1. Healthcare

Central Bank
of Ireland
Strategic Plan
2013–2015
TABLE OF CONTENTS
Introduction 2
Executive Summary
3
Environmental Context
4
High Level Goals
13
INTRODUCTION
The Strategic Plan 2013-2015 explains how the
Central Bank of Ireland intends to deliver on its
mission of Safeguarding Stability, Protecting
Consumers over the coming three years. We will
be exerting our utmost effort to ensure that this
period will see considerable further progress in
restoring banking and general financial stability and
supporting the economic recovery as we work out
the legacy of the crisis. We will also deepen the
reform of our regulatory supervisory framework to
ensure that future risks to stability and consumer
protection are minimized, while continuing to
promote a better functioning financial sector, and
contributing to wider economic policy formulation.
I know that the Central Bank’s staff will continue to
rise to these challenges with the necessary skills,
determination and commitment that they have
shown to date and for which I am very grateful.
Patrick Honohan
Governor
Central Bank of Ireland
2
EXECUTIVE SUMMARY
This plan sets out the Bank’s key strategic priorities
for the three year period 2013 to 2015. The Central
Bank Acts define the Bank’s statutory objectives
which correspond to the eight High Level Goals,
described in the following pages1, around which this
plan is organised. At their essence these objectives
all relate to the Bank’s mission of Safeguarding
Stability, Protecting Consumers.
involving roll out and review of the PRISM risk
framework, and continuing use of a credible
enforcement deterrent.
The Strategic Plan is set in the context of continuing financial stability concerns and challenges to
government finances, difficult economic conditions
for consumers, businesses and regulated firms and
an increasingly international policy-making environment. The key elements are:
»»
»»
Restoring financial stability and supporting
economic recovery through successful exit
from the EU-IMF Programme of Financial
Support and restoring a fully functioning
banking system. Repairing the finances of the
economy in the aftermath of the crisis requires
continued careful choice of adjustment measures
and systematic implementation of these
measures. The Bank’s economic and regulatory
staff are continuously engaged in the provision of
advice to Government, of regulatory guidance to
banks, and engagement with external lenders. An
extensive plan of action is set out to achieve this,
including successful completion of remaining EUIMF commitments, liquidity support operations,
further stress testing and capital assessment,
banking and credit union sector restructuring and
deleveraging, and troubled portfolio workout.
These measures are necessary to restore
economic confidence, to ensure the return of
the Irish Government to debt markets, lowering
funding costs for the taxpayer, business and
consumers, and to enable the banking system to
support growth in the real economy through the
provision of credit.
»»
Protecting consumers by challenging firms,
improving firms’ compliance, promoting
a better culture in the financial sector and
helping consumers have more confidence in
financial services. Our work here will include
assessing firms’ compliance through thematic
reviews, strengthening client asset safeguards
and continuing action on personal debt issues.
»»
Influencing the increasingly international
policy-making framework for monetary policy,
financial stability and regulatory standardsetting. Our plans here include shaping the
national and international policy agenda through
high-quality research and intensive engagement
with the Government as well as with the
European Central Bank and European System
of Financial Supervision, and by working closely
with stakeholders on the implementation of EU
Directives and regulations.
The Bank will ensure that its important operational
responsibilities continue to be discharged. This includes currency operations and maintenance and
oversight of payments systems infrastructure, with
a leading role in the implementation of the National
Payments Plan.
Underpinning all these activities, a key focus will be
on improved operational efficiency and cost effectiveness, involving a range of measures including budget control and process automation. Key to
the successful implementation of the strategy will
be the continuing development of the Bank’s staff.
After a period of significant growth in resources, we
envisage a gradual reduction in resources in 2015
due to efficiencies and completion of key initiatives.
Reforming the regulatory and supervisory
framework to ensure risks to stability and
consumer protection are identified and
effectively mitigated. In order to ensure
maximum protection in this area, we will continue
to work for a strengthening of the legislative
framework for regulation, as well as fully
embedding assertive risk-based supervision,
1 Summarised on page 14
3
Strategic Plan 2013–2015
ENVIRONMENTAL CONTEXT
The Central Bank of Ireland Strategic Plan 2013–
2015 is informed by the Bank’s mission statement of
Safeguarding Stability, Protecting Consumers.
This Strategic Plan is being introduced when the
Bank faces an especially challenging period in both
its domestic- and European-related roles.
(ESM) to stabilise markets, and a move to a common
banking supervision approach, which will have an
impact on the Bank’s regulatory agenda. Overall, in
its role of contributing to financial stability, bringing
the economy back to growth and embedding a
new regulatory agenda, the Bank will have a greater
need for participation in, and advocacy at, the many
European institutional fora of which it is a member.
On the domestic front, Ireland is entering the
final year of the three-year EU-IMF Programme,
the successful delivery of which is central to the
country’s economic and financial stabilisation and
revival. The Bank will continue to play a key role in
the progressive steps that are being taken to repair
Ireland’s financial sector, to re-establish conditions
for the normal supply of credit and to the return of
confidence in the economy. The background of a
weakening international economy and financial
market tensions has made these roles more
challenging. On the European front, the Bank has
two key fields of operation. As a member of the
Eurosystem, the Bank is part of the collective design,
analysis, decision-making and implementation of
monetary policy and part of a broader response to
the financial crisis; while on the regulatory front it will
be involved in the design and development of the
framework for a new EU-wide Single Supervisory
Mechanism (SSM).
EU-IMF Programme
In November 2010, Ireland entered into a joint
EU-IMF Programme of Financial Support. The
Programme has two parts – the first part deals
with bank restructuring and reorganisation and the
second part deals with fiscal policy and structural
reform. The Programme is due to conclude at end2013 and will remain a focus of the work of the Bank
until then.
The primary objective of this far-reaching Programme
is to rebuild international market confidence in the Irish
economy and the banking system. This will enable the
State to return to market funding for sovereign debt at
sustainable rates and enable the banks to dispose of
non-core assets, revert to normal market funding and
progressively reduce their reliance on funding from the
Eurosystem and financial support from the Exchequer.
As part of the Bank’s Eurosystem role, the Governor
is a member of the ECB Governing Council, which
has responsibility for setting monetary policy
(interest rates and provision of liquidity), which
is then implemented on a decentralised basis by
each member state national central bank (NCB).
The formulation and implementation of monetary
policy will remain challenging over the period of
the Strategic Plan. Since the onset of the financial
crisis, the ECB has reduced interest rates close
to zero per cent and has adopted a number of
non-standard monetary policy measures, which
include asset purchases, very long term and foreign
currency liquidity-providing operations, in response
to the malfunctioning in interbank markets and the
increased reliance on Eurosystem funding. The
monetary transmission mechanism - the channels
through which changes in policy rates by the ECB
feed through to the real economy - has also been
affected and an important on-going challenge is the
need to continue to address this malfunctioning.
The Programme provides a strong foundation for a
reformed and restructured banking system. This will
be crucial to ensuring that the banks play a full and
vital role in underpinning economic recovery and
the achievement of the Government’s objectives
detailed in the National Recovery Plan. In this regard,
enhanced and increased economic analysis to allow
timely and correct advice to the national authorities
will continue to play a very important role.
Financial System/Banking Sector Stability
Achieving and maintaining the stability of the financial
system will continue to be the primary focus for the
Bank over the next three years. The Bank’s role in
contributing to financial stability reflects the critical role
a well-functioning financial sector plays in facilitating
economic growth. It also reflects the importance of the
banking sector to the transmission of monetary policy
actions to the real economy.
Broader EU developments to stabilise financial
markets include a more effective use of funding
mechanisms such as the European Financial Stability
Facility (EFSF) and the European Stability Mechanism
Central Bank of Ireland
4
Non-standard measures to improve monetary transmission in the Eurosystem
The standard monetary policy implementation measures in the Eurosystem are short-term (one
week, one month and three month) repurchase transactions (repos), whereby NCBs lend money to
counterparties in domestic markets against adequate acceptable collateral. During the financial crisis
as liquidity shortages among financial institutions became more acute, the ECB and other global central
banks undertook a number of non-standard measures to encourage lending to the real economy and
restore an appropriate monetary policy transmission mechanism to certain markets. The measures
include:
»» The provision of unlimited liquidity at fixed rate full allotment;
»» Long Term Refinancing Operations (LTROs) initially providing larger volumes at three-month
maturities, then extending repos to one year and eventually, in December 2011 and February
2012, three-year LTROs with an option to end after one year;
»» US dollar liquidity providing operations with coordinated actions announced by the ECB and
other global central banks; and
»» Outright asset purchases in malfunctioning markets. Initially, this applied to the Covered Bond
market (Covered Bond Purchase Programmes) and this was later extended to the Securities
Market Purchase (SMP) Programme to include secondary market purchases of sovereign bonds.
Recently, the ECB announced its intention to undertake Outright Monetary Transactions (OMTs) in
secondary sovereign bond markets. Following the announcement of the OMTs, the termination of the
SMP was announced in September 2012. The Bank implements these actions and programmes in the
domestic financial market with its eligible counterparties in line with operational modalities and risk
control criteria applied consistently across the Eurosystem.
The overriding aim of the Bank’s work on restructuring
of the Irish banking sector is to get the banks to a
position where they can support the economy by
providing the necessary credit to consumers and
businesses. The Bank’s work encompasses:
continue its crisis-related work, including providing
standard and non-standard liquidity assistance
against adequate collateral. Recovery and resolution
systems for banks and credit unions will also be
developed.
»»
the Banking Supervision Strategy which includes
implementing the Financial Measures Programme
(FMP), ensuring capital adequacy, deleveraging of
non-core assets, dealing with distressed portfolios
and implementing bank-specific mitigation plans
arising from supervisory risk assessments;
At the summit held in October 2012, EU leaders
agreed to proceed with work on the legislative
proposals on the SSM as a priority with the objective
of agreeing the framework by 1 January 2013. Work
on the operational implementation will take place in
the course of 2013.
»»
the provision of liquidity to domestic institutions
against adequate collateral, to support banking
sector stability and monetary policy transmission;
»»
engagement with the European authorities in the
development and support for the SSM.
There has been significant progress in enhancing
and developing the supervisory model over recent
years. This has come about through the provision
of new statutory powers to the Bank and the
development of a supervisory approach which
is assertive and risk-based. Additional statutory
powers which are due to be assigned will further
strengthen the Bank’s ability to regulate financial
services providers and to enforce sanctions for
breaches in regulation.
Continuing macro and micro analysis of the financial
sector’s solvency and liquidity positions will be
undertaken by the Bank in association with other
domestic and international authorities. In 2013, the
Bank will have a key role in ensuring a successful
Prudential Capital Assessment Review (PCAR)
exercise that will contribute to the resolution of
financial difficulties in credit institutions. Until such
time as those difficulties are resolved, the Bank will
5
Strategic Plan 2013–2015
Regulatory Approach
It is vital that the Bank does whatever is necessary to
protect consumers and prevent failures that threaten
the Irish financial system. The Irish authorities have
taken decisive steps to strengthen the banking
system through rigorous, conservative and
independent assessments of loan losses involving
recapitalisation actions and targeted reduction of
non-core assets.
PRISM - New Approach to Firm Supervision
PRISM is the Bank’s new framework for the
supervision of regulated firms. It is both a new
engagement model and a tool to facilitate
detailed probability risk assessment. PRISM
provides supervisors with guidance on the
level of required engagement with a particular
firm and a means to document their actions
and judgements. PRISM requires supervisors
to form judgements about the risks each firm
presents and then to develop appropriate
risk mitigation programmes to reduce
unacceptable risks to an acceptable level.
Significant efforts have also been made to improve
regulation, including a strengthened legal mandate.
The Bank has, as a priority, targeted improved
standards of governance and fitness and probity
across financial services in Ireland. The Bank’s
Corporate Governance for Credit Institutions and
Insurance Undertakings sets out clear requirements
for the directors and boards of banks and insurance
companies. While these requirements may be more
onerous than those in place in other jurisdictions,
they set an appropriate benchmark. The statutory
Fitness and Probity Standards strengthen the Bank’s
‘gatekeeper role’ in relation to senior appointments
and allow, where appropriate, the suspension or
removal of an individual from a regulated firm. Under PRISM, the most significant firms
- those having the greatest impact on
financial stability and the consumer receive the highest level of supervision
under structured engagement plans,
leading to early interventions to mitigate
potential risks. Conversely, those firms
which have the lowest potential adverse
impact are supervised reactively or through
thematic assessments, with the Bank
taking targeted enforcement action against
firms across all impact categories whose
actions affect the achievement of statutory
objectives including financial stability and
consumer protection.
