New Bank Supervision Mechanism in Ireland

In this post, we offer a brief overview of the mechanisms that govern the Irish banking sector. This topic is relevant for those who wish to obtain a financial license in Ireland.

Key regulators

Ireland's chief financial regulator, CBI, is part of the European System of Central Banks that aims to ensure the stability of the country's banking system and better consumer protection.

There are more than 60 banks operating in Ireland. Previously, the issuing of financial licenses in Ireland and overseeing banks operating in the country was the sole responsibility of CBI. However, since 2014, the European Central Bank has become the main supervisor in the Republic’s finances sector. It received these powers after the Single Supervisory Mechanism has been implemented throughout the European Union.

Today, Central Bank complies with all relevant EU directives as well as the EU disclosure guidelines.

How Irish banks are governed 

Today, Irish financial companies are subject to EU corporate governance requirements.

The Central Bank's Lending Code of Practice applies to Irish banks, but not to banks registered in other EEA member states that do business in Ireland.

Lending

The financial crisis significantly altered the dynamics of Ireland's banking sector. Weak economic conditions caused a drag in demand for personal and business loans. Therefore, banks in Ireland are required to develop and adhere to specific policies for covering loans, as well as risk limits and regulatory reporting. 

Importantly, loans of up to 1 million EUR are usually approved by the bank's council, but loans exceeding this amount must be agreed and approved by the CBI.

Interestingly, the ECB has recently relaxed rules to allow banks in the EU to use all their liquidity and capital reserves, with the aim of boosting lending to businesses during COVID-19 pandemic.

Curious fact: The Republic’s five retail banks continue to apply interest to loans subject to payment breaks during the pandemic, even as European regulators said that waiving such charges would not tip borrowers into default.

Registration of a financial company in Ireland: main obstacles

Brexit is considered one of the factors contributing to the imbalance in the Irish banking industry. The Irish regulator considers the second such factor to be the regulation of financial behavior, which requires new approaches, in particular:

• ensuring that the authorization process for financial institutions is more secure after Brexit;
• more effective consumer protection, including through robust enforcement;
• solving problems associated with delinquent mortgage loans and non-performing loans;
• supervision of insolvent borrowers.

Output

The UK's exit from the EU influenced nearly all activities in Ireland, including banking. Following the implementation of the Unified Banking Supervision Mechanism, the European Central Bank is authorized to monitor the operation of financial institutions in Ireland.