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 supervision.

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 change.

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 regulations

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 necessary.

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 rules.

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 Acts), 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 Ireland

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 risks.

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Originally published by Global Legal Insights.

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