Annual Performance Statement Financial Regulation 2014 … · Central Bank of Ireland Annual Performance Statement - Financial Regulation 2014 - 2015 Annual Performance Statement

Central B

ank of Ireland

Annual P

erform

ance Statem

ent - Financial Reg

ulation 2014 - 2015

Annual Performance Statement Financial Regulation 2014 - 2015

Banc Ceannais na hÉireann Bosca OP 559, Sráid an Dáma, Baile Átha Cliath 2, Éire

Central Bank of Ireland PO Box 559, Dame Street, Dublin 2, Ireland

Telephone +353 1 224 6278 Fax +353 1 671 6561 Web www.centralbank.ie Email [email protected]

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Central Bank of Ireland

13 April 2015

Dear Minister

In accordance with Section 32L of the Central Bank Act 1942 (as amended), the Central Bank of Ireland (the Bank) is required to prepare an Annual Performance Statement on its financial regulatory activities undertaken during 2014 and planned for 2015. This document must be presented to you within four months after the end of each financial year.

We have the honour to enclose herewith the Annual Performance Statement for 2014 - 2015.

Yours faithfully

Patrick Honohan Cyril Roux Governor Deputy Governor (Financial Regulation)

Annual Performance Statement (Financial Regulation) 2014-2015

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Contents

Executive Summary - Main Issues Addressed in 2014 and Plans for 2015 3

Regulatory Performance Review 2014 — Introduction 6

• Proper and Effective Regulation of Financial Institutions and Markets 8

• Resolution of Financial Difficulties in Credit Institutions 31

• Protection of Consumers of Financial Services 34

• Operational Efficiency and Cost Effectiveness 43

Internal Audit 53

Appendix 1 – Performance Review 2014 54

Appendix 2 – Prudential Supervision Engagement Process 2014 79

International Peer Review 80

Regulatory Performance Plan 2015 83

• Proper and Effective Regulation of Financial Institutions and Markets 84

• Resolution of Financial Difficulties in Credit Institutions 94

• Protection of Consumers of Financial Services 95

• Operational Efficiency and Cost Effectiveness 96

Appendix 3 – Performance Plan 2015 97

Annual Performance Statement (Financial Regulation) 2014-2015

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Executive Summary – Main Issues Addressed in 2014 and Plans for 2015In 2014, the Bank continued to deliver a substantial body of work across the financial sectors and markets it regulates, with a view to deliver its statutory mission – safeguarding stability, protecting consumers. As such, the Bank authorises, supervises, regulates and enforces against regulated financial entities. It conducts these aforementioned duties in accordance with its legal remit, which calls for a joint or shared discharge of part of these activities with its European counterparts and Supervisory authorities. More generally, the Bank is part of the European System of Financial Supervisors (ESFS) and, since November 4, 2014, of the Single Supervisory Mechanism (SSM).

The introduction of the SSM represents a fundamental change in the supervision of credit institutions across the euro area. The SSM is a system of financial supervision comprising the ECB and the national competent authorities of Eurozone countries, including the Bank. The SSM’s principal objectives are to ensure the safety of the European banking system and to increase financial integration and stability in the Eurozone. It will be complemented by the Single Resolution Mechanism and the integration of Deposit Guarantee Schemes to form the Eurozone Banking Union.

The Bank undertook a comprehensive range of work in preparation for the new banking supervisory framework during 2014 while maintaining its full supervisory effectiveness. It conducted the Comprehensive Assessment of the larger credit institutions and fundamentally reorganised the Directorate of Credit Institutions Supervision.

During 2014, banking supervisory activities included, in addition to the prudential supervision of a wide range of banks, a significant supervisory focus on the complex issues of mortgage arrears and distressed SME loans on the banks’ balance sheets, with progress being made in the banks’ management of these issues during the year. The Mortgage Arrears Resolution Targets were monitored throughout the year and targets continued to be met by the banks. There was also ongoing Bank engagement with the External Partners’ Post-Programme monitoring process of financial sector reform.

Throughout 2014, the Bank continued to support and facilitate credit union sector restructuring and worked closely with the Credit Union Restructuring Board (ReBo), the statutory body responsible for facilitating and overseeing the restructuring of credit unions. In 2014, eight transfers of engagement projects involving 20 credit unions were completed. During the year, the Bank took actions to resolve weak credit unions that included, following due process, directed transfer or liquidation. In 2015, the Bank’s supervisory focus will continue to remain on ensuring that credit unions transition their governance, management and operational structures, and systems to adapt to the higher standards now required of them.

The Bank continued its preparatory work for the commencement of the full Solvency II regulatory environment, working closely with European Insurance and Occupational Pensions Authority (EIOPA). It is finalising its preparations for the full implementation of the Solvency II Directive, which will come into effect from 1 January 2016. A range of regulatory reviews of insurance undertakings were completed during the year. The Bank also carried out a number of pricing, claims and reserving reviews in 2014 and, where necessary, undertakings were required to put in place mitigating measures to address identified weaknesses in their reserves and/or pricing.

Annual Performance Statement (Financial Regulation) 2014-2015Executive Summary

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The Bank’s supervision of investment firms and fund service providers continued to deliver significant improvements in the culture and compliance of these firms, particularly in the area of corporate governance. The programme of themed supervisory inspections highlighted a range of compliance issues in areas such as outsourcing, quality of regulatory reporting and conduct of business.

A new regime for alternative investment fund managers (AIFMs) came into effect on 22 July 2014 leading to the authorisation of 72 AIFMs by the end of the year. On 14 February 2014, reporting obligations by derivative counter-parties under the European Markets Infrastructure Regulation commenced.

Volumes of funds authorisations and prospectus approvals were significant. As with previous years, the Bank maintained high levels of scrutiny of these applications whilst delivering predictable turnaround times in line with announced service standards. The Bank continued with its programme of process re-engineering and automation designed to improve the efficiency and cost effectiveness of key supervisory processes particularly in the area of MiFID and funds authorisations.

Engagement with European and international regulatory bodies is a crucial component of the Bank’s outward focus and throughout the year, the Bank continued to build its profile internationally and its engagement with industry. In particular, it enhanced its engagement with the European Supervisory Authorities and the International Organisation of Securities Commissions (IOSCO). The Bank continues to play a leading role in the EU in the development of the European rulebook for UCITS and non-UCITS funds and in bringing greater regulatory convergence at a European level. The Bank also made significant contributions to international discussions on shadow banking, in particular, through its participation in the European Systemic Risk Board’s expert group and task force on the subject.

Enforcement is an important tool to affect deterrence, achieve compliance and promote the behaviours expected. The Bank continued to take targeted enforcement action against firms across all impact categories where that is merited due to failure to comply with regulatory requirements. Administrative sanctions imposed involved reprimands and fines ranging from €640 to €3.5million, totalling €5.42 million in 2014.

The Bank reviewed its AML/CFT supervisory strategy in 2014. It also provided supervisory input into domestic and international AML/CFT policy developments. This included assistance to the Department of Finance in relation to the proposed fourth EU AML Directive. The Bank received and responded to 188 complaints in relation to alleged unauthorised activity and published warning notices in relation to unauthorised activity by 31 firms. The Bank plans to conduct 32 AML inspections during 2015 and will continue to conduct AML/CFT risk evaluations. Information collated from these engagements will enable it to further refine its evaluation of AML/CFT risks posed in individual firms and across the various financial sectors.

The Deposit Guarantee Scheme (DGS) is administered by the Bank. In July 2014, following the liquidation of the Berehaven Credit Union, the DGS made compensation payments to over 3,500 members of the credit union totalling approximately €11 million. These payments were made within 7 working days falling well within the statutory deadline of 20 working days. A new Directive on Deposit Guarantee Schemes (2014/49/EU) is due to be transposed into national legislation in 2015. This Directive introduces changes to funding requirements, a reduction in payout deadlines and harmonisation of eligibility.

During the year consumer protection delivered on five key strategic strands to: strengthen the consumer protection framework, ensure that financial institutions treat consumers fairly, protect consumers affected by mortgage arrears, deal with emerging risks (Low Impact firms), and promote consumer interests through stakeholder engagements. Following an intensive round of engagement in 2014, the Bank published a set of draft regulations for lending to SMEs in January 2015. The Bank


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also brought in additional protections for customers of debt management firms and advocated for protections to be extended to borrowers where their loans are sold to an unregulated third party. In addition, the Bank continued its extensive programme of consumer protection focused inspections across all sectors with a particular focus on sales incentives.

Under legislation, the Bank is required to undertake an international peer review of its regulatory performance at least every four years. The first such reviews were progressed during 2014 in the areas of credit institutions supervision and credit union supervision, insurance supervision, markets supervision and consumer protection.

The 2014 Regulatory Performance Review provides a full account of the Bank’s regulatory and supervisory activities for the year. Progress and outputs are recorded against the strategic objectives and actions of the Strategic Plan 2013 – 2015, and are set out in Appendix 1. The Bank’s Regulatory Performance Plan for 2015 sets out its work objectives and detailed planned actions are contained in Appendix 3.


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Regulatory Performance Review 2014 - Introduction Introduction The Bank has responsibility for the supervision of most but not all financial service providers and funds in Ireland (see Table 1). Changes of the population of regulated entities in 2014 have been driven in particular by the licensing under the newly created AIFM regime and the revocation of inactive retail intermediaries (see Table 2).

During 2014, the Bank’s supervisory activities and outcomes across all financial sectors continued to be underpinned by its risk-based approach to supervision coupled with the effective threat of enforcement. Central to those activities was the Bank’s focus on its strategic and statutory objectives of safeguarding stability and protecting consumers. In 2014, no disorderly failure of a financial service provider under the prudential supervision of the Bank occurred.

This Statement reports on the Bank’s performance and contains a range of regulatory performance indicators. Indicators that are sector-specific are integrated in the appropriate section of the report, while those that relate to the regulation of the financial services industry as a whole are included at the end of the 2014 Review. These include details on public consultations, guidance notes issued and appearances before Joint Oireachtas Committees on regulatory issues.

Table 1 – Regulated Financial Service Providers

2013 20141

Credit Institutions (including branches of overseas credit institutions) 65 62

Life Insurance Companies 53 51

Non-Life Insurance Companies 104 102

Reinsurance Companies 77 74

MiFID

Investment Firms

Branches of overseas firms

117

29

102

32

Non-Retail Investment Business Firms 10 10

Fund Service Providers (Including Alternative Investment Fund Managers) 238 227

Retail Intermediaries, including

Investment Intermediaries (authorised advisors, multi-agency intermediaries, mortgage intermediaries)

Insurance/Reinsurance Intermediaries

2,964 2,822

Collective Investment Schemes (including sub funds) 5,599 5,833

Credit Unions 393 383

Money Transmitters and Bureaux de Change 14 14

Moneylenders 40 38

Regulated Market/Market Operator 1 1

1 Figures do not sum due to multiple authorisations

Annual Performance Statement (Financial Regulation) 2014-2015Regulatory Performance Review 2014 - Introduction

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Moneybrokers 5 5

Retail Credit Firms & Home Reversion Firms 20 18

Payment Institutions 11 11

Debt Management Firms 0 51

Table 2 – Authorisations/Revocations

Authorisations

2014

Revocations

2014

Credit Institutions (including branches of overseas credit institutions 2 5

Life Insurance Companies 0 2

Non-Life Insurance Companies 3 5

Reinsurance Companies 4 7

MiFID

• Investment Firms

• Branches of overseas firms

4

5

192

2

Non-Retail Investment Business Firms 0 0

Fund Service Providers 8 35

Alternative Investment Fund Managers (AIFMs)

• Authorised External AIFMs

• Registered External AIFMs

543

25

0

0

Retail Intermediaries, including

• Investment Intermediaries (authorised advisors, multi-agency intermediaries, mortgage intermediaries)

• Insurance/Reinsurance Intermediaries

1394 3825

Collective Investment Schemes (including sub funds) 7996 565

Credit Unions 0 10

Money Transmitters and Bureaux de Change 0 0

Moneylenders7 38 3

Regulated Market/Market Operator 0 0

Moneybrokers 0 0

Retail Credit Firms & Home Reversion Firms 1 3


Debt Management Firms 51 0

TOTAL 1,133 1,038

2 In 2014, 9 MiFID firms revoked and were granted AIFM authorisation.

3 In 2014, 35 of the 54 AIFM authorisations were granted to existing firms.

4 During 2014, 139 retail intermediaries were authorised. This accounted for 194 individual authorisations as a number of firms seek authorisation under more than one retail intermediary authorisation type. (The figures do not include 96 tied insurance intermediaries which were authorised in 2014.)

5 During 2014, 382 retail intermediaries (including 137 tied insurance intermediaries) let their authorisations expire, had their authorisations voluntarily revoked or were otherwise involuntarily removed from the Bank’s statutory registers. This accounted for 461 individual authorisations.

6 Of which 26 were authorised as UCITS Self-Managed Investment Companies, 18 authorised as Internally Managed Alternative Investment Funds (AIFs) and 20 Registered as Internally Managed AIFs.

7 Subject to annual renewal of licence.

Annual Performance Statement (Financial Regulation) 2014-2015Regulatory Performance Review 2014 - Introduction

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Proper and Effective Regulation of Financial Institutions and Markets

Regulation of institutions and markets is undertaken through assertive risk-based supervision which is underpinned by credible enforcement deterrents.

The Bank’s mandate to deliver proper and effective regulation of financial institutions and markets is effected through a range of tools:

• The Bank’s mandate to deliver proper and effective regulation of financial institutions and markets is effected through a range of tools:

• Supervisory assessments of individual regulated firms according to the engagement cycles set out under PRISM, the Bank’s risk-based supervisory framework

• Themed supervisory assessments focusing on priority areas as announced at the beginning of the year

• Monitoring of regulatory returns filed with the Bank

• Reactive supervisory work on foot of various supervisory triggers including regulatory returns, market intelligence and whistleblowing complaints

• Approvals of persons under the fitness and probity standards

• Processing of authorisations and acquiring transactions

• Enforcement action.

The Bank’s approach to supervision is subject to regular external scrutiny from peer regulators, the European Supervisory Authorities, the IMF and international standard-setters.

Annual Performance Statement (Financial Regulation) 2014-2015Proper and Effective Regulation of Financial Institutions and Markets

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Risk-Based Supervision of Regulated FirmsProbability Risk and Impact System (PRISM)

The Bank's supervisory approach is based on the principle that not all firms are equally important to the economy and that a regulator can deliver most value through focusing its energies on the firms which are most significant and on the risks that pose the greatest threat to financial stability and consumers. This approach is embodied in a tool called Prism which also provides a systematic and structured means of assessing different types of risk. This allows judgements about potential risk in different firms to be made using a common risk typology on a common scale.

Since PRISM was launched in 2011, significant progress has been made by Bank supervisors identifying areas of risk in regulated firms and conclusively mitigating these areas of risk. Bank supervisors have now conducted inspections and assessed the risks of Higher Impact regulated firms over multiple assessment cycles and this has allowed supervisors to progressively focus on new areas of weakness which were of a lower priority in previous years. Significant changes are apparent in the culture and compliance of firms across a broad range of areas including prudential requirements, corporate governance and conduct of business.

Throughout 2014, the Bank continued to supervise firms within its risk-based framework.

Banking SupervisionIntroduction of SSM

A key development in November 2014 was the introduction of the Single Supervisory Mechanism (SSM). The SSM is a system of prudential supervision of credit institutions comprising the ECB and the national competent authorities of participating EU countries, including the Bank. The primary aims of the SSM are to ensure the safety and soundness of the Eurozone banking system and to increase financial integration and stability in Europe. The Deputy Governor (Financial Regulation) is a member of the Supervisory Board of the SSM. The Director of Credit Institutions is the alternate member.

Banks within the Eurozone have been categorised into Significant Institutions (SIs) and Less Significant Institutions (LSIs). For SIs, consisting of the larger institutions operating within Ireland, a Joint Supervisory Team (JST) led by the ECB, and consisting of both ECB and Bank supervisors directly supervises these firms. Smaller banks continue to be supervised wholly by the Bank (within the overall SSM approach).

In response to the major changes in the approach to supervision in Europe due to the commencement of the SSM, the Bank’s resources for the supervision of banks were restructured during 2014 (see Box 1, below).

Box 1 – Restructuring of Banking Supervision Resources – 2014

In 2014, the Bank conducted a comprehensive review of the organisational and operating structures in its

Banking Supervision divisions that resulted in a move to a three-division structure that has created clear

lines and engagements between the Bank and SSM.

Banking Supervision: Analysis Division (BSAD)

BSAD was structured to establish clear linkages, relationships, organisational workflows and seniority of

engagement between the Bank and the SSM, and in particular the SSM’s Directorate General IV (DG IV).

DGIV has 10 divisions which include a wide range of horizontal functions such as Internal Models and Crisis

Management.

BSAD’s role includes assessing risks across the Irish banking system and ensuring that they are understood

and proactively addressed. BSAD works closely with the other banking supervision divisions and the Bank’s

Financial Stability Division in this regard.


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Box 1 – Restructuring of Banking Supervision Resources – 2014

Banking Supervision: Inspections Division (BSID)

Onsite inspections of the banks’ operations are more intensive than heretofore under the SSM

methodology, including a larger breadth and depth in terms of scope required. Consequently, it was

determined that a separate Inspections Division was required, mandated to complete independent and

in-depth inspections in the banks. The purpose of inspections is, through the performance of these

in-depth investigations, to assess the:

• Level, nature and features of the inherent risks and the risk culture

• Suitability and quality of banks’ corporate governance and internal control framework

• Control systems and risk management processes, focusing on detecting weaknesses or vulnerabilities that may have an impact on the capital and liquidity adequacy of the bank

• Quality of balance sheet items and the financial situation of the bank

• Compliance with banking regulations.

Banking Supervision: Supervision Division (BSSD)

The responsibilities of supervisory teams remain sizeable further to the implementation of the SSM. Working

with the SSM’s DGI, DGII and DGIII, BSSD continues to assess the strategies, key risks, processes,

procedures, governance and control structures of the banks. In conducting this work, supervisors are

required to review and analyse the banks’ various regulatory reports, internal capital and liquidity

assessment and management processes, and risk appetite statements etc., and are required to verify and

challenge the banks’ estimates, risk assessment outcomes, the outcome of stress tests and to determine

overall risk priorities.

Supervisors are also expected to continue to hold regular and ad-hoc meetings with the supervised banks

at various levels of staff seniority, conduct ongoing risk analysis, ongoing analysis of approved risk models,

and analyse and assess banks’ recovery plans.

On 31 December 2014, Banking Supervision was responsible for the prudential supervision of 30 licenced

credit institutions as well as 13 non-SSM pass-ported branches of European Economic Area banks and one

third country (non EEA) branch. There were also 18 branches of SI banks passported from other Eurozone

countries that the Bank will continue to engage with the SSM on their supervision.

Other Key Developments Other key banking supervisory responsibilities during the year included:

• Completion of the ECB Comprehensive Assessment (CA) for the in-scope banks operating in Ireland, which included an Asset Quality Review (AQR) and a stress test (see Box 3 below for more details).

• Driving the continued resolution of financial difficulties (i.e. distressed mortgage and commercial debt), for example, through the Mortgage Arrears Resolution Targets (MART) work, and ongoing engagement and reviews of the effectiveness of the banks’ resolution of distressed SME debt.

• Ongoing engagement with the External Partners8 as part of the Post-Programme Monitoring.

• Contributing to the development of macro-prudential policy.

• Policy matters related to the application and development of European banking legislation.

8 The European Commission, the IMF and the European Central Bank


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Box 2 - Bank’s SSM Implementation Programme

The Bank’s change programme (Project Europe) was completed on time and within budget. Project Europe

had multiple work-streams focused on, inter alia:

• Governance and decision making

• Supervisory data

• Communications

• Divisional restructures

• SSM Supervisory Board briefings

• Fitness and probity

• Updates to national legislation

• Enforcement impacts

• Training

• Technology and support.

While there were significant impacts and changes in many areas of the Bank, Banking Supervision was

most directly impacted.

A comprehensive review of the skills and resources needed to deliver supervision and related Bank

responsibilities post the implementation of SSM was undertaken. This involved, inter alia, in-depth reviews

of the proposed supervisory methodologies and manuals, piloting exercises, and extensive engagement

with the ECB. A thorough training needs analysis was also carried out.

Banking supervision was reorganised and resources were increased to enable effective working within the

Joint Supervisory Teams and with DGIV (SSM-Directorate General IV). The Project also took this opportunity

to consider ways of working and to try and be early adopters of elements of the Bank's strategic change

projects (including the Organisation Review).

Box 3 - Comprehensive Assessment

The Comprehensive Assessment (CA) comprised three elements:

1) Asset Quality Review (AQR)

• A ‘deep-dive’ balance sheet assessment as at 31 December 2013

• Review the carrying value of assets on the significant banks’ balance sheets on a static basis, including an assessment of provision adequacy

• Portfolios and samples drawn using a risk-based, representative approach

• AQR provided adjusted solvency ratios which allowed for the meaningful comparison of all SIs on a like-for-like basis.

2) Stress Test

• Forward-looking view of banks’ shock-absorption capacity under stress

• Examined the resilience of banks’ balance sheets under two separate scenarios (baseline, adverse)

• Data from December 2013, with scenarios starting in 2014 and running to 2016

• Analysed solvency ratio of each bank over the period to understand how the bank would react to certain prescribed stressed economic conditions.


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Box 3 - Comprehensive Assessment

3) Join-Up

• Include bottom-up observations from AQR in the Stress Test

• AQR reclassifications of stocks of assets were reflected in the starting point of the Stress Test

• Ensure performance projections in the Stress Test are reflective of performance observed through AQR

• Ensure capital calculation consistent between AQR and Stress Test, and remove any double counting.

The results of the CA were published on 26 October 2014.

Connected with this process, the Bank was also required to submit to the SSM draft capital and liquidity

decisions for the in-scope Irish banks by 4 November 2014.

In February 2015, the European Banking Authority (EBA) announced that it had decided not to carry out an

EU-wide stress test in 2015; it would begin preparations for the next exercise in 2016. Instead of a Stress

Test in 2015, the EBA will conduct a transparency exercise in line with the one carried out in 2013. This will

provide data an EU banks' balance sheets and portfolios.

Risk ModellingIn addition to the work done regarding the CA, the focus in 2014 was on following up on the issues arising from the supervisory review framework work undertaken in 2013 for the Internal Ratings Based (IRB) Approach models for the covered banks. Also, as part of the wider supervisory review process, detailed work was undertaken in relation to support of Risk Governance Panel (RGP) work completed during the year.

Non-Performing Loans (NPLs)The Bank continued to take a strategic approach to arrears/distressed credit recognising that excessive forbearance and a lack of long-term sustainable solutions to the arrears problem is a drag on the economy, on new lending and on the future profitability of the banks.

In 2014, further Distressed Credit Operations Reviews (DCORs) were undertaken and the Bank also engaged heavily with the banks to ensure that the significant findings and capacity shortfalls identified through previous reviews were addressed.

2014 saw the Bank continue operational on-site reviews and deep-dive loan file reviews to monitor progress in addressing distressed SME Credit. The banks have continued to progress resolution of these distressed loans, but it will take a number of years to work through the restructures, which are frequently complex and multi-layered.

Mortgage ArrearsA third of all arrears balances stemming from NPLs are attributable to mortgages. The Mortgage Arrears Resolution Targets (MART) were monitored throughout the year and continued to be met by the banks in terms of proposed, concluded and terms being met targets. Further audit work was undertaken in 2014 to assess performance against the targets in detail, the findings from which were followed up with the individual banks, with appropriate risk mitigation programmes being issued.

While there is much work still to be done, the slow but tangible progress that was observed in 2013 has continued. Supervisory interventions have resulted in the banks having largely effective, although not issue free, operational capability for dealing with distressed borrowers. There is now a pipeline of sustainable non-legal solutions for those distressed Principal Dwelling Homes (PDH) and Buy to Let (BTL) borrowers that are cooperating and not in deep arrears. Over time, with continued Bank focus and the driving of the banks, this will continue to bring down NPLs (recognising a lag between the concluding of the solution and the reduction in NPLs).


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The issue of borrowers in deep arrears remains. The Bank’s role for this cohort is to ensure that:

• The banks are continuing to make progress in the resolution of these cases, many of which may involve loss of ownership

• The banks continue to try and are open to reengagement with these borrowers

• Legal resolutions are being pursued appropriately.

Business Model AnalyticsThe Bank continued to challenge firms on their business models and strategy. Key trends affecting bank business models and strategy are communicated regularly, while tools to better identify and communicate industry trends and threats to the business models and/or strategy of supervised credit institutions are utilised and enhanced. Business model reviews for High Impact banks were completed during the year in line with the PRISM engagement model.

Risk Assessments/Risk Mitigation Programmes (RMPs)/Supervisory CollegesIn the course of 2014 the Bank carried out 9 Full Risk Assessments (FRA) on banks (13 in 2013). Those institutions not subject to an FRA were subject to oversight in line with the risk-based approach to supervision under PRISM. Financial Risk Reviews were conducted for all institutions rated as High Impact under PRISM. The outcome of the risk assessments include the issuance of bank specific RMPs, which set out the work to be undertaken by institutions to remediate identified weaknesses. The Bank proactively monitors institutions’ full and timely implementation of RMPs.

