Earlier today, the Central Bank of Ireland (the “Central Bank“) published its Regulatory & Supervisory Outlook Report 2024 (the “Report“) and accompanying Letter to the Minister for Finance. This is the first of what will be an annual report setting out the Central Bank’s view on the key trends and risks facing the Irish financial sector, along with the regulatory and supervisory priorities it has set in the context of those risks.

The Report notes that Ireland is one of the largest hubs for investment funds globally and is also host to the largest exchange traded fund (“ETF“) and money market fund (“MMF“) sectors in Europe. The Central Bank’s remit across these sectors and securities markets more generally is both wide ranging and of international significance.

In considering funds’ sectoral trends and risks in the Report, the Central Bank notes that the way investment funds manage their leverage, liquidity, pricing and fund entry-exit mechanics has implications for the financial system as a whole. The Report refers to the recent European Securities and Markets Authority (“ESMA“) Common Supervisory Action on Asset Valuation, following which the Central Bank engaged with firms on its findings, observations and actions with regard to asset valuation.

Conflicts of interest, delegation and outsourcing, cyber security and Artificial Intelligence (“AI“) are also identified as risk areas for funds.

Noting the rapid growth in sustainable finance, the Central Bank aims to see investors being fully informed regarding the stated sustainability credentials of financial products. However, the Central Bank has concerns regarding ESG disclosures in fund documentation, the potential for “greenwashing” and poor ESG data quality.

The risks outlined above, and those facing the financial sector as a whole, including the interest rate environment, inflation and geopolitical tensions, provide the backdrop for the Central Bank’s regulatory and supervisory priorities for the period ahead.

Key Supervisory Activities – Funds

• Risk-based scrutiny and approval of prospectus applications, fund applications and fund service provider applications.
• Completion of the ESMA Common Supervisory Action on SFDR.
• Participation in ESMA’s Depositary Peer Review.

Key Regulation Activities – Funds

• Working with the Department of Finance on priority policy areas such as the completion of the Funds Sector 2030 Review.
• Implementing the Individual Accountability Framework (“IAF”) including within the Central Bank’s supervision of firms and supporting firms to embed the new conduct standards.
• Continuing to progress work both internationally and domestically to address systemic risks from the non-bank sector and analysing related macroprudential risks.

Key EU Developments

The Central Bank notes the following as key upcoming developments for 2024: the EU AI Act, the recently-agreed EU AML/CFT package, Digital Operational Resilience Act (“DORA“) implementation, European Single Access Point (“ESAP“), Markets in Crypto-assets (“MiCA“) Regulation implementation, and the European Commission’s Retail Investment Strategy.

Central Bank Regulation and Supervision

One of the Central Bank’s supervisory priorities for 2024 is to enhance how it regulates and supervises. Specifically, it aims to:

• Continue to enhance its authorisation processes, ensuring there is clarity, predictability and transparency for firms seeking to be authorised, while maintaining the appropriately high standards the public expects for regulated financial services providers.
• Continue to develop a tailored, proportionate and responsive regulatory framework, taking account of the provisions in forthcoming legislation, including new legislative developments.
• Continue to implement the new Individual Accountability Framework that is designed to improve governance, performance and accountability in firms providing financial services by establishing a framework of enhanced clarity as to who is responsible for what within firms. The IAF also clarifies the standards to be met by individuals having these responsibilities.

See also our Financial Regulation group’s sector-specific insights on the Report here.