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Ireland’s Banking Sector Undergoes Significant Regulatory Overhaul

Dublin, Ireland - Since the global financial crisis of 2008-2011, Ireland has undergone a comprehensive transformation of its banking sector to ensure greater stability, oversight, and sustainability. The country’s central bank, the Central Bank of Ireland (CBI), has been at the forefront of this effort, introducing new regulations and reforms to prevent similar crises from occurring in the future.

Fiscal Adjustments and Structural Changes

  • In response to the financial crisis, the Irish government implemented a series of fiscal adjustments and structural changes to the banking sector.
  • The state guaranteed certain liabilities in specified banks and provided capitalization for domestic lenders.
  • Additionally, the country entered into an EU-IMF programme of financial support worth €85 billion.

New Regulatory Framework

  • The CBI has undergone significant organizational changes, including the introduction of a new regulatory framework that emphasizes risk-based supervision and enforcement powers.
  • The Central Bank Reform Act 2010 modified the regulatory environment, enhancing the CBI’s supervisory culture and approach.
  • The act also introduced an administrative sanctions regime, allowing for increased monetary penalties against individuals and regulated firms.

Single Supervisory Mechanism

  • In November 2014, the European Central Bank (ECB) became the competent authority for supervising banks operating in Ireland under the Single Supervisory Mechanism (SSM).
  • The CBI continues to operate a risk-based approach to supervision, working closely with the ECB.

Current Risks to Financial Stability

  • Despite these reforms, several risks remain that could impact Irish financial stability, including:
    • Ongoing Brexit-related concerns due to Ireland’s close ties to the UK
    • Mortgage arrears
    • Changes in international trading and tax environments
    • Sovereign debt sustainability concerns in the Eurozone
    • Elevated risk-taking by banks

Regulatory Architecture

  • The ECB is responsible for authorizing and supervising banks in Ireland, with the CBI providing direct prudential supervision.
  • The Probability Risk and Impact System (PRISM) acts as the framework for the CBI’s supervision of regulated firms, including banks.
  • Banks are categorized based on their risk profile, determining the level of supervisory scrutiny they receive.

Applications and Authorization

  • Applications for bank authorization in Ireland are submitted to the CBI, with the final authority resting with the ECB.
  • The authorisation process includes a recommendation from the CBI and approval by the ECB.
  • Irish law does not distinguish between retail and wholesale/investment banking, but banks must comply with conduct-of-business rules.

Primary Legislation

  • The Central Bank Acts 1942-2018
  • European Union (Capital Requirements) Regulations 2014
  • EU Directive 2013/36 (CRD IV)
  • Other primary legislation applicable to banks in Ireland

Anti-Money Laundering Legislation

  • The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 is the primary legislation governing anti-money laundering in Ireland, implementing EU Money Laundering Directives.
  • The CBI is responsible for monitoring compliance with this legislation by banks and other financial services providers.

Conclusion

Ireland’s banking sector has undergone significant regulatory reforms since the global financial crisis. While there are still risks to financial stability, these changes aim to ensure greater oversight, sustainability, and stability in the sector.