As part of the consolidated supervision of banking groups which have operations in multiple jurisdictions, the Bank participates in Supervisory Colleges which are bilateral and multilateral fora for the exchange of supervisory information, coordination of supervisory oversight and to the extent possible undertaking joint supervisory work. The Bank is a member of 15 Supervisory Colleges and during 2014 participated in relevant Supervisory Colleges, including hosting two Supervisory College meetings in respect of Irish banking groups. Supervisory Colleges are the vehicles through which activities are co-ordinated in the supervision of banking groups that have branches or subsidiaries across national borders. The efficient and effective functioning of Colleges is promoted by the EBA through its policy work and also through its direct engagement and participation in Colleges.

The Colleges were held in line with the European Banking Authority (EBA) guidelines on Supervisory Colleges and involved input from the Prudential Regulatory Authority (UK), the Financial Conduct Authority (UK), the Federal Reserve Bank of New York (US) and the Connecticut Department of Banking (US).

Box 4 - Central Credit Register (CCR)

The Credit Reporting Act 2013 provides for the establishment by the Bank of the CCR. In December 2014,

following a public procurement process, the Bank selected a preferred bidder to establish and operate the

CCR. Contracts were concluded in January 2015. The Bank also engaged with representative industry

groups to explain its approach and to gain an understanding of the likely implications of the CCR for

lenders. It is anticipated that the CCR will commence phased operations from mid-2016.


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Banking PolicyEmbedding the EU Capital Requirements regulatory framework into supervisory practices continued to be one of the Bank’s priorities in 2014. While the Capital Requirements Regulation (CRR) became applicable from June 2013, many of the constituent prudential standards did not take effect until 2014. The associated Directive, Capital Requirements Directive (CRD IV) was transposed into Irish legislation on 31 March 2014. This CRR/CRD IV package forms the basis of the Single Rulebook - a single set of harmonised prudential rules for EU credit institutions and investment firms.

During 2014, there was further progress on the European regulatory framework for Banking Union - another key element in creating a safer post-crisis financial sector in the euro-area. The concept of Banking Union rests on three complementary pillars: the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM) and a common Deposit Guarantee Scheme (DGS). The ECB assumed its role of banking supervisor under the SSM on 4 November 2014. The Banking Recovery and Resolution Directive and the Single Resolution Board of the SRM will become fully effective during 2015. The recast DGS Directive which was published in June 2014 is due to take effect from July 2015.

During 2014, the Bank provided technical assistance to the Department of Finance in transposing CRD IV and the Financial Conglomerates Directive (FICOD) into national legislation via Statutory Instruments 158, 159 and 416 of 2014. The Bank continues to provide technical advice to the Department on the development of EU financial services legislative frameworks at the EU Council. (For example, the European Commission’s proposal on Banking Structural Reform, which the EU Council commenced in 2014 with hopes to finalise in 2015.)

Following the transposition of CRD IV into Irish legislation, the Bank issued a revised Implementation Notice in May 2014 specifying its requirements and guidance in relation to the implementation of competent authority discretions and options arising under CRR/CRD IV. This Notice is likely to be revised further in 2015 to take account of the publication of related EU Level 2 regulatory instruments and to reflect the competencies assumed by the SSM. The Bank also issued Guidelines on calculating the Liquidity Coverage Ratio (LCR) for the interim observation period. These Guidelines were issued to ensure consistent reporting of liquidity coverage requirements by Irish banks. The Guidelines, which contained an interim definition of High Quality Liquid Assets, were used as a standard by Irish banks until the European Commission’s delegated act on the EU LCR entered into force in February 2015. As part of its remit to increase industry awareness of the new regulations, the Bank presented at a number of Irish and EU conferences on CRD IV and the Liquidity Requirements during 2014.

Aside from its supervisory responsibilities as part of the SSM, the Bank contributed effectively to the development of supervisory policy and practices within the SSM. In addition, further development of the Single Rulebook and regulatory framework falls to the European Banking Authority (EBA) of which the Bank is a member. The EBA is tasked with the development of binding technical standards and guidelines to underpin the Level 1 EU Regulations and Directives. The Bank was an active participant at EBA expert working groups and committees that developed the more than 100 measures that were published in 2014. This work is scheduled to continue in 2015.

Credit Union SupervisionRisk Identification and Mitigation

The Bank’s primary objective in relation to credit unions is the protection of members’ savings in line with its statutory mandate.

The credit union sector continued to face significant challenges in 2014. The aggregate loan to asset ratio for the sector declined to 30 per cent as new lending continued to trend downwards, albeit at a


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slower rate. However in the latter part of the year new lending volumes appear to have improved for some individual credit unions.

With three out of four credit unions’ loan ratios now below 35 per cent and with lower yields on surplus funds as operating costs continue to rise, the pressure on net margins is likely to continue into 2015 and beyond.

With a business model which is wholly dependent on revenues from unsecured consumer loans and surplus funds, credit unions are strategically challenged to reverse the decline in lending, address revenue diversification and operational costs.

The Bank remains concerned that most credit unions are not addressing viability and sustainability through effective strategic or business planning. Additionally, in quite a number of cases the standard of risk assessment and management requires significant improvement. There was also concern that credit union proposals to offer payment accounts and related payment services are not addressing the required operating model and resultant impact on the business model and risk profile.

Supervisory EngagementIn the course of 2014, a full suite of on-site engagements was undertaken with 115 credit unions, under the PRISM engagement framework. Of these, 17 were Full Risk Assessments. For the majority of the 98 Medium Low Impact credit unions involved, it was their second cycle of engagements and for the Medium High cohort, the third cycle. While the Bank anticipated significant improvement, the level of progress evidenced was not fully to expectations. Although there were a number of exceptions to this overall finding, significant work continues to be required to meet and appropriately embed necessary minimum standards.

The Bank has found that where credit unions have engaged positively in this process, change is clearly occurring as they transition their risk governance framework to comply with the new regulatory framework. For those credit unions that have not embraced the need to change, the outcome will include more intense supervision to mitigate risks and where necessary enforcement action.

In order to transparently communicate these findings and importantly, recognising that nearly one third of the credit union sector is Low Impact, and with whom the Bank did not at that point have a standard bilateral onsite engagement, a paper was issued to the sector in May 2014 titled, ‘Credit Union PRISM Risk Assessments – Supervisory Commentary’. This paper set out the Bank’s findings on the current state of governance and risk management standards and practices, drew attention to significant issues and set out the Bank’s minimum supervisory expectations of credit unions in demonstrating compliance with relevant legislation and regulation.

The Bank expects that this document would be used by all credit unions as an essential guide to boards and management as they implement their risk management frameworks and compliance programmes. It should be used to benchmark performance and, where necessary, to develop and implement plans to achieve and maintain the standards expected of soundly governed and managed credit unions.

In addition, as part of the 2014 supervisory work programme for the credit union sector, an IT survey of credit unions was conducted in May 2014 which focused on a targeted group of credit unions. The purpose of this survey was to provide additional insight into the evolution of governance and standards across the sector and the work undertaken by individual credit unions to address matters since the 2013 IT Survey. Overall findings and recommendations were issued to the sector in aggregate form in September 2014 and highlighted in particular that the level of progress made by many credit unions, in managing and controlling the risks associated with IT, was disappointing.


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The Bank’s supervisory focus will continue to remain on ensuring that credit unions transition their governance, management and operational structures and systems to adapt to the higher standards now required of them.

New Governance and Prudential RequirementsNew governance and prudential requirements for credit unions came into effect on 11 October 2014 arising from The Credit Union and Co-Operation with Overseas Regulators Act 2012 (the 2012 Act), which was enacted on 19 December 2012.

The Act introduced new requirements for boards of directors, board oversight committees and for credit unions to submit an annual compliance statement to the Bank on an annual basis. The Credit Union Handbook and Frequently Asked Questions were updated to reflect the new requirements and additional guidance was provided in relation to the preparation and submission of annual compliance statements.

Consultation on the Introduction of a Tiered Regulatory Approach for Credit Unions In December 2013, the Bank published CP76 - Consultation on the Introduction of a Tiered Regulatory Approach for Credit Unions. The consultation closed in March 2014 and 164 submissions were received. Feedback received on CP76, in relation to the timing of the introduction of a tiered regulatory approach for credit unions, indicated that the majority of respondents were of the view that a tiered regulatory approach should not be introduced at the time, given the amount of change the credit union sector is currently undergoing arising from the introduction of the strengthened regulatory framework and the voluntary restructuring of the sector.

In light of the feedback received, and as indicated in the Feedback Statement on CP76, the Bank deferred the introduction of a tiered regulatory approach for credit unions. The next steps proposed in the Feedback Statement included the development of regulations for all credit unions to continue the introduction of the strengthened regulatory framework.

Consultation on Regulations for Credit Unions In November 2014, the Bank published Consultation Paper CP88 - Consultation on Regulations for Credit Unions on commencement of the remaining sections of the 2012 Act. These include regulations in relation to reserves, liquidity, lending, investments, savings and borrowing. The three-month consultation period closed in February 2015. Final regulations will be published later in 2015 following consideration of submissions received.

Fitness and Probity Regime for Credit UnionsA Fitness and Probity regime for credit unions came into effect on 1 August 2013 and is being introduced on a phased basis with transitional arrangements. The first phase of this tailored Fitness and Probity regime was introduced on 1 August 2013 for credit unions with total assets of greater than €10 million and was fully implemented on 1 August 2014. The second phase, which applies to credit unions with assets of €10 million or less, will commence on 1 August 2015.

The Bank also consulted on the Fitness and Probity regime for those credit unions that are authorised as retail intermediaries (Consultation Paper CP83). Submissions received generally welcomed and supported the Bank’s proposals on a revised approach and a feedback statement was published which indicated that the Bank would proceed as indicated in CP83. This regime for credit unions that are authorised as retail intermediaries will also commence on 1 August 2015. Updated fitness and probity documents including regulations, standards and guidance were published in Q1 2015.


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Information SeminarsA key part of the Bank’s regulatory engagement model for the sector is to engage directly with individual credit unions and discuss the Bank’s regulatory approach. The Bank undertook a series of nine nationwide information seminars for credit unions during November and December 2014. The seminars’ objectives were: provide an overview of the new regulatory developments in 2014, present details of the draft regulations for credit unions contained in CP88, give details on regulatory developments planned for 2015 and to engage with credit unions on matters they wished to discuss.

Credit Union NewsletterIn July 2014, the Bank published the first issue of a new biannual newsletter for credit unions ‘Credit Union News’. The purpose of the newsletter is to assist credit unions by providing details of key regulatory updates, topical items of interest and to highlight where key information on such matters can be accessed. The newsletter also includes articles on matters relating to credit unions from other Bank Divisions. The second issue of this newsletter was published in January 2015.

Insurance SupervisionThrough its PRISM engagement model the Bank identifies key risks which assists the Insurance Supervision team in achieving its objectives. As part of this process the Bank held Risk Rating meetings which reviewed key issues, primarily to assess and challenge probability risk ratings and rationales entered into the PRISM system. During the year the Bank completed a wide range of regulatory reviews in accordance with the PRISM models including Risk Governance Panels, Full Risk Assessments and Financial Risk Reviews. A wide range of custom engagements were undertaken including meeting with key executives and Independent Non-Executive Directors (INEDs) of regulated entities.

Quarterly and annual solvency has been monitored closely throughout the year by the Bank for all regulated companies. Any solvency breaches have been promptly investigated and escalated appropriately.

Under-reserving of claims and mispricing of insurance risks continued to be the key reasons for the underwriting loses incurred by non-life (re)insurance undertakings. The Bank carried out a number of pricing, claims and reserving reviews during the year. Where necessary the Bank required undertakings to put in place mitigating measures to address identified weaknesses in their reserves and/or pricing and emphasised the continued need for reserving and pricing discipline.

As part of the Bank’s regulatory reviews of the Life insurance industry, a Thematic Pricing Review of the Term Protection market was completed. In addition, Stress Testing of the Variable Annuity Industry was undertaken to ensure that (i) the Bank fully understood the preparedness of companies in respect of the current low interest rate environment and (ii) to ensure the supervisory regime is appropriate. The test findings were considered by the Bank and letters were issued to industry. Follow up actions are being monitored as part of the standard ongoing PRISM engagement.

In September 2014, the Bank launched a Variable Annuity (VA) market risk monitor which variable annuity companies will be required to complete on a regular basis. The risk monitor will provide the Bank with more up-to-date data, on a consistent basis, on market exposures. It will also assist in identifying areas where enhancements are required to risk function/processes.

Solvency II – Preparatory WorkIn 2014, the Bank continued its preparatory work for the commencement of the full Solvency II regulatory environment, working closely with the European Insurance and Occupational Pensions Authority (EIOPA). The Preparatory Guidelines took effect for the Forward Looking Assessment of Own Risk commencing April 2014 and reports have been received from regulated entities. The Bank


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is preparing itself to receive the first financial reports from industry in early 2015 and is finalising its preparation for the full implementation of the Solvency II Directive which will be effective from 1 January 2016.

Solvency II – Internal ModelsDuring the year the Bank continued to work with insurance companies seeking approval of internal models. This work ensured that the Bank gained an understanding of their proposed models and to ensure that the models meet the criteria specified for approval by the Solvency II Directive. In addition the Bank has worked with fellow National (Member State) Supervisory Authorities (NSAs) to develop the required technical standards.

There are currently 17 companies seeking approval for their Solvency II Internal Models (the second highest number in the EU). The Bank is engaged with these companies in an active internal model pre-application process. An Actuarial Services Framework has been put in place in 2014. The Framework provides flexibility of resources to be able to cope with potential unexpected applications and model changes.

Reserving Requirements for Non-Life Insurers and Non-Life and Life ReinsurersFollowing feedback received on Consultation Paper CP73 (issued in September 2013), in 2014 the Bank published the finalised requirements on reserving practices titled ‘Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers’. The project’s aim was to ensure the codification of better reserving practices by non-life (re)insurance companies. The new requirements were in place by end-year.

Stakeholder EngagementsRegulator-to-Regulator Engagement

Bilateral and multilateral supervisory meetings and cooperation with other regulators plays a key role in the effective supervision of regulated (re)insurance undertakings and hence European and global financial stability.

The Bank works closely with Regulatory bodies throughout the world on matters of mutual interest and has Memoranda of Understanding in place with a large number of them.

National Association of Insurance Commissioners (NAIC) AccreditationThe Qualified Jurisdiction Working Group of the NAIC completed its Summary of Findings and Determination with respect to the Bank on 12 November 2014.

The recommendation of the Working Group was that the NAIC recognise the Bank as a Qualified Jurisdiction and place it on the NAIC List of Qualified Jurisdictions, with effect from 1 January 2015, after which the Bank will be re-evaluated every five years. Further, the NAIC Working Group recommended that Delaware be designated the Lead State for purposes of regulatory cooperation and information sharing with the Bank.

Engagement with EIOPAEIOPA is part of the European System of Financial Supervision consisting of three European Supervisory Authorities, the National Supervisory Authorities and the European Systemic Risk Board. It is an independent advisory body to the European Commission, the European Parliament and the Council of the European Union.


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• Supervisory Colleges

As part of the programme for Groups Supervision, EIOPA recommends that Supervisory Colleges attended by other global regulators be held on an annual basis to discuss key aspects of the group’s performance and to ensure a holistic view is obtained of the supervisory risks for such a group. A key output of this College is a work plan to ensure all key risk areas are addressed. It is the responsibility of the group supervisor to ensure this plan is executed effectively before the next College meeting.

There were 45 Supervisory College meetings held by the Bank with other supervisors from around the globe, as part of the Bank’s programme for group supervision in 2014. All Colleges were well attended and resulted in an increasing level of engagement among supervisors on issues of mutual interest.

• EIOPA Committees

The Bank has representation on a wide range of EIOPA Groups and Committees including the Board of Supervisors on which the Director of Insurance acts as the Bank’s representative. In 2014, a member of the Bank chaired EIOPA’s Internal Governance Supervisory Review and Reporting (IGSRR) Sub Group 1.

Engagement with IndustryThe Bank had regular interactions with industry throughout the year on a number of different topics. Scheduled meetings were held with stakeholders and there was a good level of engagement. In addition, Bank representatives spoke at a number of industry conferences.

Key industry fora include Insurance Ireland, DIMA (Dublin International Insurance & Management Association) and the Society of Actuaries. Effective communication with industry remains a key a priority for the Bank and is an important aspect in support of its supervisory agenda.

Insurance Policy The Omnibus II Directive was adopted by the European Parliament in its plenary vote on 11 March 2014 and was published in the Official Journal of the EU on 22 May 2014. The Omnibus II Directive completes the Solvency II Directive and finalises the new framework for insurance regulation and supervision in the EU, which will be implemented on 1 January 2016.

On 10 October 2014, the European Commission adopted a Delegated Act containing implementing rules for Solvency II; the Bank provided technical advice to the Department of Finance as these proposals were being developed.

Following the introduction of preparatory guidelines on Solvency II by EIOPA, the Bank introduced Guidelines on Preparing for Solvency II, effective 1 January 2014. Assessing compliance with these guidelines formed part of the Bank’s ongoing supervisory engagements with firms during 2014 and will continue into 2015, assisting firms in their preparation for the implementation of the new regime.

The Bank continued to provide input during 2014 to the development of Implementing Technical Standards (ITS) and Guidelines through active participation in key EIOPA working groups that developed these ITS and Guidelines. The process to develop the ITS and Guidelines will conclude in July 2015 with the publication of the final set of guidelines in advance of the application of the Solvency II regime. The Bank will maintain its engagement in EIOPA working groups in 2015.


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The implementation and embedding of the Solvency II regime for the supervision of (re)insurance undertakings will be a key objective of the Bank in 2015, working to ensure that the Bank’s supervisory processes and procedures are fully updated in advance of 1 January 2016.

Insurance Compensation Fund The Insurance Act 1964 (under which the Fund was established) was amended in 2011 to facilitate payments to policyholders in relation to risks in the State where an Irish or other EU-authorised non-life insurer goes into liquidation or administration. The role of the Bank under the legislation includes performing an annual assessment of the financial position of the Fund and determining an appropriate contribution to be paid to the Fund by non-life insurance undertakings.

In November 2014, the Bank carried out its annual assessment of the Fund and determined that the contribution to the Fund be maintained at 2 per cent of gross written premium.

Markets SupervisionInvestment Firm and Fund Service Provider Supervision

The Bank continued with its risk-based supervisory approach to investment firms and fund service providers and completed its first round of assessments of Medium-High Impact firms since PRISM was rolled out in 2012. A significant number of FRAs of firms took place as part of the ongoing supervisory work. There were also a number of inspections in response to certain supervisory triggers and as part of the programme of themed supervisory work. These interventions have made a significant impact in improving the compliance culture in firms and highlighting the importance of investor protection. Particular emphasis and improvements were seen in the areas of corporate governance (increase in number of firms with independent non-executive directors), risk management procedures and capital planning.

Themed-Inspection ProgrammeThe Bank supervises a large number of regulated entities under PRISM of which over 5,000 are Low-Impact entities. The themed inspection programme for 2014 covered areas such as: (a) outsourcing by fund service providers, (b) data integrity of regulatory returns, (c) funds corporate governance, (d) client categorisation under MiFID, (e) quality of UCITS Key Investor Information Document. In each of these areas, specific findings were communicated to the firms and general findings were communicated to relevant industry participants. In some cases, follow-up supervisory interventions were necessary.

Alternative Investment Fund Managers Directive (AIFMD)The new regime for alternative investment fund managers (AIFMs) came into effect on 22 July 2014. By the end of the year, 72 AIFMs had been authorised of which 54 were external managers and 18 related to internally managed funds. The Bank engaged extensively with Industry on the authorisation process including two industry workshops held in 2014.

EU AIFMs may passport their management and marketing services within the EU. As at the end of 2014, the Bank issued 539 Passporting Notifications to other EU national competent authorities (NCAs) so that Irish AIFMs could provide services in other EU Member States. The Bank received 230 such notifications from other EU NCAs. The Bank also processed 115 applications from non-EU AIFMs to market and manage AIFs in Ireland. In addition, by end-December 2014, 324 non-UCITS funds had converted to alternative investment funds (AIFs) and 132 non-UCITS funds revoked their authorisation.


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AIFMD ReportingFollowing the introduction of the AIFMD, registered AIFMs, authorised AIFMs and non-EU AIFMs marketing their AIFs in the EU are respectively subject to reporting obligations under Articles 3 and 24 of the AIFMD. Article 110 of the implementing Regulation sets out the different reporting frequency required (quarterly, half-yearly and annually) for each entity type. The content of the information required is set out in Annex IV of the Regulation. European Securities and Markets Authority (ESMA) has published a consolidating reporting template, Guidelines and Q&As on AIFMD reporting obligations while the Bank has also published its own ‘Reporting Guidance for Alternative Investment Fund Managers’. The Bank held an AIFMD Reporting Seminar on 16 July 2014 with 200 industry participants to fully explain the requirements of the AIFMD Reporting requirements.

The Bank’s Online Reporting System (ONR) was enhanced to receive and process these new and complex return types. The first reports were received from firms in August 2014.

New Authorisation Process for Investment FirmsThe new authorisation process regime for investment firms which was implemented in January is now fully operational. Four new Markets in Financial Instruments Directive (MiFID) investment firms have been approved during the year and a further six applications are under consideration. The Bank also received 251 Passporting Notifications for MiFID firms passporting inward from other EU States.

CRD IV - Reporting for Investment FirmsThe CRD IV reporting requirements came into effect in 2014 for all MiFID investment firms defined under point (2) of Article 4(1) of Regulation (EU) No. 575/2013. In preparation for this the Bank engaged with industry and workshops were held in early 2014.

Four new returns were deployed to the ONR in June 2014 as part of the first release of returns, Taxonomy 2.0.1, with 54 firms submitting returns for the first reporting period to 31 March 2014. For the reporting period to 30 September 2014 changes to the returns required under Taxonomy 2.1 were implemented. Further changes to the returns, along with two new returns, for the reporting period to 31 December 2014 were deployed in January 2015.

Throughout the process, extensive work was involved in enabling the Bank’s systems, including the ONR, PRISM, Business Intelligence Cube and SharePoint, to be able to process the new/amended returns.

European Market Infrastructure RegulationThe European Market Infrastructure Regulation9 (EMIR) entered into force on 16 August 2012 and the Bank was appointed a competent authority under the regulation in the European Union (European Markets Infrastructure) Regulations 201410. An EMIR Unit was established earlier in the year to prepare for undertaking this role, to engage with the various stakeholders and to act as the central point for EMIR supervision responsibilities. A consultation paper on the supervisory approach for non-financial counterparties (CP 90) subject to the regulation was issued in December 2014.

Client Asset Regulations and GuidanceThe Client Asset Regulations for Investment Firms were approved by the Bank and the Department of Finance in Q4 2014. In accordance with EU legislation, the European Commission was also notified. The Bank published the new Regulations on 30 March 2015. The Regulations will apply when an Irish authorised investment firm is holding client assets in a client asset account.

9 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012

10 S.I. No. 443 of 2014


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The Investor Money Regulations for Fund Service Providers were also approved by the Bank in Q4 2014 and were published on 30 March 2015. These Regulations will apply when an Irish authorised Fund Service Provider is holding investors’ money in a collection account.

Collective Investment SchemesCollective Investment Schemes (funds) are established for the purpose of investing the pooled subscriptions of investors (held as units or shares in the scheme) in investment assets in accordance with investment objectives published in the prospectus. The net asset value of Irish authorised funds amounted to €1,661 billion as at 31 December 2014 represented by 5,833 funds, including sub-funds. The number of revocations (all voluntary) of existing funds, including sub-funds, in 2014 was 565. The total number of funds authorised under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003, Unit Trusts Act 1990, Part XIII of the Companies Act 1990, the Investment Funds, Companies and Miscellaneous Provisions Act 2005 and the Investment Limited Partnerships Act 1994 in 2014 was 105 funds (799 including sub-funds)11.

Table 3 - Company Information Disclosures12

2013 2014

Annual Financial Reports published 134 123

Half-yearly Financial Reports published 113 111

Interim Management Statements published 98 93

Major shareholding submitted 416 463

Number of Issuers whose securities were suspended from trading on the ISE by the Bank

14 9

Table 4 - Investigations under Securities Law

2013 2014

Enquiries initiated regarding possible contraventions 52 162

Enquiries completed regarding possible contraventions 67 120

Suspicious Transaction Reports submitted to the Bank by persons professionally arranging transactions

27 33

Suspicious Transaction Reports submitted to the Bank by other EU Competent Authorities

8 22

Suspicious Transaction Reports transmitted by the Bank to EU Competent Authorities

21 36

Assistance rendered to other EU Competent Authorities 17 28

Stabilisation Notifications submitted to the Bank 1 0

Securities Law Settlement Agreements (Concluded) 1 0

Securities Law Formal Private Cautions (Issued) 0 0

11 This data meets the Bank’s reporting requirements under Section 3(6) of the Unit Trust Act 1990.

12 The Bank is the designated central Competent Authority for the purposes of the Regulations, except for the purposes of Article 24(4) (h) of the Transparency Directive in respect of which the Irish Auditing and Accounting Standards Authority (IAASA) has been appointed the relevant Competent Authority.