The enactment of the Central Bank (Supervision and
Enforcement) Bill, 2011 (due in 2013) will be a key
tool in enhancing pro-active supervision and will
strengthen the Bank’s powers of enforcement. The
Bill includes new powers to impose directions on
credit and financial institutions, widens the existing
range of powers for authorised officers and will
increase the current level of administrative sanctions
penalties. The Bill also provides for protections for
whistle blowers and strengthens the Bank’s ability
to provide assistance to overseas supervisors.
Firms likely to have the greatest impact on financial
stability or the consumer will receive the highest
level of supervision. The Bank will also continue
to develop a PRISM strategy for low impact firms
focusing on reactive management of this category
of firms. A programme to integrate on-line returns
from low impact firms and automate data analysis
to replace manual reviewing of on-line returns will
be developed. In 2013, PRISM will be reviewed in
the context of its operation and EU developments.
In line with these enhanced supervisory powers
the Bank will establish an Implementation Advisory
Committee to facilitate consultation on the detailed
implementation of the Bill’s provisions. The Bank will
also develop an operational framework for whistle
blowers and put in place a redress and restitution
scheme.
The Bank has adopted a risk-based approach
to supervision underpinned by a credible
enforcement deterrent. The new Probability Risk
Impact Supervisory System (PRISM) represents a
challenging and proportionate risk-based system
of supervision for all financial institutions operating
in Ireland. Initially applied to banks and insurers in
2011, in 2012 PRISM was extended to investment
firms and credit unions and will be used in support
of focused thematic inspection work across a
significant number of firms.
Central Bank of Ireland
Themed reviews and inspections of firms in every
category remain an important priority for the
Bank and are an important element of the Bank’s
supervision strategy. Publishing the outcomes of
inspections allows external parties to evaluate and
judge the work being carried out.
Another key focus of the Bank over this strategic
period will be the restructuring and resolution of
the credit union sector. Part III of the Central Bank
Reform Act 2010, which provides the Bank with
6
Addressing Consumer Challenges
the powers to set out regulations and standards
of fitness and probity for regulated entities will
commence for credit unions. In addition, under
PRISM, the Bank will be in a position to challenge
credit unions robustly where experience and
analysis would suggest that certain key underlying
assumptions driving plans or underpinning current
business models appear unrealistic and seek the
necessary changes as appropriate.
Working to protect the interests of consumers of
financial services remains a key priority. A review of the
Bank’s Consumer Protection Strategy was completed
in 2012 to ensure that the strategy has the right focus
for consumers now and into the future. This review
incorporated engagement with external stakeholders,
including the statutory Consumer Advisory Group and
other consumer groups.
The Bank’s Enforcement Strategy will help to deliver
a regulatory regime that is credible and effective.
The forthcoming enactment of the Central Bank
(Supervision and Enforcement) Bill 2011 will also
reinforce the powers of the Bank in the context
of regulation setting, proactive supervision and
enforcement. The Bill includes a single wide ranging
power of direction, wider powers for authorised
officers, the ability to require ‘skilled persons’ reports
and increased administrative sanctions penalties. More broadly, it proposes protections for whistle
blowers and will strengthen the Bank’s ability to
provide assistance to overseas supervisors.
Consumer Protection – The 5 Cs
The Bank’s Consumer Protection Strategy is
based on the ‘5 Cs’ framework –
»» Consumer - is at the centre of the Bank’s
focus
»» Confidence – working to help consumers
have confidence in financial services,
products and regulation
»» Compliance – monitoring and enforcing
compliance with consumer protection
rules
Resolution of Credit Institutions
One of the Bank’s statutory objectives is the
resolution of the financial difficulties in credit
institutions in Ireland. The Financial Measures
Programme (FMP) Report, published in March
2011, included details of the outcomes of rigorous
solvency stress tests, funding assessments and
the resulting restructuring, recapitalisation and deleveraging requirements of the Covered Institutions.2
»» Challenge – being prepared to challenge
firms and ourselves to get a better
outcome for consumers and
»» Culture – promoting a consumer focused
approach to the provision of financial
services
The down-sizing of the banks’ balance sheets is
progressing through the sale of non-core assets.
The core business of the banks is being supported
through the provision of capital to support new
lending. Focussing on mortgage arrears and its impact on
consumers will continue to be an immediate and
important priority for the Bank which will continue to
drive reform in this area. Lenders will be required to
demonstrate that they are developing and rolling-out
strategies and methods which deliver longer-term
sustainable solutions under their Mortgage Arrears
Resolution Strategies (MARS). This will include
monitoring the level of dedicated resources and
skills in the banks in relevant areas and demanding
early intervention by the banks on pre-arrears
cases. The Bank will continue to closely monitor
progress on this front. The Bank will also continue
to work with financial institutions to encourage
them to focus on strengthening systems to manage
and resolve distressed home mortgage and Small
and Medium Enterprises (SME) loans. Protections
that exist for borrowers will also be reviewed, by
inspecting banks’ compliance with the Code of
Conduct on Mortgage Arrears (CCMA).
2 AIB, Bank of Ireland and Permanent TSB.
7
Strategic Plan 2013–2015
The proposed Personal Insolvency legislation
provides for the establishment of a new infrastructure
to address debt-management issues. The new
legislation will amend the Bankruptcy Act 1988,
and provide for the establishment of the Insolvency
Service of Ireland. The main objective of the
proposed legislation is to address the need to help
consumers discharge their debts due to insolvency,
without recourse to bankruptcy, and thereby lessen
the adverse consequences for economic activity
in the State. The Bank will encourage lenders to
engage with consumers to bring early resolution to
unsustainable debts.
Authority (ESA) committees and contributing to
changes to a number of European Directives
including Markets in Financial Instruments Directive
(MiFID) and the Insurance Mediation Directive.
The Bank has put in place a number of codes of
conduct to provide protection for consumers.
Economic Advice and Policy Development
Monitoring and enforcing compliance with these
rules is a priority for the Bank to ensure that
consumers are being treated fairly. The Bank will
achieve this primarily by carrying out themed reviews
and inspections on particular risks emerging in the
different sectors. A list of themed inspections to be
undertaken will be published early in 2013.
The Bank plays an important role in influencing
national economic policy, by acting as an
independent and authoritative commentator on
the economy and as advisor to the government
on policy initiatives. This role is performed through
the provision of economic analysis, research
and financial statistics. Given the weakness of,
and imbalances in the Irish economy, as well as
the requirements for reform emanating from the
EU-IMF Programme, the Bank’s role as provider
of independent economic advice and financial
statistics has become even more important.
These include:
»»
The Consumer Protection Code which governs how
banks, insurance companies and intermediaries
deal with their customers.
»»
The Minimum Competency Code which established minimum professional standards for financial services providers, with particular emphasis
on areas dealing with consumers. »»
The Licensed Moneylenders Code which applies to
moneylenders licensed under law.
»»
Codes of Conduct on
--
Mortgage Arrears - which set out how
mortgage lenders must treat borrowers in or
facing mortgage arrears;
--
Switching Current Accounts applies where a
consumer is switching a current account held
with a credit institution, to a current account
with another credit institution; and where a
consumer is switching the active direct debits
and standing orders on a current account
to another existing current account with a
different credit institution; and
--
Lending to SMEs sets out the processes
regulated entities are required to adopt in
facilitating access to credit for SMEs.
The Bank has already undertaken reforms to meet
these challenges including changing its structures
and resourcing to improve the delivery of policyrelevant analysis and research. Together with the
Economic and Social Research Institute (ESRI),
the Bank is commencing a major project to build
models of the Irish economy. The objectives are to
enable better analysis and forecasts of the medium
term evolution of the Irish economy and to enhance
the breadth and quality of economic advice to the
government.
In addition, there are a number of European
Directives that provide protections for consumers in
the areas of investment services, consumer credit
and payment services. The Bank will continue to
enhance the domestic framework by completing
a review of the Mortgage Arrears and Switching
Codes as well as developing a new code for debt
management/bill payment companies. The Bank
will also continue to work on helping to shape the
consumer protection agenda at European level by
participating in a number of European Supervisory
Central Bank of Ireland
8
Joint Central Bank/ESRI Macro Economic Model
In the wake of the property crash and weakness of the financial system, and the onerous level of both
private and public sector debt, understanding how the economy will evolve in the medium term and
how policy actions can aid recovery are of paramount importance.
The global financial crisis has exposed the failings of standard macro-economic models, due to, in part,
an inadequate modelling of the relationship between the real and financial sectors of the economy. Models of the Irish economy have suffered a similar fate. In addition, it has been difficult in an economy the
size of Ireland for one institution to commit sufficient resources in terms of highly specialist staff with regard to evolving and maintaining such models. In light of this, the Bank and the ESRI have agreed to collaborate jointly to develop a suite of modern macro-economic/econometric models of the Irish economy
as a basis for informing macro-economic, monetary, financial sector and fiscal policy decisions.
This project will last three years and will involve a number of researchers drawn from both institutions
collaborating in developing a new generation of models of the economy which are suitable for policy
analysis. This project is of critical importance to both organisations, particularly in light of the current
challenges and will be of significant benefit to domestic policymakers.
Statistics
In the coming period there will be more engagement
with the wider economic community to reinforce the
Bank’s advisory role. Communication of economic
policies and analysis to policy-makers and society
in general will be enhanced to reach as wide an
audience as possible. This will include the Economic
Letters series, designed to address topical policy
issues and the publication of the Quarterly Bulletin.
The Bank is the key compiler of financial sector statistics
in Ireland and works closely with the Central Statistics
Office (CSO) in developing this statistical framework.
The compilation of statistics has two main purposes:
The Bank is continuing to build on its capacity to carry
out macro-prudential analysis for the Irish economy.
This commenced in 2012 with the publication of the
Bank’s first Macro-Financial Review.
the challenges to monetary policy setting when
nominal interest rates reach very low levels;
»»
assessing and improving the functioning of the
monetary transmission mechanism;
»»
implications of financial market instability on the
real economy;
»»
implications of the design and implementation
of non-standard monetary policy measures; and
»»
econometric modelling and forecasting of
Eurosystem economic growth and inflation.
providing key information for domestic policymakers
and for the compilation of Ireland’s macro-economic
statistics; and
»»
meeting the Bank’s reporting obligations to the ECB
and other international organisations.
Demand for statistics has increased significantly in
recent years and this trend will continue over the lifetime
of this Plan. At European level, there are enhanced data
requirements from the European Systemic Risk Board
(ESRB) and the EC to assist in their surveillance of
macro-economic and macro-prudential imbalances.
At a global level there is a need to improve existing
data to respond to new challenges, particularly to
support financial stability analysis. Data gaps3 that
have been identified include the lack of information
on the interconnectedness of financial institutions
and the activities of shadow banking entities. On the
domestic front new statistics are required to monitor
compliance with the EU-IMF Programme. Over the
lifetime of this Plan these developments will result in a
significant increase in the Bank’s role as compiler and
researcher of, and commentator on, monetary and
financial statistics.
In the European context, the Bank continues to
respond to the evolving economic and monetary
environment by providing advice and analysis to
the Governor in his capacity as a member of the
Governing Council of the ECB, and contributing
to policy development at many Eurosystem
committees on issues including:
»»
»»
3 20 key data gaps were identified in the report of the IMF
and Financial Stability Board to the G20 Finance Ministers
and Central Bank Governors.
9
Strategic Plan 2013–2015
Payments Systems and Currency Services
Currency Services
The Bank will continue its role in the national cash
cycle and continue to liaise with the retail banks
to ensure the currency system is efficient, secure
and resilient and at the same time meets the needs
of the retail sector and the public. The strategy for
banknote and coin supply and production will be
reviewed as the Eurosystem moves towards the
introduction of a second series of banknotes.
The Bank is responsible for oversight and
operational elements of payment and settlement
systems. In view of the importance of these systems
to economic activity through their role in facilitating
fast and low-risk transactions, the Bank will seek
to ensure that the systems are safe, effective and
efficient and that access to the systems is not
restricted. The Bank is leading the development and
implementation of a National Payments Plan (NPP)
and is working with the financial sector to prepare
for a new system to support the Deposit Guarantee
Scheme (DGS).
