The regulatory framework of the banking sector has changed significantly over the last decade, driven by both domestic and European legislation. This has included a material strengthening of banking regulation, which can be attributed to recognition of the regulatory failings that contributed to the financial crisis and corresponding loss of trust in the regulatory system. I am informed by the Central Bank that during that time, they adopted a principles based approach to supervision. This approach to supervision placed an emphasis on regulated firms abiding by good governance and on the responsibilities of the boards in management of such firms to have, and maintain in place, appropriate governance as well as controls and risk management measures in order to appropriately manage their institutions. This approach was not without rules. The cornerstone of banking regulation at that time were the capital adequacy directive, later the capital requirements directive, the Central Bank Acts and the Building Societies Act. A key supporting document at that time was the Licensing and Supervision Requirements and Standards for Credit Institutions (dating from 1995), with a non-statutory and non-enforceable basis. It was supplemented by additional requirements relating to, for example, managing liquidity and credit, and the Consumer Protection Code.
The Central Bank has informed me that supervision, in line with the principles based approach, was primarily desk based. It comprised of desk based reviews of regulatory and financial returns, regulatory approvals such as capital instruments, on-site reviews and inspections. In May 2005 the Financial Regulator (FR) adopted a formal risk-based framework whereby ?a single cohesive approach across all sectors of activity is applied. The system evaluated risk using such factors as supervisory complexity, corporate governance, business and reputational risk and so on, based on regular statistical reports provided by credit institutions on their activities and financial condition. The risk-based framework was used to draw up a schedule of on-site inspections focusing on a smaller number of large banks, for example large institutions should be inspected on-site once a year, with a one-every-two-years schedule for the next tier of institutions and the remainder to be inspected on a longer rotation depending on available resources.
As outlined by reports completed post crisis, including by Patrick Honohon, Peter Nyberg and the Department of Finance’s Banking Review - There were many failures clearly relevant to the catastrophic impacts of the financial crisis in Ireland. They have been well covered in these reports, including the Honohan Report, which presented five root causes specific to the collapse of the Irish banking system:
• Macroeconomic and budgetary policies that contributed to the economic overheating, and which relied to an unsustainable extent on the construction sector and other transient sources for Government revenue;
• Comprehensive failure of bank management to maintain safe and sound banking practices;
• A regulatory approach which was too deferential and accommodating, insufficiently challenging and not persistent enough;
• An under-resourced approach to bank supervision that, by relying on governance and risk management procedures, neglected quantitative assessment and the need to ensure there was sufficient capital to absorb the growing property-related risks; and
• An unwillingness to take on board sufficiently the real risk of a looming problem and act with sufficient decisiveness and force to head it off in time.
Financial regulation has transformed significantly since then. This is as a result of changes introduced through domestic legislation / reform and also in light of the changing nature of the European architecture of financial regulation.
Consumer protection has also improved significantly since then. In terms of international best practice around financial Consumer Protection, a review by the OECD of the Central Bank’s consumer protection supervisory functions, published in December 2024, found that the Central Bank aligns with international standard for an effective and comprehensive financial consumer protection framework and that its practices are consistent with peer regulators.
European Supervision
Basel III is the internationally agreed set of measures developed by the Basel Committee on Banking Supervision (BCBS) in response to the financial crisis of 2007-09. The measures aim to strengthen the regulation, supervision and risk management of banks. In October 2021, the European Commission published legislative proposals (the EU Banking Package) to bring the European banking regulatory framework fully in line with Basel requirements. These Basel finalisation reforms are split between the Capital Requirements Directive VI and the Capital Requirements Regulation III. The Capital Requirements Regulation III came into effect on 01 January 2025, by way of SI 682 of 2024 and the Capital Requirements Directive VI has a transposition deadline of 10 January 2026.
Since November 2014, the Single Supervisory Mechanism (SSM) has placed significant institutions in participating countries under the direct supervision of the European Central Bank (ECB). The new European Supervisory Authorities, namely the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) commenced operation in January 2011. At the same time, the European Systemic Risk Board (ESRB) was established.
Through the European System of Financial Supervision (ESFS), the above European authorities, together with the national supervisory authorities (including the Central Bank of Ireland), work to ensure harmonised financial supervision within the EU Single Market.