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Table 5 - Market Monitoring Reports

2013 2014

Transaction reports received from entities located in Ireland (millions) 142.8 159.3

Transaction reports sent to other Competent Authorities via TREM* (millions) 124.4 139.4

Transaction reports received from other Competent Authorities via TREM* (millions) 17.0 22.7

Administrative Sanctions/Supervisory Warnings - Cases Opened 3 0

Administrative Sanctions/Supervisory Warnings - Cases Closed 8 1

Audits conducted on firms’ transaction reports 60 38

* Transaction Reporting Exchange Mechanism

Table 6 - Prospectus Approval Process

2013 2014

Number of Final Terms Filed 1,750 2,845

Number of Documents Approved 844 1,020

Number of Documents/Notifications published 3,124 4,348

Passport Certificates prepared 250 279

Inward Passporting Notifications processed 492 471

Number of Issuers whose securities were suspended from trading by the ISE at the request of the Bank

2 2

The difference between the number of documents that have been approved to date and the number of documents that have been published on the Bank’s website relates to (i) Final Terms, Final Offer Price and Amount of Securities Announcements and Annual Information Reports (which do not require approval) that have been filed and published on the website and (ii) notifications in respect of prospectuses which have been approved by the Competent Authority of another Member State and which are then pass-ported into Ireland and do not require the approval of the Bank.

Markets Policy The Bank is represented on each of the Standing Committees of ESMA, which deal with issues such as market structure, investor protection, investment management, market integrity, financial innovation, corporate reporting and corporate finance. ESMA has a number of sub-groups and task forces that work on particular issues under each of the Standing Committees. The Bank actively participated on a wide selection of these sub-groups, many of which are responsible for the initial drafting of technical standards in relation to forthcoming securities legislation.

Significant resources were devoted during 2014 to the drafting of technical advice, regulatory and implementing technical standards pursuant to the mandate received by ESMA from the EC under the Central Securities Depositories Regulation (CSDR), MiFID/MiFIR, Market Abuse Directive/Market Abuse Regulation (MAD/MAR), European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF). The Bank provided technical support and advice on proposed delegated legislation and acted as technical experts to the Department of Finance on the transposition into national law of a number of European Regulations.

Advice was provided on the CSDR, Undertakings for Collective Investment in Transferable Securities (UCITS V), the AIFMD, European Market Infrastructure Regulation (EMIR), Capital Requirements Directive and Regulation (CRD IV/CRR), MiFID and the Market Abuse Regulation (MAR) during 2014.

The Bank also acted as the internal co-ordinator for the ESMA Board of Supervisors. Advice was provided to the Deputy Governor (Financial Regulation) both as the Bank’s member of the ESMA Board of Supervisors and since September 2014, in his capacity as a member of the ESMA


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Management Board and to the Director of Markets Supervision who is the Bank’s alternate member of the ESMA Board of Supervisors.

During 2014, the Bank hosted or supported 21 separate industry meetings and presentations ranging across issues such as the current review of MiFID to the EMIR Handbook, highlighting the importance the Bank places on engaging with and educating industry on the developments in regulation within Europe.

Table 7 – Markets: Meetings and Presentations

2013 2014

Number of Industry Presentations 31 21

IOSCO & OTC Regulators Forum 11 6

Internal Training Provided 13 29

ESRB Meetings 4 2

Number of ESMA Meetings 64 90

European Council Meetings 36 8

Number of Policy Papers Produced 14 16

Number of Public Consultations initiated 2 7

Policy, Risk and GovernanceEU & International Engagement

Engagement with European and international regulatory bodies is a crucial component of the Bank’s outward focus. Throughout 2014, the Bank continued to build its profile internationally and has continued its engagement with industry.

It enhanced its engagement with the International Organisation of Securities Commissions (IOSCO) through its participation on both the European Regional Committee and a number of committees that have a secondary markets and investment funds focus. The Bank has also been a member of the IOSCO’s Committee on Issuer Accounting, Auditing and Disclosure (Committee 1) since June 2012.

As part of the Bank’s continuing engagement with stakeholders, it held its annual Roundtable on 4 December 2014 with the theme ‘The Pathway to EU Regulatory Reform: 2014-201513’. The aim of the Roundtable was to facilitate discussion and exchange with key stakeholders on the EU and international financial regulatory agenda. Topics discussed included the Bank’s engagement in European and international fora, the proposed Capital Markets Union, the challenges faced in implementing Solvency II by 2016 and other developments such as: EU-US convergence in insurance, the Transatlantic Trade and Investment Partnership, the ECB credit initiative and its alignment with the development of the Central Credit Register.

The Bank has maintained a high degree of engagement at the European level by means of its participation in the European Systemic Risk Board (ESRB). The Bank continued to be heavily involved in the discussion on Shadow Banking in Europe through its participation in the Expert Group on the

13 Deputy Governor Cyril Roux hosted the event with stakeholders including: the Competition and Consumer Protection Commission, Financial Services Ireland, Banking and Payments Federation Ireland, Dublin International Insurance and Management Association, Insurance Europe (on behalf of Insurance Ireland), Irish Funds Industry Association and Irish Association of Investment Managers. The Department of Finance also participated.


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subject. It also had a leading role in the Joint Expert Group on Shadow Banking policy task-force. This task force produced a paper on shadow banking issues that is scheduled to be presented to the Advisory Technical Committee and the Board of the ESRB in the first half of 2015.

It also continued to actively participate in Working Party Meetings of the Council of the EU on dossiers such as the proposed regulation of Money Market Funds and the Securities Financing Transaction Regulation; and participated at European Commission Expert Group Meetings on the transposition of the 2014 Markets in Financial Instruments Directive/Regulation (MiFID/MiFIR) and Market Abuse regimes (MAR/CSMAD).

Development and Implementation of Domestic PolicyThroughout 2014, the Bank engaged with stakeholders internally and externally on new developments and initiatives arising within Europe and locally. These included governance, auditing, accounting, remuneration, fitness and probity and regulatory frameworks. In addition, the Bank was active on the development of internal supervisory processes pertaining to the ongoing application of its supervisory framework – PRISM.

Auditor Assurance A working group which comprised representatives from the recognised accountancy bodies, the ‘Big Four’ accounting and auditing practices, and the Bank was established in January 2014 to develop a framework for the implementation of Auditor Assurance. In September 2014, the Auditor Assurance Regulations were finalised and notification letters were circulated to the audit firms in respect of each financial institution in scope for the year ending 31 December 2014. The auditor of the financial institution is required to undertake an examination in accordance with this notice and provide an assurance report and a review and recommend report outlining their findings to the Bank.

Skilled Persons’ Reporting PowersIn November 2014, the Bank published the ‘Skilled Persons’ Reporting – Statement of Proposed Use’. The Statement applies to all firms regulated by the Bank and sets out the policy and expectations when using the Skilled Persons’ Reporting Powers as a supervisory tool. The Statement covered:

• The use of the Skilled Persons’ Reporting Powers in practice

• Preparation of the Skilled Persons’ Report

• Expectations in respect of a Skilled Person

• Confidentiality.

The Statement is aligned to the Skilled Persons’ Reporting Handbook which was prepared, and training provided, in order to facilitate the application of the Skilled Persons’ Review powers on a consistent basis by supervisors.

Risk Appetite In June 2014, the Bank published ‘Risk Appetite – A Discussion Paper’ with a view to generating discussion and debate with Bank stakeholders on risk appetite, its linkage with organisational strategy, and its importance for financial institutions. The Discussion Paper considered the main concepts and theories of risk appetite and its place within Risk Appetite Frameworks and provided some suggestions as to what a risk appetite statement might contain. In December 2014, a Feedback Statement was published summarising the responses received to reflect the views presented to the

Bank.


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Fitness and Probity Regulations The Bank published an amendment to the Fitness and Probity Regulations in September 2014 which introduced a number of changes to the Fitness and Probity Regime including the addition of six new Pre-Approval Controlled Functions (PCFs), the exclusion of Certified Persons and a change in title for PCF 14 from Head of Risk to Chief Risk Officer. The Bank also issued Non Statutory Guidance on the Fitness and Probity Amendments 2014 which aims to assist regulated financial service providers in complying with their obligations under the Amending Regulation.

Corporate Governance Code for Fund Service ProvidersA new Corporate Governance Code designed for fund service providers was introduced in July 2014 by the Irish Funds Industry Association (IFIA), in collaboration with the Bank. The Code provides a set of principles and guidance which categorises existing good practice and presents suggestions based on codes introduced in other jurisdictions. Central to the new Code is the introduction of an independent director to the board of each service provider and a clear set of responsibilities for the board, including oversight, risk and compliance.

Cross-Sector ResearchEnvironmental risk assessments are produced through collaboration with the Bank’s financial stability and supervisory resources for each regulated sector twice a year. These assessments are made available for supervisors as a backdrop, or context, when assessing the business models or risk profiles of regulated entities. In addition to this, the Bank produced research on emerging risks and trends in financial services, for example, on the area of peer-to-peer lending and with the commencement of a series of papers on behavioural economics during 2014.

Supporting the Bank’s Supervisory FrameworkWork continued throughout 2014 on the development of guidance materials on risk assessment, the design and delivery of training on the supervisory framework, and engagement with supervisory teams or individuals with queries on supervisory approaches. A series of quality assurance reviews were conducted across all regulated sectors on the effectiveness of and supervisory alignment with the PRISM framework. Senior management considered the findings of those reviews.

The Bank also worked closely with the ECB’s Supervisory Quality Assurance Network to develop the ECB’s approach to quality assurance of supervision under the SSM.

Engagement with IAASAThe Bank engages with Irish Accounting and Auditing Supervisory Authority (IAASA) on matters relating to the affairs in entities of mutual interest and holds a seat on the IAASA Board.

Design and Delivery of Regulatory RulebooksIn 2013, the Bank was actively engaged in the design and delivery of the AIF Rulebook which consolidated into one document the conditions which the Bank imposes on authorised AIFs, AIFM, AIF management companies, fund administrators and AIF depositaries.

In a similar vein, during 2014 the Bank examined the rules and conditions that it imposes under UCITS legislation in order to produce a consolidation in the form of a UCITS Rulebook. The final UCITS Rulebook will be delivered in the form of Central Bank Regulations pursuant to the Central Bank (Supervision and Enforcement) Act 2013, which provides that the Bank may make regulations for the proper and effective regulation of regulated financial service providers. Further, the Bank also examined the regulatory requirements that it imposes on investment firms. This work was progressed during 2014 and the UCITS Rulebook is expected to be published in the first half of 2015. The Investment Firms Regulatory Requirements will also be consulted on in that time period.


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Enforcement ActionsIn February 2014, the Central Bank published its enforcement priorities for 2014, highlighting the importance of enforcement within its risk-based regulatory framework. The document identified various areas by industry sector that were consistently a priority for the Bank. It also noted that there is a continuing enforcement focus on certain areas across almost all industry sectors, notably prudential requirements and systems and controls.

The enforcement actions taken by the Bank during 2014 were in line with these published enforcement priorities. The enforcement actions taken also fit with the Bank’s overall strategy of assertive risk-based supervision. Where firms fail to comply with their regulatory requirements, enforcement is an important tool to affect deterrence, achieve compliance and promote the behaviours expected. The enforcement actions taken during 2014 also support the effective supervision of Lower Impact rated entities in respect of which the Bank does not have an active supervisory relationship.

Table 8 below sets out the range of regulatory actions taken during 2014.

Settlement AgreementsIn 2014, the Bank entered into 11 settlement agreements under the Administrative Sanctions Procedure under Part IIIC of the Central Bank Act 1942 (as amended) in relation to contraventions of various legislative and regulatory requirements.

The sanctions imposed involved reprimands and fines ranging from €640 to €3.5m, totalling €5.42m. Publicity notices were published following each settlement to explain the Bank’s approach, to highlight the Bank’s enforcement approach, and to further promote compliance and educate stakeholders on the standards of behaviour the Bank expects from regulated entities.

The cases settled during the year involved entities with Impact ratings across the PRISM framework spectrum with over half relating to Low or Medium Low Impact-rated firms.

Significant issues identified in the above cases related to failures by firms to:

• Put in place robust governance arrangements in relation to IT systems and controls.

• Adhere to large exposure limits and to have in place proper internal controls to ensure compliance with regulatory reporting obligations and large exposure limits.

• Maintain required levels of regulatory capital and to have in place and use sound administrative and accounting procedures and internal control mechanisms to ensure compliance with regulatory capital requirements.

• Comply with obligations regarding accurate and timely transaction reporting.

• Hold satisfactory professional indemnity insurance.

• Ensure resources and procedures, systems and controls were in place to ensure compliance with the Consumer Protection Code.

• Comply with certain moneylending practices.


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Supervisory warnings14 were issued in 9 other cases.

Table 8 - REGULATORY ACTIONS TABLE

Type Number of Actions

2013 2014

Administrative Sanction Settlement Agreements 15 11

Securities Law Settlement Agreements 1 0

Securities Law Formal Private Cautions Issued 0 0

Directions Imposed under Transparency Directive15 18 13

Warning Notices Issued Regarding Unauthorised Activity 27 31

Supervisory Warnings 15 9

Request for External Reviews - Credit Unions 184 26

Authorisation/Licence/Registration Refused 0 0

Appointment of Administrator/Liquidator 1 0

Firms Recapitalised due to Solvency Issues 3 5

Direction/Requirement Imposed on Credit Unions 24 10

Appointment of Independent Auditor/Inspector Required 0 1

Advertising Issues Investigated 182 180

Appointment of Court Appointed Inspector 0 0

Direction/Requirement Imposed under Other Legislation 470 402

Disclosure of Information to other Enforcement Authorities 60 126

Involuntary Revocation/Withdrawal of Authorisation 27 30

Securities Law Decision to refer to Assessor 0 0

Skilled Persons’ Report 0 1

TOTAL 1,027 845

Significant Financial Cases Irish Bank Resolution Corporation (IBRC)

An Garda Síochána informed the Bank in May 2011, following consultation with the Director of Public Prosecutions, that to proceed with the Bank’s examinations at that time may prejudice any future criminal prosecutions. The Bank’s examination into IBRC remains deferred due to criminal prosecutions which are ongoing. Given the seriousness and sensitivity of criminal proceedings and the strength of the sanctions available to An Garda Síochána and the Office of the Director of Corporate Enforcement (ODCE), this remains the most appropriate approach to take.

The Bank continues to keep this decision under review and liaison with An Garda Síochána and ODCE is continuing.

14 A Supervisory Warning is a non-statutory device that is available where a supervisory division has reasonable cause to suspect that a prescribed contravention has occurred and where it is considered that an ASP sanction is not warranted.

15 Directions imposed under the Transparency Directive can only be issued for a period of 10 days at a time and, therefore, a new Direction must be issued every 10 days. For example, if an issuer failed to publish their annual financial report within the required timeframe specified in the Regulations, the Bank would issue a Direction to the Irish Stock Exchange requesting it to suspend trading in the issuer’s securities for a period of 10 days pending publication of the annual financial report. If the issuer was suspended for a period of 30 days, this would be based on 3 Directions issued by the Bank. In 2014, a total of 384 Directions were issued under the Transparency Directive (376 in 2013). However, adjusted for the re-issue of Directions previously issued, the number of Directions issued pursuant to the Regulations falls to 13 (18 in 2013).


29

Quinn Insurance Limited (Under Administration) The Bank entered into a Settlement Agreement with Quinn Insurance Limited (Under Administration), pursuant to its Administrative Sanctions Procedure, on 18 February 2013. Whilst the Bank’s investigation into this firm is now closed, related investigations by the Bank are at an advanced stage.

Irish Nationwide Building Society (INBS)An investigation into historical lending practices at INBS is ongoing. This investigation is at an advanced stage.

Bloxham StockbrokersAn investigation into financial irregularities at Bloxham Stockbrokers is at an advanced stage.

Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions The Bank is the competent authority for the supervision of credit and financial institutions’ compliance with legislation pertaining to Anti-Money Laundering, Countering and Financing of Terrorism (AML/CFT) and EU Financial Sanctions (FS) activities. It is also responsible for investigation of unauthorised business activity.

Inspections and Risk Evaluations The Bank conducted 33 inspections during 2014; in addition AML/CFT risk evaluations of 20 firms in 2 sectors were undertaken.

Table 9 - Anti-Money Laundering/Countering the Financing of Terrorism/Financial Sanctions - Inspections

Entity Type Inspections Other

2013 2014 2013 2014

Retail Banks 3 0 21 Risk Evaluation Questionnaires

Wholesale Banks 0 1

Credit Unions 7 5 10 Risk Evaluation Questionnaires

12 Risk Evaluation Questionnaires

Markets 0 11 13 Risk Evaluation Questionnaires

8 Risk Evaluation Questionnaires


Moneylenders 5 1

Bureaux de Change 3 0

Investment Asset Managers 2 1

Multi-agency Intermediary 1 2

Branches of Foreign Banks 0 6

Insurance 0 6


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Policy and Technical ActivitiesIn 2014, the Bank conducted a review of its AML/CFT supervisory strategy. It continued to engage with industry and other stakeholders by presenting on AML/CFT at training events, conferences and seminars; and by participation at domestic policy committees. AML/CFT guidance was also updated on the Bank’s website. The Bank also provided supervisory input into domestic and international AML/CFT policy developments. This included assistance to the Department of Finance in relation to the proposed fourth EU AML Directive. The Bank also contributed directly to the work of the European Supervisory Authorities’ (ESAs’) AML committee and provided input into draft technical guidelines under the proposed fourth EU AML Directive.

In 2014, the Bank received and responded to 188 complaints in relation to alleged unauthorised activity and published warning notices in relation to unauthorised activity by 31 firms.

The Bank took over the authorisation of trust or company service providers which are subsidiaries of credit or financial institutions in 2014 and is responsible for the supervision of these firms for the purposes of AML/CFT compliance. In 2014, the Bank authorised 30 such firms.

Financial SanctionsThe Bank continued to send quarterly financial sanctions alerts to regulated entities and the public notifying subscribers of changes to the Official Journal of the European Union. This was done via the Bank’s automated email alert subscription system. Regular developments in financial sanctions were also communicated via updates published on the financial sanctions pages of the Bank’s website.

In addition, the Bank carried out functions in relation to the recording of freezing notifications and notifications in advance of certain funds transfers. It was involved in the granting of prior authorisations, the processing of derogations and the discounting of potential matches to names on the sanctions lists. In carrying out these functions the Bank answered queries related to financial sanctions received from a wide range of external stakeholders. In addition, certain inspections carried out by the Bank’s AML/CFT inspections team were scoped to include consideration of firms’ compliance with financial sanctions obligations.


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Resolution of Financial Difficulties in Credit Institutions

Embedding recovery and resolution planning in banks, credit unions and other financial institutions, and carrying out resolution actions where necessary should failure occur, are vital components of sustained economic recovery.

New EU-wide Bank Resolution Regime Following on from the creation of the SSM, the second pillar of EU Banking Union sees the creation of an EU-wide resolution regime. Under the Bank Recovery and Resolution Directive (BRRD), a single rulebook for the resolution of failed or failing banks and investment firms has been established. BRRD is being transposed into Irish law, and under it, the Bank will be designated Ireland’s National Resolution Authority (NRA). As NRA, the Bank will exercise BRRD resolution powers and functions at member state level.

All Irish licensed banks and certain investment firms come within the remit of BRRD, which requires them to prepare recovery plans setting out measures to be taken to restore finances following deterioration. BRRD requires resolution authorities to prepare resolution plans setting out proposed actions to be taken in the event of a firm’s failure.

Should a firm fail in the future, BRRD seeks to avoid recourse to taxpayers by utilising funds from national resolution funds which are to be raised from industry and by creating a new statutory mechanism to bail in certain liabilities. From 1 January 2016 at the latest, resolution authorities will require credit institutions to meet a new prudential ratio – the Minimum Requirement for Eligible Liabilities (MREL). MREL is aimed at enhancing loss absorbing (bail in) capacity, through the issue of liabilities which are available to absorb losses in the event of failure.

Resolution of Credit UnionsThere have been a number of instances where firms have not been able to avail of an alternative solution to address their difficulties, and the Bank has needed to take resolution action under the Central Bank and Credit Institutions (Resolution) Act 2011 in order to protect members’ savings. During 2014, the Bank undertook resolution action concerning three credit unions, two involving transfer orders and one liquidation.

Howth Sutton Credit Union – transferred to Progressive Credit Union Following an application by the Bank on 5 March 2014, the High Court approved the transfer of Howth Sutton Credit Union (HSCU) to Progressive Credit Union, which assumed the assets and liabilities of HSCU. The Bank worked closely with the Board of HSCU throughout the process.


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Killorglin Credit Union – transferred to Tralee Credit UnionFollowing an application by the Bank on 18 December 2014, the High Court approved a transfer order concerning Killorglin Credit Union (KCU). Under the transfer order, Tralee Credit Union assumed ownership and management of the assets and liabilities of KCU. The Bank sought the transfer order, with the support of KCU’s Board, given KCU was no longer viable as a standalone entity. The Board of KCU worked closely with the Bank, co-operating throughout the resolution process and supporting the transfer as the most appropriate solution in the best interest of its members.

Both transfers were undertaken to protect members’ savings and ensure continued access to credit union services within the local community.

Box 5 – Liquidation of Berehaven Credit Union

Following key regulatory concerns regarding governance and oversight at Berehaven Credit Union (BCU),

the Bank commissioned an independent review of its governance and lending practices in 2010. This report

highlighted serious concerns in respect of connected loans and other governance issues. BCU engaged in

discussions with another credit union regarding a possible transfer of engagement over a three year period,

but those discussions ended unsuccessfully in April 2014 with the withdrawal of the transferee. Throughout

this time, the Bank engaged with BCU in an effort to seek to address both its financial and governance

issues. When a transfer of engagement was no longer possible, the Bank pursued resolution action

concerning BCU.

In June 2014, BCU breached a regulatory direction requiring it to restore its regulatory reserve position, and

as a result it was placed formally in resolution by the Bank. Following a competitive bid process, it was

determined that no viable and cost-effective transfer to another credit union was available. Therefore, on 23

July 2014, the Bank applied to the High Court to appoint Jim Hamilton and David O’Connor of BDO as joint

provisional liquidators to BCU. The High Court granted a full winding up order on 31 July 2014. The

appointment of joint provisional liquidators to BCU resulted in an invocation of the Deposit Guarantee

Scheme (DGS). The Bank issued cheques from the Deposit Protection Account to all depositors of BCU

within 7 days of the DGS invocation, and no member of BCU lost their savings.

The liquidation of BCU was ultimately the only viable solution available in the circumstances, with the

alternative of a directed transfer proving too costly for the Bank to justify on public interest grounds. The

Bank undertook this action in the interests of protecting members and their savings.

Restructuring and Resolution During 2014, the Bank continued to support and facilitate credit union sector restructuring. The Bank worked closely with the Credit Union Restructuring Board (ReBo), the statutory body responsible for facilitating and overseeing the restructuring of credit unions. In 2014, eight transfers of engagement projects involving 20 credit unions were completed. A further 26 transfer of engagement projects are currently being progressed with ReBo and the individual credit unions involved.

The Bank also took pre-emptive actions to identify and resolve weak credit unions focusing in particular on those credit unions where regulatory reserves were below the required regulatory minimum level of 10 per cent of assets. This process involved conducting asset reviews to determine the up-to-date financial position of individual credit unions and where necessary requiring appropriate action including:

Annual Performance Statement (Financial Regulation) 2014-2015Resolution of Financial Difficulties inCredit Institutions

33

• Directing the credit union to increase their regulatory reserves

• Seeking voluntary transfers of engagements

• Taking resolution action (directed transfer or liquidation) – see above.

Deposit Guarantee Scheme (DGS)The DGS is administered by the Bank and is funded by the credit institutions covered by the scheme.

In July 2014, liquidators were appointed to Berehaven Credit Union leading to the invocation of the DGS. Compensation payments were issued to over 3,500 members of the credit union totalling approximately €11m. These compensation payments were made within 7 working days falling well within the statutory deadline of 20 working days.

A new Directive on Deposit Guarantee Schemes (2014/49/EU) was introduced in 2014 and is due to be transposed into national legislation in 2015. The Directive introduces changes to funding requirements, a reduction in pay-out deadlines and harmonisation of eligibility categories. In addition, new depositor information requirements have been introduced in order to ensure that depositors are aware of the key aspects of protection of their deposits by the DGS.

Box 6 - Deposit Guarantee Scheme

The DGS was established under Irish and European legislation and protects depositors in the event of a

bank, building society or credit union authorised by the Bank being unable to repay deposits.

Deposits up to €100,000 per person per institution are protected. The DGS is obliged to issue

compensation to depositors duly verified as eligible within 20 working days of a credit institution failing.

The DGS is administered by the Bank and is funded by the credit institutions covered by the scheme. Each

credit institution is required to maintain a Deposit Protection Account (DPA) equivalent to 0.2% of their total

deposits, in order to fund the DGS. The DGS is part of the Bank’s strategy to ensure that the best interests

of consumers of financial services are protected.