Regulatory Developments in Europe
It is essential that the Bank continues to exercise
influence within the ECB, the ESRB and the new
ESAs through strengthening of its advocacy and
quality of analysis.
Payments Oversight Role
A primary function of the Bank’s Payments
Oversight role is to ensure the safety and efficiency
of Irish retail payment systems. The Bank will
continue to carry out its payments oversight role
through involvement and engagement, via board
representation, in projects relating to changes in the
delivery of payments services. At Eurosystem level
the Bank’s responsibilities will continue to include
contributing towards a harmonised approach to
payments oversight activities across the euro area.
TARGET24 is the single pan-European system
used by each of the national payment systems to
ensure a uniform wholesale payment infrastructure,
thus promoting further efficiency and integration in
European financial markets.
There is now a clear path towards integrated banking
supervision with ultimate authority at the European
level enforcing a common rule book. A significant
national component of supervisory activity is likely
to continue. Extensive cross-border use of national
supervisory capacity will likely be an integral part of
supervision in the years ahead. The other two elements of the proposed ’Banking
Union’ namely the establishment of a European bank
resolution scheme fund and a European deposit
insurance scheme, could help break the damaging
link between bank failure in smaller member states
and the taxpayer burden in those member states. In
particular, centralised resolution would ensure that
what happened in Ireland would not be repeated
either here or in the European Union in the future.
At the request of the government, the Bank is taking
a lead role in the development and implementation
of a NPP, which aims to increase the level of
electronic payments in the economy and increase
payments efficiency generally. The Plan is expected
to be implemented over a three year period.
Deposit Guarantee Scheme (DGS)
The Bank is responsible for the administration of
the DGS. This Scheme, which will compensate
depositors – up to certain limits - in the event of
failure of a credit institution, is an important element
in the financial stability toolkit. It reduces the
potential of depositors losing confidence that they
will recoup their deposits if institutions experience
difficulties. The Bank continues to work with all
credit institutions to prepare for and implement new
requirements arising from a draft EU Directive on
Deposit Guarantee Schemes which is expected to
come into effect on 1 January 2013.
4 TARGET stands for Trans-European Automated Real-time
Gross settlement Express Transfer system.
Central Bank of Ireland
10
Single Supervisory Mechanism (SSM)
At the EU Summit on 18 October 2012, the 27 heads of state and the EU agreed on steps needed to
complete Europe’s Economic and Monetary Union to ensure economic and social welfare as well as
stability and sustained prosperity.
The Summit agreed on the need to move towards an integrated financial framework. One of the main
components of the framework is the establishment of an SSM. The SSM will be based on the highest
standards for bank supervision and will allow the ECB to carry out direct supervision. The establishment
of a single rule book underpinning centralised supervision will be of paramount importance in the
new supervisory regime. The intention is to break the link between sovereign risk and banks, thereby
strengthening confidence and allaying concerns regarding the future of the euro.
Consultations will continue between the European Central Bank, the European Council, the European
Parliament and Member States during 2013 on the legislative and operational framework. The SSM
also provides for the adoption of provisions relating to the harmonization of national deposit guarantee
schemes.
It is too early to say what the impact might be on national banking supervisory regimes. While it is
expected that there would be some centralisation of functions and decision making at the ECB, the
scale and timing of this remains to be decided. However, the Bank will adapt its national position in line
with any change in the European context.
Organisational Change
The aftermath of the financial crisis in Ireland has
had a major impact on how the Bank operates.
In the last three years, the Bank has undergone
significant change both in terms of its broadened
mandate, its structures and resourcing. There has
also been a significant growth in staff numbers
leading to the establishment of new directorates
and divisions. The Bank will continue to review
internal governance arrangements to ensure the
appropriate internal structure, resources and
organisational capability to achieve its strategic
goals. While the recent period of change has been
particularly challenging, the Bank is now entering
a phase of consolidation. The high growth in staff
numbers is projected to stabilise for the future. The
Bank will continue to assess processes and cost
effectiveness within the organisation to maximise
operational effectiveness. Enabling strategies for
human resources, premises, IT systems and online receipt of regulatory information have been
formulated to give focus to the efficiency.
As the primary source of income for the Bank is the
return on its investment assets, the Bank will review
the strategic asset allocation to ensure an appropriate
balance of return and risk. As a result, the Bank is
enhancing its risk management framework in order
to mitigate the significant financial and non-financial
risks arising in its activities and operations and also
to effectively implement Eurosystem requirements.
In recent times the Bank has been heavily engaged
in various high-profile activities such as the FMP, the
roll-out of enhancements in regulatory functions, and
the evolving activities at Eurosystem level regarding
monetary policy development and implementation
and crisis resolution measures.
11
Strategic Plan 2013–2015
Legislative Environment
Credit Reporting Bill, 2012
The publication of the Credit Reporting Bill, 2012
is one of the State’s obligations under the EU-IMF
Programme. The Bill provides for the establishment
of a comprehensive and mandatory credit reporting
and credit checking system (Central Credit Register).
The Central Credit Register will be operated by the
Bank and will allow lenders access to accurate and
up to date information regarding a borrower’s total
exposure. This information will support lenders in
making informed credit decisions and will also be an
important source of data for the Bank for prudential
supervision, statistical or associated purposes.
Since the establishment of the Bank as a single
fully integrated structure under the Central Bank
Reform Act, 2010, the Bank has worked with the
Government and legislators to enhance the existing
powers of the Bank and to develop new powers
where legislative weaknesses have been identified.
A short summary of legislation enacted following
the Central Bank Reform Act, 2010, and pending
legislation follows.
Central Bank and Credit Institutions (Resolution)
Act, 2011
The Central Bank and Credit Institutions (Resolution)
Act, 2011, gave additional powers to the Bank to
resolve individual credit institutions, including credit
unions. Some of the key powers granted to the
Bank under the Act are as follows:
»»
The establishment of the Credit Institutions
Resolution Fund to provide a source of funds
for the resolution of financially unstable credit
institutions. The fund will be financed by
contributions from authorised credit institutions
and the Minister for Finance.
»»
The power to establish a ‘bridge bank’ as a limited
company, owned by the Bank and created for the
purposes of holding assets or liabilities transferred
from a distressed institution.
»»
The Bank may apply to the High Court for a
Transfer Order under which it can compel a
distressed credit institution to transfer its assets
and liabilities to another entity.
»»
The Bank may apply to the High Court to appoint
a Special Manager to a credit institution to take
over the management of the credit institution and
operate it within defined terms.
Implementation Advisory Committee
In line with these enhanced supervisory powers
the Bank will establish an Implementation Advisory
Committee and will initiate a programme of review
of regulatory powers to ensure optimal use of the
new legislation. The Bank will also develop an
operational framework for whistle blowers and a put
in place a redress and restitution scheme.
Central Bank (Supervision and Enforcement)
Bill, 2011
The enactment of the Central Bank (Supervision and
Enforcement) Bill, 2011 is due in 2013 and will be key
to strengthening the Bank’s powers of enforcement.
The Bill includes new powers to impose directions
on credit and financial institutions, widens the
existing range of powers for authorised officers
and will increase the current level of administrative
sanctions penalties. The Bill also provides for
protections for whistle blowers and strengthens
the Bank’s ability to provide assistance to overseas
supervisors.
Central Bank of Ireland
12
HIGH LEVEL GOALS
Central Bank of Ireland
14
Implementation
of Eurosystem
operations
Significant input
at ECB level
Assist in
resolving crisis
Support the
Governor in
his role in the
Eurosystem
Ensure liquidity
for banks
EU-IMF
Programme
Macro-prudential
analysis and
policy
Stability of the
Financial System
Eurosystem
effectiveness and
price stability
EU Agenda
Strong powers
Credible
enforcement
Improve
supervisory
quality
PRISM
Assertive
risk-based
supervision
Proper and
effective
regulation
of financial
institutions and
markets
Main strategic deliverables at a glance
HIGH LEVEL GOALS
Enhance internal
Loan Loss
Forecasting
Embed the
recovery and
resolution plans
in the banks
Bank’s policy
for resolution of
credit unions
PCAR in 2013
Resolution
of financial
difficulties in
credit institutions
Engagement with
key stakeholders
Fair treatment of
consumers
Mortgage Arrears
Strengthen
Consumer
Protection
Framework
Protection of
consumers of
financial services
Increased
engagement
with Economics
Community
Improve
communication
of the policies
and views of the
Bank
Increase volume
and quality of
analysis
Independent
economic advice
and high quality
financial statistics
Bank’s role in
Cash Cycle
ES2
National
Payments Plan
Deposit
Guarantee
Scheme
Local Collateral
Management
Solution
Payment and
Securities
Settlement
Systems Policies
Efficient and
effective Payment
and Settlement
Systems and
Currency
Services
Internal Controls
Management of
Risk
Communications
Investment
Strategy
Enabling
Strategies of
HR/IT/premises
Management of
Change
Corporate
Governance
Operational
efficiency
and cost
effectiveness
HIGH LEVEL GOALS
The eight high level goals set out in this chapter
are derived from the Bank’s current and pending
statutory objectives and responsibilities. They also
reflect the Bank’s role and responsibilities within
the EU and as a member of the Eurosystem. The
actions and goals are, in some areas, a continuation
of the work commenced under the Strategic Plan
2010-2012 and also reflect our commitments under
the EU-IMF Programme. In addition, the Bank
recognises that how the staff work is also crucial to
the achievement of these goals and details of how
our operational efficiency and effectiveness will be
increased is also included in the Plan.
The high level goals are summarised as follows:
1. Eurosystem Effectiveness and Price Stability
The Bank is responsible for maintaining price
stability through monetary policy formulation at
Eurosystem level. We will continue to support
the Governor in performing his role in relation
to ECB monetary policy formulation and crisis
resolution, and also continue to contribute to
policy development and analysis across our wide
range of Eurosystem commitments. The Bank
will continue to implement both standard and
non-standard monetary policies and operations
on a decentralised basis.
2. Stability of the Financial System
Financial stability in Ireland and across the
euro area remains a key priority for the Bank. In
addition to the provision of liquidity, the analysis
of the financial environment with particular focus
on risks and vulnerabilities will continue to be
used to inform policy makers. Specific projects
will be undertaken to build up data analytics and
loan-loss forecasting capability.
3. Proper and effective regulation of financial
institutions and markets
Regulation of institutions and markets will
be undertaken through assertive risk-based
supervision which is underpinned by credible
enforcement deterrents. Specific initiatives will
be implemented in the different sectors regulated
by the Bank.
4. Resolution of financial difficulties in credit
institutions
In the effort to bring about sustained economic
recovery in Ireland, embedding recovery and
resolution plans in banks, credit unions and
other financial institutions is vital. Stress-testing
of institutions will also continue to ensure that
they have adequate capital to fulfil their capital
adequacy requirements.
5. Protection of consumers of financial services
Consumer protection strategic priorities have
been identified which aim to strengthen and
maintain protection for consumers, so that
financial services work in the best interests of
consumers both at the present time and in the
future.
6. Independent economic advice and high
quality financial statistics
Increasing the quality and relevance of economic
analysis, research and financial statistics will
assist the provision of assessments and advice
on domestic economic related issues for policymakers, the media, the public and the markets.
The Bank will also continue to contribute advice
and analysis at EU, Eurosystem and EC-IMFECB levels.
7. Efficient and effective payment and
settlement systems and currency services
The Bank’s role in the operations and oversight
of payment and securities settlement systems is
aimed principally at ensuring that they are safe,
resilient, efficient and effective and that access
to such systems is not restricted. Currency
services will continue to be provided to the
public while at the same time the Bank will lead
the development of the National Payments Plan.
8. Operational efficiency and cost effectiveness
Efficiency and cost effectiveness will underpin
all our operations. The Bank will strive to have
the people, systems and structures in place to
maximise our effectiveness. Cost control within
our own operations and ensuring the optimum
return on the Bank’s investment portfolio will be
key considerations in our financial and planning
processes. Our operations will also be conducted
within well-defined risk management and control
frameworks.
