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Ireland’s Central Bank Moves to Strengthen Banking Regulations and Compliance Amid Climate Change Concerns

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The Central Bank of Ireland has announced a series of measures aimed at strengthening banking regulations and compliance in response to the growing threat posed by climate change. As the regulator for the financial system in Ireland, the bank is seeking to ensure that financial institutions and markets are properly regulated while also protecting consumers of financial services.

Strengthening Supervision

In a Dear CEO letter issued in November 2021, the Governor of the Central Bank set out the bank’s expectations regarding climate and other environmental, social, and governance (ESG) issues. The bank has since incorporated climate considerations into its supervisory activities and is actively monitoring regulated financial market participants for their compliance with climate risk and sustainable finance obligations.

Key Areas of Focus

The bank’s efforts to strengthen banking regulations and compliance have been focused on several key areas, including:

  • Supervision of significant institutions under the Single Supervisory Mechanism (SSM)
  • Insurance companies under Solvency II
  • Investment funds under the Sustainable Finance Disclosures Regulation (SFDR) and Taxonomy Regulation

Banking Sector

In the banking sector, the Central Bank has been working to ensure that credit institutions are properly supervising climate-related and environmental risks. The bank has published several guides and reports aimed at assisting financial institutions in managing these risks, including:

  • A guide on climate-related and environmental risks
  • A report on good practices for climate stress testing

Insurance Sector

In the insurance sector, the European Insurance and Occupational Pensions Authority (EIOPA) has been working to ensure that (re)insurers are properly incorporating sustainability risk into their risk management and governance systems. The Central Bank has developed guidance to assist (re)insurers in addressing climate change risks and has also published an opinion on climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

Investment Funds Sector

In the investment funds sector, the Central Bank has been working to ensure that capital markets are properly mobilized and allocated towards sustainable investments. The bank has facilitated the implementation of SFDR and Taxonomy Regulation by establishing a streamlined filing process for pre-contractual documents and conducting thematic reviews of funds’ compliance with their self-declared SFDR designations.

Protecting Consumers

Finally, the Central Bank is also taking steps to protect consumers from greenwashing, which is the practice of misleading investors or consumers as to the perceived “green” or “sustainable” characteristics of products or services. The bank has incorporated supervisory activities aimed at assessing compliance with SFDR across relevant investment, insurance, and banking sectors.

Conclusion

Overall, the Central Bank’s efforts are aimed at ensuring that financial institutions and markets are properly regulated while also protecting consumers of financial services in a rapidly changing environment.