Deposits with credit institutions authorised in another European Economic Area Member State are covered

by that country’s deposit guarantee scheme.

In general the DGS protects deposits belonging to individuals, small private limited companies,

partnerships, clubs, associations and schools. It excludes deposits belonging to large and medium sized

companies, public companies, public authorities, insurers, pension funds, collective investment schemes,

banks and certain other financial institutions.

There have been two invocations of the DGS Scheme in Ireland to date. Following the liquidation of IBRC in

2013 and Berehaven Credit Union in 2014, compensation totalling over €47m was issued by the DGS to

over 4,800 eligible depositors.


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Protection of Consumers of Financial Services

Consumer protection strategic priorities strengthen and maintain protection for consumers of financial services

The Bank seeks to deliver its consumer protection objective of ‘Getting it right for consumers’ through what it terms the 5 Cs Framework, which helps the Bank keep a clear focus on the risks facing consumers and the outcomes it is trying to achieve. This framework puts the Consumer at its centre, where the focus of firms must be on delivering positive consumer outcomes within a regulatory framework that is fit for purpose. This can only be achieved where firms have a consumer focused Culture which enables consumers to have Confidence in the financial decisions they are making and the firms they are dealing with. However, firms need to Challenge themselves and be challenged by the regulator where their focus is not on those consumer outcomes. There is a need and appetite for appropriate regulatory action where Compliance standards are not being met.

Strengthening the Consumer Protection Framework The Bank continued to advocate for improved protections for consumers at both domestic and international level, as outlined below.

DomesticThe Bank assumed responsibility for the authorisation and supervision of debt management firms from August 2013. A key element of its work in respect of this sector in 2014 was to apply a rigorous regulatory assessment to those applicants who sought authorisation. As at 31 December 2014, the Bank had authorised 51 debt management firms. As well as seeking to ensure the implementation of a robust authorisation framework, a key priority for the Bank was to ensure that consumers of debt management firms would be protected through additional consumer protection requirements imposed on firms. Following a full consultation, the Consumer Protection Code was updated to include a new chapter, containing the additional requirements for Debt Management Firms (Chapter 13), which came into effect on 1 January 2015. A Feedback Statement on CP82 and a Consumer Guide to Debt Management Services, were also published in late 2014. Minimum competency standards were developed (following a full consultation), to apply to persons providing debt management services which came into effect on 1 June 2014.

Steps were taken to review and consider added protections in the area of lending to SMEs. This included an extensive pre-consultation programme with relevant stakeholders and the consideration of various reports on issues relating to this sector. A Consultation Paper and draft Regulations to replace the existing SME Code were prepared. These were agreed in December 2014 and published in January 2015. The closing date for receipt of submissions to the consultation was 13 April 2015.


35

The Bank continued to proactively advocate for legislative change, to ensure that borrowers do not lose protections where their loans are sold to an unregulated third party. During 2014, the Bank had a high level of engagement with the Department of Finance on the appropriate consumer protection framework.

EU and International The Bank’s Director of Consumer Protection continued in his role of Chairman of FinCoNet, an international organisation for financial consumer protection supervisory authorities, whose aim is to promote sound market conduct and strong consumer protection. 2014 saw the publication of a landmark international report by FinCoNet on Responsible Lending. The Bank continued its membership of the OECD Taskforce on Consumer Protection to advance the development of the G20/OECD High Level Principles on Consumer Protection (including becoming the first consumer protection regulator to be reviewed using these principles as a reference point).

In addition, during 2014, the Bank’s Director of Consumer Protection was also appointed to the role of Chair of the European Banking Authority’s Standing Committee on Consumer Protection and Financial Innovation (SCConFin), demonstrating the importance the Bank attaches to the work of the ESAs and the Joint Committee of the ESAs in advancing high consumer protection standards across the European Union.

Box 7: European Consumer Engagement

The Bank continued to contribute to negotiations and assist with the transposition of various Directives

throughout 2014 in addition to its work at the ESAs. The Bank assisted in achieving several enhancements

to the European framework for consumer protection:

• The ESA Joint Committee continued its cross-sectoral work on consumer issues, which included the publication of Guidelines on complaints-handling in the securities and banking sectors, a Consultation Paper on cross-selling and a Discussion Paper on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs).

• The European Banking Authority (EBA) published draft Guidelines for product oversight and governance for retail banking products, credit worthiness assessments for mortgages and the treatment of borrowers in mortgage arrears , the security of internet payments, as well as technical advice and opinions on virtual currencies and structured deposits.

• Work at the European Securities and Market Authority (ESMA) focused on the reforms of the MIFID 2 regime involving the development of enhanced rules on conduct matters such as product governance, remuneration of sales staff, suitability and appropriateness and other consumer protection matters. ESMA also published a number of opinions including an opinion on practices to be observed by firms when selling complex financial products to investors, good practices for firms when manufacturing and distributing structured retail products and an opinion and advice on investment-based crowd funding. ESMA also published an Investor Warning on the risks of investing in complex products.

• The European Insurance and Occupational Pension Authority (EIOPA) published an Opinion on Payment Protection Insurance (PPI), which triggered significant developments in a number of national markets focused on information provision, cross-selling/commission issues and selling practices in general, as well as a Consultation Paper on Product Oversight and Governance of Insurance Products.

Annual Performance Statement (Financial Regulation) 2014-2015Protection of Consumers ofFinancial Services

36

Ensuring that Consumers are Treated Fairly by Financial InstitutionsThemed Reviews/Inspections

Themed reviews and inspections continued to be an important part of the Bank’s supervisory framework in 2014 allowing for review, assessment and mitigation of risks which have emerged in various industry sectors and across individual firms. The Bank intervened with individual firms, where necessary, and also published the findings from the reviews, enabling all firms to self-assess and raise compliance standards, in these key risk areas.

Following the completion of a cross-sectoral review of variable remuneration arrangements for sales staff of banks, insurance companies and investment firms, the Bank published Guidelines in 2014 to ensure firms’ arrangements focused on encouraging the right culture and behaviour in sales staff, while actively discouraging poor practices. The themed review was undertaken to gauge the extent to which incentive arrangements were operated in the best interests of consumers in their design, management and monitoring. The review examined the incentive arrangements to employees under the Code and the Conflicts of Interest regulations applicable to investment firms under MiFID.

Information on costs and charges provided to consumers plays a crucial role in enabling consumers to make informed decisions. The Bank undertook a themed inspection into the Provision of Information on costs and charges to consumers by MiFID firms, which assessed and evaluated the arrangements that these firms had in place regarding provision of information to clients on direct costs and charges. The inspection identified weaknesses in how investment firms provide this information to consumers. Concerns in relation to unfair contract terms were also identified. The Bank required remedial action to be taken by individual firms and published guidance to the industry outlining the Bank’s expectations in relation to the disclosure of information on costs and charges to consumers and unfair contract terms.

In mid-2014, the Bank reported on the outcome of its review into the provision of annual pension statements by life assurance firms. The objective of this review was to ensure that consumers were receiving clear and meaningful pension information to allow them to monitor whether or not their personal pension savings plans are on track to meet their retirement goals. The Bank identified a small number of firms who failed to produce new format statements for pension policies. In addition, as a result of consumer research undertaken (which looked at the presentation and content of the statements being provided), the Bank provided best practice guidance to firms, in order to improve transparency and to help consumers understand the information.

In addition to ongoing monitoring of financial services advertising, two specific desk-based reviews were completed among selected firms. Credit and debt management advertising were the focus of the reviews. On foot of the findings, firms were required to take immediate corrective action. Findings from the debt management review were released in Q1 2015. The Bank also issued best practice guidance to firms, with the aim of enhancing consumers understanding of advertising information.

Approval of Bank ChargesUnder Section 149 of the Consumer Credit Act 1995, credit institutions must notify the Bank if they wish to introduce a new customer charge or increase an existing customer charge for providing services such as maintaining and administering transaction accounts, providing and granting credit, making and receiving payments and providing foreign exchange facilities. Having considered the proposed charge, the Bank may approve the charge in full, approve at a lower level or reject the charge.

On 14 February 2014, the Department of Finance published the outcome of its review of the regulation of bank charges in Ireland, in which the department concluded that it would not be


37

appropriate to repeal Section 149 at this time, but requested the Bank to reform the process by which it assesses applications as part of the Section 149 process.

The Bank published an industry information note entitled ‘Information on the Bank Charges Approval Process’ in May 2014. The note was published in order to assist credit institutions when making a notification. It provided information on the process employed by the Bank when assessing these notifications, including in cases where pricing strategies related to the furtherance of the National Payments Plan. This information note also provided more detail for credit institutions on what the Bank expects in an application and how matters are analysed under the various headings. The Bank has engaged with a number of stakeholders in relation to the consumer personal current account profiles, with a view to releasing the updated profiles in 2015.

During 2014, 16 notifications relating to bank charges were received from banks, one of which was requesting an exemption from Section 149. Of the remaining 15 notifications, 10 were approved, while five were not approved. Of these five rejected notifications, three were rejected fully and the remaining two were approved at a lower level than initially requested. In reviewing cases, the Bank considered if the applicant had sufficiently justified the proposed new charge(s) or charge increase(s) and these were considered against criteria such as the promotion of fair competition, the statement of commercial justification, a credit institution passing any costs on to its customers and the effect on customers.

In addition, a key part of the Bank’s work was to consider and protect vulnerable consumers. In that regard, the Bank continued to prohibit the levying of charges on borrowers in mortgage arrears who were cooperating with their lenders.

Table 10 - Bank Charge Increase Notifications Processed

2014 Notifications Number

Approvals Full Approval 10

Rejections Subsequently Approved at Lower Level

2

Full Rejection 3

Exemptions* Approved 1

TOTAL 16

* These are applications made seeking exemption from the obligation to make a notification under Section 149, where charges are negotiated on an individual basis.

Redress Arising from Errors or Overcharging In delivering on the Bank’s consumer protection mandate, the aim is to continually challenge regulated firms to act in the best interest of their consumers, which includes acting swiftly to correct any situation which results in a consumer being dis-advantaged by any action of a firm. In this context, the Bank continued work during 2014 to deliver positive outcomes for consumers, including:

• Work concluded in relation to the sale of Payment Protection Insurance (PPI) by credit institutions which resulted in some €67.4m being identified for refund to 77,000 policyholders in 201416. The Bank’s engagement with other smaller credit institutions resulted in additional PPI refunds being made to consumers of approximately €2.7m17.

• Errors by firms and overcharging issues were monitored to ensure that firms resolved them within the required timeframes and that customers were treated fairly. Restitution on foot of errors reported to the Bank under Code requirements, amounted to over €30.7m.

16 This was reported in the 2013 Annual Performance Statement given the issue date of the report. However, the work concluded and the statement regarding refunds was issued in 2014.

17 Correct as of 6 February 2015.


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Table 11 – Consumer Restitution

Sector Restitution on foot of errors reported by firms (required by Code)

Restitution on foot of issues identified through supervisory activity

Retail intermediaries €64,276 €1,221

Pensions inspection where firms voluntarily agreed to provide compensation to consumers.

Moneylenders €22,335

Banking €4.8m €70.1m (PPI)

Insurance (Life & Non-life) €25.9m

[Of this: €24.8m is completed, €1.1m is an ongoing error.]*

€0.18m

[Of this: €0.1m is for Property Claims themed inspections. €0.08m is in relation to an issue over no-claims bonuses.]

TOTAL €30,786,611 €70,281,222

* correct as of 23 Feb 2015

The Bank took a proactive role in initiating and sustaining ongoing contact with the Malta Financial Services Authority (MFSA) in relation to Setanta Insurance (subject to MFSA’s prudential supervision), which entered into voluntary liquidation. In order to mitigate the impact on consumers the Bank communicated via press statements and its website; issued notices to intermediaries and liaised with the insurance representative bodies. The Bank also had extensive engagement with the Department of Finance, the MFSA, and the Appointed Liquidator, as well as attending the Oireachtas Joint Committee on Finance, Public Expenditure and Reform to discuss the impact of this failure for policyholders.

Protecting Consumers Affected by Mortgage Arrears A key pillar in the Bank’s overall mortgage arrears strategy is the protection of distressed borrowers. The Code of Conduct on Mortgage Arrears (CCMA), which was revised in 2013, is designed to ensure that lenders deal with consumers fairly, positively and sympathetically, giving them enough time and information to decide about the alternatives available to them.

During 2014, the Bank worked with external parties, to progress mortgage arrears related work. This included the MART audits and ongoing engagements with stakeholders and lenders, to ensure consumer interests were represented as well as a consistent and collective approach to tackling mortgage arrears generally.

The Bank continued to monitor mortgage lenders’ systems and practices to ensure that consumers were receiving the protections they are entitled to under the CCMA. This included follow up work on the revised CCMA implementation themed review (which commenced in 2013).

A themed inspection of compliance with the CCMA commenced during 2014, which will continue in 2015. The themed inspection includes onsite inspections of a number of regulated mortgage lenders to examine the processes and controls lenders have in place to ensure compliance with the requirements of the CCMA. This theme builds on the strategic approach and overall project work already carried out by the Bank on mortgage arrears18.

18 This included; the Mortgage Arrears Resolution Strategies (MARS) project; the revision of the CCMA in 2013, following public consultation: the revised CCMA Implementation theme; and CEO engagements on mortgage arrears, as well as ongoing supervisory engagement with individual mortgage lenders.


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Dealing with Emerging Risks Low Impact Firms

The Central Bank (Supervision and Enforcement) Act 2013, which came into effect from 1 August 2013, established a regime for the regulation of debt management firms. In order to foster a consumer-focused culture from the outset in this newly regulated sector, the Bank undertook a themed inspection of firms that were authorised to provide debt management services. The themed inspection assessed firms’ business processes and practices and their compliance with the conditions of their authorisations. Results from this themed inspection were published in Q1 2015.

The Bank continued to operate a robust process for the authorisation of payment institutions and electronic money institutions. The processing of applications focused on applicants demonstrating their ability to meet the regulatory requirements of the relevant legislation, including their ability to implement governance processes to act in the best interests of consumers in meeting their obligations.

Interactions with authorised payment institutions continued in accordance with the PRISM engagement model and a suite of custom engagements were utilised. These custom engagements included attending board meetings of authorised payment institutions to promote a consumer orientated culture in this regulated sector. The firms are subject to reporting obligations which are monitored closely to assess the firms’ compliance with key regulatory requirements such as the maintenance of capital. Action was taken where necessary to protect the interests of payment services users. The Bank also contributed to developments at EU level where the legislation applying to this industry sector (the Payment Services Directive) is being updated and it continued to provide support to the Department of Finance in this regard.

In addition to the robust authorisation framework, the Bank continued to monitor licensed moneylenders closely and take action where necessary to protect borrowers’ interests. An Administrative Sanction was placed on one licensed moneylending firm. The Bank also attended the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on 29 January 2014 to discuss the regulation of the sector, on foot of the Bank’s research report on the industry published in 2013.

To develop a consumer focused culture in the licensed moneylending sector, the Bank actively engaged with the sector during 2014 with the publication of its first industry Newsletter that concentrated on key risk areas such as responsible lending and sales incentives. The Bank also issued a general information notice to promote responsible borrowing.

With approximately 2,800 firms in the retail intermediaries sector, a risk-based approach has been developed to manage regulatory issues as they arise. During the course of the year, several issues arose from information provided by both internal and external sources, e.g. ex-employees of firms, consumers, other regulated entities and statutory bodies. These regulatory issues were assessed and followed up with the individual firms if required, to ensure that consumer interests were protected.

As in previous years, the Bank continued to proactively follow up with firms that did not have adequate PII or did not reach the minimum capital requirement (a total of 390 firms). Failure in these two areas has resulted in authorisations being involuntarily revoked, sanctions taken or supervisory warnings imposed. The Bank continued its review of the sale of pensions to ensure compliance with the Code. It identified a small number of firms that failed to provide evidence of compliance with the Code and they were requested to undertake further reviews of their pension sales and report the findings to the Bank19.

In addition, three newsletters for intermediaries were issued and two regional road shows were hosted in Dublin and Athlone, which were attended by 300 firms. Both of these initiatives were aimed at increasing compliance assistance to the sector. The Bank also published the ‘Handbook of

19 Correct as of 6 February 2015


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Prudential Requirements for Investment Intermediaries’ with an effective date of 1 October 2014, which strengthened existing prudential rules - investment intermediaries must now hold PII cover and are required to submit an Annual Return.

Conduct Risk Assessments As part of the programme of Full Risk Assessments conducted under PRISM, the Bank undertook conduct risk assessments in a number of credit institutions and investment firms during 2014. Formal Risk Mitigation Programmes were imposed which required certain firms to strengthen internal governance and controls around complaints handling and suitability and appropriateness of financial instruments provided to clients. These firms were also required to further develop internal consumer protection risk frameworks to provide structure to embedding a culture that generates positive outcomes for consumers.

Evidence-Based Risk AnalysisThe Bank continued to use qualitative and quantitative evidence to identify and analyse existing and emerging risks from a sector and individual firm basis. During 2014, an analysis of online conduct of business return data fed into the sectoral risk assessments/related internal reports, which in turn informed proposals for the 2015 work programme.

Social media monitoring was also used as a useful tool to identify more immediate risk issues. The Bank continued to monitor and report on current account switching statistics (reported in June 2014), which is an area of particular interest for the Bank in the context of considering consumers’ interests in the development of the Payment Accounts Directive.

The Bank continued to conduct consumer based research to review the application of consumer protection requirements and to analyse the impact on consumers’/firms attitudes and behaviours. 2014 projects included research on: hire-purchase research (ongoing), Personal Pension Plans - Annual Benefit Statements and an ongoing 3-year multi-partner behaviour research project on consumer decision making. Other particular interests included analysing potential risks associated with crowdfunding, virtual currencies, e-technology and mobile payments.

Promoting Consumer Interests through Stakeholder EngagementsThe involvement of stakeholders is essential to a strong consumer protection environment and stakeholder engagement continued to be a strong feature of Consumer Protection work during 2014 and contributed to policy making, supervisory follow up, research, communications and general decision making/risk management.

The Bank developed 14 proactive consumer protection-focused media campaigns during 2014. Some key highlights included information on high-cost credit, crowdfunding, debt management firms, cost and charges (investment firms), switching current accounts, payment protection insurance, and financial services advertising.

Consumer Advisory GroupThe Bank also continued work with the Consumer Advisory Group, a statutory body specifically established to provide advice to the Bank on its consumer protection activities. The Group met four times during 2014, covering topics including: debt management, mortgage arrears, virtual currencies, crowdfunding/peer-to-peer lending, the SME Sector, Central Credit Register, health insurance, Consumer Redress Scheme and sectoral risk assessments.


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Table 12 - Themed Consumer Focused Inspections and Meetings in 2014

Themed Inspections (On-Site and Off-Site) Entity Number Inspected/ Examined

Compliance with Advertising Rules Debt management firms 32

Compliance with conditions of authorisation Debt management firms 10

Compliance with the Advertising Requirements of the European Communities (Consumer Credit Agreements) Regulations 2010 (the CCR)

Credit institutions, credit unions & moneylenders

23

Provision of information to consumers in relation to costs and charges

MiFID firms and branches 16

Professional Indemnity Insurance Retail Intermediaries 316

Financial Position Retail Intermediaries 64

Payment Protection Insurance Credit Unions 3

Loss Assessors Retail Intermediaries 5

Review of Pension Sales Process Retail Intermediaries 9

Review of Online Annual Return Retail Intermediaries 35

Compliance with conditions of authorisation Retail Intermediaries 3

SME Code Credit Institutions 3

CCMA Compliance Credit Institutions and Other Lenders

2

Compliance with Annual Pensions Statement requirements

Insurance Firms 12

Risk-Based Inspections

Compliance with Consumer Protection Code Retail Intermediaries 2

Compliance with Consumer Protection Code Non-Life Insurance 2

Compliance with Consumer Protection Code Life Assurance 3

Firm Specific Inspection

Inspections as part of Full Risk Assessments under PRISM

MiFID Firms

Credit Institutions

3

3

Other Meetings

(non-inspection, i.e. with firms, representative

bodies, other regulators, etc.)

Consumer Bodies CCPC

CAG

FinCoNet

FLAC

8

EU and International Institutions EBA

JCSCCPFI

EIOPA

ESMA

EU Council

87

Government Departments and State Bodies Government Departments

FSO

Pensions Authority

Insolvency Service

35


42

Regulated/Unregulated Firms and Industry Bodies PIBA

Insurance Ireland

BPFI

CCARI

Retail Credit Firms

Credit Institutions

Life/Non-Life Insurance

Retail and Investment Intermediaries

Payment Institutions

Moneylenders

Bureaux de Change

113

Table 13 – Advertising Issues

Advertising Issues Investigated 2013 2014

Central Bank Monitoring 173 153

Complaints 9 27*

Total 182 180

Outcome of Advertising Issues Investigated 2014

Advertisements Amended Advertisements Withdrawn No Action Required Ongoing

104 39 20 17**

* 13 of these were Consumer Complaints with the remaining 14 attributable to a review of Industry for compliance with the Advertising Requirements of the European Communities (Consumer Credit Agreements) Regulations 2012 (the CCR).

** Of the 17 cases ongoing, 4 of the websites have been taken down pending review and amendment.


43

Operational Efficiency and Cost Effectiveness

Efficiency and cost effectiveness underpin all the Bank’s operations. Operations are also conducted within well-defined risk management and control frameworks.

Regulatory TransactionsFitness and Probity

Under the Central Bank Reform Act 2010, persons proposed for senior positions (such as directors and senior managers) in Regulated Financial Service Providers (RFSPs) require the pre-approval of the Bank before taking up their appointment. An online application system is used by the applicant to submit information on the applicant’s experience, education, compliance with the Minimum Competency Code 2011 (if applicable), reputation and character, shareholdings, business interests and board memberships. In 2014, 4,518 applications were processed in respect of persons proposed for senior positions in the RFSPs, of which 3,856 applications were completed. The Bank processed 33 per cent more applications in 2014 compared to 2013. Outlined below are the numbers of applications processed by status (Table 14) and by sector (Table 15), while Table 16 reports on the Bank’s performance against the Fitness and Probity Service Standards.

Table 14 - Fitness and Probity Applications – by Status

Status of Applications 2013 2014Percentage Change

%

Completed

Approved 2,522 3,290 30

Returned as Incomplete 278 404 45

Withdrawn by Applicant 112 162 45

Total Completed 2,912 3,856 32

In Progress at Year End

Awaiting Decision on Entity’s Application

For Authorisation

215 267 24

Being Processed 246 357 45

Additional Information Requested 30 35 17

External regulator/reference check

pending

1 3 200

Total in progress 492 662 35

Total 3,404 4,51820 33

20 Includes carryover of 492 from 2013.


44

Table 15 - Fitness and Probity Applications – by Sector

Applications received by industry

sector

2013 2014 Percentage Change

%

Funds & Fund Service Providers 1,456 2,064 42

Retail Intermediaries 586 913 56

Insurance/Reinsurance Companies 510 608 19

Investment Firms (MiFID and IIA) 243 298 23

Credit Unions 365 232 -36

Credit Institutions 120 127 6

Debt Management firms21 0 153 -

Other 124 123 -1

Total 3,404 4,518 33

Table 16 – Performance against Fitness and Probity Service Standards for 2014 compared to 2013

Category Turnaround

Time (business

days)

Target

Percentage

%

2013 Actual

Percentage

%

HI 2014

Actual

Percentage

%

H2 2014

Actual

Percentage

%

Incomplete IQ Response 5 85 95 89 98

Qualifying Investor Fund IQ 5 85 91 74 85

Previously Approved

Individual

12 85 95 92 94

Standard IQ 15 85 94 91 93

Online ReportingThe Bank requires all RFSPs to submit returns pertaining to their businesses at specified intervals. The information in these returns is used to monitor the operations of RFSPs and their compliance with relevant legislation and all relevant regulatory requirements.

In 2014, a number of new returns were introduced:

• Returns required under the Capital Requirements Directive (CRD IV) for Banking and Investment Firms

• Returns required under the Alternative Investment Fund Managers Directive (AIFMD)

• Annual Credit Union Compliance Statement.

Table 18 below outlines the number of regulatory returns received by sector and the percentage outstanding at end year. It shows that 91 per cent of returns due were submitted by year end, the same percentage as 2013.

21 Debt Management firms included in ‘other’ category in 2013.

Annual Performance Statement (Financial Regulation) 2014-2015Operational Efficiency and Cost Effectiveness

45

Table 17 – Online Reporting by Sector

Sector

2013 2014

Number of Returns

Due

Number of Returns

Received

Percentage Outstanding

%

Number of Returns

Due

Number of Returns

Received

Percentage

Outstanding %

Investment Firms 7,474 6,933 7 6,786 6,326 7

Credit Unions 4,787 4,343 9 5,132 4,537 12

Funds & Fund Service Providers

3,859 3,751 3 5,000 4,727 5

Retail Intermediaries 3,002 2,233 26 2,747 2,100 24

Credit Institutions 2,470 2,230 10 2,323 2,282 6

Insurance / Reinsurance Undertakings

1,122 1,086 3 1,119 1,095 2

Total 22,714 20,576 9 23,208 21,067 9

Contact ManagementThe Bank also handles queries from RFSPs relating to Fitness and Probity, the submission of prudential returns and the usage of the Bank’s Online Reporting System (ONR). The Bank handled 7 per cent more queries in 2014 compared to 2013. Table 18 below provides a breakdown of the queries managed by the Regulatory Transactions contact centre by sector and by communication channel.

