Banking Regulation 2022 – Finance and Banking

Marion Steward

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Ireland, similar to the rest of the world, has continued to face
the many societal, financial and regulatory changes that have
arisen as a result of the COVID-19 pandemic. As well as providing
customer-focused supports, the Central Bank of Ireland (the
CBI) has permitted banks to use capital buffers
built up over recent years to support the Irish economy. Since
2011, the Government has enacted a broad range of primary and
secondary legislation to address structural issues that arose prior
to 2008, to provide more consumer protection and to ensure greater
oversight, stability and sustainability of the Irish banking
sector. The restructuring of the Irish banking sector since 2011,
which included the creation of more robust capital buffers, allows
a degree of flexibility to the CBI and the Irish banks in their
ability to support Irish banking customers at this time.

The United Kingdom left the European Union’s single market
and customs union on 31 December 2020. Due to Ireland’s close
trading relationship with the UK, Brexit will have, relative to
many other EU Member States, a material impact on Ireland’s
economy and UK entities that provide services in Ireland or Irish
entities providing services in the UK. While banks have been aware
of the potential impacts of Brexit and were instructed by the CBI
to develop contingency plans, the practical complications of
dealing with the UK, which is now a third country, will create new
issues that will need to be considered and addressed.

The Central Bank Reform Act 2010 modified the regulatory
framework in Ireland, including the CBI’s supervisory culture
and approach. The CBI’s enforcement powers were further
enhanced through the Central Bank (Supervision and Enforcement) Act
2013 (the 2013 Act). The CBI has broad enforcement
powers designed to deter institutions from acting recklessly and to
promote behaviours consistent with those expected in the reformed
financial system. The 2013 Act introduced an administrative
sanctions regime that included increased monetary penalties. The
penalties may be imposed on individuals and regulated firms.
Relevant individuals are subject to fines of up to €1 million
and regulated firms subject to fines of up to the greater of
€10 million or 10% of the previous year’s turnover.

Following the introduction of the Single Supervisory Mechanism
(the SSM) on 4 November 2014, the European Central
Bank (the ECB) became the competent authority for
supervising banks operating in Ireland. The CBI operates a
risk-based approach to supervision together with direct prudential

The CBI, in its financial stability review issued in June 2021,
identified current primary sources of risk to Irish financial
stability, including: (1) risks related to structural changes to
international taxation and trade policy; (2) the structural impact
of COVID-19 on the retail and office commercial property markets in
Ireland; (3) the financial stability implications of bank
withdrawals from the Irish market; and (4) the impact of climate

Two foreign-owned retail banks (Ulster Bank and KBC) are
withdrawing from the Irish market. This is reflective of a trend of
consolidation in the Irish market since the financial crisis. The
CBI notes that this trend of consolidation will result in an
increased systemic importance of the remaining institutions, which
increases the risk to the Irish State in times of distress despite
the mitigants implemented since the financial crisis and the
increased presence of non-bank lenders in the Irish market.

Regulatory architecture: Overview of banking regulators and key

Regulators and key regulations

The regulatory authority responsible for the authorisation and
supervision of banks in Ireland is the ECB. Under the SSM, banks
designated as ‘significant‘ are supervised by
a team led by the ECB, comprising members from the ECB and the CBI.
There are currently six Irish banks designated as significant.
Banks designated as ‘less significant‘ are
directly supervised by the CBI in the first instance, but the ECB
has the power to issue guidelines or instructions to the CBI and to
take over direct supervision of any less-significant bank if

In 2011, the CBI introduced the Probability Risk and Impact
System (PRISM), which acts as the CBI’s
framework for the supervision of regulated firms, including banks.
The PRISM system is designed to determine the risk and potential
impact of banks on financial stability and consumers in a
consistent systemic risk-based manner. Under the framework of
PRISM, banks are categorised as ‘high
impact‘, ‘medium-high
impact‘, ‘medium-low impact‘ or
low impact‘. The category a bank falls into
will determine the number of supervisors allocated to that bank and
the level of supervisory scrutiny to which it will be subject.

Authorisation applications

Applications for authorisation of banks in Ireland are submitted
to the CBI. If the CBI considers that the conditions for
authorisation are met, then it will submit the application to the
ECB with a recommendation that it is approved. The final authority
to grant or refuse the application rests with the ECB. The
authorisation of branches of banks from outside the EU is dealt
with by the CBI pursuant to domestic legislation. Banks from Member
States of the EU are permitted to operate in Ireland, with or
without establishing a branch in Ireland, pursuant to the
EU’s ‘passport‘ procedure, which
requires a notification to the relevant bank’s home state
regulator and compliance with certain Irish conduct-of-business

Irish law does not distinguish between retail and
wholesale/investment banking. Irish law does not therefore provide
for the ring-fencing of retail-banking activities. However, banks
are not permitted to engage in any lines of business that have not
been approved by the CBI/ ECB during the authorisation process. If
a bank wishes to engage in an activity that did not form part of
its application for authorisation, the bank is required to submit
an application to the CBI to extend its authorisation.