15
Strategic Plan 2013–2015
HIGH LEVEL GOAL 1
EUROSYSTEM EFFECTIVENESS AND PRICE STABILITY
The Bank is responsible for maintaining price
stability in Ireland through the implementation of
ECB decisions on monetary policy. As a member
of the ECB Governing Council, the Governor has
direct input into the decisions on monetary policy,
the measures being taken by the Eurosystem to
deal with the ongoing tensions in financial markets,
and on enhancing institutional frameworks to help
facilitate a return to normal market functioning.
»»
influence policy across the range of Eurosystem
and EU committees, on issues including
monetary policy design and implementation,
financial market developments, collateral
eligibility and risk management.
The implementation of monetary policy decisions
will continue on a decentralised basis. We will
continue to liaise closely with counterparties in the
domestic market to ensure the successful provision
of liquidity, against adequate collateral, in our
Eurosystem open market operations.
The heterogeneous impact of the financial and euro
area sovereign debt crises on euro area countries’
transmission mechanisms will also require on-going
monitoring and analysis. The Bank will continue to
meet Eurosystem needs in terms of operationalising
policy measures and providing analysis of the impact
of such measures on financial market functioning.
This will require the Bank to:
»»
develop additional expertise on key monetary
policy issues in a rapidly-changing and uncertain
environment;
The Bank will also continue to contribute to the
design of the system in order to determine the various
channels through which these measures affect
variables such as economic output and inflation,
to make the monetary transmission mechanism
more effective. We will implement non-standard
measures, both Eurosystem and domestic, while
ensuring that risk management of these measures
is appropriate.
»»
continuously improve the quality and depth
of the analysis available to the Governor and
other members of senior management on these
issues; and
We will provide input at Eurosystem and wider EU
policy level to allow banks to restructure/ deleverage
and ultimately reduce their reliance on Eurosystem
funding.
The Eurosystem’s Collateral Framework
All Eurosystem liquidity providing operations are based on adequate collateral which meets high credit
standards. To protect the Eurosystem from incurring losses, all collateral must fulfil certain eligibility criteria
and, if deemed eligible, the collateral assets are added to the ECB’s Eligible Assets Database (EADB) and
eligible counterparties throughout the Eurosystem can use them as collateral in subsequent operations.
The eligible assets are subject to risk control measures, which are broadly harmonised across the euro
area to ensure non-discriminatory conditions in different member states. These risk control measures
include valuation approaches, haircuts, variation margins (marking to market), and limits in relation to the
use of uncovered bank bonds. The Eurosystem’s collateral framework is very broad by comparison with
other central banks’, and reflects differences across member states’ legal and financial systems.
The financial crisis meant that unsecured interbank markets ceased to function normally, so the Eurosystem
became an essential liquidity provider to Eurosystem banks; therefore, sufficiency of eligible ECB collateral
has become more important for banks over time. As a result, the ECB’s Governing Council has taken
measures to increase collateral accepted from counterparties, in order to maintain their access to the
Eurosystem’s liquidity providing operations. These measures include:
Central Bank of Ireland
16
»» temporary acceptance of credit claims (i.e. bank loans) that satisfy certain criteria;
»» lowering the credit ratings requirement for asset backed securities (ABS) to ensure they retained
eligibility or regained eligibility;
»» acceptance of marketable debt intruments denominated in US Dollar, Sterling and Yen, and issued
and held in the euro area; and
»» suspension of the application of the minimum credit rating threshold for marketable debt
instruments issued or guaranteed by countries, and credit claims granted to or guaranteed by
countries, that are in an EU-IMF Programme.
Strategy
Participate effectively in
monetary policy formulation
Action
»» Maintain expertise on key monetary policy issues in
a rapidly-changing and uncertain environment
»» Continuously improve the quality and depth of the
analysis available to the Governor and other members
of senior management
»» Provide effective briefing and policy advice in relation
to Eurosystem monetary policy decision making
»» Influence policy at Eurosystem Committees
»» Develop a new best-practice macro-economic model
to guide monetary policy
»» Implement Eurosystem measures to address difficulties
in financial markets through its non-standard measures
Implement Eurosystem
operations efficiently
»» Ensure that Irish banks have adequate liquidity to
complete the required restructuring/deleveraging set out
under the Financial Measures Programme
»» Provide significant input/briefing at Eurosystem policy
level to allow the banks to achieve this restructuring/
deleveraging and ultimately reduce their reliance on
Eurosystem funding
»» Manage the ECB reserve portfolio effectively
»» Ensure that all open market operations are conducted
in a timely, efficient and effective manner
17
Strategic Plan 2013–2015
HIGH LEVEL GOAL 2
STABILITY OF THE FINANCIAL SYSTEM
The Bank has a mandate, in both domestic legislation
and under the Maastricht Treaty, to contribute to
financial stability in both Ireland and across the
euro area. The Central Bank (Supervision and
Enforcement) Bill, 2011, once enacted, will further
strengthen the powers of the Bank and clarify its
role as macro-prudential authority.
Loan Loss Forecasting Model
An issue of major financial stability concern
in Ireland is the uncertainty in the quality of
the loan books of Irish financial institutions.
Understanding the size of potential loss and
designing policy responses such as mortgage
modification schemes is of paramount
importance in repairing the Irish banking
sector.
The Bank contributes to financial stability through
its work on system-wide issues (macro-prudential
approach) and at the firm level (micro-prudential
approach – see Goal 4). The Bank’s high-level
Financial Stability Committee (FSC) oversees the
monitoring, assessing and highlighting of areas of
concern relevant to the Irish financial system, and
identifying actions that can be taken to mitigate
risks to financial stability. The FSC’s assessment
of current financial stability issues is published on
a six-monthly basis in its Macro-Financial Review.
As part of the Prudential Capital Assessment
Review (PCAR) in 2011, external consultants
estimated the 3 year loss provisions under
baseline and stressed scenarios using loan
level data for the institutions covered by the
government’s Eligible Liabilities Guarantee.
The Bank undertook a shadowing exercise to
examine and assess the loan loss provisioning
carried out by Blackrock Solutions. The
output of this exercise was presented at
a Bank hosted conference titled ‘The Irish
Mortgage Market in Context’ in October
2011. In addition, some of this output is due
to be published in peer-review journals.
In carrying out our financial stability role, the Bank
draws on the expertise and knowledge base within
the Bank at the individual firm level, of prudential
analytics, financial markets, and general economic
analysis and research. To examine the stability of
the overall financial system, analysis is carried
out of its component parts, and the relationships
between the financial system and the real economy,
with particular focus on risks and vulnerabilities.
In preparation for another loan level PCAR
exercise in 2013, the Bank has undertaken
the development of loan loss forecast models
for four asset classes: residential mortgages,
non-mortgage retail, micro SME and SME/
Corporate. The mortgage model will have
the ability to assess losses reflecting the
proposed modification strategies and
personal insolvency arrangement. These
models will undergo an external validation
assessment.
The Bank is also involved, with a number of external
stakeholders, in crisis-related work, which we
will continue as long as necessary. Our identified
priorities include mortgage arrears, liquidity
monitoring, bank stress testing and restructuring,
and sovereign debt sustainability.
A key part of the Bank’s macro-prudential contribution
relates to the EU-IMF Programme deliverables. In the
initial years of the Programme, there was a reliance
on external resources to supplement the Bank’s
analytics. The focus in the coming period is to build
internal capability to develop an accurate picture of
risks facing the banking system. Specifically, a loanloss forecasting model is being built to contribute to
greater understanding of financial sector difficulties,
and as input into the design of remediation measures.
Central Bank of Ireland
The Bank’s macro-prudential analysis and
policy guidance role also extends to European
responsibilities. As a member of the ESRB which
was established in January 2011, the Bank
contributes to macro-prudential oversight of the EU
financial system. In carrying out this role, the Bank
monitors and assesses risks and issues warnings
and recommendations for remedial action in
response to the risks identified.
18
Strategy
Assisting in the resolution of
the financial crisis
Action
»» Continue crisis-related work, liaising with external
domestic and international stakeholders
»» Implement actions relating to mortgage and SME arrears,
liquidity monitoring, bank stress testing and restructuring,
and sovereign debt sustainability
»» Produce high quality macro-prudential analysis and policy
guidance, including early identification of emerging issues
»» Publish a regular Macro-Financial Review
Manage and coordinate the
Bank’s responsibilities under
the EU-IMF Programme
»» Prepare quarterly reports on the Mission Reviews
»» Ensure delivery of Bank’s commitments set out in the
Programme timetable
»» Enhance and develop internal stress testing and loan
loss forecasting capabilities
Ensure that Irish banks have
adequate liquidity
»» Active and coordinated engagement with key
stakeholders (EC-IMF-ECB, Department of Finance,
NTMA) to ensure that Irish banks have adequate liquidity
on an on-going basis
»» Ensure banks can complete required restructuring/
deleveraging as set out under the Financial Measures
Programme
Monitoring the capital and
solvency position of key
regulated entities
»» Develop internal tools and models to support micro
and macro-prudential analysis
19
Strategic Plan 2013–2015
HIGH LEVEL GOAL 3
PROPER AND EFFECTIVE REGULATION OF FINANCIAL INSTITUTIONS
AND MARKETS
Prudential supervision promotes the safety and
soundness of individual institutions and markets
and the protection of consumer assets, through
compliance with capital, solvency and other
requirements. The supervisory approach adopted
by the Bank over the last two years has been
developed in accordance with the new statutory
powers given to the Bank in the Central Bank
Reform Act, 2010 and the Central Bank and Credit
Institutions (Resolution) Act, 2011. Further legislative
changes currently being finalised will strengthen our
enforcement powers. This approach is delivering an
assertive risk-based supervision system for financial
institutions which is underpinned by a credible
enforcement deterrent.
During 2012, the Bank introduced a risk-based
approach to supervision which enables us to
apply our resources to those institutions with the
highest impact and risk profile with the emphasis
on conclusive mitigation of identified risks. This
framework is known as PRISM. The key objectives
are to:
have a consistent way of thinking about risk
across all supervised firms;
»»
have a tool for the allocation of resources based
on impact of firm failure;
»»
have a process that ensures a minimum level
of supervisory engagement for different classes
of firms;
Central Bank of Ireland
provide embedded guidance material to prompt
supervisory challenge and judgements;
»»
have a tool that requires actions to mitigate risks
and tracks progress against these objectives;
and
»»
give clarity to firms, provide quality control
mechanisms and provide better management
information.
The supervision of banks in Ireland has radically
changed. Significant resources have been put in
place and improved processes are being developed.
The prudential capital adequacy requirements for
the domestic banks continue to be of concern,
particularly relating to the emerging data on
mortgage arrears and the impact of resolution
of loan losses on the capital requirements of the
banks. The next PCAR assessments will be carried
out in 2013 and will coincide with the planned stress
testing to be completed by the EBA. In this regard,
our emphasis will continue to focus on the following
key measures:
Risk-Based Supervision
»»
»»
Banking Supervision Strategy
Under the enhanced supervisory framework, the
supervisors of financial institutions have become
more challenging. This challenge extends to
business models as well as controls. The level of
engagement with firms also provides an opportunity
for (time limited) dialogue which enables the
Bank to be satisfied that concerns expressed are
taken seriously by the institutions and that, where
necessary, remedies are being put in place.
operate a supervisory risk assessment framework
in line with international best practice;
have a tool requiring a systematic and structured
method of assessing risks in firms;
An assessment of the operation of PRISM will be
conducted during 2013.
Assertive Supervision
»»
»»
20
»»
Implementation of the Financial Measures Programme (FMP)
»»
Bank Capital Adequacy: monitor PCAR 2011
performance and carry out the PCAR/EBA
assessments in 2013
»»
Deleveraging and Liquidity: ensure the on-going
disposal of non-core asset and identify potential
further asset transfers
»»
Distressed Portfolios: continued focus on provisioning, mortgage arrears resolution strategies,
SME portfolio workout
»»
PRISM Risk Assessments: firm specific mitigation
plans.
Credit Unions
The Bank’s regulatory strategy for the credit union
sector is based on the belief that strong, wellgoverned credit unions should remain an important
part of the financial landscape in Ireland.