Regulatory, Supervisory and Consumer Reforms
Over the last decade there have been a series of domestic reforms introduced which have significantly enhanced the resilience of the financial system and strengthened the consumer protection framework, regulatory requirements and enforcement powers.
These include:
• The Individual Accountability Framework (IAF), which aims to improve governance and culture in the financial services sector by increasing the accountability of individuals, particularly senior executives. It was developed in response to the retail banking tracker mortgage issue and has the following four main components: (1) the Senior Executive Accountability Regime (SEAR), which clarifies responsibilities for senior roles; (2) the Conduct Standards, which set expected behaviours for all staff; (3) enhancements to the Fitness & Probity (F&P) regime, requiring firms to certify staff competence; and (4) strengthened ASP that allow for direct action against individuals for misconduct. The IAF supports the delivery of the Central Bank’s mandate of safeguarding financial stability and working to ensure that the financial system operates in the best interests of consumers and the wider economy.
• Changes have been made to the Central Bank’s supervisory approach to take account of a changing risk landscape and maintain the protections for consumers and investors, and the high standards we expect of the firms we regulate to secure their customers’ best interests.
• A comprehensive review of the Consumer Protection Code to ensure it remains fit for purpose and continues to protect consumers of financial products today and in the future. The revised Code (published in March 2025, and will take effect from 24 March 2026) delivers an updated and modernised Code that reflects developments of recent years and the services and delivery channels being accessed today.
• Specifically in relation to mortgages, I am informed that the Central Bank has introduced a number of specific regulatory requirements, including a range of measures over and above the protections that apply under EU and domestic legislation to protect mortgage borrowers through all stages of the mortgage life cycle. These measures seek to ensure that lenders are transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle. This includes from the point of a borrower looking to take out a mortgage (including through our macro-prudential mortgage measures), to when examining options to switch to another mortgage product or provider and when in, or facing, financial difficulty.
Enforcement
Following the financial crisis, the Central Bank set out its regulatory strategy of “assertive risk-based supervision underpinned by a credible threat of enforcement.” A credible threat of enforcement means that the Central Bank will pursue evidence of wrongdoing through the deployment of intensive enforcement investigations and inquiries where there is evidence of wrongdoing.
The Central Bank’s post-crisis “credible threat of enforcement” was supported through the enactment of legislation which bolstered the Central Bank’s powers and the establishment of a dedicated Enforcement Directorate. The Central Bank today has a sophisticated range of statutory powers to intervene as part of its regulatory toolkit, ranging from information gathering powers, skilled person reports and directions, up to customer redress and restitution powers and High Court enforcement orders. The granting of these powers also came with the attendant political and public expectation that the Central Bank would utilise them to address wrongdoing, which it has done to great effect over the last decade. In order to credibly supervise firms, market participants must understand that, once commenced, the Central Bank will see its enforcement processes through to their conclusion.
The Central Bank recently completed two Administrative Sanctions Procedure (ASP) inquiries relating to the financial crisis and the tracker mortgage scandal and have concluded over 160 enforcement outcomes in total across the sanctioning regimes since 2006 to present day.
In the case of the ASP in particular, the Central Bank has, for over a decade, deployed its sanctioning powers to strategically and proportionately promote compliance and to deter misconduct at firm and individual level across the financial services sector. The imposition and publication of administrative sanctions following investigations and inquiries are of particular importance and the Central Bank have issued over €400m in monetary penalties as part of the enhanced approach to enforcement post-crisis.
Enforcement investigations, inquires and the publication and imposition of sanctions signal to the market and to the public that there are consequences for contraventions of the rules-based order of financial services and demonstrate that serious misconduct will be addressed by the Central Bank.
Credit Lines
Regulation (EC) No. 1606/2002 of the European Parliament (the Regulation) requires all listed European companies to prepare their consolidated financial accounts in accordance with EU adopted International Financial Reporting Standards (IFRS). In other instances entities may apply local Generally Accepted Accounting Principles (GAAP).
The International Accounting Standards Board (IASB) is responsible for the development and publication of IFRS Accounting Standards.
The Financial Reporting Council (FRC) in the UK is the accounting standard setter for both Ireland and the UK.
The Central Bank of Ireland is not aware of any changes to financial reporting standards requiring that all contingent exposures including hidden credit lines are included in lender disclosures.