Primary legislation

The primary pieces of legislation applicable to banks in Ireland
are the Central Bank Acts 1942–2018 (the Central Bank
), the European Union (Capital Requirements)
Regulations 2014, the European Union (Capital Requirements) (No. 2)
Regulations 2014 (the 2014 Capital Regulations),
EU Directive 2013/36 (CRD IV) as amended by
Directive (EU) 2019/878 and as last amended by Directive (EU)
2021/338 (CRD V) and EU Regulation 575/2013 as
amended by Regulation 2019/876 and Regulation (EU) 2020/873 (the
CRR). Banks are also required to comply with
various pieces of secondary legislation and codes issued under
the Central Bank Acts, including the CBI’s Corporate
Governance Code for Credit Institutions 2015 (the Corporate
Governance Code
) and the 2012 Consumer Protection Code
(the CPC). The regulations implementing CRD V and
the CRR in Ireland are the European Union (Capital Requirements)
(Amendment) Regulations 2020, the European Union (Capital
Requirements) (Amendment) (No. 2) Regulations 2020, the European
Union (Capital Requirements) (Amendment) (No. 2) Regulations 2021,
and the European Union (Capital Requirements) (Amendment) (No. 3)
Regulations 2021, respectively (collectively with the 2014 Capital
Regulations, the Irish Capital Regulations).

The Criminal Justice (Money Laundering and Terrorist Financing)
Act 2010 (as amended) represents the primary legislation governing
anti-money laundering in Ireland and implements the EU Money
Laundering Directives. The CBI is the competent authority for
monitoring compliance with this legislation by banks and other
financial services providers.

Recent regulatory themes and key regulatory developments in

Some of the key regulatory themes and developments in Ireland
applicable to banks are set out below.

Sustainable finance

Sustainable finance has risen quickly up the regulatory agenda
and the CBI expects banks to play a key role in financing the
transition of the economy to a more sustainable form. The CBI works
closely with the EBA on its Sustainable Finance Action Plan and, in
particular, its work on incorporating environmental, social and
governance (ESG) risks in the supervisory review
and evaluation process, enhancing ESG risk disclosures, and
considering whether a dedicated prudential treatment of exposures
related to assets or activities associated with environmental
and/or social objections is justified.

On 21 April 2021, the European Commission published its proposed
changes to the sustainability reporting requirements applicable to
credit institutions in the form of a proposed new Corporate
Sustainability Reporting Directive (the CSRD). The
CSRD will amend the existing reporting requirements under the
Non-Financial Reporting Directive (the NFRD),
which are currently applicable to Irish banks. The CSRD seeks to
expand the scope of requirements of the NFRD and introduces more
detailed reporting requirements, including the requirement for ESG
reports to be audited. It also aligns reporting standards with
mandatory EU sustainability reporting standards.

On 3 November 2021, the CBI issued a ‘Dear CEO’
Letter to all regulated financial services providers emphasising
the need for boards of regulated firms, including banks, to show
clear ownership of ESG risks and to promote cultural awareness of
the same within their organisations. The CBI also highlighted the
importance of the need for existing risk management frameworks to
be enhanced in order to identify climate-related risks.


In the context of the CBI’s role to ensure the stability
of the financial system and the protection of consumers since the
onset of the pandemic and into 2022, it has requested that banks
take a consumer-focused approach to act in their customers’
best interests. Measures that the Irish banks have adopted include
short-term payment breaks, modification of reporting
classifications for the Central Credit Register, the use of capital
buffers in line with SSM announcements, and restrictions on
dividends and share buy-backs. The CBI has written to the
banks to provide guidance on its expectations regarding
operational, regulatory and reporting obligations on banks during
the course of the pandemic. Notwithstanding the positive
macro-economic performance following the reopening of society in
Ireland, the ongoing, fluid development of the public health and
economic challenges arising in connection with the pandemic will
necessitate ongoing oversight by the CBI of the Irish banks into
and during 2022. The CBI has also recognised the increased threat
posed by financial crime due to the modifications to living and
working brought about by COVID-19. The CBI has intensified
interactions with institutions to assess new risks arising from
financial crime and to plan for how to mitigate these new

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Originally published by Global Legal

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