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This considers the regulation and supervision of the market-based finance (MBF) sector in Ireland. Ireland has made good progress in implementing MBF-relevant recommendations from the 2014 and 2016 Financial Sector Assessment Programs, but some gaps remain. As the integrated regulator for the financial services sector, the Central Bank would benefit from greater formal legal independence, stronger enforcement powers and more flexibility on individual compensation to attract and retain scarce talent. There is scope for the Central Bank to leverage its expertise and experience to promote further EU convergence on MBF oversight. Closing data gaps would further enhance the Central Bank’s robust regulation and supervision of the MBF sector. The Central Bank should intensify its work to assess and mitigate financial stability risks of MBF. Finalization of work already under way on investment fund pricing errors should be prioritized, while oversight of SPEs deserves regulatory and supervisory attention. The introduction of a comprehensive framework for pricing errors will lay the foundations for greater investor protection and more consistent industry practices. Oversight of special purpose entities has improved from the perspective of statistical analysis, but more efforts are needed to strengthen governance practices.

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This note analyzes select aspects of the system for insolvency and creditors’ rights in the context of an overall assessment of the Irish financial sector. It focuses on two areas: (1) the use and effectiveness of the corporate restructuring regime and (2) the resolution of mortgage related nonperforming loan NPLs. Ireland’s corporate insolvency regime is largely in line with international best practice, although the regime is little used, and a review is in order. The issue of long-term mortgage arrears is complex and will require further development of an overall strategy, with multiple government bodies playing a role. While mortgage arrears are largely a legacy issue from the 2008 crisis, the failure to fully resolve these arrears has the potential to undermine credit growth and affordability, given the impact on credit risk of higher uncertainty of realizing collateral. The Government should adopt a coordinated, multi-agency strategy for resolving mortgage arrears, informed by the granular data available on the financial situation and debt servicing capacity of borrowers. Published guidance on expected solutions based on financial indicators, and broader social support would be critical to this approach and possible strategy.

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The FSAP took place against the background of a fast-evolving financial sector in Ireland and heightened uncertainty in the global economy. The Irish financial landscape has undergone significant changes since the global financial crisis with increasing divergence between an innovative and fast-growing international finance sector and the retail banking sector that has been consolidating and faces post-GFC operating restrictions and increasing competition from non-bank players. In the meantime, both the global pandemic and Brexit have left uneven marks across the economy, while there are risks from the unwinding of public support that has softened COVID-19 shock’s impact on the economy. Going forward, various ongoing and emerging risks, such as persistent inflationary pressures, fueled by supply bottlenecks, and the war in Ukraine, may impede recovery, and magnify vulnerabilities to downside shocks.

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This Financial System Stability Assessment paper highlights that the Irish financial system has grown rapidly and in complexity, especially after Brexit, and Ireland has become a European base for large financial groups. Risks to financial stability emanate from a much larger and more complex financial system, persistent legacy issues, as well as emergent ones from non-bank lending, Fintech, and climate change. Stress tests confirmed banks’ resilience to severe macrofinancial shocks, with some caveats. While broadly adequate, supervisory resources and capacity need to keep pace with a growing and more complex sector with significant cross-border linkages. Efforts are needed to further strengthen supervision of banks’ credit risk and develop capacity and skills on new areas such as climate, non-bank lending, and Fintech. Insurance oversight should prioritize intra-group complexities. Resolution and crisis management can be enhanced through greater planning and collaboration between the Central Bank and the Department of Finance to bolster the ability to deal effectively with institution failures and systemic crises.

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While domestic money laundering (ML) threats are well understood by the authorities, Ireland faces significant and increasing threats from foreign criminal proceeds. As a growing international financial center,1 Ireland is exposed to inherent transnational money laundering and terrorist financing (ML/TF) related risks. The ML risks facing Ireland include illicit proceeds from foreign crimes (e.g., corruption, tax crimes). Retail and international banks, trust and company service providers (TCSPs),2 lawyers, and accountants are medium to high-risk for ML, while virtual asset service providers (VASPs) pose emerging risks. Brexit, the recent move of international banks to Dublin, and the COVID-19 pandemic increased the money laundering risks faced by Ireland. The Central Bank of Ireland (Central Bank) nevertheless has demonstrated a deep and robust experience in assessing and understanding their domestic ML/TF risks; however, an increased focus on risks related to transnational illicit financial flows is required. A thematic risk assessment undertaken by the Anti-Money Laundering Steering Committee (AMLSC) of international ML/TF risks would enhance the authorities’ risk understanding and is key to effective response to the rapid financial sector growth. Introducing data analytics tools, including machine learning to leverage potentially available big data on cross-border payments, would allow for efficient detection of emerging risks. The results of this assessment should be published to improve the understanding of transnational ML/TF risks and feed into the anti-money laundering and combating the financing of terrorism (AML/CFT) policy priorities going forward.

Ireland