laundering Authority (“AMLA”), leads to a consistent and robust EU-wide framework.

Promoting a “Future Focussed” Approach¹

• Developing the CBI’s innovation strategy, in line with its current mandate, including by launching a review of the Innovation Hub (see our briefing on the Innovation Hub update for 2022 here).
• Improving regulatory frameworks for the investment funds sector, particularly with regards to systemic risks flowing from modern financial instruments such as money market funds.
• Fostering a modern payments system that meets market needs, including by contributing to projects such as the launch of the forthcoming digital euro and the EU-wide review of the Payment Services Directive² (“PSD2”).
• Implementing the recommendations from the Department of Finance Retail Banking Review including on issues such as access to cash and the preparation of a new National Payments Strategy.
• Implementing EU Regulations on Digital Operational Resilience³ (“DORA”) and Markets in Crypto Assets⁴ (“MiCA”).
• Continuing to increase the resilience of the financial system regarding climate risk, and supporting the transition to a climate-neutral economy by, inter alia, implementing the EU Sustainable Finance Disclosure Regulation⁵ (“SFDR”).
• Continuing to develop and support the cross-industry Climate Forum, to build capacity and share best practices to advance the financial sector’s response to climate change.

Improving CBI Frameworks

• Progressing the Individual Accountability Framework⁶ (“IAF”), which is due to be implemented in full by the end of the year (see our IAF hub here).
• Ensuring a clear, open and transparent authorisation process that facilitates meaningful stakeholder engagement.
• Improving the CBI’s consumer protection framework, with a review (initial discussion paper here) of its Consumer Protection Code due to take place in the year.

Policy Formulation and Analysis

• Contributing to monetary policy formulation and decision-making, both on a domestic and European level, particularly through the CBI Governor’s membership of the Governing Council of the European Central Bank (“ECB”) and through participation by CBI staff in Eurosystem institutions and committees.
• Continuing to develop and implement the CBI’s macroprudential policy framework by strengthening analytical capabilities and undertaking macroeconomic policy analysis, particularly in relation to inflation, higher interest rates, and other external challenges facing the Irish economy.

Next Steps

According to its report, the CBI is determined, for 2023, to continue discharging its functions with tenacity and vigilance. In the context of a rapidly changing macroeconomic climate, the CBI seeks to adapt and become “more resilient, diverse and intelligence-led”, and seeks to continually improve its processes. Above all else, the CBI states that it remains committed to stakeholder engagement and wishes to ensure, in 2023, a “genuine two-way dialogue” between industry and regulator.

Also contributed by David O’Keeffe Ioiart