February Updates From The Central Bank Of Ireland

February 15, 2022

Over the last week, The Central Bank Of Ireland (CBI) published two updates. Firstly, the CBI published the 2022 Securities Markets Risk Outlook Report, followed a number of days later by announcing a new regulatory regime for Crowdfunding Service Providers under EU Regulation.

Securities Markets Risk Outlook Report

The 2022 Securities Markets Risk Outlook details key conduct risks to securities markets and outlines actions firms can take to mitigate and manage these risks. 

To guarantee that firms fulfil their regulatory responsibilities, companies should stress test their operations, such as business continuity management and escalation processes, using realistic worst-case scenarios. All securities firms are encouraged to evaluate the risks and supervisory priorities mentioned by CBI as they set their expectations for 2022. They are asked to consider implementing techniques relevant to their business activities into their own risk assessment and mitigation programs.

The report identifies a number of key areas that the Central Bank expects firms to address. These include:

Misconduct Risk in Securities Markets:
The potential for misconduct increases as the size and complexity of securities markets expands. Firms must monitor their compliance with the Market Abuse Regulations and have extensive responsibilities to identify, prevent, and report misconduct.

Sustainable Finance:

In the transition to a carbon-neutral economy, firms are expected to show clear leadership on the climate challenges that affect their business and to promote a culture of climate and sustainability compliance.

Governance Risks:

Effective board monitoring, governance mechanisms, and due diligence are critical to ensuring improved outcomes for investors and the smooth operation of the financial system as a whole.

Conflicts of interest:

The CBI expect firms to ensure regulatory standards on defining, mitigating, and handling conflicts of interest are met as the financial services sector becomes more interconnected.

Financial Innovation:

Securities markets and investors are open to both opportunities and risks as a result of innovation. The Central Bank expects firms to consider the features and implications of the product they are offering to customers.

Data Quality:

The use of incomplete or incorrect data by participants in the securities markets can result in poor or incorrect decisions, deficiencies in operations, and incorrect views of the entire organisation and its future.
Cyber Security: Firms must take steps to better understand critical business services and make them more resilient to operational and cyber risk disruption. The Central Bank has observed the most frequent cyberattack methods in 2021 were: ransomware, DDoS (Distributed Denial of Service Attack), phishing, and supply chain attacks.

Market Dynamics:

The CBI anticipates that firms will have an appropriate risk management framework in position to detect, manage, and mitigate potential risks associated with the use of leverage and liquidity risk within a fund's portfolio, as well as regular stress testing scenarios.

Crowdfunding for 2022

On the 13th January, The Central Bank of Ireland (CBI) announced a new regulatory regime for Crowdfunding Service Providers under EU Regulation. The CBI has been appointed as the relevant authority in Ireland as a crowdfunding regulator.  In early January, they communicated an explanatory note on completing an application form for authorisation as a crowdfunding service provider (CSP) under EU Regulations. This gives guidance around the CBI requirements for forming a CSP company in Ireland 

Crowdsourcing Regulation covers two main forms of crowdfunding: investment-based crowdfunding and peer-to-peer/loan-based crowdfunding. In-scope crowdfunding service providers will be required to be authorised under the new framework, and they will be subject to operational and prudential standards, as well as investor protection measures.

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