Table 18 – Regulatory Transactions Contact Centre

Sector 2013

Number of queries

dealt with

2014

Number of queries

dealt with

Percentage Change

%

Retail Intermediaries 7,663 8,994 17

Investment Firms, Funds and Fund

Service Providers

6,334 7,614 20

Credit Unions 3,967 3,576 -10

Credit Institutions 1,233 1,542 25

Insurance/Reinsurance Undertakings 1,092 1,134 4

Other 1,135 – -

Total 21,424 22,860 7

Communication Channel

Online Reporting System ‘Submit a

Query’

7,923 8,642 9

Phone 7,809 7,712 -1

Email 5,692 6,506 14

Total 21,424 22,860 7


46

Authorisation Service StandardsThe Bank has introduced authorisation service standards for firms seeking authorisation as a bank, insurer, investment firm or regulated market. Table 19 outlines performance against the authorisation service standards. In all categories the standards were met.

Table 19 – Authorisation Service Standards for Banks, Insurers, Investment Firms and Regulated Markets

Category Turnaround Time

(Weeks / Months)

Target

Percentage

%

H1 2014 Actual

Percentage

%

H2 2014

Actual

Percentage

%

Process Complete Applications

3 months 75 100 80


6 months 100 100 100

Return Incomplete Applications

2 weeks 100 100 100

The Bank has introduced authorisation service standards for firms seeking authorisation as a moneylender, payment firm, bureaux de change business, retail intermediary or debt management firm. Tables 20-22 outline performance against the authorisation service standards. In all but one category the standards were met.

Table 20 – Authorisation Service Standards for Moneylenders*

Moneylenders

Category

Turnaround Time

(Weeks / Months)

Target

Percentage %

Q4 2014

Actual Percentage %


3 months 75 N/A (no new applications received in Q4)



Process Complete Renewals

2 months (peak), 1 month (otherwise)

90 75% within 1 month of becoming complete**


2 weeks 100 N/A (no new applications received in Q4)

(*) Measurement of performance commenced in Q4 2014 for this sector.

(**) This reflects one case where a complete application was received more than one month prior to renewal. The case was processed in seven weeks and the formal renewal issued 19 days prior to the renewal date.

For 2015, the service standards set out above for processing complete applications will be amended to 90 per cent within 3 months of becoming complete for all applications. This amendment enhances the authorisation service standards the Bank has committed to and aligns its approach to that adopted in respect of the authorisation service standards for retail intermediaries.

For 2015, the service standards set out above for processing complete renewals will be amended to 100 per cent prior to the expiry of the existing licence. This amendment aligns our approach to the legislative requirement that licences must be issued on a 12 month basis, such that it would not be an efficient and effective use of our resources to process these renewals prior to the expiry of the existing licence.


47

Table 21 - Authorisation Service Standards for Payment Firms22 & Bureaux de Change Businesses*

Category

Turnaround Time

(Weeks/Months)

Target Percentage %

Q4 2014 Actual Percentage %






2 weeks 100 N/A (no new applications received in Q4)


Table 22 - Authorisation Service Standards for Retail Intermediaries23 & Debt Management Firms*

Category

Turnaround Time

(Weeks / Months)

Target Percentage %

Q4 2014 Actual Percentage %


3 months 90 100


2 weeks 100 100


In advance of the commencement of service standards outlined in Feedback Statement on Consultation Paper CP67, the Bank has measured performance against authorisation targets for QIAIFs, Funds and Fund Service Providers in 2014 (See Table 23). In all categories the targets were met.

Table 23 – Authorisation Metrics for QIAIFs, Funds and Fund Service Providers

Category Turnaround Time Target Percentage %

2014 Actual Percentage

%

Process QIF/QIAIFs applications

1 Day 100 100

Fund Authorisations Various ranging from 5 days to 20 business days depending on the stage of the application process

100 100 (*)

Fund Service Providers 6 months 100 100 (*)

(*) Approach to measuring performance standards will change following automation of the authorisation process.

22 Payment Firms include Payment Institutions, Electronic Money Institutions and Money Transmission Businesses.

23 Retail Intermediaries include Investment, Insurance and Mortgage Intermediaries.


48

Regulatory Transactions Strategy (RTS)In 2014, the Bank continued with its programme of process re-engineering and automation designed to improve the efficiency and cost effectiveness relating to key supervisory processes. Progress was made in automating the authorisation process for Qualifying Investor Alternative Investment Funds (QIAIFs), Funds, Fund Service Providers and Retail Intermediaries. However, the implementation of the system was delayed due to significant external technical issues which were largely outside the Bank’s control.

Other Regulatory IndicatorsTable 24 – Regulatory Staffing

Directorate

(Full Time Equivalent Figures)

2013

Actual

2014

Actual

Credit Institutions Supervision 98.7 106.6

Registrar of Credit Unions 57.4 57.4

Insurance Supervision 97 96.8

Markets Supervision 151.2 131.1

Consumer Protection 80.2 78.2

Policy & Risk 66.3 64.4

Enforcement 55.6 62

Senior Management 6 7

Total 612.4 603.5

Table 25 – Income and Expenses

Outturn

2013

€’m

Outturn

2014

€’m

Budget

2015

€’m

Total Income24 70.134 77.191 67.492

Subvention 57.912 62.195 67.077

Total 128.046 139.386 134.569

Expenses 128.046 139.386 134.569

24 Total income is now being recognised on an accruals basis and shown separate to the Subvention from the Bank.


49

Table 26 – Consultation Papers

Date Issued 2014 Paper

2 January CP77: Consultation on Publication of UCITS Rulebook

7 March CP78: Carrying out depositary duties in accordance with Article 36 of AIFMD

19 March CP79: Handling of Protected Disclosures by the Central Bank of Ireland

19 March CP80: on Guidelines on LCR Calculation for the Interim Observation Period

13 June CP81: Consultation on possible exemption from capital buffers for SME investment firms from CRD IV/CRR

20 June CP82: Second Consultation on Additional Consumer Protection requirements for Debt Management Firms

1 August CP83: Consultation on Fitness and Probity regime for Credit Unions that are also authorised as Retail Intermediaries

28 July CP84: Consultation on the adoption of ESMA’s revised guidelines on ETFs and other UCITS issues

28 July CP85: Consultation on loan originating Qualifying Investor AIF

19 September CP86: Consultation on Fund Management Company Effectiveness - Delegate Oversight

7 October CP87: Macro-prudential policy for residential mortgage lending

6 November CP89: Consultation on National Specific Templates for Insurers and Reinsurers under Solvency II

27 November CP88: Consultation on Regulations for Credit Unions on commencement of the remaining sections of the 2012 Act

4 December CP90: Consultation on the Supervision of Non-Financial Counterparties under EMIR


50

Table 27 – Circulars and Guidance Notes

Sector Circulars/Guidance Note Date Issued 2014

Credit Unions Extension of submission date by 1 month to end march for CP 76 - Introduction of a tiered regulatory approach for credit unions

24 January

Credit Unions Circular re 3 March Commencements of the Credit Union and Co-operation with Overseas Regulators Act 2012

24 February

Credit Unions Guidance on the Board Oversight Committee 3 March

Credit Unions Outsourcing Notification submissions via Online Reporting System and Year End Reporting deadline reminder.

25 March

Credit Unions Amendments to Credit Union Handbook 28 March

Credit Unions IT Survey to all Credit Unions 9 April

Credit Unions PRISM Risk Assessment Supervisory Commentary Document 1 May

Credit Unions Circular re Guidance on the Annual Compliance Statement 27 June

Credit Unions Circular re Feedback Statement on Consultation on the Introduction of a Tiered Regulatory Approach for Credit Unions

30 June

Credit Unions Circular re Credit Unions News 1 July

Credit Unions Circular re Fitness and Probity regime updates – July 2 July

Credit Unions Update to FAQ – Credit Union Rules 11 July

Credit Unions Review of Compliance – Advert Requirements of Euro Commission 14 July

Credit Unions Year End circular to all Credit Unions and Credit Union Auditors 18 August

Credit Unions Notice to all credit unions re requirements pursuant to Sections 22 and 23 of the Central Bank (Supervision and Enforcement) Act 2013 with respect to the year-end return

18 August

Credit Unions Circular re Annual Compliance Statement Regulatory Return 29 September

Credit Unions Credit Union Handbook Update – The Accounts and Audit Chapter 29 September

Credit Unions IT Survey Analysis Report (based on survey responses from credit unions with assets €40 million)

30 September

Credit Unions Update on timelines for consultation on draft regulations 10 October

Credit Unions Circular re Credit Union Information Seminars 2014 24 October

Credit Unions Circular re FAQs on the Annual Compliance Statement 31 October

Credit Unions Clarification on Annual Compliance Statement for Credit Unions - FAQs 3 November

Credit Unions Information Seminar presentations 11 December

Credit Unions Circular re Feedback Statement on Consultation on Fitness and Probity regime for Credit Unions that are also authorised as Retail Intermediaries

19 December

Credit Unions Update to the Credit Union Handbook and Information Seminar CPD 23 December

Industry Wide Inquiry Guidelines prescribed pursuant to Section 33BD of the Central Bank Act 1942

November

Industry Wide Outline of the Administrative Sanctions Procedure November

Industry Wide Fitness and Probity Standards (Code issued under Section 50 of the Central Bank Reform Act 2010)

November

Industry Wide Guidance on Fitness and Probity Standards November

MiFID Investment Firms

MiFID Application Form January

MiFID Investment Firms

Guidance Note for Authorisation under MiFID January


51

Fund Service Providers

(not published on website)

Industry Letter - Outsourcing of Fund Administration Activities October

Fund Service Providers

Industry Letter – Thematic Review of Data Integrity of Regulatory Returns September

Consumer Information Note on Bank Charges Approval Process May

Consumer Guidelines on Variable Remuneration Arrangements for Sales Staff July

Consumer Debt Management Services – An Information Guide November

Insurance Letters to Appointed Actuaries May

Insurance Central Bank of Ireland Guidelines on Preparing for Solvency II - Q&A May

Insurance Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers

August

Insurance Feedback Statement on the Consultation Paper on Requirements for Reserving and Pricing for Non-Life Insurers and Reinsurers (CP73)

December

Banking and Investment Firms

Implementation of Competent Authority Discretions and Options in CRD IV and CRR

21 May

Credit Institutions

Guidelines on LCR Calculation for the Interim Observation Period 30 May

Funds Guidance Note - Implementation of ESMA guidelines on ETFs and other UCITS issues: Issues arising

23 January

Funds Four editions of - UCITS: Questions and Answers 4 February

30 May

5 November

17 December

Funds Updated Rules - AIF Rulebook 18 September

Funds Five editions of - AIFMD: Questions and Answers 4 February

7 March

2 May

28 July

5 November

Funds Guidance - Revised guidance relating to third parties and fund authorisation process

7 March

Corporate Finance

Prospectus Handbook - A Guide to Prospectus Approval in Ireland 5 May

19 November

Corporate Finance

FAQs - Prospectus Regulation 23 May


52

Table 28 – Appearances before Joint Oireachtas Committees

Date 2014 Oireachtas Committee Attended by

29 January Joint Committee on Finance, Public Expenditure and Reform Bernard Sheridan, Colm Kincaid

30 April Joint Committee on Finance, Public Expenditure and Reform Governor Honohan

4 June Joint Committee on Finance, Public Expenditure and Reform Oliver Gilvarry

9 July Joint Committee on Finance, Public Expenditure and Reform Bernard Sheridan,

Colm Kincaid

Mick Stewart

26 November Joint Committee on Finance, Public Expenditure and Reform Governor Honohan

11 December Committee of Public Accounts Patrick Casey

Fergal Power


53

Internal AuditDuring 2014, Internal Audit conducted audits across the Bank's Financial Regulation areas. Topics covered included Prospectus Approval Process and the Test of Controls in the Anti-Money Laundering Division. A number of pieces of consultancy work were also performed in divisions such as the Registry of Credit Unions.

Internal Audit submitted regular reports to the Bank's Audit Committee on the outcome of all audits including progress in implementing recommendations from previous audits. A three year plan is prepared on a rolling basis which is approved by the Audit Committee annually.

As part of its intelligence gathering and to ensure that Internal Audit keeps abreast of developments and risks within the organisation, Internal Audit regularly attended a number of executive committee meetings and also held meetings with a large number of divisions across the organisation.


54

Appendix 1 – Performance Review 2014

High Level Goal 3 - Proper and Effective Regulation of Financial Institutions and Markets

Strategy 2013-2015 Action Planned Action for 2014 Actual Progress 2014

Continue to implement and enhance a risk- based approach to supervision

• Deliver effective, judgement-based, outcome-focused supervision

• Respond as necessary to any recommendations of PRISM Review

• Significant progress has been made in implementing the recommendations

• Implementation has enhanced clarity in relation to some operational aspects of the Bank’s supervisory activities, including risk governance panels and the expected levels of supervisory engagement on regulated entities

• Provision of supervision support to ensure best practice guidance for supervisors

• Supervisors continued to be supported by the provision of tailored training programmes and a suite of seminars on the approach to risk-based supervision

• 9 seminars/training sessions provided to a range of audiences internally across supervisory and enforcement directorates

• Complete - PRISM guidance was updated three times in 2014

• Provision of cross sector support to aid supervisors in understanding key macroeconomic risks in their sectors

• Environmental risk assessments were conducted twice for each regulated sector with output made available to supervisors

• New research conducted and seven papers produced and disseminated via thirteen seminars throughout the Bank

• Continue to develop reports to assist supervisors in the interpretation and analysis of prudential returns and key risk indicators

• Suite of management information reports maintained and enhanced regularly

• Enhancements uploaded to the live system eight times during the year in line with user requirements and business as usual processes

• Ensure all regulated firms are classified using PRISM risk rating approach

• PRISM reconciled periodically to ensure all firms are included in PRISM

• Completed – new reporting tool developed to facilitate process

Annual Performance Statement (Financial Regulation) 2014-2015Appendix 1

55


• Allocate supervisory resources in accordance with probability/ impact risk

• Review supervisory resource allocations for effectiveness of outcomes achieved and amend as necessary

• Detailed resource assessments undertaken periodically to ensure they are current and within PRISM guidelines

• Produce comprehensive Risk Mitigation Plans (RMPs)

• RMPs to be completed in accordance with PRISM guidance and applicable timelines

• RMPs completed in accordance with PRISM guidance and applicable timelines

• Issue comprehensive RMPs to regulated firms following Full Risk Assessments (FRAs) and other inspections or as a need is identified

• RMP issues and actions identified via FRAs, FRRs or other reviews were communicated to institutions in line with PRISM guidance

• Conduct regular quality assurance assessments of RMPs to ensure a consistent standard across supervisory teams

• RMPs reviewed as part of the PRISM Quality Assurance testing - management review of RMPs in advance of being issued to ensure consistency and completeness of issues

• 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

• Periodic Business Model Reviews (BMRs) to continue during 2014

Banking

• BMRs of two large domestic retail banks completed during 2014

• Work commenced on a third retail bank towards end of year

• Work supplemented by Stress Test exercise and ongoing supervision of SIs and LSIs

• Undertake FRRs as agreed with Senior Management

Banking

• FRRs and other reviews completed in line with engagement plan

Insurance

• 46 FRRs completed during the year

• Complete Engagement Tasks as per PRISM requirements

Insurance

• 97% of scheduled tasks completed

Retail Intermediaries

• Completed all Engagement Tasks, as per PRISM requirements for Payment Services firms

• Hold Risk Governance Panels (RGPs) for all Ultra High (UH)/High and specified Medium High (MH), Medium Low (ML) Impact firms in accordance with plan

Banking

• RGPs held for 10 banks

• Multiple Credit and Treasury-specific RGPs also undertaken

Insurance

• 15 RGPs completed (94% of target)


56


• Undertake FRAs for High, MH and ML Impact firms

Insurance

• Completed 100% of scheduled FRAs


• Conduct risk assessments undertaken (CPC FRAs), the output of which contributed to overall FRA

• Plan and conduct a schedule of engagement with investment firms and fund service providers in accordance with the PRISM engagement model

Markets

• 96% of all engagement tasks for investment firms and fund service providers completed

Anti-Money Laundering

• Inspection Activity

º Conduct 3 detailed inspections

• 4 detailed inspections completed

º Conduct 24 standard inspections

• 29 standard inspections completed

º 3 Thematic Reports to be published

• Drafting of two thematic reports complete

• Further thematic report in process of being finalised

• Carry out an assessment on the operation of PRISM during 2013

• Report and decisions on scope of next phase of PRISM review

• PRISM Review completed and submitted to the Bank’s Commission in January 2014

Strengthen the regulatory framework for financial institutions

• Oversee the implementation of new EU regulations, including

- Alternative Investment Fund Managers Directive (AIFMD)

• Development of online automated application forms for AIFs and all service providers including authorised and registered AIFMs

• Completion of the online application form was delayed in 2014

• Continue the implementation of AIFMD including reporting obligations

• AIFM reporting went live in August

• Register and PRISM work also complete

• 18 internally managed AIFs authorised and 20 internally managed AIFs registered In 2014

• 324 AIFs converted to AIFMD and 132 AIFs revoked their authorisation

• Develop and enhance knowledge and procedures on AIFMD

• 64 AIFMs authorised and 35 AIFMs registered by agreed deadline (22 July)

• Industry Guidance published and industry working group was established


57


• Industry workshops to be held on key topics relevant to AIFs and AIFMs

• 2 industry workshops on AIFMD held – February & July

• Irish Collective Asset Management Vehicle (ICAV) Bill 2014

• Develop a regime for registration and authorisation of investment funds established as ICAVs

• Draft application forms and template registers prepared for registration of ICAVs

• Complete the project to implement Solvency II Directive

• Develop procedures and processes as further developments arise regarding Solvency II Directive (two-year implementation project)

• Provide guidance to Department of Finance on the development of the Statutory Instrument (SI) to transpose the Solvency II Directive

• Preparatory Guidelines for industry became effective on 1 January 2014

• Significant work undertaken with stakeholders (incl. EIOPA and industry) to develop and progress the move towards full Solvency II on 1 January 2016

• European Market Infrastructure Regulation (EMIR)

• Establish a supervisory framework for EMIR

• Bank was designated Competent Authority on 8 October 2014

• Consultation Paper on regulatory regime for Non-Financial Counterparties (NFCs) issued - November

• Dedicated EMIR page and related guidance set up on Bank’s website and Supervisory approach for Non-Financial Counterparties (NFCs) defined

• EMIR Regulatory Return (ERR) tool defined

• Discussions held with industry representatives on proposed regulatory approach – Q2 & Q4

• Transposition and implementation of Capital Requirements Directive (CRDIV) / Capital Requirements Regulation (CRR) and development of associated Binding Technical Standards (BTSs) via EBA

• Transpose CRDIV • Liaised with Department of Finance on transposition of CRDIV/CRR

(CRD transposition – 31 March 2014)

• Issued CRDIV/CRR Implementation Notice – published 21 May

• Issued Consultation Paper and Final Guidelines on Liquidity Coverage Ratio (LCR) Calculation – 30 May

• 4 presentations to industry on CRR Liquidity Requirements – March, April, November

• Continue to develop Binding Technical Standards (BTSs)

• EBA published 173 BTSs, Guidelines, Consultation Papers, Reports, Opinions, and Recommendations

• Implement new CRDIV requirements including reporting obligations for investment firms

• Complete - reporting (for investment firms) went live – June 2014


58


• Transposition of the amended Financial Conglomerates Directive 2011/89/EU (FICOD) and development of associated technical standards and Guidelines

• Transpose FICOD • Liaised with Department of Finance on transposition of FICOD

(FICOD transposition – 26 September 2014)

Restore stability to the banking sector and facilitate prudent lending to households and SMEs

• Continue with the structured path of reform and downsizing for the domestic banking sector

• BMR scheduled for one institution

• BMRs of two large domestic retail banks completed during 2014, with work commenced on a third retail bank towards the end the year

• Work supplemented by Stress Test exercise and ongoing engagement focusing on the stability of the banks, business model viability, strategic plans, right-sizing balance sheets in relation to funding profiles and addressing non-performing loans

• Discuss outcomes of the BMR with bank and maintain focus on key vulnerabilities identified over year

• Complete - outputs from reviews of 2 large domestic banks discussed with senior management

• Assessment of key changes in financial performance and strategies for all High Impact (HI) institutions to allow for Balance Sheet Assessment (BSA), Asset Quality Review (AQR), Single Supervisory Mechanism (SSM) and project work

• Completed via Comprehensive Assessment and supervisory risk review, including Risk Governance Panels (RGPs) and capital & liquidity decisions

• Ongoing engagement focused on the stability of the banks, business model viability, strategic plans, right-sizing balance sheets in relation to funding profiles and addressing non-performing loans

• Follow-up activities undertaken in respect of previous years’ business model reviews

• Large domestic retail bank Business Model Assessment (BMA) to be undertaken (deferred from 2013)

• Review commenced in Q1 but was subsequently delayed by the timing of a key strategic decision at the bank and work related to the Comprehensive Assessment

• Domestic bank - discuss outcomes of 2013 review with bank and maintain focus on key vulnerabilities identified

• BMA review completed, follow-up work superseded by SSM CA and requirement for new EU restructuring plan

• Domestic bank – 1 follow up action under review (re. 2012 review)

• RMP required for the Business Model Review (BMR) of UK subsidiary - desk top review of business model and profitability completed in 2014


59


• Continue to drive the domestic banks to restructure and resolve distressed debt (household and SME) appropriately, ensuring that provisioning is appropriate and controls over new lending are robust

• MART Targets were a key focus area in the resolution of mortgage arrears and efforts are continuing

• Commercial loans – ongoing monitoring of progress in resolutions during the year

• Inspection of restructuring at one bank undertaken – Q4

• Complete Comprehensive Assessment (CA) including AQR

• CA conducted in line with SSM methodology for the Asset Quality Review and Stress Test – completed for 4 November deadline

• Results of the CA incorporated into Supervisory Review Process – December

• Monitor performance against Bank’s mortgage and SME resolution targets

• Monthly and quarterly KPIs monitored throughout 2014

• Undertake audit and Credit Operations Reviews

• All prioritised reviews completed in accordance with Engagement Plan

• Some reviews replaced by other work to allow for CA/AQR

• Carry out PCAR assessments and EBA stress testing

• Stress Tests to be conducted in line with establishment of the SSM and in common with other European banks in 2014

• European-wide, EBA Stress Test formed the final part of the CA – November

• Exercises (e.g. AQR, Risk Weighted Assets (RWA) model performance and data integrity verification reviews) to be carried out in 2014 in support of SSM stress test delivery

• AQR included core modules on collective model reviews, data integrity as well as individual file reviews for provisioning and collateral valuation

• AQR workstreams complete by August

• Results incorporated into the SSM Stress Test by November

• Ensure the PCAR banks meet deleveraging, liquidity and capital adequacy targets

• Balance sheet forecasts will continue to be assessed based on the quarterly advanced monitoring framework submissions

• Final deleveraging target for one bank which was delayed and completed by Q2 2014

• Monitoring solvency and capital adequacy as part of Internal Capital Adequacy Assessment Process (ICAAP) and PCAR reviews and Supervisory Review and Evaluation Process (SREP) risk assessments

• Results of the CA (including a forward looking assessment of capital adequacy) were incorporated into the 2014 SREP risk assessments – December


60


• Monitor the focus in credit institutions on provisioning in relation to mortgage arrears resolution strategies, SME portfolio workouts

• Continue to assess and challenge strategies, implementation plans and operational capabilities with the objective of seeing continued evidence of progress in working out distressed debt across SMEs and mortgage portfolios

• Provisioning assessed as part of CA/AQR

• Testing of restructured commercial loans also considered the adequacy of provisions

• Progress in SME and mortgage workout will be monitored against the targets which were set in 2013

• Progress against targets monitored on an ongoing basis

• Evidenced-based testing will form a large part of the Bank’s engagement in 2014. This will be in the form of loan file reviews and operational effectiveness reviews. RMPs will be implemented where gaps are identified

• Targeted inspection activity focused on (a) BTL (b) New Lending (c) Operational Effectiveness

• MART Audits

• Commercial Loan File Reviews

• CA

• Further audits to be conducted against Mortgage Arrears Resolution Targets (MART)

• System wide audit completed – Q2

• Audit of 2 banks commenced - Q4

• Complete a self-assessment exercise against Basel Core Principles for effective banking supervision

• Remediation plan completed in 2013 - further remediation undertaken in 2014 based on the observations made by the IMF

• Of the 16 IMF recommendations:

- 13 progressed internally

- 3 required action by the Department of Finance

- Bank commenced an in-depth review of the original recommendations and actions following the commencement of SSM