The three key objectives to underpin our work in this
sector will be to:
»»
resolve weak and non-viable credit unions to
protect members savings and maintain financial
stability within the credit union sector;
»»
develop an appropriate legislative and regulatory
framework to protect the stability of individual
credit unions and to allow the sector to develop;
and
»»
bring about longer term restructuring of the
sector to ensure its long-term sustainability.
and implementation by 1 January 2014 is unrealistic.
Given the uncertainty around the range of potential
outcomes we encourage industry to maintain its
focus on Solvency II. The Bank will continue to work
with industry, EIOPA and other key stakeholders to
remove this uncertainty and to secure agreement on
outstanding issues as soon as practicable.
Solvency II
Solvency II is the new regulatory framework for
setting risk-based solvency requirements for
insurance and reinsurance companies operating within the EU. This framework is a clear
improvement on the current European Solvency
I rule book. Unlike Solvency I, it is risk-based,
covers the asset side of the balance sheet and
provides an incentive for investment in risk
management, including the use of internal models. Importantly, it is founded on a balance sheet
based on market consistent economic value.
Arising from the above there is a significant policy
agenda to be implemented for the sector against a
background of a challenging environment where an
increasing number of credit unions face potential
solvency issues. We will focus our resources in
accordance with a risk-based approach, with
supervision of low impact credit unions on a
reactive basis.
Solvency II is not a single piece of legislation
but rather an interconnected group of laws and
European rules. The Solvency II Directive itself
has been adopted but a supplemental piece of
legislation known as Omnibus II is concluding
the process of approval in Europe and makes
important amendments to the core Solvency II
law. In addition the Directive framework will be
supplemented by a significant raft of so called
level 2 regulations and EIOPA will promulgate
a wide range of binding technical standards,
guidance and other materials to flesh out the
detail of this regulatory framework, often known
as Level 3 measures.
Insurance Supervision
The regulation of the insurance industry in Ireland
will continue against the current difficult economic
and business environment including falling insured
values and aggressive price competition. The Bank
will provide effective regulation of international and
domestic insurance undertakings in Ireland.
The new PRISM regulatory model has been
implemented and we will engage with companies
to help them understand our risk-based supervisory
engagement and to ensure they mitigate assessed
risks appropriately.
Solvency II will have significant implications for
the shape of the insurance market in Europe
and beyond. The new regulatory standards will
have implications both subtle and profound
for insurance pricing, investment strategy and
risk taking. It will encourage investments in risk
management capability and ever more sophisticated risk analytics and risk modelling. It may
provide incentives for fundamental reshaping of
corporate structures. These will be significant
challenges for both the Bank and for the firms
we regulate.
We will seek to influence the enhanced EU regulatory
framework through effective engagement with the
European Insurance and Occupational Pensions
Authority (EIOPA).
A key issue affecting both industry and the Bank is
the doubt surrounding the timing of the introduction
of Solvency II. As final agreement has not yet been
reached, it is widely accepted that the proposed
timeline of Solvency II transposition by 30 June 2013
21
Strategic Plan 2013–2015
Markets Supervision
the Alternative Investment Fund Manager Directive
(AIFMD) in July 2013, followed by the Undertakings
for Collective Investment in Transferable Securities
(UCITS) V/VI in 2013/14 and various reforms of
shadow banking activities. This will impact both the
authorisation of funds as well as the supervision of
funds and fund service providers.
The overriding aim of Markets Supervision is investor
protection and the mitigation of systemic risk. Work
in this area is split between the supervision of firms
and the oversight of primary and secondary markets.
Primary and Secondary Markets
Mindful of the scale of the Irish funds industry as
well as the additional regulatory responsibilities that
this brings, we will develop appropriate supervisory
engagement models within the PRISM framework.
The bulk of the legal framework underpinning this
work has been driven by European Directives such as
the Markets in Financial Instruments Directive (MiFID),
Capital Requirements Directive (CRD), the Prospectus
Directive (PD), Transparency Directive (TD) and the
Market Abuse Directive (MAD). These Directives are
being revised and two new significant regulations
are due to be implemented: the European Market
Infrastructure Regulations (EMIR) and the Central
Securities Depositories Regulation (CSDR). There are
however, two particular areas where the regulatory
approach is driven by the Bank’s priorities:
»»
the need to have appropriate safeguards around
firms’ holdings of client assets; and
»»
the need for appropriate regulation of investment
funds and funds service providers.
The efficient use of staff resources and technology
will be a key consideration in the design of revised
authorisation and supervisory approaches.
Market Infrastructure
Given the momentum and scope of the overhaul of
the global financial system, we will need to continue
to be involved in the international policy debate.
Increased regulation of market infrastructure
providers, such as central clearing counterparties
(CCPs) and central securities depositories (CSDs), will
change the trading environment for banks, insurance
companies, investment firms and investment funds.
We will continue to contribute actively in various
international fora as new regulations go through their
various stages of consultation and development
and in the assessment of their effectiveness postimplementation.
Investment Firms and Client Assets Supervision
Following the publication of the Review of the
Regulatory Regime for the Safeguarding of Client
Assets in early 2012, a new Supervision Team will
implement a revised Client Assets Requirements
regime for the supervision of firms holding client
assets. These new Requirements will provide
greater protection to investors and provide a clearer
framework for firms to implement the necessary
safeguards in their businesses.
Enforcement Strategy and Direction
The Bank’s approach to regulating financial services
providers and markets, whilst ensuring the protection
of consumers, is based on a model of assertive
risk-based supervision underpinned by a credible
threat of enforcement. Where firms fail to comply
with their regulatory requirements, enforcement
is an important tool to effect deterrence, achieve
compliance and promote the behaviours we expect.
Mindful of our overriding aims, we will develop
appropriate supervisory engagement models for
medium high, medium low and low impact entities
consistent with the PRISM framework. We will utilise
the new powers to be conferred under the new
Central Bank (Supervision and Enforcement) Bill
with a view to delivering more effective regulation
and more cost-efficient supervision. Where gaps
are identified which create legal uncertainty for
firms or limit the effectiveness of the Bank’s
supervisory approach, we will continue to make
recommendations for legislative change.
Enforcement and supervisory resources will
continue to work closely to ensure that actions taken
are successful and effect a culture change. The
Bank’s actions can be categorised into two broad
areas: pre-defined and reactive enforcement. Some
will not fall under these priority areas, but where we
become aware of serious breaches of regulatory
requirements, through supervisory work or other
sources, enforcement action will be pursued.
Funds and Supervision of Investment Service
Providers
Enforcement will continue to be used to support the
PRISM engagement model across the low to high
impact rating spectrum. In particular, it will remain
a key support for the effective supervision of lower
The regulatory environment for investment funds
will change substantially with the implementation of
Central Bank of Ireland
22
impact rated entities where we do not have an active
supervisory relationship. Where circumstances
warrant it, we will take action against lower impact
firms as an effective means of deterring poor
behaviour by other lower impact firms and raising
the standards of compliance across this impact
category.
The Bank will use to the fullest extent its enforcement
powers to hold financial services providers and
individuals to account. We will act in a transparent
way so that the regulated community and wider
public are made aware of the outcomes of our
actions.
Enforcement Strategy includes ensuring that
persons holding such functions are held to the high
standards of fitness and probity required by the
regulatory regime.
Accountability of the Bank for its actions is also
important and is a key tenet of a better regulation
environment. The Bank will continue to ensure that
its enforcement processes and the results of actions
are always transparent and accordingly, will be
made publicly available.
Strategy for the International Financial
Services Industry in Ireland 2011-2016
Where individual responsibility is at the core of
suspected breaches of financial services law, the
Bank will focus enforcement attention on where
the responsibility falls, including through the use of
its administrative sanctions and criminal powers.
In order to change behaviours which fall short
of expected standards those responsible for the
impugned behaviours must be held accountable for
their actions.
In July 2011, the Taoiseach launched the
‘Strategy for the International Financial
Services Industry in Ireland 2011-2016’ for
the further development of the sector. As
a key stakeholder in that plan, the Bank is
committed to delivering on undertakings
made in the context of the strategy
consistent with our mission and our statutory
responsibilities.
The fitness and probity of persons occupying
important functions within regulated entities is
essential to restoring and fostering the trust of
the public in financial services providers. Our
23
Strategic Plan 2013–2015
Strategy
Continue to implement
and enhance a risk-based
approach to supervision
Action
»» Deliver effective, judgement-based, outcome-focused
supervision
»» Ensure all regulated firms are classified using PRISM
risk rating approach
»» Allocate supervisory resources in accordance with
probability risk
»» Produce comprehensive risk mitigation plans
»» Conduct on-site and off-site supervision of regulated
firms, incorporating robust business model analysis
to understand the key risks they face and how they
generate profit
»» Carry out an assessment of the operation of PRISM
during 2013
Strengthen the regulatory
framework for financial
institutions
Restore stability to the
banking sector and
facilitate prudent lending to
households and SMEs
»» Oversee the implementation of new EU regulations,
including especially:
--
UCITS IV
--
Alternative Investments Fund Managers Directive
(AIFMD)
--
Complete the project to implement Solvency II Directive
--
Transposition and implementation of CRDIV/CRR and
development of associated Binding Technical Standards
via EBA
»» Continue with the structured path of reform and
downsizing for the domestic banking sector
»» Implementation of the FMP
»» Carry out PCAR assessments and EBA stress testing
in 2013
»» Ensure the PCAR banks meet deleveraging, liquidity
and capital adequacy targets
»» Monitor the focus in credit institutions on provisioning
in relation to mortgage arrears resolution strategies and
SME portfolio workouts
»» Complete a self-assessment exercise against Basel
Core Principles for effective banking supervision
Central Bank of Ireland
24
Strategy
Implement an effective and
efficient regulatory regime
(Solvency II) for the insurance
industry
Action
»» Continuously review current economic and insurance
market conditions cycles and adjust regulatory focus
accordingly
»» Continue close engagement and cooperation with
European and other supervisors
»» Transition into new regulatory regime (Solvency II)
»» Internal model approval process
»» Amend and update existing internal regulatory procedures
to ensure implementing Solvency II regime on a
continuous basis
Develop a strengthened
legislative and regulatory
framework for the Credit
Unions sector and a tiered
regulatory approach
»» Ensure the protection of member savings, maintain
financial stability and promote the prudent development of
the sector
»» Ensure that restructuring supports the stability of
individual credit unions and the sector in the long term
--
Develop a fitness and probity framework appropriate for
sector
--
Develop Prudential Rule Book
--
Issue guidance on strengthened regulatory framework
--
Regular communication with sector (e.g. Regulatory
Forum)
--
Automation of returns submitted by credit unions
25
Strategic Plan 2013–2015
Strategy
Action
Ensure that market
participants act in a fair and
transparent manner
Market Integrity
»» Ensure that prospectuses that facilitate the admission to
trading of securities or the offer of securities to the public
contain sufficient information to enable investors to make
a fully informed investment decision
»» Provide issuers with certainty of process (document review
and timelines) and a straightforward capital raising path
»» Identify potential instances of market abuse
»» Continue to contribute actively to consultations and
development of new regulations at pre- and postimplementation stage
Funds
»» Develop an appropriate model of supervision for low
impact entities, investment funds and fund service
providers
»» Implement Collective Investment Scheme legislation
governing UCITS V, AIFMD and any international
developments on shadow banking, specifically money
market funds
Protection of Client Assets
»» Correlate client asset information to enable a risk-based
approach towards the supervision of client assets
»» Put in place a client asset protection regime to achieve
the three core objectives in the client assets requirements
»» Inform and educate the public regarding the protection
regime applicable to their assets at each stage of the
investment
»» Recommend changes to legislation to enhance
supervisory powers where issues are identified
Corporate Finance
»» Ensure a smooth transfer of the Transparency Directive to
the Bank
»» Maintain and enhance Ireland’s reputation as a jurisdiction
of choice for prospectus review and approval
»» Enhance the reputation of the Bank with respect to the
Market Abuse Directive
Central Bank of Ireland
26
Strategy
Improve compliance by
focusing on key enforcement
priorities
Action
»» Advance Enforcement cases to deliver on Enforcement
Strategy
»» Publicise enforcement priorities for themed reviews and
inspections including prudential issues, systems and
controls, consumer issues and anti-money laundering
»» Ensure strong enforcement against lower impact firms
»» Monitor the standards of fitness and probity required by
the regulatory regime
»» Ensure the results of enforcement actions are publicly
available
Prepare for additional
regulatory responsibilities
»» Develop regulatory and supervisory regimes to implement
the additional powers provided for in the Central Bank
(Supervisory and Enforcement) Bill when enacted
Influence decision making
and policy development
through active participation
in the EU Supervisory bodies
»» Engage with new European framework for banking
supervision
»» Provide support to Bank’s representative at the ESRB
»» Participate actively on behalf of the Bank at meetings of
EU Supervisory Bodies
»» Provide technical expertise to Department of Finance for
the Irish Presidency of the EU
27
Strategic Plan 2013–2015
HIGH LEVEL GOAL 4
RESOLUTION OF FINANCIAL DIFFICULTIES IN CREDIT INSTITUTIONS
The Central Bank and Credit Institutions (Resolution)
Act, 2011, includes a statutory objective for the Bank
with regard to the resolution of financial difficulties in
credit institutions. A key component in meeting this
objective will be the completion of another exercise
to assess the PCAR of the domestic banks covered
by the State Deposit Guarantee.
