Financial Crime World

Systemic Risk-Driven Supervision: A Key Component of Ireland’s Banking Regulation

As part of its efforts to maintain financial stability and protect consumers, Ireland’s Central Bank (CBI) has implemented a systemic risk-based approach to supervising the country’s banking sector.

Categorization of Banks

Under this framework, banks are categorized into four levels of impact - high, medium-high, medium-low, or low - based on their size, complexity, and interconnectedness with other financial institutions. This categorization determines the number of supervisors allocated to each bank and the level of scrutiny it will be subject to.

Risk Management Practices

The CBI has introduced a range of measures aimed at enhancing risk management practices within the banking sector. For example:

  • Banks are required to submit applications for authorization and any subsequent changes to their business activities to the CBI, which then reviews these submissions against strict criteria before submitting them to the European Central Bank (ECB) for final approval.
  • Banks must incorporate environmental, social, and governance (ESG) risks into their supervisory review and evaluation process and provide detailed ESG risk disclosures.

New Regulations

The CBI has also introduced new regulations aimed at addressing emerging risks such as sustainable finance and financial crime. For instance:

  • Sustainable finance: The CBI expects banks to play a key role in financing the transition of the economy to a more sustainable form, with new regulations aimed at enhancing ESG risk management practices.
  • COVID-19: Banks have been required to take a consumer-focused approach and adopt measures such as short-term payment breaks and restrictions on dividends and share buy-backs, with the CBI intensifying its interactions with institutions to assess new risks arising from financial crime.

Conclusion

Ireland’s systemic risk-based approach to banking supervision is designed to ensure the stability of the financial system while protecting consumers and promoting sustainable economic growth. As the country continues to navigate the challenges posed by COVID-19, it is likely that regulatory requirements will evolve in response to emerging risks and new challenges.

Key Regulatory Developments

  • Sustainable finance: The CBI expects banks to play a key role in financing the transition of the economy to a more sustainable form, with new regulations aimed at enhancing ESG risk management practices.
  • COVID-19: Banks have been required to take a consumer-focused approach and adopt measures such as short-term payment breaks and restrictions on dividends and share buy-backs, with the CBI intensifying its interactions with institutions to assess new risks arising from financial crime.