• Comments on factual inaccuracies provided to IMF

• Complete - comments provided to IMF

• Final report received by the Bank on 7 February 2014 and the Authorities response is currently being finalised

• Complete – Bank response finalised

Implement an effective and efficient regulatory regime (Solvency II) for the insurance industry

• Continuously review current economic and insurance market conditions cycles and adjust regulatory focus accordingly


• Economic and insurance market conditions cycles reviewed throughout 2014 and regulatory focus adjusted as necessary

• Continue close engagement and cooperation with European and other supervisors

• Attend relevant Colleges/EU meetings

• Attended a wide range of meetings with EIOPA in Frankfurt and with various other supervisory bodies


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• Transition to new regulatory regime (Solvency II)

• Monitor Preparatory Guidelines and continue to ensure industry is aware of developments as they arise

• Firms surveyed in order to assess compliance with the preparatory guidelines

• New Online Reporting system being developed to enable Bank receive and validate new reporting templates from companies required under Solvency II

• Solvency II Matters circulated to industry via industry associations and industry briefing continued during the year

• Review internal models and progress models towards completion

• 17 Internal models in active internal model pre-application process

• 16 Decision Committee meetings held during the year to ensure relevant legal requirements being met

• Regular attendance at College meetings and EIOPA Conferences

• Actuarial Services Framework put in place to provide flexibility of resources to deal with potential unexpected applications and model changes

• Internal Model approval process

• Progress Pre-Application process with relevant companies

• Progress has been made with several internal models (17 in total)

• Decision Committee meetings ongoing during 2014

• Amend and update existing internal regulatory procedures to ensure implementation of Solvency II regime on a continuous basis


• Internal regulatory procedures updated for preparatory phase

• Continued update of regulatory procedures for implementation phase

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

• Undertake FRAs and one-day visits in a specified number of MH Impact credit unions and ML Impact credit unions in accordance with PRISM

• 17 FRAs undertaken (5MH and 12ML)

• 98 one-day engagements (12MH and 86ML)

• Provide RMPs for credit unions identifying key risks, actions and outcomes required together with timeframes required to mitigate risks

• RMPs developed on an ongoing basis and aligned to on-site engagement process – 104 issued in 2014


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• Ensure that restructuring supports the stability of individual credit unions and the sector in the long term

• Interact with ReBo in relation to credit unions identified as requiring restructuring or stabilisation

• Deputy Registrar participated in the work of ReBo as a non-voting member of its board and attended monthly board meetings

• Engagement with ReBo on specific restructuring cases

• Participate in the work of ReBo to facilitate restructuring of the sector

• Active participation by Deputy Registrar

• Develop a Fitness and Probity framework appropriate for sector

• Complete implementation of tailored Fitness & Probity regime for credit unions with assets greater than €10m

• Fitness and Probity update provided to credit unions setting out details of requirements from 1 August 2014 for Controlled Functions and information on other Fitness & Probity matters

• Completed consultation on Fitness and Probity regime for Credit Unions also authorised as Retail Intermediaries

• Develop Prudential Rule Book

• Implement remaining governance provisions of the 2012 Act

• Number of remaining sections of the 2012 Act commenced - 3 March 2014

• Update Credit Union Handbook to reflect commencement of remaining governance provisions contained in the 2012 Act

• Credit Union Handbook, FAQ and website updated to reflect new requirements introduced - 3 March

• Communication issued to credit unions

• Issue feedback statement and undertake further consultation informed by feedback

• Feedback statement published on CP76 (Introduction of a tiered regulatory approach to credit unions indicating that a tiered regulatory approach will not be introduced at this time and setting out the proposed next steps - 30 June)

• Attend meetings of the CCU Implementation Group

• 5 meetings of CCU Implementation Group attended in 2014 (last meeting held May 2014)

• Issue guidance on strengthened regulatory framework

• Update Credit Union Handbook to reflect commencement of remaining governance provisions contained in the 2012 Act

• Updated Credit Union Handbook and website to reflect new requirements introduced - 3 March

• Issued communication to credit unions

• Regular communication with sector (e.g. Regulatory Forum)

• Engage with credit union sector stakeholders

• Presentations/meetings held with CUMA, ILCU, CUDA, NSF, Department of Finance, ReBo

• Credit Union News relaunched – Q3

• Issue Guidance Notes/Circulars

• Guidance Notes/Circulars issued as required


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• Conduct information seminars on regulatory initiatives

• 9 information seminars for credit unions held in 6 locations nationwide on draft regulations set out in CP88, regulatory developments and 2015 regulatory developments

Ensure that market participants act in a fair and transparent manner

Corporate Finance

• 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

• Ensure that the quality of disclosure within prospectuses meets with the statutory requirements of the Prospectus Directive

• All 1,020 prospectuses approved in 2014 contained disclosures in line with the requirements of the Prospectus Directive

• Provide issuers with certainty of process (document review and timelines) and a straightforward capital raising path

• Review and approve prospectuses on a timely basis and within the timeframes set out in the Prospectus Advisor Agreement and/or legislation as appropriate

• 100% of the document reviews were completed within the agreed timeframes

• Publish statistical data on the following

º Number of prospectus approvals

º Number of passport requests (inward and outward)

º Number of final terms filed

• Data published in the 2014 Annual Report

º The number of prospectus approvals was 1,020

º The number of passport requests (inward and outward) was 471

º The number of final terms filed was 2,845

• Assist market participants’ understanding of supervisory expectations and policy directions of the Bank

• Meet with Stakeholder Consultative Group and gather feedback on the performance of the Bank’s Prospectus Scrutiny operation

• Meeting held with stakeholders - November 2014

Market Integrity

• Identify potential instances of market abuse

• Continue to examine improvements in market monitoring systems

• Alternative monitoring systems investigated

• Additional monitoring alerts introduced January 2014

• Review of effectiveness of new alerts completed November 2014

• Continue to contribute actively to consultations and development of new regulations at pre- and post-implementation stage

• Continue participation on Markets Data Reporting Working Group (MDRWG)

• All MDRWG meetings attended

• Participated in sub-groups SG1 on EMIR reporting and SG2 on Markets in Financial Instruments Regulation (MiFIR) transaction reporting


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• Implement the Bank’s market integrity strategy

• Demonstrate continued effectiveness in investigation of suspicious transactions

• Enquiries into 162 instances of possible market abuse were initiated

• 120 cases completed effectively in accordance with standards and procedures

• Identify and substantiate, where possible, suspected breaches, so as to enable enforcement action

• Detailed investigations were conducted involving engagement with investors, issuers and intermediaries

(Investigations did not result in cases that warranted enforcement action)

• Ensure successful sanctions and associated publicity to enhance Bank’s reputation for preventing market abuse and to deter further abuse

• Relevant cases examined with a view to potential sanction.

(Market Abuse related sanctions did not arise during 2014)

• Proactively engage with market participants through ongoing examination of practices and procedures put in place to comply with the Regulations

• Themed review on compliance with Part 3 of the Market Abuse Regulations (Fair Presentation of Recommendations) conducted - Q4

• Report finalised

• Assess implementation by firms of recommendations issued

• Deferred to 2015

Funds

• Develop an appropriate model of supervision for Low Impact entities, investment funds and fund service providers

• Review of the effective implementation of the supervision strategy for Low Impact investment firms and fund service providers

• Fund supervision continues to be implemented against the PRISM Low Impact entities strategy

• Implement Collective Investment Scheme legislation governing UCITS V, AIFMD and any international developments on shadow banking, specifically money market funds

• Continue to advise Department of Finance as file progresses through trilogies

• UCITS V: adopted 23 July 2014 for implementation by 18 March 2016

• ESMA advice on Level 2 measures provided to European Commission - 28 November 2014

• Work with the Department of Finance in preparation of amendments to the 2013 Regulations

• AIFMD:

º Amendments to the EU(AIFM) Regulations issued - 27 May 2014

º Revised AIF Rulebook issued - 18 September 2014

• Finalise position • Exempt unit trusts’ position relating to EUTs finalised and published in Feedback Statement on CP68 - 28 March 2014


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• Support Department of Finance as legislative programme develops

• EU Regulation on money market funds: 6 Council Working Groups attended

• ELTIF (European Long Term Investment Funds Regulation):

º 7 Council Working Groups attended

º Parliament agreement reached - 26 November 2014

Protection of Client Assets

• Correlate client asset information to enable a risk-based approach towards the supervision of client assets

• Continue to embed risk-based approach to supervision of client assets

• Annual engagement plan completed

• Put in place a client asset protection regime to achieve the three core objectives in the client asset requirements

• Publication of revised client asset rules

• Delayed until Q1 2015 - awaiting enactment of legislation

• Publication of revised Client Asset & Investor Money Regulations at an advanced stage

• Department of Finance commenced a public consultation on the draft Investor Compensation Act 1998 (Return of Investor Funds or Other Client Property) Regulations 2015 - consultation period ran to 23 January 2015

• Inform and educate industry & auditors regarding the client asset protection regime

• Hold workshops with industry & auditors

• Delayed until H2 2015 - awaiting enactment of legislation

• December deadline extended pending publication of revised client asset rules in 2015

• Inform and educate the public regarding the protection regime applicable to their assets at each stage of the investment

• Public awareness campaign • Delayed until Q2 2016 – awaiting enactment of legislation

• Recommend changes to legislation to enhance supervisory powers where issues are identified

• Identify key issues arising in client asset landscape

• Recommend changes where warranted

• Delayed until Q2 2016 - awaiting enactment of legislation

Improve compliance by focusing on key enforcement priorities

• Advance enforcement cases to deliver on Enforcement Strategy

• Bank to continue to use its enforcement powers to bring enforcement cases to an acceptable outcome

• Enforcement cases progressed and brought to an acceptable outcome in line with the Bank’s Enforcement Strategy

Refer also to Table – Regulatory Actions

• Publicise enforcement priorities for themed reviews and inspections including prudential issues, systems and controls, consumer issues and anti-money laundering

• Determine 2014 Enforcement Priorities following consultation with supervisory divisions and publicise Enforcement Priorities in conjunction with the 2014 Programme for Themed Reviews and Inspections

• 2014 Enforcement Priorities determined and published following consultation with supervisory divisions – 25 February 2015


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• Ensure strong enforcement against Lower Impact firms

• At least 25% of administrative sanctions cases to relate to Low Impact or Medium Low Impact firms

• 55% of administrative sanction cases settled during 2014 related to Low Impact or Medium Low Impact firms.

• Monitor the standards of Fitness and Probity required by the regulatory regime

• Further review and updating of all documents and guidance relevant to the Fitness and Probity regime

• Advice and assistance provided in relation to new guidance on Fitness and Probity Amending Regulations (SI No 394 of 2014)

• Advice and assistance provided in relation to Fitness and Probity regime for credit unions also authorised as retail intermediaries

• Updates of Fitness and Probity documents and guidance were carried out in accordance with SSM

• Continue to provide training and advice to divisions within the Bank

• Training and advice provided on an ongoing basis in relation to Fitness and Probity matters as required

• Ensure the results of enforcement actions are publicly available (Refer also to Annual Performance Statement – Regulatory Actions Table)

• Publish publicity notices re enforcement actions taken on the Bank’s website

• Publicity notices published on the Bank’s website following the entering of settlement agreements

• Provide details of regulatory actions taken in the Annual Performance Statement

• During 2014, the Bank entered into 11 settlement agreements and 9 supervisory warnings were issued

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

• Provide training on additional powers in new legislation

• Training provided as necessary

• Reporting requirements for regulated firms to be incorporated into new Regulation

• Reporting requirements incorporated as necessary

Influence decision making and policy development through active participation in the EU Supervisory Bodies

• Engage with new European framework for banking supervision

• Actively participate in SSM Supervisory Board and relevant work streams

• 22 Supervisory Board meetings attended (including teleconferences)

• Attended inaugural SSM Supervisory Policies Network (SPN) meeting – 11 November


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• Substantial work programme undertaken to prepare for SSM, including the restructuring of Banking Supervision and increasing resources

• Ongoing engagement with the European framework including

º Membership of the SSM Supervisory Board

º Active participation in other SSM networks (e.g. Senior Management Network on Less Significant Institution supervision) within the SSM

º Active engagement in Comprehensive Assessment workstreams

º Continued involvement in EBA groups, including SCOP

• Take a leading role in the implementation of EU funds regulation and the achievement of a level playing-field in the area of funds supervision

• Active participation in key EU institutions

• Bank holds the Chair of ESMA’s Investment Management Standing Committee (IMSC) responsible for supervisory convergence and regulatory implementation for the funds industry

• Bank staff play an active role on the IMSC and its Operational Working Group

• Take a leading role guiding industry on EU funds regulation

• Bank staff gave 8 industry speeches and participated on 6 industry panels discussions

• Bank engaged regularly with industry participants and representative bodies

• Provide support to Bank’s representative at the European Systemic Risk Board (ESRB)

• Prepare briefings for Bank’s representatives at meetings of ESRB

• Briefings provided as requested.

• Respond to ESRB consultation papers

• There were no ESRB consultation papers in 2014

• Participate actively on behalf of the Bank at meetings of EU Supervisory Bodies

• Attend meetings of the Supervisory Authorities including, as appropriate, the Managing Boards

• Bank participated actively at meetings of EU Supervisory Bodies – 22 meetings attended (including teleconferences)

• Bank elected onto the ESMA Management Board during 2014

• 8 ESMA BoS meetings attended in 2014

• 8 EBA BoS meetings attended in 2014

• 9 EBA BoS teleconferences attended in 2014


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• Significant and frequent engagement with the EU bodies -

º Membership of the SSM Supervisory Board

º Active participation in other SSM networks (e.g. Senior Management Network on Less Significant Institution supervision) within the SSM

º Active engagement on Comprehensive Assessment workstreams

º Continued involvement in EBA groups, including SCOP

• Participate in working groups and respond to Consultation Papers

• Participated and responded as appropriate

• 7 EBA SCRePol meetings attended in 2014 and 2 conference calls

• 8 EBA SG & WS on Liquidity meetings and 10 teleconferences attended

• 5 EBA SG on Own Funds meetings (and 1 teleconference) attended

• 9 EBA SG on Covered Bonds & Securitisations meetings attended; 2 days Public Hearings

• 2 EBA TF on Leverage Ratio meetings attended in 2014

• 4 EBA TF on Large Exposures meetings attended in 2014

• 1 EBA TF on ECAIs meeting attended in 2014

• 2 Joint Committee on Financial Conglomerates meetings attended in 2014 and two teleconferences

• 1 EBA Network on Equivalence meeting attended in 2014

• 8 EU Council Working Party (Banking Structural Reform) meetings attended in 2014

• Attendance at and participation in EIOPA working groups


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High Level Goal 4 - Resolution of Financial Difficulties in Credit Institutions


Oversee the Financial Measures Programme (FMP)

• Execute the FMP in alignment with EBA Stress Tests in 2013 (Note: BSA and other financial sector reform deliverables completed, as agreed with the External Partners)

• Stress Test (PCAR) deferred until 2014 (in line with SSM/EU-wide developments)

• Completed in line with both EBA and SSM methodologies and requirements – November 2014

• Stress Tests to be completed in 2014 as part of EU-wide EBA stress test and in conjunction with ECB SSM Comprehensive Assessment (incorporating an AQR, Risk Assessment and the above referred Stress Test)

• Results of the CA including AQR and Stress Test results were published as part of the European wide 2014 Stress Test – November 2014

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

• Impose targets on banks to meet a series of increasingly demanding quarterly targets in 2014 with a view to substantially resolving the problem of mortgage arrears by year end

• Complete - targets set during year covered all quarters to end December

• MART audits will continue in 2014 in addition to a number of targeted inspections which will focus on non-engaging borrowers, late arrears, legal processes and Buy-to-Let portfolios

• System-wide audit completed – Q2

• Audit of 2 banks commenced – Q4

• Ensure that mortgage lenders have appropriate and effective solutions for borrowers in arrears

• MART audits to continue in 2014 in addition to a number of targeted inspections

• As above

• MARS Steering meetings to be scheduled

• 8 Steering meetings convened in 2014

• Communications strategies to be determined in accordance with monthly progress updates throughout 2014

• Ongoing – driven from actions captured at Steering meetings

• Review of MART to take place in 2014 to consider targets and any changes needed

• Completed – targets imposed to December 2014


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• Regulatory focus on ensuring that the guidelines are embedded in 2014 – year-end financial statements for 2013 will inform the Bank’s strategies in this regard

• Completed

º Extensive engagement through 2013 Balance Sheet Assessment process and subsequent follow up for 2013 year end

º Further engagement with the banks during 2014, with the AQR aspect of the CA of crucial importance

Targeted file reviews to remain a feature of 2014 engagement

• Milestones set towards moving distressed loan books towards sustainable resolution

• Focus will centre on -

º seeking to evidence progress across all distressed loans and clear sight of time bound processes to move from ongoing forbearance

º where loans have been restructured, supervisory effort will centre on back-testing the durability of solutions

• Governance included monthly MARS/MART Steering meetings and quarterly Commercial Credit Panel Reviews, presentations to SRC and Commission and post-Programme monitoring sessions

• Public targets set for MART throughout 2014 and targets set in relation to commercial loan portfolios

• Progress included MART Audits, back-testing of Commercial restructures, examining operational effectiveness, etc.

• Continue to review forbearance and loan modification techniques put forward by mortgage lenders

• Regulatory focus on ensuring that the guidelines are embedded in 2014 year-end financial statements for 2013 will inform the Bank’s strategies in this regard

• Progress included MART Audits, back-testing of commercial restructures, examining operational effectiveness etc

• Publish quarterly mortgage arrears statistics and consumer based research to ensure transparency

• Publication of mortgage arrears statistics

• Quarterly arrears statistics published

Small & Medium Enterprises (SME) Arrears Resolution

• Require the banks to develop and implement resolution-focused strategies for dealing with SME debt appropriately

• Focus in 2014 to centre on ongoing progress against targets, where appropriate

• All banks have made progress in moving Commercial NPLs from repeat forbearance to pathways likely to lead to resolution

• Proactive supervision to include back testing the durability of solutions

• Loan file back testing conducted – Q4

Resolution of Credit Unions

• Continue the development and implementation of a strengthened regulatory framework for credit unions

• As set out in HLG3 • As set out in HLG3


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• Work with ReBo to facilitate the ongoing time-bound restructuring and resolution of the credit union sector in line with the Bank’s restructuring and resolution policy

• Interact with ReBo in relation to credit unions identified as requiring restructuring or stabilisation

• Met regularly with ReBo to discuss restructuring matters

• 8 transfers of engagements completed involving 19 credit unions

• Consider any stabilisation plans that have been approved by ReBo and submitted to the Bank to identify if they should be approved in accordance with the relevant legislative provisions

• No stabilisation cases received from ReBo to date

• Participate in the work of ReBo, as a non-voting member of its board, to facilitate restructuring of the sector

• Deputy Registrar participated in the work of ReBo as a non-voting member of its board and attended monthly board meetings

• Oversee consolidation/mergers within the sector

• Take pre-emptive action on identified weak credit unions and undertake a targeted programme of asset reviews

• Asset reviews carried out in nine credit unions

• Seek restructuring, stabilisation and resolution of identified credit unions, as appropriate

• 2 applications made by the Bank to the High Court to transfer 2 credit unions – Q1 & Q4

• 1 application made by the Bank to the High Court to approve the appointment of a Provisional Liquidator to a credit union – Q3

Judicial Review (JR)

Affidavits

• Affidavits sworn by the Applicants - 27 March 2014

JR Hearing

• Full hearing of JR commenced - 1 April 2014

• Applicants withdrew JR proceedings on 8 April

• Implement a tailored Fitness and Probity Regime for the credit union sector

• Complete implementation of tailored Fitness & Probity Regime for credit unions with assets greater than €10m

• Fitness & Probity update provided to credit unions setting out details on requirements from 1 August 2014 for Controlled Functions and information on other Fitness & Probity matters – Q2

• Implementation of tailored Fitness & Probity regime for credit unions with total assets greater than €10m completed – Q3

• Consultation on Fitness and Probity regime for Credit Unions that are also authorised as Retail Intermediaries completed and feedback statement published – Q4


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High Level Goal 5 - Protection of Consumers of Financial Services


Mortgage Arrears • Conduct themed inspection of lenders’ compliance with Code of Conduct on Mortgage Arrears (CCMA)

• Conduct a themed inspection on compliance with revised CCMA and follow up actions where required

• On schedule - on-site work commenced - Q4


• Attend meetings of the Supervisory Authorities, including, as appropriate, the Managing Boards

• Joint Committee Sub-Committee Consumer Protection and Financial Innovation: 3 meetings attended

• EBA Standing Committee Consumer Protection and Financial Innovation: Consumer Protection Director appointed Chairman of SCConFin – September - 5 meetings attended

• EBA Sub Group Consumer Protection: 5 meetings attended

• EBA Task Force on Virtual Currencies: 5 meetings attended - work of Task Force completed – Q2

• EBA Task Force on Payment Services: 3 meetings attended (2 by teleconference)

• EIOPA: Committee on Consumer Protection and Financial Innovation (CCPFI): 6 meetings attended

• ESMA IPISC Main Committee: 5 meetings attended

• IPISC Task Force: 5 meetings attended (2 via teleconference)

• Participate in working groups and respond to consultation papers

• JCSCCPFI: contributed to Joint EBA/ESMA

• Guidelines on Complaints Handling published - 25 August

• Issued response confirming compliance or intention to comply ahead of 27 October deadline

• Comments provided on

º JCSCCPFI consultation paper on cross-selling

º discussion paper on PRIIPs

º 2015 Work Programme

• EBA SCConFin: Responded to questionnaire on Product Oversight & Governance

• Comments provided on EBA Work Programme 2015


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• EBA SGCP: Participated on four work streams

º Mortgage Credit Directive (MCD)

º Payments Accounts Directive (PAD) transposition

º Remuneration requirements for the banking sector

º Remuneration requirements for sales staff

• EBA Task Force on Virtual Currencies: Input into the Opinion on Virtual Currencies and published on Bank website – completed June

• EBA Task Force on Payment Services: Input provided to consultation on security requirements for internet payments

• ESMA: Publication of discussion and consultation paper regarding MiFID/MiFIR 2

• ESMA: Survey - Cross Border reporting of complaints - completed May

• ESMA: Opinion on Structured Retail Products published on Bank website and circulated to all firms - 16 April

• EIOPA: input into all opinions, questionnaires and discussion/consultation papers issued by the Committee on Consumer Protection and Financial Innovation (CCPFI) including

º Product Oversight & Governance

º Complaints handling guide

º Conflicts of interest

º Product intervention powers

º Annual consumer trends report

• Responses provided to FISC Note on Crowdfunding and MiFID

Enhance the consumer protection framework

• Complete Switching Code review

• To be reviewed in conjunction with transposing EU Payment Accounts Directive (PAD)

• PAD published July 2014 with transposition deadline of September 2016

• Introduce a regulatory process for debt management firms

• Analyse responses to public consultation (2013)

• Following two public consultations (2013 and 2014), additional consumer protection rules applying to Debt Management Firms published in November 2014 (effective date January 2015)


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• Finalise and publish additional conduct of business rules for debt management firms

• Information booklet for consumers also published

• Commence review of SME Code

• Enhancements to the Code to be identified from the Bank’s planned themed review and input from stakeholders

• Extensive pre-consultation work undertaken including targeted themed inspection

• Develop framework for consumer redress schemes

• Establishment of a redress model that is effective and flexible

• Customer Redress Model developed and established – Q2

• Input into EU Directives and participation on key European Supervisory Authority (ESA) consumer protection committees

• Continue to participate and influence discussions on EU Directives as necessary, including national transposition of recently agreed Directives

• Continued work in participating and influencing relevant discussions at EU and ESA level on consumer protection matters

• Particular focus on transposition work on

º Mortgage Credit Directive (MCD)

º PAD

• Assisted Department of Finance and engaged in ESA work associated with

º the Packaged Retail and Insurance-based Investment Products (PRIIPS) Regulation

º MCD

º PAD

º Payment Services Directive (PSD2)

º Insurance Mediation Directive (IMD2)

º MiFiD2

• Ongoing involvement with ESAs and various sub-groups throughout 2014

• PRIIPS: Joint Committee of ESAs published a discussion paper in November which will feed into development of Regulatory Transactions Strategy (RTS) for Key Information Documents (KIDs)

• Cross-selling: Joint Committee of ESAs published a Consultation Paper and draft guidelines for cross-selling practices in December 2014 (ESMA mandate under MiFID 2)

• PAD: Provided input into EBA draft guidelines to Member States on establishing a list of representative services linked to a payment account and subject to a fee - Consultation Paper published November 2014

• PSD: Taskforce on Payment Services - finalisation of Guidelines on Security of Internet Payments (This will be a mandate under PSD2)


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• MiFID and MiFIR: Consultation Paper published December 2014 following publication by ESMA during 2014 of Discussion Paper on the draft RTS and Implementing Technical Standards (ITS)

• Following publication of a Consultation paper in 2014, ESMA delivered advice to the Commission in December 2014 on the MIFID 2 Delegated Acts

º SGIP published technical advice on criteria and factors for intervention on structured deposits under MiFIR

