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Banking Sector Risks and Vulnerabilities in Ireland Highlighted by Central Bank

The Central Bank of Ireland has issued a warning about the risks and vulnerabilities facing the country’s banking sector, citing a rapidly changing and uncertain global environment marked by economic uncertainty, geopolitical tensions, and regional conflicts. The bank’s Regulatory and Supervisory Outlook 2024 (RSO) report outlines six key priorities to ensure that firms are resilient in the face of challenging macroeconomic conditions and proactively manage risks.

Key Themes Driving Risk

The Central Bank has identified three broad themes driving risk:

  • Macroeconomic and Geopolitical Factors: Economic uncertainty, geopolitical tensions, and regional conflicts all pose significant challenges for the banking sector.
  • Firm-Level Responses to a Changing World: Banks must adapt to a rapidly changing environment, including new technologies, shifting consumer behaviors, and evolving regulatory requirements.
  • Long-Term Structural Forces: The bank is concerned about long-term structural forces that could impact the financial system, such as demographic changes, climate change, and technological disruption.

Central Bank Priorities for 2024

The Central Bank’s priorities for 2024 include:

  • Prioritizing Consumer Protection: Implementing a revised Consumer Protection Code and addressing systemic risks in the non-bank sector.
  • Addressing Systemic Risks from the Non-Bank Sector: Identifying and mitigating potential risks from outside the banking system that could impact financial stability.
  • Implementing the Individual Accountability Framework: Holding individuals accountable for their actions and decisions within financial institutions.

Governor’s Warning

Governor Gabriel Makhlouf warned that while Ireland’s financial system has shown resilience in recent years, it is not immune to shocks. He highlighted several episodes of market disruption and banking turmoil as evidence of vulnerabilities at both entity and financial system levels. “Vigilance is required from regulators and firms themselves,” he said.

Call for Proactive Risk Management

The Central Bank emphasized the need for firms to adopt a proactive, consumer-centric approach to managing risks and uncertainties. “All firms in the financial system must ensure they are resilient to this challenging and uncertain operating environment,” said Makhlouf.

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