Central Bank Updates Supervisory Approach

The Central Bank of Ireland (the Central Bank) has recently published an updated version of its “Our Approach to Supervision” document (the 2026 Document), which clarifies the Central Bank’s approach to its risk-based supervision of regulated firms following the introduction of a new supervisory approach in 2025 (the 2025 Document).

Although the Central Bank’s safeguarding outcomes and supervisory principles remain unchanged, the 2026 Document provides welcome clarification on how its supervisory approach will operate in practice, particularly in light of the Central Bank’s latest Regulatory and Supervisory Outlook.

Most notably, the 2026 Document clarifies the distinction between “sectoral supervision” and “close & continuous supervision”, and elaborates on the Central Bank’s approach to risk identification and prioritisation, the supervisory actions and interventions it may use to prevent or mitigate prioritised risks, and the development of multi-year supervisory strategic plans for each sector and for firms that are subject to close & continuous supervision.

From PRISM to the New Supervisory Approach

The 2026 Document is the latest evolution of the Central Bank’s approach to the sectors and individuals it regulates and oversees, which has now firmly moved on from the previous PRISM approach.

PRISM, the Probability Risk and Impact SysteM, was introduced in 2011 in the wake of the global financial crisis and was designed to be a unified, systematic risk-based framework. It was based the recognition that Central Bank resources were finite and that regulatory interventions should be based on the degree of impact a regulated firm could have on the financial system or consumers, as well as the probability that a firm would fail.

Since PRISM was first introduced, however, the regulatory responsibilities of the Central Bank and the sectors it supervises have changed significantly, particularly as the financial sector has grown, become more complex, and increasingly digital. It is with these changes in mind that the Central Bank introduced a new supervisory approach in the 2025 Document.

Although this new supervisory approach did not fundamentally move away from the risk-based supervision model of PRISM, it was re-designed around a set of supervisory principles that provide a common understanding of how the Central Bank’s safeguarding outcomes would be delivered. These supervisory principles are:

• Outcomes focused
• Risk-based
• Judgement led
• Forward looking
• Firms’ responsibilities

A notable feature of the Central Bank’s new approach was its sectoral focus, with the 2025 Document identifying the financial system as consisting of three overarching industry categories of related products and services (each of which contained several sectors):

• Banking & Payments
• Insurance
• Capital Markets & Funds.

The Central Bank supervises each sector in an integrated, holistic way with a multi-year supervisory strategy, which is refreshed annually to capture current and emerging risks, threats and vulnerabilities.

Key Changes in the 2026 Document

The updates contained in the 2026 Document provide more detail on how the Central Bank’s new approach will operate in practice and provide welcome clarification on certain aspects.

Most notably, the 2026 Document clarifies the distinction between “sectoral supervision” and “close & continuous supervision”.

Sectoral supervision involves the Central Bank assessing each sector as a whole with reference to its safeguarding outcomes and identifying the risks, issues, trends, and vulnerabilities that should be the focus of supervisory attention over a multi-year period.

Where firms within those sectors could have a significant impact on the achievement of the safeguarding outcomes, they may also be subject to close & continuous supervision at the individual firm level.

While the 2026 Document provides much of the same detail as the 2025 Document on how the Central Bank will determine which firms are subject to close & continuous supervision, it emphasises that this is an additional supervisory layer on top of the sectoral supervisory approach. In this sense, the approaches are separate but overlapping.

The 2026 Document also provides more detail on the following points in relation to the firms that are to be supervised on a close & continuous basis:

• Risk Identification and Prioritisation: The structured practices the Central Bank will use to identify and prioritise risks, trends and vulnerabilities across sectors and firms supervised on a close & continuous basis.
• Risk Mitigation and Remediation: The range of supervisory actions and interventions that will be delivered and used proportionately to prevent or mitigate the prioritised risks to their safeguarding outcomes.
• Multi-Year Supervisory Strategic Plans: That each sector and firm supervised on a close & continuous basis will be supervised in an integrated, holistic way with a multi-year supervisory strategic plan.

Importantly, the 2026 Document also emphasises that, in circumstances where individual firms are being supervised on a close & continuous basis, including close & continuous supervision at a sectoral level, they will, or already have been, informed of this.

Key Takeaways

Whilst the 2025 Document and the 2026 Document confirm that the PRISM supervisory model has been replaced with a new, enhanced approach, it should be noted that the PRISM Impact Review has survived the update. And although the prudential impact ratings are no longer the primary driver of supervision intensity, they remain a relevant input for supervision and for certain Central Bank Regulations, Requirements and Guidance for certain sectors.

The 2026 Document also emphasises the importance of the Central Bank’s annual Regulatory and Supervisory Outlook Reports under this new approach. In particular, it notes that risk identification and prioritisation will be signalled in these reports, along with details of the Central Bank’s focus themes by sector as part of the multi-year supervisory strategic plans.