º EIOPA’s CCPFI drafted technical advice in relation to PRIIPs and IMD1.5

Ensure that consumers are treated fairly by financial institutions

• Conduct a series of themed reviews/inspections – publish list

• Publish annual list

• Review banking, investment and stockbroking firms and publish findings

• Completed

• Findings & Guidelines published - 25 July

• Compliance with Professional Indemnity Insurance Requirements - Complete themed inspection (commenced 2013)

• Completed – Q2

• Compliance with Capital/Solvency Requirements - Complete themed inspection (commenced 2013)

• Completed

• Sale of Pensions Policies - Complete phase 2 work on inspection and report on research conducted on approved benefit statements of personal pension plans (commenced 2013)

• Phase 2 completed

• Compliance with Code requirement to produce annual statements for pension policies and to report on the findings on customer research into the quality of annual statements

• Completed - findings reported on in May

• Property Insurance Claims Handling - follow up on issues identified (findings issued Q4 2013)


• Provision of information to consumers by MiFID firms - undertake a specific themed inspection to assess whether information provided on fees and charges is clear, fair, and not misleading

• Completed with industry guidance and information release issued to firms – Q4


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• Monitor the completion of the review of past sales of Payment Protection Insurance (PPI)

• Confirm completion and satisfaction with PPI Review by the 11 firms and publish final report


Low Impact firms (retail intermediaries, payment institutions and moneylenders) – deal with emerging risks in each sector

• Develop regulatory framework for each sector

Payment Institutions Sector

• conduct review of efficiency and effectiveness of authorisation process for sector

• Deferred to 2015 given proposed establishment of centralised Gatekeeper Function within the Consumer Protection Directorate

• Continue to implement PRISM

• PRISM tasks completed

• High level review of strategy • Deferred to 2015 to incorporate outcomes from Peer Review and IMF review

• Conduct review of debt management firm application documentation and guidance notes


• Conduct inspections of newly-authorised debt management firms on risk based analysis


• Continue development and implementation of automated passporting process

• Preliminary work was undertaken on these projects

• Desk based sectoral review of compliance with advertising rules

• Completed desk-based Sectoral Reviews of Compliance with Advertising Rules

º CCD – H1

º Debt Management Firms – H2


• High level review of strategy • Deferred to 2015 to incorporate outcomes from Peer Review and IMF review

• Conduct inspections of newly authorised Retail Intermediary firms on risk-based analysis


• Use risk-based approach to manage issues

• All issues triaged using a risk based approach

• Continue development and implementation of automated application, revocation, post authorisation and passporting processes for the sector

• Preliminary work was undertaken on these projects

Moneylenders

• Ongoing-risk based supervision

• Annual licensing process completed

• ASP case concluded against 1 firm

• Revocation of licence of 1 moneylender appealed by firm to IFSAT, and Bank decision to revoke upheld


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• Seek to raise compliance standards by providing enhanced compliance support to the moneylending sector

• First Moneylender Industry Newsletter published – September

• Ongoing liaison with representative body

• Prudential monitoring via on-line returns

• Continue to monitor returns and follow up on issues identified to ensure timely resolution

• All issues identified from online return are followed up on and triaged on a routine basis

• Revise the Handbook of Prudential Requirements for Authorised Advisors and Restricted Intermediaries

• Publish feedback statement and revised Handbook

• Published feedback - Q1

• Handbook published - 1 July (Effective date 1 October - 3 month lead-in time given to investment intermediary firms)

• Conduct a number of regional roadshows for retail intermediaries

• Publish 3 Newsletters and Special Editions

• 3 Intermediary Times newsletters issued

• Hold 3 road shows • 2 Roadshows conducted (Dublin and Athlone) – Q4

Engagement with key stakeholders

• Further develop the role of the Consumer Advisory Group (CAG)

• Continue to develop the role of CAG

• Review of operation of CAG undertaken resulting in more structured meetings focusing on strategic issues

• Develop relationships with the NCA and MABS and other consumer stakeholders

• Development and implementation of new stakeholder strategy in 2014

• Devised and implemented revised stakeholder strategy, which resulted in clear delineation of roles & responsibilities, enhanced information exchange and response times to issues exchanged mutually

• Developed system to formally record and report risk issues


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High Level Goal 8 - Operational Efficiency and Cost Effectiveness


Implement Regulatory Transactions Strategy

Improve quality of process

• Deliver improved and automated processes for authorisations, passporting revocations and acquiring transactions

• Automate QIAIF authorisation process

• Automation delayed due to significant technical issues

• Automate Funds authorisation process


• Automate Funds Service Providers authorisation process


• Automate Retail Intermediary authorisation process


• Further develop Contact Management Operating Model that will handle queries from RFSPs and the public

Procured new 3rd party service provider – Q4

Improve quality of service

• Implement and publicly measure external service standards, including target turnaround times

• Publish performance against Fitness and Probity Service Standards

• Performance against Fitness and Probity Service Standards published with the Bank exceeding targets in 7 out of 8 categories

• Introduce service standards for the authorisation of new RFSPs and publish performance against same:

º Banks, Insurers and Investment Firms and Regulated Markets

• Measurement of performance against standards commenced

• Performance against standards published with Bank exceeding targets in all categories

º QIAIFs • Measurement of performance against standards undertaken

• Performance against standards published with Bank exceeding targets in all categories.

º Funds and Fund Service Providers

• Measurement of performance against standards undertaken

• Performance against standards published with Bank exceeding targets in all categories

º Retail Intermediaries, Payment firms, Bureaux de Change and Moneylenders

• Measurement of performance against standards undertaken

• Implement on-line portal with improved information, guidance and media content

• Improved guidance (including online tutorial videos and how-to guides) for automated authorisation process

• Postponed due to delay in automation of the authorisation process

• Implement self-service information management model

• Introduce online self-service for administrative changes for certain regulated entities

• Postponed due to delay in automation of the authorisation process


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Appendix 2 – Prudential Supervision Engagement Process 2014PRISM ENGAGEMENTS Banking Insurance Investment

Firms &

Fund Service

Providers

Payment Institutions

Credit Unions

Full Risk Assessment (Supervisory Review and Evaluation Process (SREP))

9 9 19 17

Risk Governance Panels 10 17 23 18

Meetings with Chief Executive Officer (CEO)

60 139 62 1

Meetings with Chief Financial Officer (CFO)

29 111 49 1

Meetings with Chief Risk Officer (CRO) 44 80 36 1

Meetings with Chairman 39 92 41 1

Meetings with Senior Non-Executive Directors (NEDs)

8 76 35 1

Meetings with Internal Auditor 27 25 14 1

Meetings with External Auditor 19 91 42 1

Board Meeting Attendance 8 8 2

Attendance at Board Committees 3

Meetings with other Senior Management 169 174

Meetings with Actuary 70

Other On-Site Meetings 49 38

Meetings with Board Independent Non-Executive Directors (INEDs)

18 111

Meetings with Group NEDs 3 21 1

Meetings with Compliance Officer 28 55 1

Financial Risk Review (FRR) 26 46 4

Other (not incl. FRR meetings) 26 11

Reviews/Inspections 24 13

Meetings with Supervisory Committee 6

Thematic Review 3 5 5 2

Authorisation Team Meetings 1 2

Other Meetings (not as part of engagement model)

44 20 5 1 121

1-day engagements 5 98

Other Reviews – non-PRISM 10 14

Other –

• ICAAP Review 11 37

• Stress Test 11 18 2

• SSM Engagement Meetings 43

• Other Engagements 28

TOTAL 751 1,229 389 10 270


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International Peer ReviewSection 32M of the Central Bank Reform Act 2010 requires that the Bank carries out an international peer review of its regulatory performance at least every four years. The first such reviews were progressed during 2014 in the areas of credit institutions supervision, credit union supervision, insurance supervision, markets supervision and consumer protection.

Credit Institutions SupervisionIn February 2013, the Bank formally requested the IMF to conduct a detailed Report on Observance of Standards and Code (ROSC) based on the Basel Core Principles for Effective Banking Supervision (BCPs). A ROSC assesses a country’s observance of internationally recognised codes and standards.

A review was performed by the IMF in late 2013 to assess Ireland’s compliance with the BCPs. The report, which was published in May 2014, concluded that the Bank had reached an overall satisfactory level of compliance as it had taken substantive steps to rebuild its reputation and functions in financial regulation and supervision. The steps included, inter alia,

• Changes to senior staff

• Increases in the quantity and calibre of supervisory staff

• Design and implementation of a proactive and intensive approach to supervision

• Expansion of prudential requirements and improvement of enforcement powers.

Notwithstanding this overall conclusion, the IMF identified four issues as ‘materially non-compliant’ with the BCPs. Of these four issues, the Bank was directly responsible for two:

• Supervisory Techniques and Tools

In relation to the finding on Supervisory Techniques and Tools, the IMF raised concerns regarding the intensity of the Bank’s supervision of banks categorised as Medium Low or Low Impact under the PRISM methodology. In response, the Bank reviewed the distribution of resources and supervisory tasks across Medium Low and Low Impact credit institutions as part of implementation and changes arising from the commencement of the SSM. This resulted in an increase in resources being applied to these Lower Impact banks, both in direct ongoing supervision and in resources applied for onsite inspections.

• Related Party Transactions

With regard to the identification of materially non-compliant issues on Related Party Transactions, while the Bank did not fully agree with the IMF’s conclusion, it undertook an evaluation of related party transactions. The review, which will conclude in 2015, will look for any potential risks outside the scope of the current Code and amend the Code subsequently if required.

The two other issues identified were primarily legislative issues and were a matter for the Department of Finance.

Credit Union SupervisionIn 2014, the International Credit Union Regulators’ Network (ICURN)25 agreed in principle to undertake a credit union peer review in 2015. The basis for that review will be the ‘ICURN Guiding

25 ICURN is an independent international network of credit union regulators formed in 2007, with members drawn from over 30 countries and jurisdictions, including Ireland, other EU countries (e.g. UK, Poland and Lithuania), USA, Canada and Australia. ICURN facilitates the sharing of information and positions of common interest among financial cooperatives, initiates research on financial cooperatives and their oversight, identifies best practices and provides direct access to an exclusive forum for issues critical to sound credit union regulation.

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Principles for Effective Prudential Supervision of Cooperative Financial Institutions (2011)’, which have been developed using the Basel Committee on Banking Supervision’s Core Principles for Effective Banking Supervision as a guide. The ICURN peer review team is due to conduct the on-site element of the review in Q2 2015 and will meet with the Bank and credit union sector stakeholders as part of their on-site work.

Insurance SupervisionIn November 2014, the IMF performed a review based on the Insurance Core Principles (ICPs) issued by the International Association of Insurance Supervisors (IAIS). This followed a formal request from the Bank to conduct a detailed Report on Observance of Standards and Code (ROSC).

The IMF Detailed Assessment of Observance of ICPs (DAR) issued in draft format in December 2014 and the Bank submitted its ‘Authorities’ Response’ reflecting on the findings and recommendations contained in the DAR to the IMF also in December 2014. The full DAR, including the Authorities’ Response, has yet to be officially published by the IMF through their website.

The report identified five issues as ‘partly observed’, the most significant of which are:

• The draft DAR report concluded that the Bank has made significant progress in updating the regulatory regime and the impending implementation of Solvency II will address most of the regulatory gaps noted in the assessment. However, the importance of addressing the significant challenges faced by the Bank in attracting and retaining supervisors along with enhancing its independence, was highlighted by the IMF.

• While the Probability Risk Impact Supervisory System (PRISM) has significantly improved supervision of insurers with High/Medium High impact ratings, the Bank is advised to review the supervisory risk appetite underpinning PRISM, including potential reputational risks.

• Going forward, the effective implementation of SII and group-wide supervision, supported by a more proportionate supervisory approach under PRISM hinges on the adequacy and quality of supervisory resources of the Bank.

• The Bank should review the PRISM framework, particularly with respect to the one-size-fits-all reactive approach adopted for Low Impact insurers

Markets SupervisionThe Bank formally requested the IMF to conduct an assessment of Ireland’s level of compliance with the International Organisation of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation (the Principles) in 2013. These Principles set out the broad framework for the regulation of securities and represent one of the key standards and codes highlighted by the G20 Financial Stability Board as critical to the existence of sound financial systems. The Bank welcomed the publication in April 2014 by the IMF of the ‘Detailed Assessment of Observance: IOSCO Objectives and Principles of Securities Regulation’.

In view of the substantial changes in the regulatory regime in Ireland over the last four years which involved (i) increased staff numbers, (ii) extensive internal reorganisation and capability building and (iii) the introduction of a risk-based supervisory framework, the report provided a timely examination of Ireland’s legislative and supervisory framework in relation to markets regulation as assessed against the Principles. The IMF assessment confirms high levels of compliance with the requirements.

In total, the IMF made 29 recommendations. Twenty of these were addressed to the Bank. The remaining nine recommendations are addressed to external bodies and the Bank has highlighted in writing to these bodies the specific IMF recommendations. Some of the key areas that fall within the ambit of the Bank include:

• The Bank should make more use of on-site inspections for all types of market intermediaries.


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• The regime that applies to entities that have issued their securities to the public where their securities are not admitted to trading on a regulated market needs to be strengthened.

• The Bank should also pursue the use of all its available enforcement authority, including criminal prosecutions, where appropriate.

• There are impediments to the Bank’s ability to attract and retain high-calibre staff.

Some of the main areas which have been highlighted to external bodies include:

• Aspects of the legal provisions regarding the governance structure of the Bank raise concerns about its independence.

• The Bank lacks the power to appoint administrators to investment firms in the event of financial

difficulties within the firm.

Consumer ProtectionDuring 2014, a review of the Consumer Protection function was carried out by the Netherlands Authority for the Financial Markets (the AFM). The G20/OECD High Level Principles on Financial Consumer Protection (2011) were used as a reference point for the review. The outcome of the review was published in March 2015.

The report acknowledged the strong collective drive of fulfilling the function’s goal of ‘Getting it Right for Consumers’ and recognised the achievements in the protection of consumers to date.

The AFM identified a number of areas for consideration by the Bank in the context of the development and evolution of its consumer protection strategy including:

• Product Governance and Oversight

• Strategic Planning and Outcome Measurement

• Problem Based Approach

• PRISM Model

• Prioritisation, Capacity and Planning

• Low Impact Firms (Intermediaries) and Enforcement

• Compliance Motivation and Corporate Culture.

The Bank will, during 2015, carefully consider the recommendations emerging from the review.


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Regulatory Performance Plan 2015IntroductionThe Bank’s Regulatory Performance Plan for 2015 sets out the work objectives for the year that are framed against the Strategic Plan’s objectives and actions.

The High Level Goals of the Strategic Plan 2013 – 2015 that relate to the Regulatory Performance Plan are:

• Proper and effective regulation of financial institutions and markets

Regulation of institutions and markets is undertaken through assertive risk-based supervision that is underpinned by credible enforcement deterrents.

• Resolution of financial difficulties in credit institutions

Embedding recovery and resolution plans in banks, credit unions and other financial institutions is a vital component of sustained economic recovery in Ireland.

• Protection of consumers of financial services

Consumer protection strategic priorities strengthen and maintain protection for consumers of financial services.

• Operational efficiency and cost effectiveness

Efficiency and cost effectiveness underpin the Bank’s operations. Operations are also conducted within well-defined risk management and control frameworks.

Appendix 3 sets out the planned actions and measures for 2015.

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Proper and Effective Regulation of Financial Institutions and Markets Credit Institutions

Influencing SSM Supervisory Decision-Making and International Regulatory Policy DevelopmentThe Bank will continue to build on the positive start in the SSM and its ongoing engagement at the EBA by being an active participant at all levels of engagement (from Supervisory Board through to Senior Management Networks and Working Groups) and inputting into the further development of, for example, the SSM Supervisory Manual.

The Bank will engage proactively with appropriate stakeholders such as:

• EBA

• External Partners

• Banking and Payments Federation Ireland (BPFI)

• Department of Finance

• Other NCAs.

Macro Financial RisksThe Bank will continue its engagement with the External Partners Post Programme monitoring and financial sector reform, including monitoring of bank lending arrears and introduction of corrective action if needed.

It will continue to drive progress on the resolution of non-performing loans (including, mortgage and commercial lending) through, inter alia:

• A programme of inspections

• Review and challenge of banks non-performing loans resolution strategies, provision adequacy and specific risk areas (e.g. BTL, legal process)

• Monitoring of performance of banks versus agreed NPL resolution metrics.

Conducting an Effective, Proportionate Risk-Based Approach to Supervision in line with Required Standards and Strategic Aims The Bank will ensure all regulated firms are classified under PRISM/iMAS methodologies. Scheduled engagement tasks are completed and all risk mitigation plans are issued and continue to implement and embed the new supervisory methodology (for SIs and LSIs banks). Working within the SSM, the Bank will: deliver SREPs for SIs, hold requisite RGPs and develop and deliver approach for greater oversight of risks in LSI banks.

Supervisory resources will be managed in line with the SSM methodology and the supervisory process will be kept under review to ensure its effectiveness; it will be supported by strong analytics backed by credible data, and insightful analysis.


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Recovery and Resolution Planning (RRP) Progressed The Bank’s supervision and resolution resources will work together in order to agree and implement a proportionate approach to RRP for LSIs through :

• Reviewing and challenging Recovery Plans

• Progressing resolution planning and early intervention policy

• Engaging with SSM MS DGIV Crisis Management Division.

Credit Union SupervisionIn 2015, supervisory focus will continue to remain on ensuring credit unions transition their governance, management and operational structures and systems to adapt to the higher standards now required of them. The Bank will expand its supervisory focus in 2015 to include specific attention on Low Impact credit unions using a calibrated engagement approach proportionate to the size and complexity of their business activities and risk profile.

Momentum will continue to be applied in the voluntary restructuring process through the Bank’s work with both ReBo and credit unions. The Bank will also deal with credit unions with a weak financial position including taking resolution action if necessary. In all cases the Bank will seek to protect members’ savings and the financial stability of the sector overall in line with its statutory mandate.

In summary, the Bank will continue to focus on:

• Risk-based supervision underpinned by a credible threat of enforcement – focused on strengthening governance, compliance and risk management within credit unions.

• The continued development of a strengthened policy framework for credit unions through appropriate enhancement of regulations ensuring protection of members’ savings, maintaining the stability of the sector and promoting the prudent development of the sector.

• Provide support necessary for credit union resolution by facilitating credit union restructuring and resolution where required.

Insurance SupervisionPRISM Engagement Plan

The high level plan for 2015 is to deliver an appropriate level of supervisory engagement that addresses the main risks faced by the firms while ensuring capacity exists for the full implementation of Solvency II. This will include the completion of Engagement Tasks and the holding of Risk Governance Panels (RGPs) for all firms in accordance with an agreed review cycle. In addition, the Bank will review key issues, in accordance with their internal protocols/procedures, primarily to assess and challenge probability risk ratings/rationale entered into PRISM, with a focus on key risks and the forward agenda within the insurance firm.

The Bank will conduct a series of detailed pricing and reserving reviews during 2015 with a particular focus on non-life domestic firms. These will be designed to complement the introduction of the new reserving standards introduced in 2014 and will seek to ensure that non-life firms are paying sufficient attention to the continued need for pricing discipline given the challenging operating environment.

Solvency IISolvency II will be a key focus for the industry and for the Bank in 2015. The Bank will seek to ensure that it successfully implements the new Solvency II regulatory framework and embeds the Solvency II principles, framework, culture and reporting requirements.

In addition, the Bank will work closely with industry on a collaborative basis for 2015 to ensure there is a full understanding of the Bank’s requirements for Solvency II throughout the industry.


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Actions to be undertaken in this regard will include:

• Identification and implementation of required changes to current processes, systems, structures and resources.

• Ensure the Bank will be properly prepared for the transition to full Solvency II implementation on January 1, 2016. This will include:

o Amendment to the current engagement model with companies

o Updating Regulatory Guidelines to ensure they reflect the Solvency II requirements

o The implementation of the new on-line reporting system for the new Solvency II regime

o Develop and train staff and amend structures to implement and operate the new framework.

Solvency II - ProjectsTogether with the delivery of the overall Solvency II project, the Bank will develop, undertake and complete the following projects during 2015:

Internal Models

The desired outcome of this project is compliance by the Bank with the requirements of the Solvency II Directive, Level II and Level III text and Preparatory Guidelines in relation to an assessment of internal models in the SII pre-application process.

This project includes the performance of an assessment of the required number of internal models in the pre-application process as follows:

o For internal models where the Bank is the Lead regulator, perform full review according to tests and standards in the SII Directive, Level II, Level III and guidelines.

o For internal models where the Bank is the Host supervisor, perform a conceptual review of the overall model and a detailed review of the local parameterisation, use test and governance.

o Where applicable, liaise with regulators in other countries by attending Colleges and on-site reviews.

o Provide Decision Committees with sufficient information and support to enable assessment of the relevant applications.

Supervisory Review Process (SRP)

This project seeks to develop and embed a Solvency II SRP into PRISM and the Bank’s operational policies & procedures. This project includes:

o An assessment and documentation of the differences between Solvency I and Solvency II frameworks. This will be achieved by the development of a detailed set of guidelines that reflects the new regulatory framework.

o In addition, the Bank will develop and agree a new PRISM module and engagement procedure for each of the new guidelines and ensure that all supervisory staff are fully aware of, and trained in, the new guidelines and PRISM tasks.

Online Reporting for Companies

The Bank is currently working on a new Online Reporting system for the companies it supervises. The new system is intended to give the Bank the ability to receive and validate new reporting templates required under Solvency II from supervised companies. It is planned that the capability will be defined during 2015.


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Stakeholder EngagementsRegulator-to-Regulator Engagement

Bilateral and multilateral supervisory meetings and cooperation with other regulators play a key role in the effective supervision of regulated (re)insurance undertakings and hence European and global financial stability. These will continue throughout 2015 and have added importance with the Solvency II implementation.

Engagement with EIOPAThroughout 2015, the Bank will continue to engage in Supervisory Colleges as part of its programme for group supervision. It will also continue its work with insurance companies seeking approval for their internal models for Solvency II.

Engagement with IndustryThe Bank will continue its regular ongoing interaction with the insurance industry throughout the year with an increasing number of briefings planned for industry companies and INEDs on Solvency II.

Scheduled meetings will be planned with stakeholders. In addition, the Bank will speak at several industry conferences and the Director of Insurance is scheduled to speak at the European Insurance Forum and a further event organised by Financial Services Ireland.


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Markets Supervision Investment Firm and Fund Service Provider SupervisionThe Bank will continue to raise standards of compliance and culture in investment firms and fund service providers in 2015 through (a) programmed supervisory engagements under PRISM, (b) reactive supervisory interventions, (c) monitoring of regulatory reports filed via the online reporting system and (d) a programme of themed inspections.

Themed Inspection ProgrammeThe programme of themed inspections will focus on

• Cyber Security / Operational Risk - Inspection of controls and procedures around system security and access.

• Integrity of Regulatory Returns - Review of firms’ regulatory reporting.

• Treatment of Pricing Errors for the Calculation of Fund NAVs - Examination of the processes for the treatment of pricing errors and the payment of compensation.

• Depository Oversight - Review of depositary oversight of investment funds including the depositary’s annual report to investors.

• Proprietary Trading - Reviewing the governance and control environment for MiFID firms trading on their own account.

• Conduct of Business - Review of selected MiFID conduct of business requirements.

• Suspicious Transaction Reports (STRs) - Follow-up on previous themed-inspection from 2013 related to market discipline in filing STRs.

• Person Discharging Managerial Responsibilities (PDMRs) - Review of policies and practices in relation to notification of relevant trading activity by persons discharging managerial responsibility in listed firms.

• Risk Management in UCITS - Examination of the on going application of risk management processes employed by UCITS.

Client Asset Regulations and GuidanceIt is envisaged that the Client Asset Regulations and Guidance for Investment Firms and the Investor Money Regulation and Guidance for Fund Services Providers will be enacted in the first half of 2015. The transition period for investment firms will be six months and for fund service providers will be 12 months from the date of enactment.

European Market Infrastructure Regulation Following completion of the consultation process commenced in 2014, a supervisory approach for non-financial derivatives counterparties will be implemented in 2015 and preparations made for the commencement of additional obligations in relation to the clearing and margining of over-the-counter (OTC) derivatives contracts.

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Alternative Investment Fund Managers Directive (AIFMD) ReportingA reporting window in which registered AIFMs, authorised AIFMs and non-EU AIFMs marketing their AIFs in the EU were required to submit returns for AIFMD reporting purposes took place throughout January 201526. Over 150 firms submitted returns during this period. The Bank will begin transmitting data collected via these returns to ESMA in Q2 of 2015 and this data will also be analysed internally by the Bank.

ICAVThe legislation supporting the Irish Collective Asset-management Vehicle (ICAV), a new form of fund structure, commenced in March 2015. In anticipation of this new legislation, the Bank prepared a new authorisation framework which went live within two weeks of the commencement of the legislation. Given the attractiveness of ICAV, particularly to US fund promoters, the Bank expects a significant number of ICAV authorisations this year, some of which will be conversions from existing fund structures.