The main areas of focus for the Bank in the area of
resolution will be:
»»
dealing with loan arrears (for mortgages, SME
and Commercial Real Estate);
»»
undertaking required data remediation so that
the necessary data is available for the 2013 loan
loss forecasts; and
»»
embed the Recovery and Resolution Plans in
the banks.
»»
clear governance, capability
frameworks must be in place;
and
capacity
»»
clear timelines for planning and delivery of
mortgage arrears approach and resolutions; and
»»
clear measurement of success of resolution
strategies offered to customers.
Distressed Credit Operations Review (DCOR)
The Bank engaged external consultants to conduct
a review of the covered banks’ resources and
operational capacity to manage mortgage and
SME arrears. The review was completed for each
of the banks at end-June and indicated that there
are significant operational challenges for these
institutions which will require significant priority
in the near-term. Following on from this we have
engaged with all the lenders on their respective
mortgage and SME arrears strategies, reviewed
their regular submissions, provided best practice
feedback and improved data collection to allow
measurement of progress against KPIs.
The Bank engaged significant external assistance
to undertake the 2011 PCAR exercise and further
assistance is currently being given in drawing up the
resolution plans for the banks. It is envisaged that
future PCAR exercises will allow capital requirements
to be assessed on a more sustainable basis within
the Bank through the building of bank loss models
internally and the development of modelling skills. An emphasis on the effectiveness of bank loan
recovery and the management of mortgage and
SME arrears will also become central to prudential
supervisory objectives.
So far, the resolution of residential mortgages in
distress has been much slower than desirable. Some
lenders have been slow to organise themselves
for the large and complex task of engaging with
borrowers and resolving cases. The Bank will
continue to engage with lenders to ensure progress
is made in this area.
Mortgage Arrears
Credit Unions
Dealing with mortgage arrears is an important
concern for the Bank and we are working to ensure
that it is a top priority within all lenders, both
strategically and operationally, through requiring
lenders to develop mortgage arrears resolution
strategies (MARS). The Commission on Credit Unions recommends
that restructuring of the credit union sector should
be overseen by a board called ReBo, which will be
established on a short-term basis, and the entire
process is to be completed within four years. The
Bank is of the view that by working closely with
ReBo, it should be possible to deal with failed or
failing credit unions, in a positive, collaborative
manner with the aim of ensuring that the impact of
resolution actions on member confidence across
the credit union sector is kept to a minimum.
The Bank requires all mortgage lenders to deliver
effective strategies and plans for customers in
difficulty with loans for primary residences and buyto-let properties, which cover pre-arrears, arrears
and forbearance, and loan modifications/resolution.
Strategies should include the following:
»»
arrears strategy should be on the board agenda
of all lenders;
Central Bank of Ireland
28
Strategy
Oversee the Financial
Measures Programme
Action
»» Execute the FMP in 2013 in alignment with EBA stress
tests
»» Develop and enhance internal loan loss forecasting
capabilities and arrange independent validation of the
models used
»» Operationalise data analytics platform
Oversee the implementation
of the Mortgage Arrears
Resolution Strategies (MARS)
in lenders
»» Ensure MARS is effectively operationalised in the banks
and that lenders are delivering sustainable solutions to
their customers in arrears, including longer term options
where appropriate
»» Ensure that mortgage lenders have appropriate and
effective solutions for borrowers in arrears
»» Continue to review forbearance and loan modification
techniques put forward by mortgage lenders
»» Liaise with other stakeholders including the Government,
Department of Finance, Department of Justice and the
EC-IMF-ECB
»» Publish quarterly mortgage arrears statistics and
consumer based research to ensure transparency
Small & Medium Enterprises
(SME) Arrears Resolution
»» Require the banks to develop and implement resolution
focused strategies for dealing with SME debt
Resolution of Credit Unions
»» Continue the development and implementation of a
strengthened regulatory framework for credit unions
»» Work with ReBo to facilitate the on-going time-bound
restructuring and resolution of the credit union sector in
line with the Bank’s restructuring and resolution policy
»» Oversee consolidation/mergers within the sector
»» Implement a tailored fitness and probity regime for the
credit union sector
29
Strategic Plan 2013–2015
HIGH LEVEL GOAL 5
PROTECTION OF CONSUMERS OF FINANCIAL SERVICES
Mortgage arrears remains a key priority and
challenge for the Bank both in terms of monitoring
lenders’ progress in delivering long-term sustainable
solutions for borrowers in financial difficulties
and ensuring that proper processes are followed
by lenders in their dealings with borrowers in
this stressful situation. The Code of Conduct on
Mortgage Arrears (CCMA), first introduced in 2009,
aims to ensure all mortgage lenders comply with
statutory consumer protection requirements and
treat mortgage borrowers in primary residences
fairly and consistently in pre-arrears and arrears
situations. A themed review will be carried out in a
sample of lenders to ensure that they are complying
with the key protections in the CCMA. A review of
the CCMA will also be conducted to ensure that it
is working effectively, bearing in mind any issues
arising from the themed inspection.
area to be examined further is the remuneration
and incentive structures in place for sales staff to
ensure they are supporting a customer focused
sales process. A detailed list of the planned themed
reviews/inspections will be published in early 2013.
Following a themed examination of the sale of
payment protection insurance by lenders, the Bank
is requiring these lenders to complete a review of
past sales practices and to provide restitution to
customers where appropriate. The Bank will be
monitoring this process to ensure that firms work
through their plans to deliver a good outcome for
consumers.
Under the PRISM model there are a number of
sectors, including retail intermediaries, payment
institutions and moneylenders, which are
considered low impact. Our risk-based supervisory
model is being developed for each of these sectors
which are regulated using a combination of reactive
and thematic measures as well as enforcement
actions where non-compliance is identified. The
Bank is responsible for supervising over 3,400 retail
intermediaries and key priorities for 2013 include
targeted themed reviews of key consumer and
prudential risk areas, publishing a revised Handbook
of Prudential Requirements for Authorised Advisors
and Restricted Intermediaries and continuing to
build on our engagement and provide compliance
assistance to the sector.
In addition to the CCMA review, it is intended to
strengthen the consumer protection framework by
completing a review of the Switching Code and the
Code of Conduct for Lending to Small and Medium
Sized Enterprises (SME Code). With the expected
enactment of legislation providing for the regulation
of debt management and bill payment firms by the
Bank, a Code of Conduct will be introduced for such
firms. Our framework for consumer redress schemes
will be developed as envisaged under the Central
Bank (Supervisory and Enforcement) Bill to ensure
that redress can be delivered to consumers in an
effective and efficient way when systemic problems
occur. The Bank’s work on influencing and shaping
the consumer protection agenda at European
level will continue, particularly through continued
participation on a number of ESA committees and
also inputting into changes to a number of European
Directives including MiFID, the Insurance Mediation
Directive and the proposed Regulation on Packaged
Retail Investment Products (PRIPs).
Continuing to build relations with key consumer
stakeholders will be a critical part of the Bank’s
work in 2013. It is important that the Bank continues
to gain a good understanding of the risks facing
consumers to inform our work. Collaboration will
continue with other agencies which have a direct
role in protecting consumers including the Financial
Services Ombudsman, the National Consumer
Agency (NCA) and the Money Advice and Budgeting
Service (MABS) to achieve this goal. The Consumer
Advisory Group will continue to be used as a
mechanism for bringing external input and advice
to our work.
Work will continue on conducting themed reviews and
inspections in specific sectors and also on specific
issues facing consumers based on our analysis
of emerging risks. These themes will cover issues
across the main sectors including banking, lending,
insurance, payment services and intermediaries. To
support and inform our work, development of our
market intelligence area will continue in order to
proactively identify emerging consumer risks. One
Central Bank of Ireland
30
Strategy
Mortgage Arrears
Action
»» Conduct themed inspection of lenders’ compliance with
CCMA
»» Review the CCMA
Enhance the consumer
protection framework
»» Complete Switching Code review
»» Introduce a Code of Conduct for Debt Management Firms
»» Commence review of SME Code
»» Develop framework for consumer redress schemes
»» Input into EU Directives and participation on key European
Supervisory Authority consumer protection committees
Ensure that consumers are
treated fairly by financial
institutions
»» Conduct a series of themed reviews/inspections – publish
list in early 2013
»» Monitor the completion of the review of past sales of
payment protection insurance
»» Complete review of sales incentives arrangements
Low impact firms
(retail intermediaries,
payment institutions and
moneylenders) – deal with
emerging risks in each sector
»» Develop regulatory framework for each sector
»» Conduct a series of themed reviews/inspections
»» Prudential monitoring via on-line returns
»» Revise the Handbook of Prudential Requirements for
Authorised Advisors and Restricted Intermediaries
»» Conduct a number of regional roadshows for retail
intermediaries
Engagement with key
stakeholders
»» Further develop the role of the Consumer Advisory Group
»» Develop a framework for reporting systemic issues with
the Financial Services Ombudsman
»» Develop relationships with the NCA and MABS
»»
31
Strategic Plan 2013–2015
HIGH LEVEL GOAL 6
INDEPENDENT ECONOMIC ADVICE
AND HIGH QUALITY FINANCIAL STATISTICS
High-quality economic and statistical analysis is
integral to the work of the Bank. It contributes not
only to the goal of providing independent economic
advice and high-quality financial statistics but also
to Eurosystem effectiveness and price stability,
and to financial stability. Having undertaken a
fundamental review of the structure and operation
of the economic areas in the Bank in 2012, we have
identified four objectives for the future:
»»
»»
»»
»»
of the ECB, and other tasks of the Eurosystem
and the ESCB. The existence of the IFSC means
that Ireland’s contribution to the euro area financial
system is disproportionate to its small size – while
Ireland accounts for around 1.5 per cent of euro area
GDP, it hosts around 22 per cent of euro area money
market funds and around one-third of Financial
Vehicle Corporations (FVCs).
As part of its statutory reporting obligations to the
ECB, the Bank provides a range of statistics including:
To increase and improve our policy-relevant
output and its timeliness. Work related to the
Irish economy, the financial crisis and financial
stability will be prioritised.
To raise the visibility and influence of the Bank’s
output vis-à-vis other policy-makers, the
economics profession and the wider public. This is
important both for the purposes of reputation and
communication, as well as for the maintenance of
professional standards.
To make our research even more closely aligned
with the objectives of the Bank, and recognise
such work. The quality of our research will be
assessed by the standards of the academic
community. This will help further raise the Bank’s
profile both domestically and internationally.
To continue to meet our extensive standing
obligations in relation to both domestic and
Eurosystem-related work at a high level. This
involves contributing actively in Eurosystem
meetings/working groups and performing all
statutory and other functions to a high level.
»»
monetary statistics such as M3 (a measure of
the money supply) and its components and
counterparts;
»»
balance sheet and transactions data for the MFI
sector5, the investment fund sector and FVCs;
»»
interest rates applied to households and nonfinancial corporates;
»»
financial market statistics, including issues,
redemptions and amounts outstanding for debt
securities and quoted shares;
»»
balance of payments and other external sector
statistics6;
»»
Quarterly Financial Accounts, which provide
an overview of financial developments by
economic sector; and
»»
Government Finance Statistics, including the
treatment of supports to the banking sector.
