Financial Crime World

Ireland’s Banking Sector Navigates Robust Regulation: An Overview

Ireland’s banking sector is subject to a robust regulatory framework designed to ensure the stability and integrity of the financial system. In this article, we provide an overview of the key aspects of banking regulation in the jurisdiction.

Legislation and Regulatory Authorities

  • Primary legislation: The Single Supervisory Mechanism Regulation (SSMR) and the Central Bank Acts 1942-2014 are the primary legislations governing banking regulation in Ireland.
  • Regulatory Authorities: The European Central Bank (ECB) serves as the lead regulator, while the Central Bank of Ireland acts as the competent authority and sole regulatory body in Ireland.
  • Banking licences: Individuals and entities wishing to conduct banking services in Ireland must apply for a banking licence. The application process is determined by the Central Bank and involves a thorough examination of the applicant’s business plan, financial projections, and regulatory compliance.
  • Bank structures: Entities seeking to operate as banks in Ireland can take the form of Designated Activity Companies (DACs) or Public Limited Companies (PLCs). Group structures must adhere to the European Banking Authority’s (EBA) guidelines on governance and internal controls.

Governance and Regulatory Requirements

  • Governance structures: Irish banks’ governance structures must comply with the Corporate Governance Requirements for Credit Institutions 2015. Minimum core standards for credit institutions and additional requirements for designated “High Impact” institutions apply. These entities must have at least five directors (or seven for high-impact institutions) and must disclose their adherence to these requirements.
  • Key individuals: Individuals within banks are subject to the Central Bank’s Fitness and Probity regime. This regime sets standards for competence, honesty, ethical behavior, and financial soundness. The recently introduced Central Bank (Individual Accountability Framework) Act 2023 strengthens the regime to improve the sector’s culture and restore public trust.

Prudential Requirements

  • Capital requirements: Under the European Union (Capital Requirements) Regulations, banks in Ireland must maintain adequate initial and ongoing capital to meet regulatory requirements. The Central Bank also sets additional capital buffers for other systemically important institutions (O-SIIs), ranging from 0.5% to 1.5% of risk-weighted assets.
  • Liquidity requirements: The CRR mandates two quantitative liquidity requirements: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). These requirements ensure that banks maintain adequate liquid assets and stable funding to meet their short-term obligations.
  • Collaboration between regulators: Both the ECB and Central Bank of Ireland work together to supervise banking organizations in Ireland, ensuring adherence to these stringent regulatory frameworks, and maintaining the stability of the nation’s financial sector.