Central Bank Governor Gabriel Makhlouf’s letter to the Minister for Finance, together with his opening statement to the Oireachtas Finance Committee on Wednesday confirm the areas on which the Central Bank and Department of Finance will work most closely together in 2023, the Central Bank’s financial regulation priorities for the year ahead, and the Central Bank’s views on the impact of interest rate increases on the Irish mortgage market.

Impact of interest rate increases on the Irish mortgage market

Governor Makhlouf reiterated that interest rates charged by mortgage lenders are a commercial decision for those lenders, and not a matter where Central Bank approval is required.

By way of reminder, a 2016 private members’ bill which proposed giving the Central Bank powers to cap variable interest rates on mortgage loans was criticised by the ECB and was not endorsed by the Central Bank – a similar private members’ bill proposed by the Labour Party in 2022 is not expected to be passed.

Governor Makhlouf did outline the Central Bank’s expectations of mortgage lenders when increasing interest rates, including proactively assessing the risks that commercial decisions such as this pose for borrowers; putting arrangements in place to anticipate and deal with customers who face challenges to their repayment capacity; and assessing applications from borrowers on a timely basis.

The Central Bank and Department of Finance in 2023

Areas on which both institutions will work closely together in 2023 are:

• dealing with the recommendations of the Retail Banking Review (read our update here)
• dealing with the IMF’s most recent recommendations – these were broken out by the IMF into immediate, short and medium-term priorities – the immediate priorities included the management of climate-related risks, and strengthening the resilience of property funds; the short-term (1-3 year) priorities included finalising the individual accountability framework, broadening the monitoring of non-bank lenders beyond those engaged in mortgage activity; transposing MiCA; continuing to strengthen insurance supervision and correcting weaknesses in the insolvency regime for insurers; working with the Commission on reviewing the MMF Regulation, prioritising guidance to the funds sector on using the full range of liquidity management tools; further deep-dives to improve monitoring of certain segments of the funds sector; and developing policies and procedures for assessing the prospective solvency of banks in resolution.

Central Bank Financial Regulation Priorities in 2023

Its 2023 priorities, which have been well signposted in recent months and were reconfirmed in the letter, include:

• reviewing the Consumer Protection Code (read our insights here)
• operationalising the Individual Accountability Framework (read our insights here)
• actions (including the further development of the macroprudential framework) to address systemic risks generated by non-banks (read our insights here and here)
• enhancing governance, oversight and investor outcomes in the funds sector such as the implementation of new ESG requirements and measures to mitigate the risk of greenwashing (read our insights here and here)
• considering the implications of the UK’s overseas funds regime to ensure that Irish domiciled funds can continue to service UK investors
• implementing changes to credit union regulations/guidance
• strengthening the resilience of the financial system to climate change risks, improving its ability to support the transition to a climate-neutral economy, and implementing the EU Sustainable Finance Disclosures Regulation (read our insights here and here)
• consulting on the recalibration of the Central Bank’s Innovation Hub
• working with EU authorities on the new AML framework (read our insights here)
• work arising from the review of the Payment Services Directive and the planned open finance framework (with proposals expected in both areas towards the end of June 2023 from the Commission)
• implementing DORA and MiCA (read our recent insights here and listen to a recent podcast from our Technology and Innovation team here)

If you would like to discuss any of these impending developments in more detail, please get in touch with the authors or your usual contact in our Financial Regulation Group, our Financial Regulation: Individual Accountability and SEAR Group and our Asset Management and Investment Funds Group.