We are also further developing national statistics
to meet domestic user needs. Initiatives include the
expansion of mortgage arrears data to include buyto-lets, and the expansion of data on households
and non-financial corporates, including SMEs. These
data cover key policy areas such as deleveraging of
the banking and private sectors, the supply of credit,
developments in household and corporate balance
sheets, and to support the MARS.
In conjunction with the ESRI, the Bank has commenced
a major three-year project to build a series of models
of the Irish economy. The thrust of the project is to
enable us to provide better analysis and forecasts of
the medium term evolution of the Irish economy, and is
an important way to enhance the breadth and quality
of economic advice to the Government.
Statistics
A number of Eurosystem and domestic factors
have imposed new statistical demands on the
Bank, some of which are set out in the box overleaf.
The Bank must maintain and enhance its current
statistical outputs to support the monetary policy
Central Bank of Ireland
5 MFI sector covers banks and money market funds resident
in Ireland.
6 While the CSO is the official national compiler of balance of
payments statistics, most of the data on the financial sector
is collected by the Bank.
32
Statistical Projects
Examples of the statistical projects which will be undertaken over the next years include:
»» Revised consolidated banking return to expand information on claims and interconnectedness;
»» Securities Holdings data project which will also provide information on linkages between
financial institutions;
»» Mortgage Arrears project will expand current data to include buy-to-lets and performance of
restructures;
»» Register of Institutions and Eligible Assets database to meet an ECB project on developing a
comprehensive financial sector register;
»» Quarterly Financial Accounts – joint project with the CSO to integrate financial and non-financial
accounts;
»» Development of Insurance and Pension Funds statistics in compliance with upcoming ECB regulation;
»» Implementation of new statistical manuals from 2014;
»» Further development of shadow banking statistics for FVCs, investment funds and money
market funds; and
»» Triennial derivatives survey for the Bank for International Settlements.
Strategy
Action
Enhance the range and
quality of research produced
relating to domestic
economic policy
»» Align research and empirical capability with economic
policy development
Develop a model for medium
term forecasting
»» Participate in a three-year project with the ESRI
Expand the volume of
statistical outputs
»» Participate in international fora on strengthening the
statistical framework
»» Improve the performance evaluation process of the Bank’s
research output
»» Contribute actively to the ESCB statistical framework
»» Expand the range of statistics on the domestic financial
sector
»» Produce and disseminate regular print and web-based
statistics
»» Implement new dissemination initiatives
Provide analysis and
comment in the interest of
national economic policy
development
»» Provide effective briefing and policy advice aimed at
influencing domestic policy makers
»» Produce macro-economic projections and publish within
the Quarterly Bulletins
»» Participate in Eurosystem-wide surveys
33
Strategic Plan 2013–2015
HIGH LEVEL GOAL 7
EFFICIENT AND EFFECTIVE PAYMENT AND SETTLEMENT SYSTEMS
AND CURRENCY SERVICES
The Bank’s role in the operations and oversight of
the payment and securities settlement systems is
to ensure that they are safe, efficient and effective
and that access to such systems is not restricted.
An effective and efficient payment system is
crucial to the smooth functioning of the banking
system and the economy, and supports financial
stability by reducing settlement risk. The Bank has
obligations to the Eurosystem, the clearing banks
and the Irish banking industry in the maintenance
and development of our operations, policies and
oversight of these systems.
Eurosystem. The project is currently in the
development phase and is due to go live in June
2015. The Bank will continue to participate on
the T2S Advisory Group and continue to liaise
with the Irish market through the National User
Group of which the Bank is chair.
Payments Oversight
The Bank’s role is to ensure the safety and
efficiency of Irish retail payment systems. The
main focus is at payment system level rather
than on individual participants, operators and
service providers. The Bank will continue to carry
out its payment oversight role through:
The principal areas of responsibility include:
Eurosystem Real Time Gross Settlement
Services (TARGET2)
This is the single IT platform for payment
settlement services to all Eurosystem banks,
provided via the ECB. It provides immediate (real
time) settlement on a transaction-by-transaction
basis. TARGET2 offers the highest standards of
reliability and resilience and plays a key role in
ensuring the smooth conduct of monetary policy
throughout the euro area.
(i) involvement, via Board representation,
with IRECC (Electronic Clearing), IPCC
(Paper Clearing) and IPSO (the overarching
industry body); and
(ii) engagement with these companies on
operational issues (e.g. approving clearing
rules and new members) and projects
relating to changes in the delivery of
payments services.
Collateral Management The provision of liquidity to banks via
Eurosystem monetary policy operations and
Emergency Liquidity Assistance is backed by
adequate collateral. The Eurosystem’s collateral
management framework has undergone
significant adjustment in response to the
financial crisis and the Bank is amending its
systems and policies also. We will implement
a new local Collateral Management system to
deliver new collateral management services
as mandated by the ECB Governing Council.
The new services include the provision of
cross border tri-party services and TARGET2
Securities (T2S) auto collateralisation. In order
for the Bank to provide the mandated services it
must change its collateralisation technique from
earmarking to pooling.
TARGET2 Securities (T2S)
T2S is a pan-European settlement system for
securities which is being developed by the
Central Bank of Ireland
34
We will also carry out our responsibilities under
the Single Euro Payments Area (SEPA) initiative –
see box overleaf.
SEPA
The SEPA initiative aims to create a single market for euro-denominated retail payments. SEPA will allow
payment systems users to make cashless, euro-denominated payments to payees located anywhere
in the EU and EEA, using a single payment account and a single set of payment instruments. SEPA
will have at least some impact on every citizen, merchant, public administration and corporate entity
(regardless of size) currently holding a payment account with a bank.
The design and introduction of SEPA is now complete – all that remains is to migrate all national
schemes to the new SEPA standards. The European Commission has set a binding end-date of 1
February 2014 for banks and payment systems users to migrate all payments from existing national
electronic credit transfer and direct debit payment schemes to their SEPA equivalents. As such, it is a
legal requirement for Ireland to have migrated its domestic electronic clearing systems to SEPA by this
date.
While much of the implementation of SEPA fell on the banking sector, SEPA will also need the active
participation of payments users, whether they are public administrations, corporates or individual
consumers. For SEPA to really succeed, all payment systems users must migrate to the new schemes at
the earliest possible opportunity. The implementation of SEPA within Ireland is overseen by a subgroup
of the National Payments Plan (NPP), which has been formed by the Bank. This group will track the
implementation of SEPA in the public and private sectors and coordinate communications and other
initiatives required to ensure the successful implementation of SEPA.
The Bank’s involvement with the NPP-SEPA subgroup (and with SEPA as a whole) derives from its
Eurosystem role and from its overall responsibility for payment systems policy and oversight in Ireland.
As a consequence of which it will coordinate the overall national SEPA migration and implementation
effort. The Bank is also responsible for liaison with and reporting to the ECB and the EU Commission
on SEPA matters.
Deposit Guarantee Scheme (DGS)
A key tool of financial stability is a deposit guarantee
scheme, which limits the potential for a run on bank
deposits by providing comfort to depositors that
their funds are backed-up, to a certain level, by a
government guarantee. Under EU obligations, the
Bank is required to have systems in place to support
Ireland’s DGS, which would compensate depositors
in the event of the failure of a credit institution. Work
on the development of this scheme has been ongoing for the past year and will be completed over
the lifetime of this Plan.
National Payments Plan (NPP)
The Bank is also playing a leading role in the
development and implementation of the National
Payments Plan which aims to increase the level of
electronic payments in the economy and increase
payments efficiency generally.
35
Strategic Plan 2013–2015
NPP
While there has been substantial investment in upgrading Ireland’s payments infrastructure in recent
years, as a member state we are lagging behind our European peers in terms of the adoption of these
technologies. The National Competitiveness Council has ranked Ireland as the second highest in the
euro area in terms of its use of cash as a proportion of GNP, while there are only four European countries that still use a significant volume of cheques.
The efficiency of Ireland’s existing payment systems infrastructure could be improved by changing
behaviour to make more use of secure and efficient electronic payment methods leading to a reduction
in the reliance on cash and paper instruments. Further improvements can be achieved in the efficiency
of cash distribution, which will remain an important payment method into the future.
In the Strategic Plan 2010–2012 the Bank committed to play a strong role in the development of a
National Payments Strategy to transform how payments are transacted in Ireland. The Bank was requested in Q2 2011 by the Minister for Finance to take the lead in preparing an NPP. Since the start of
2012 the Bank has overseen the compilation of the NPP which has four principal targets:
»» double the number of ePayments, such as debit cards or standing orders, by 2015;
»» greatly improve the efficiency of the Irish cash cycle;
»» reduce cheque usage to the EU average by 2015; and
»» ensure the successful transition to SEPA standards by February 2014.
There are significant benefits to the successful implementation of the Plan. The main benefit is cost
competitiveness - if Ireland were to match best practice in Europe, savings of up to €1 billion per
annum could be made. Further payment reform will also promote greater security, convenience, expanded consumer choice and reduced financial exclusion.
The NPP has been submitted to government and once approved will be published. The role of the
Bank in 2013 and 2014 will be to drive a number of the initiatives and to track the implementation of
the overall plan. There will be particular focus on ensuring that the benefits of payments reform flow to
consumers and businesses.
Currency Services
Plans are well advanced in the Eurosystem to
issue a second series of euro banknotes. The new
series will seek to improve the quality and further
enhance the security of euro banknotes. The first
banknotes in the new series are due to be issued
in 2013 and will be introduced on a phased basis
over the coming years. The Bank will engage in an
information campaign to educate cash handlers and
the general public.
A key component of our payments systems is the
provision of high quality banknotes and coin and
other related currency services to the public. The
Bank is committed to increasing its role in the
national cash cycle, to improve the efficiency and
resilience of the cycle and to maintain the quality of
notes in circulation. This will be achieved through
balancing the processing of cash between the
Bank and third parties. The Bank will continue to
proactively monitor compliance with the recirculation
regulations.
Central Bank of Ireland
Coin will continue to be issued to meet market
demand and to ensure that retail transactions can
be effected efficiently. However, the continued
issuance of the lowest denomination coins will be
reviewed.
36
Strategy
Maintain and develop
payment and securities
settlement system
infrastructure
Action
»» Ensure Ireland’s interests are accommodated in
Eurosystem payment and securities developments,
including through policy development at the Payment
and Settlement Systems Committee (PSSC) and related
committees
»» Monitor the implementation of the Single European
Payments Area (SEPA)
»» Contribute, through IRECC, IPSO and IPCC, to the
oversight of the Payments System in Ireland
»» Participate effectively on T2S Advisory Group
»» Ensure awareness of Irish securities market participants
and suppliers with T2S developments and opportunities
Participate in the
Implementation of the
National Payments Plan (NPP)
»» Participate in the Steering Committee for the NPP
Deposit Guarantee Scheme
(DGS)
»» Complete the work to put in place systems to support the
DGS
Produce banknotes and coin
to meet market demands
»» Meet the annual ECB banknote production quota
»» Govern the implementation of the agreed proposals
»» Produce sufficient coin annually to meet demand
»» Continue to issue collector coin
Maintain the quality of bank
notes and coin in circulation
»» Ensure banknote circulation is maintained efficiently and
at a high quality
»» Process and classify all counterfeit banknotes and coins
received
Prepare for the introduction
of the second series of euro
banknotes
»» Produce and issue banknotes according to agreed
schedule
»» Inform cash handlers and the public on relevant security
features
37
Strategic Plan 2013–2015
HIGH LEVEL GOAL 8
OPERATIONAL EFFICIENCY AND COST EFFECTIVENESS
Efficiency and cost effectiveness underpins all the
Bank’s operations. We will strive to have the people,
systems and structures in place to maximise our
effectiveness. Cost control within our operations
and optimising the return on the Bank’s investment
portfolio will be key considerations in our financial
and planning processes. Our operations will also
be conducted within well-defined risk management
and control frameworks.
Bank’s total balance sheet which has increased
significantly both in size and risk profile since the
financial crisis began.
Management of Risk
We aim to manage organisational risks within the
Bank’s risk tolerance. Of fundamental importance
here is the application of effective risk management
frameworks in order to mitigate significant potential
financial and non-financial risks arising in the Bank’s
activities/operations. In particular, we aim to:
Corporate Governance and Internal Controls
The Bank is committed to having in place a
Corporate Governance Framework which reflects
best practice. This is being achieved through
the development and communication of a set of
principles, policies and procedures. These policies
and procedures are forms of internal controls to
ensure compliance to key corporate governance
and organisational objectives. The effectiveness
of these internal controls is reviewed regularly
through an independent audit process. The Central
Bank Commission is also actively involved in the
monitoring of good corporate governance practices.
We are committed to maintaining high standards
of public accountability, while at the same time
asserting our statutory independence.
There are government proposals to bring the Bank
within the Freedom of Information Act and to
introduce specific arrangements for whistle blowers.
These are welcome developments and the Bank will
work to ensure that the necessary arrangements are
in place to ensure our responsibilities are fully and
properly carried out in this regard once the relevant
legislation is introduced.
embed risk governance and risk management
in the Bank;
»»
ensure the Bank’s risk tolerance is appropriately
defined;
»»
ensure balance sheet risks are managed
effectively through enhanced qualitative and
quantitative analyses, due diligence and
institutional arrangements;
»»
ensure financial risks related to the investment
and superannuation portfolios are managed
effectively through a comprehensive risk
management framework;
»»
ensure business continuity risks are managed
effectively through accurate requirements
gathering, planning, testing and incidence
response; and
»»
ensure operational risks are identified and
managed effectively through accurate and
timely identification, mitigating actions and
incidence response.
Human Resources
Optimise the Return on the Bank’s Assets
The important role of the Bank in assisting in the
resolution of the financial crisis in Ireland as well
as fulfilling its other statutory objectives has led to
significant growth in the organisation, particularly
in the areas responsible for financial regulation and
the functions which provide internal support to the
business areas. It has been necessary to broaden the
skills base and knowledge profile of staff. This has been
achieved through recruitment and an increased focus
on training and development. A key focus during the
coming years will be to ensure staff have the skills to
effectively undertake their roles, and create on-going
The return on the Bank’s investment assets is
normally the primary source of income for the
Bank. We will carry out a fundamental review of the
investment strategy in relation to the investment
and superannuation fund portfolios with a view to
optimising the long-term return on these portfolios.
The Bank will also continue to effectively manage
the share of the pooled portion of the ECB’s own
foreign reserves and the Bank’s pension fund which
are managed on an agency basis. This fundamental
review must also take into account the risk of the
Central Bank of Ireland
»»
38
learning and development opportunities to ensure that
staff can reach their potential.
A Human Resources (HR) Strategy has been developed
and is being implemented and continuously aligned
to the overall strategic direction of the Bank. Key
elements of the HR Strategy include:
»»
Analytics: the ability to manage and store a
wide variety of data and providing the ability to
interpret data and deliver information to support
business insights and outcomes.
»»
E-Discovery: the ability to forensically secure,
manage and review evidence for the purposes
of ensuring Enforcement.
»»
talent management, flow of people and the
development of leadership capability;
»»
»»
business alignment and continuous focus on
performance management;
Security: ensuring that business activities are
conducted and maintained in a secure manner.
»»
»»
efficient resource deployment; and
Technology: ensuring that the right technology
is used in the right places in the right ways.
»»
staff engagement and the effective management
of change.
Information Management (IM) and Technology
In addition to having the appropriately skilled staff
in place, it is vital to have systems and processes in
place to support the business goals. An Information
Management Strategy (IM Strategy) has been
developed and will be implemented and aligned to
the overall Strategy for the Bank.
The goal of the IM Strategy is to define a future
proofed IM landscape that will deliver analytical
excellence, operational efficiency, optimised cost of
ownership and automation/process improvement.
The core capabilities and activities in delivering
the IM Strategy are linked to these organisational
objectives recognising the significant changes that
are occurring in both the regulatory and central
banking environment and the fact that there is
widespread organisational change taking place
within the Bank. The IM Strategy will be implemented
in a manner that allows flexibility and responsiveness
to business demands. The key capabilities in the IM
Strategy are:
»»
Collaboration: the ability to collaborate and
communicate internally, with regulated entities,
with peer organisations across the ESCB, with
relevant authorities, and with partners and
suppliers.
»»
Data Collection: the ability to collect data
securely from regulated entities and from
sources externally and internally, and to support
a variety of formats with varying levels of
verification and validation.
»»
Document Management: the ability to collate
and store a wide variety of document types so
that information within documents is searchable
and documents are easily retrieved.
A prioritisation process has also been designed and
is aligned to the overall business goals to ensure
scarce resources are targeted at the most pressing
and important projects.
Another significant project which will be completed
in 2013 involves moving to a new Data Centre
which will be managed externally. This will address
the urgent requirement to meet the critical demand
for increased computing capability to support the
Bank’s broader and deeper regulatory information
acquisition and analytical capabilities and will also
mitigate the risk to the organisation of inadequate
infrastructure, for the systems and applications
supporting the Bank’s business.
Regulatory Information Process Improvement
A separate function has been established to deliver
regulatory process improvement. In particular it aims
to centralise, streamline and automate regulatory
transactions. It currently assesses applications from
prospective Pre-Approval Control Function (PCF)
holders and has standardised and improved the
on-line returns submission process for receiving
information on-line from regulated entities. Between
now and 2015, in addition to the continuous
improvement of the existing processes, the Bank
will improve a number of other business processes
including authorisations, passporting, revocations,
acquiring transactions and contact management.
For low impact firms, we intend improving the
authorisations process by moving towards the
receipt of information in electronic format and
developing automated workflow processes. We
also intend implementing a new contact centre to
make it as simple as possible for the smaller firms
we regulate to do business with us.
39
Strategic Plan 2013–2015
Implementing the Regulatory Transactions Strategy
will allow the Bank to:
»»
deliver a clearly measurable and transparent
service with improved turnaround times;
»»
make it easier for regulated entities to communicate
electronically with the Bank, through the on-line
submission of information and increased use of
on-line reporting; and
»»
improve the quality of regulatory information.
in terms of cost and operational effectiveness. A
site has recently been identified and a significant
project is underway to develop this site and deliver
an accommodation solution by 2015. We will
maintain our existing premises as required while
considering an appropriate asset disposal plan for
these premises.
Efficiency and Cost Control
The achievement of operational efficiency and
cost control mechanisms are key objectives of
this Strategic Plan. In that context, comprehensive
approval frameworks have been implemented in the
areas of staff recruitment and the procurement of
goods and services. Monitoring and oversight of
expenditure will be underpinned by new detailed
cost and financial reporting systems.
Industry Funding
The Bank is undergoing a consultation process with
the financial sector on the levy calculation process in
respect of financial regulation. As part of this process,
the Bank will propose reforms designed to make the
process more equitable and transparent. The most
significant reform represents a logical extension of
our view that the impact categorisation of regulated
entities, within and across industry categories,
allows us to improve our targeting of supervisory
resources. Given that the impact categorisation
of a firm determines the number of supervisors
allocated to it, the proposed approach provides
an opportunity to more closely align the funding
by regulated entities with the costs of supervision.
We expect that the adoption of this impact-based
approach to the levy calculation process will, from
2014 (assuming agreement and implementation of
the new approach in 2013), lead to a reduction in the
complexity of the process thereby leading to greater
efficiency while at the same time facilitating earlier
issue of the levy notices for the year in question. We
will also propose the introduction of application fees
for those firms seeking authorisation in respect of
the provision of financial services which will reflect
the cost involved in the processing of applications.
Further recommendations regarding the treatment of
monetary penalties, pro-rata levies and unpaid levies
will also be incorporated into this Consultation Paper.
Communications
The Bank will continue to keep our corporate
communications policies under review. As an
organisation which attaches primacy to the public
interest, the Bank endeavours to have transparent,
comprehensive and active systems of public
accountability and external reporting. This is
achieved through external publications, the website
and direct interaction with the media, representative
bodies and the public. We will continue to review and
improve all channels of communication to ensure
that relevant and accurate information is available
in a timely manner. We will also develop our liaison
with the educational sector to provide students with
information on the operations of the Bank and of the
Eurosystem.
We have developed a consultative approach with
stakeholders to policy formulation and will continue
to pursue this objective and to explain the rationale
for significant policy decisions.
We have placed significant emphasis on the
requirement for good internal communications and
have put in place a number of measures to enhance
this function. As the organisation has grown
significantly, it is crucial that all staff are aware of the
Bank’s functions and operations and that necessary
cross communications are promoted.
Premises
With the significant increase in staff numbers over
the past number of years, it was no longer possible
to accommodate all staff in the existing city centre
location. Additional premises were procured and
the Bank currently operates from four separate
locations, including the Currency Centre.
A detailed evaluation was carried out to assess
the most cost effective long-term solution for staff
accommodation. The conclusion of this exercise
was that a single premises for all city-based staff
is optimal and will deliver long-term benefits both
Central Bank of Ireland
40
Strategy
Apply high standards of
corporate governance
Action
»» Review policies and practices and ensure compliance with
legal obligations and corporate policies
»» Ensure necessary arrangements are in place for the
application of the Freedom of Information Act to the Bank
»» Use a balanced scorecard approach to measure
organisational performance against strategic objectives
»» Ensure staff operate with integrity and comply with our
Principles and Behaviours
»» Ensure internal procedures and practices are reviewed on
a regular basis
Optimise returns on Central
Bank assets
»» Manage investment and superannuation fund portfolios
within defined risk parameters
»» Manage our share of the pooled portion of the ECB’s own
foreign reserves and act as portfolio manager for ECB
reserves of other member state(s)
Manage and mitigate risks
across the organisation
»» Embed risk governance and risk management in the Bank
»» Ensure the Bank’s risk tolerance is appropriately defined
»» Ensure balance sheet risks are managed effectively
through enhanced qualitative and quantitative analyses,
due diligence and institutional arrangements
»» Ensure financial risks related to the investment and
superannuation portfolios are managed effectively through
a comprehensive risk management framework
»» Ensure business continuity risks are managed effectively
through accurate requirements gathering, planning,
testing and incidence response
»» Ensure operational risks are identified and managed
effectively through accurate and timely identification,
mitigating actions and incidence response
»» Establish a quality assurance role to review key processes
to check compliance with standards and internal controls
41
Strategic Plan 2013–2015
Strategy
Implement HR Strategy
to build organisational
effectiveness
Action
»» Ensure we create and maintain an organisation that is fit
for purpose, maintains the correct level of skill base, and
leadership capability to deliver our goals
»» Enhance our organisation capability through application of
key success levers including --
Knowledge management
--
Succession planning
--
Coaching and mentoring
--
Career paths and job families
--
Talent management
»» Ensure smarter and efficient work practices while
recognising appropriate work life balance for staff
»» Build on the improving staff engagement levels to create a
progressive inclusive high performing culture
»» Drive innovation and change management as a core
competence in our organisation
»» Further embed the performance management processes
to support a continuing focus on improved team and
individual performance
Implement the Information
Management Strategy
»» Enhance our capabilities through the effective use of
technology in
--
Data collection
--
Document management
--
Data analytics
--
E-discovery
»» Manage transition to new Data Centre
Central Bank of Ireland
42
Strategy
Implement Regulatory
Transaction Strategy
Action
»» Improve quality of process
--
Deliver improved automated processes for
authorisations, passporting, revocations and acquiring
transactions
»» Improve quality of regulatory information
--
Increase the submission of electronic information in
line with peers
--
Increase on-line reporting usage from 25% of firms to
90%+
»» Improve quality of service
--
Implement and publicly measure external service
standards, including target turn-around times
--
Implement on-line portal with improved information,
guidance and media content
--
Implement on-line self-service information
management model
Manage transition to a new
premises by 2015
»» Migrate all city centre staff to new building
Review our Corporate
Communications Strategy
»» Enhance the Bank’s website and on-line presence
»» Manage the disposal of current premises
»» Maintain effective communication channels with external
stakeholders
»» Improve and enhance on-line publications/reduce reliance
on paper based material
»» Effectively manage our media and public relationships
»» Provide information to the public
Optimise the efficient
allocation of resources
»» Implement a more centralised budget oversight
Enhance levy collection
process
»» Complete consultation process with industry
»» Ensure compliance with domestic and European
procurement rules
»» Implement new agreed process
43
Strategic Plan 2013–2015
Central Bank of Ireland
44
Design by
Central Bank of Ireland
PO Box 559
Dame Street
Dublin 2
Tel: 224 6278
Fax: 671 6561
Email: [email protected]
Web: www.centralbank.ie