26 Where the AIF is a Fund of Funds, this period may be extended by the AIFM by 15 days.

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Policy, Risk and GovernancePrudential Banking Policy Principal actions planned for 2015 will include:

• Policy, technical and administrative support to the Deputy Governor in his role as Member of the SSM Supervisory Board and as a Member of the EBA Board of Supervisors.

• Participation on the SSM Policy Network and related working groups and contributing to the development of SSM supervisory policy.

• The provision of technical advice to the Department of Finance on the further development of Irish and EU banking legislative frameworks, including, inter alia, the Asset Covered Securities Act, CRR/CRD IV and Banking Structural Reform.

• The provision of policy advice and training solutions to support the embedding of CRR/CRD IV into banking supervisory policy.

Prudential Insurance PolicyPrudential insurance policy initiatives and developments in 2015 will include the Bank’s participation in a number of Working Groups and Sub-Groups, focusing on the development of Pillar I, II and III requirements and the development of the EIOPA supervisory handbook. Continuing support will be provided for the embedding of the Solvency II preparatory phase into ongoing supervisory processes and for the provision of training on Solvency II requirements.

Technical advice will be provided to the Department of Finance on the transposition of the Solvency II Directive and on the development of related primary legislation. Continued support, briefings and advice will be provided to the Bank’s Member of the EIOPA Board of Supervisors.

Markets PolicyFollowing an examination of the rules and conditions imposed under UCITS legislation, it is planned to publish a consolidated UCITS Rulebook in the first half of 2015. Having also reviewed the regulatory requirements imposed on investment firms, the Bank will consult with industry on the Investment Firms Regulatory Requirements during the same time period.

EU & InternationalIn 2015, the Bank will monitor and liaise with key EU bodies such as the EC (Directorate General Financial Stability, Financial Services, and Capital Markets Union) and the European Parliament (ECON committee). Resources will also be focused on influencing European policy initiatives in the areas of Accounting, Governance, Auditing, Corporate Reporting, Disclosure, Fitness and Probity, and Remuneration. Through its continued participation in relevant ESA & SSM working groups, the Bank will contribute to the development of European Risk Assessment Frameworks. During 2015, EU and international information and intelligence gathering and analysis will continue on regulatory developments for dissemination to a range of internal and external stakeholders.

The Bank will continue to engage with internal and external stakeholders in order to influence the development of standards and guidance. It is a member of the Board of the Irish Auditing and Accounting Supervisory Authority (IASSA) Board and the IOSCO Committee 1 on Issuer Accounting, Audit and Disclosure. Moreover, it will engage with standard setters in local and other jurisdictions in respect of audit, governance and accounting matters (Chartered Accountants Ireland, Prudential Regulatory Authority, the International Accounting Standards Board, etc.).

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Audit and AccountingAudit AssuranceThe Bank will support the framework for seeking Audit Assurance over Internal Governance functions within Regulated Financial Service Providers by providing oversight and assistance in respect of the provision of Auditor Assurance over Internal Governance for 2014 and engagement with stakeholders on the scoping and development of proposals for 2015.

Auditor ProtocolA review of the operation of the Auditor Protocol will be conducted. The review process will include a roundtable with Auditors and Supervisors to discuss the Protocol and areas of mutual interest. Recommendations arising from the review will be presented to the Bank’s Supervisory Committee and Deputy Governor.

Loan Loss ProvisioningA review of the 2013 Impairment Guidelines will be undertaken to ensure consistency with the Final EBA ITS on ‘Supervisory Reporting on Forbearance and Non-Performing Exposures’ and recommendations will be reported to the Bank’s Policy Committee.

Client Asset RulesThe Bank will liaise with Chartered Accountants Ireland on completion of Technical Standard addressing the revised requirements for auditors, as set out within the revised Client Asset Regulations and Guidance.

GovernanceThe following summarises the principal governance issues that will be addressed by the Bank during 2015:

• Corporate Governance Code for Credit Institutions and Insurance Undertakings

Liaise with Supervision on matters of policy interpretation with respect to the Corporate Governance Code and maintain a database in respect of derogations from the Corporate Governance Code.

• Corporate Governance Code for ManCos and CIS27

Following the 2014 review and the conclusion of policy recommendations arising from CP86 on Fund Management Company Effectiveness-Delegate Oversight, engage with the IFIA to update the current Corporate Governance Code for ManCos and CIS.

• Corporate Governance Code for Investment firms27

Perform an analysis of the adequacy of the current Corporate Governance requirements for investment firms, develop a Consultation Paper and present to Policy Committee for approval and subsequently present findings and proposed draft code for investment firms to the Commission.

• Risk Appetite

A forum will be facilitated to discuss practices with respect to preparing and monitoring risk appetite statements.

27 Authorised fund management companies (ManCos) and Collective Investment Schemes (CIS)

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Fitness and ProbityDevelopments will be monitored to provide input for amendments to the current PCF list to the Bank’s Policy Committee.

Probability Risk and Impact System (PRISM)Suggestions for new or amended functionality to the PRISM framework will be analysed and proposals for improvements will be made where relevant. Support and training will be provided for users of PRISM, enhance the quality of information on and reports available from the system, and provide input to planning and test management for data change projects that interact with PRISM. To support supervision, ongoing in-depth analysis of aspects of financial sectors, products and behaviours will be conducted and seminars to disseminate output for supervisory staff will be convened.

Supporting SupervisionThe Bank will conduct in-depth analysis of aspects of the financial sector’s products and behaviours and convene seminars to disseminate output for its supervisory staff; senior management will also be provided with assurance on the practical implementation of PRISM and the quality of supervision.

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EnforcementThe Bank will continue to advance appropriate cases through the Administrative Sanctions Procedure (ASP) to settlement or Inquiry or Assessor (under the separate administrative procedure provided for under securities markets legislation) or internal decision maker stage. It will also continue to ensure that outcomes of its enforcement actions are transparent, promoting key enforcement messages.

The Bank’s advancement of enforcement cases will continue to support the PRISM engagement model across the Low to High Impact-rating spectrum. In particular, this will remain a key support for the effective supervision of lower impact-rated entities where there is not an active supervisory relationship. Where circumstances warrant it, action will be taken 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.

Anti-Money Laundering, Countering the Financing of Terrorism (AML/CFT)The Bank intends to conduct 32 inspections in 2015 and will continue to conduct AML/CFT risk evaluations. Information collated from these engagements will enable the Bank to further refine its evaluation of AML/CFT risks posed in individual firms and across the various financial sectors. These actions will be followed by the publication of a number of thematic/sectoral reports, which will outline the Bank’s observations from these engagements and the Bank’s expectations in terms of compliance with the Criminal Justice Act 2010 and management of AML/CFT risk.

In 2015, the Bank will continue to respond to reports of unauthorised activity and will consider, in particular, any AML/CFT risks posed by this activity.

The Bank will continue to authorise and supervise (for the purposes of AML/CFT) trust or company service providers which are subsidiaries of credit or financial institutions.

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Resolution of Financial Difficulties in Credit Institutions In parallel with the SSM, a Single Resolution Mechanism (SRM) is being introduced for the same participating member states including Ireland. Under SRM, responsibility for resolution matters will be vested in a new Single Resolution Board (SRB) based in Brussels. For participating states, national resolution fund contributions by banks will be progressively mutualised over an eight-year period from 1 January 2016 into a new Single Resolution Fund (SRF). The Bank, as Ireland’s National Resolution Authority (NRA), will work closely with the SRB on resolution matters.

In 2015, the Bank will continue to keep the momentum in the voluntary restructuring process through its work with both ReBo and credit unions. It will also deal with credit unions with a weak financial position including taking resolution action if necessary. In all cases, the Bank seeks to protect members’ savings and the financial stability of the sector overall in line with its statutory mandate.

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Protection of Consumers of Financial Services In line with its Outlook Strategy and the 5C’s framework, the Bank’s main priorities in 2015 for consumer protection are outlined below.

The Bank will continue to work with the Department of Finance in highlighting the views that the protections borrowers currently have when they get into difficulties meeting mortgage repayments, should remain in place if their mortgage is sold to a third party. Consultations will take place on the protections in place for SMEs when accessing credit and how they are dealt with when they get into financial difficulty.

Engagement will take place with firms’ boards and senior management to ensure that there is a clear focus from the top on embedding and measuring the firms’ own cultural change programmes. Boards and senior management will be challenged to demonstrate the outcomes being delivered for consumers including their internal consumer protection risk frameworks, governance arrangements and implementation and monitoring of performance metrics based on a comprehensive understanding of their customers’ experiences, behaviours, and needs. The Bank will ensure firms respond appropriately to the Bank’s 2014 guidance on appropriate variable remuneration arrangements.

A number of themed reviews and inspections will be undertaken to support the delivery of the consumer protection objectives under the priorities identified. This will include monitoring of mortgage lenders' compliance with the CCMA and work on responsible lending, the sale of products on an execution-only basis, and the sale of long-term products. Also, supervisory work will focus on firms that are not meeting the minimum standards in terms of complying with reporting and other obligations to the Bank.

The Bank will ensure the right business model, with the proper product oversight and governance is in place in the firms it supervises. It expects all firms to demonstrate that their products are fit for purpose - going beyond ‘tick-box’ and disclosure to ensuring they are fully understood by their customers and are suitable for meeting the needs of their customers.

Systems failures and errors will continue to be monitored. This will ensure that firms are delivering on their obligations to ensure that consumers are kept fully informed of the issues (and that the impact on the consumer is dealt with appropriately in a timely and correct way).

Further research will be carried out on both consumers and industry. The Bank will continue to proactively analyse evidence-based data from consumer protection market intelligence in order to inform priorities. This research will also help inform the wider market of emerging consumer issues. It will continue monitoring market developments through the various channels and commence public reporting on trends in the market.

The Bank will consider the findings of the Netherlands Authority for the Financial Markets (AFM) Peer Review Report, with a view to ensuring that the Bank is meeting its objectives and delivering on its mandate in the most effective way.

Finally, the Bank will remain active in contributing to and influencing the European and international legislative agendas for consumers.


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Operational Efficiency and Cost EffectivenessRegulatory TransactionsIn 2015, the Bank will continue its programme of initiatives to improve the efficiency and effectiveness of its Regulatory Transactions Framework.

A project to automate and streamline the process for authorising Qualifying Investor Alternative Investment Funds (QIAIFs) will be progressed. Once these new processes are implemented, service standards will be introduced which set out the timescale within which applications for authorisation will be managed. Following the successful procurement of a third party service provider for contact management, the Bank will improve the efficiency of the query handling process.

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Appendix 3 – Performance Plan 2015

High Level Goal 3 - Proper and Effective Regulation of Financial Institutions and Markets

Strategy 2013-2015 Action 2015 PERFORMANCE PLAN

Planned Action 2015 Indicator (Target Date/Outcome)

Continue to implement and enhance a risk- based approach to supervision

• Deliver effective, judgement-based, outcome-focused supervision

• Continue to develop the risk-based approach to supervision, where necessary, for new regulatory requirements, e.g. Solvency II

• Ongoing

• Provision of supervision support to ensure best practice guidance for supervisors

• Best practice guidance for supervision to be provided following completion of supervisory reviews

• PRISM guidance will require modification to accommodate the requirements of Solvency II and the new SREP under Basel III

• Both to be in place for January 2016

• Provision of cross sector support to aid supervisors in understanding key macroeconomic risks in their sectors

• Research and analysis of emerging macroeconomic risks will be undertaken to enhance supervisory expertise

• Continue to develop reports to assist supervisors in the interpretation and analysis of prudential returns and key risk indicators

• Ongoing

• Allocate supervisory resources in accordance with probability/impact risk

• Review supervisory resource allocations for effectiveness of outcomes achieved and amend as necessary

• Ongoing

• Produce comprehensive Risk Mitigation Plans (RMPs)

• RMPs to be completed in accordance with PRISM/IMAS guidance and applicable timelines

• Ongoing

• Issue comprehensive RMPs to regulated firms following Full Risk Assessments (FRAs) and other inspections or as a special need is identified

• Ongoing

• RMPs for SIs will be managed and monitored in line with the SSM framework while RMPs for LSIs will continue under the PRISM framework

• Ongoing


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• Conduct regular reviews to maintain quality assurance of RMPs to ensure a consistent standard across supervisory teams

• Ongoing

• 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

• On-site business model reviews of SIs and LSIs scheduled

• Ongoing

• Reviews to be supplemented by cross sectoral and thematic analysis

• Ongoing

• Periodic business model reviews to continue during 2015

• Ongoing

• Undertake Financial Risk Reviews (FRRs) as agreed with Senior Management

• As required

• Complete Engagement Tasks as per PRISM requirements

• Ongoing

• Hold Risk Governance Panels (RGPs) for all Ultra High (UH)/ High and specified Medium High (MH), Medium Low (ML) Impact firms in accordance with plan

• As required

• Undertake FRAs for High, MH and ML Impact firms

• Ongoing

• Plan & conduct a schedule of engagement with investment firms and fund service providers in accordance with the PRISM engagement model

• Agree schedule - Q1

• Complete agreed schedule of engagement tasks – end-December

• Plan & conduct a series of themed reviews/inspections for investment firms and fund service providers to support the PRISM engagement model:

º Review of Client Categorisation under MiFID

• For completion – Q1

º Conduct of Business in MiFID firms

• Q3/Q4

º Treatment of fund NAV Pricing Errors

• Q2

º Managing Cyber Security/Operational Risk

• Q3

º Proprietary Trading • Q3

º Trustee fund Oversight • Q4


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Anti-Money Laundering

• Conduct 32 inspections • End 2015

• Produce 1 Thematic Report and 1 Sectoral Report

• End 2015

Strengthen the regulatory framework for financial institutions

• Oversee the implementation of new EU regulations, including

- Alternative Investment Fund Managers Directive (AIFMD)

• Online application forms to be completed as automation project progresses

• To be implemented throughout 2015/2016

• Complete AIFMD Implementation Project:

º ESMA testing and Go Live of Transmissions of AIFMD reporting to ESMA

º Create, update and test internal Cube reports for AIFMs

º Review of AIF compliance to be undertaken in 2015

• By end 2015

• By end 2015

• By end 2015

• Series of engagements planned for 2015 to assess the efficacy of the AIFMD process

• During 2015

• Irish Collective Asset Management Vehicle (ICAV) Bill 2014

• Implement an IT solution to automate ICAV work processes

• Enactment expected Q1 2015

• European Social Entrepreneurship Funds (EuSEF) & European Venture Capital Funds (EuVECA)

• Investigate impact of EuSEF & EuVECA and develop

º Approval/ application forms

º Guidance

º Reporting/ONR (assess any requirements)

• By end 2015

• Engage with Industry re new Authorisation processes for MiFID and Fund Service Provider (FSP) firms

• Engagement with industry to focus on

º feedback on new MiFID process

º Plans to align FSP authorisations to new MiFID process

• Q2 2015

• Q2 2015

• Complete the project to implement Solvency II Directive

• Complete the implementation of the Solvency II per the Project Plan

• 1 January 2016


100


• Identify and implement necessary changes to current processes, systems, structures and resources

• Ongoing

• Ensure the Bank is properly prepared for the transition to full Solvency II implementation - amend engagement model accordingly

• Ongoing

• Support and complete any preparatory tasks

• Ongoing

• Develop people and structures to implement and operate the new framework

• Ongoing

• Develop and complete projects

º Overall project delivery

º Internal models

º Supervisory risk process

º Reporting

º Data warehousing

º Provide appropriate training for staff

• Ongoing

• European Market Infrastructure Regulation (EMIR)

• Issue responses to Consultation Paper

• Q2

• EMIR Regulatory Return (ERR) in place with associated guidance

• Q2

• Arrangements in place to access trade repository data

• Q3

• Review of ERRs received • Q3 and Q4

• Meetings held with all NFCs and selection of large NFCs

• End 2015

• Thematic Review on selected compliance topic

• Q4

• Transposition and implementation of Capital Requirements Directive (CRDIV) / Capital Requirements Regulation (CRR) and development of associated Binding Technical Standards (BTSs) via EBA

• Potential amendments to the Implementation Notice to be considered to reflect balance of competences under SSM, and to incorporate discretions and options in CRD IV/CRR Level 2 instruments (i.e. delegated acts)

• Q2 2015

(Dependent on adoption of delegated acts under CRD IV/CRR by the European Commission and direction taken by SSM on national options and discretions under CRD IV/CRR)

• Continue to develop BTSs - attend meetings to develop BTSs, GLs, Reports, etc

• As per EBA 2015 Work Programme


101


• Transposition of the amended Financial Conglomerates Directive 2011/89/EU (FICOD) and development of associated technical standards and Guidelines

• Input into the development by Joint Committee of associated technical standards and Guidelines in 2015

• Industry presentation

• Ongoing

• Q1

Restore stability to the banking sector and facilitate prudent lending to households and SMEs

• Continue with the structured path of reform and downsizing for the domestic banking sector

• Business Model Review - coordinated monitoring and assessment of banks’ business models and risks to their viability and sustainabilty

• End 2015

• BMA on-site reviews scheduled for 2015

• As required

• Complete BMA of large domestic bank

• Q2

• Document Risk Mitigation Programme (RMP)

• Q2

• Domestic bank - Intensive engagement to continue on the bank’s business plans as part of the engagement regarding the EU Restructuring Plan and the outcome of the Comprehensive Assessment

• Ongoing

• Conduct individual elements of asset quality review as part of the SSM supervisory engagement plan

• End 2015

• Monitor continued resolution of distressed mortgage and commercial debt including:

º That sustainable solutions will be concluded for the vast majority of distressed mortgage borrowers

º Banks continue to meet the ‘terms being met’ target of 75%

º The requirements of the Consumer Protection Codes are being adhered to

• Ongoing

• End 2015

• End 2015

• Ongoing

• Carry out PCAR assessments and EBA stress testing in 2013

• Stress Testing to be an ongoing activity as part of reviewing and challenging banks’ own Stress Tests

(Stress Tests to be conducted in line with any future SSM methodology)

• End 2015


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• Inspections and risk analysis teams to perform individual elements of asset quality review as part of the SSM supervisory engagement plan

• End 2015

• Ensure the PCAR banks meet deleveraging, liquidity and capital adequacy targets

• Monitoring solvency and capital adequacy as part of Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP) risk assessments

• Q4 2015

• Monitor the focus in credit institutions on provisioning in relation to mortgage arrears resolution strategies, SME portfolio workouts

• Continue to assess and challenge strategies, implementation plans and operational capabilities with the objective of seeing continued evidence of progress in working out distressed debt across SMEs and mortgage portfolios - complete work on the 2014 year end

• Q1

• Progress in SME and mortgage workouts to be monitored against the targets set in 2013

• On-site reviews of SIs and LSIs to be conducted during 2015

• Evidenced-based testing to form part of the Bank’s engagement in 2015

• Credit risk inspections to be conducted during 2015

• Audits to be conducted against Mortgage Arrears Resolution Targets

• Credit risk inspections to be conducted during 2015

Implement an effective and efficient regulatory regime (Solvency II) for the insurance industry



• Ongoing



• Attend relevant Colleges/EU meetings

• Transition to new regulatory regime (Solvency II)

• Continue to monitor implementation of the preparatory guidelines

• Ongoing

• Embed Preparatory Guidelines into systems and complete collection of Solvency II financial information

• Prepare for Full Solvency II implementation in January 2016

• Desired outcome is to deliver capability to receive Preparatory Returns (June 2015) and full Solvency II returns (April 2016) from the insurance industry and to produce relevant Management Information reporting outputs for supervisory purposes and for the onward transmission of information to EIOPA as per Solvency II requirements


103


• Complete review of internal model applications submitted

• Ongoing

• Internal Model approval process

• Progress Pre-Application process with relevant companies

• Ongoing (Decision Committees to be completed in accordance with timetable, subject to companies providing documentation on time and of sufficient quality)



• Develop new Supervisory Review Process (SRP) and embed in PRISM

• Develop new procedures as necessary

• As required in line with Solvency II development

Develop a strengthened legislative and regulatory framework for the credit unions sector and a tiered regulatory approach

• Ensure the protection of members’ savings, maintain financial stability and promote the prudent development of the sector

• Implement differentiated engagement approach for credit unions within PRISM

• Ongoing

• Provide RMPs for credit unions identifying key risks, actions and outcomes required together with timeframes required to mitigate risks

• Ongoing

• Ensure that restructuring supports the stability of individual credit unions and the sector in the long term

• Proactively engage with and meet with ReBo in relation to restructuring solutions and related policy matters

• Voluntary Transfer of engagement completed Q4


• Ongoing

• Develop a Fitness and Probity framework appropriate for sector

• Publish updated Fitness and Probity regulations, standards and guidance for credit unions

• Complete the introduction of Fitness and Probity regime for credit unions

º Credit unions with assets of less than €10m

º Credit unions authorised as retail intermediaries

• Fitness and Probity requirements implemented for all credit unions and credit unions authorised as retail intermediaries - Q3

• Develop Prudential Rule Book

• Complete consultation and issue feedback statement on CP88 Consultation on Regulations for Credit Unions on commencement of the remaining sections of the 2012 Act

• Q3


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• Issue new regulations to be introduced on commencement of the remaining sections of the 2012 Act

• Q4

• Update Credit Union Handbook to reflect new regulations

• Q3

• Ensure a review of the Bank’s performance of its functions in relation to the credit union sector (Peer Review) is carried out as required under 32M (b) of the Central Bank Act, 1942

• Q2

• Issue Consultation Paper on provisioning framework for credit unions

• Q4

• Issue guidance on strengthened regulatory framework

• Update Credit Union Handbook to reflect new regulations

• Q3

• Regular communication with sector (e.g. Regulatory Forum)

• Engage with credit union sector stakeholders

• As required

• Produce 2 issues of Credit Union News

• Q1, Q3

• Issue Guidance Notes/Circulars

• As required

• Conduct information seminars on regulatory initiatives

• Q3

Ensure that market participants act in a fair and transparent manner

Corporate Finance

• 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

• Ensure that the quality of disclosure within prospectuses meets with the statutory requirements of the Prospectus Directive

• Ongoing

• Provide issuers with certainty of process (document review and timelines) and a straightforward capital raising path

• Review and approve prospectuses on a timely basis and within the timeframes set out in the Prospectus Advisor Agreement and/or legislation as appropriate

• Achieve 100% completion rate

• Publish statistical data on the following

º Number of prospectus approvals

º Number of passport requests (inward and outward)

º Number of final terms filed

• Data to be published in the 2015 Annual Report


105


• Maintain and enhance Ireland’s reputation as a jurisdiction of choice for prospectus review and approval

• Meet with stakeholders and gather feedback on the performance of the Bank’s prospectus scrutiny operation

• Participate in ESMA’s peer review of prospectus review processes

• Annual meeting in Q4

• End 2015

• Transposition and implementation of the amendments to the Transparency Directive

• Work with the Department of Finance in preparation of amendments to the Transparency Regulations

• Implement new Transparency Regulations requirements, including reporting obligations for major shareholders

• As required

• Q4 2015

Market Integrity

• Identify potential instances of market abuse

• Market monitoring systems - review market monitoring strategy

• Action reports of suspicious activity

• Recommendations from review implemented

• Ongoing

• Continue to contribute actively to consultations and development of new regulations at pre- and post-implementation stage

• Continue participation on Market Data Reporting Working Group (MDRWG) and its sub-groups (SG1 and SG2)

• Ongoing

• Enhance the reputation of the Bank with respect to the Market Abuse Directive

• Demonstrate continued effectiveness in investigation of suspicious transactions

• Enquiries/investigations completed as necessary

• Identify and substantiate, where possible, suspected breaches, so as to enable enforcement action

• Cases referred to Enforcement as appropriate

• Ensure successful sanctions and associated publicity to enhance Bank’s reputation for preventing market abuse and to deter further abuse

• As necessary

• Participate in selected supervisory inspections to examine compliance with the Market Abuse Regulations

• Report on Market Abuse related findings arising from supervisory inspections

• Follow up on findings of 2014 themed review

• Findings from themed reviews communicated to firms for remedial action

• Conduct 2 themed reviews • By end 2015

• Examine implementation of recommendations related to submission of Suspicious Transaction Reports (STRs) following 2013 inspection

• Report/follow-up on findings completed


106


Funds

• Develop an appropriate model of supervision for Low Impact entities, investment funds and fund service providers

• Continue to refine the effectiveness of the Funds supervisory model

• Ongoing

• Implement Collective Investment Scheme legislation governing UCITS V, AIFMD and any international developments on shadow banking, specifically money market funds

• UCITS V: work with Department of Finance on implementing Regulations

• Ongoing

• Work within ESMA in relation to ESMA guidelines on remuneration

• Ongoing

• EU Regulation on Money Market Funds - Provide support to the Department of Finance

• As required

• ELTIF - work with Department of Finance on implementing Regulations

• Ongoing

Protection of Client Assets

• Correlate client asset information to enable a risk-based approach towards the supervision of client assets

• Implement engagement plan

• Ongoing

• Put in place a client asset protection regime to achieve the three core objectives in the client asset requirements

• Publication of revised Client Asset and Investor Money Regulations

• Q1 2015

• Inform and educate industry & auditors regarding the client asset protection regime

• Hold workshops with investment firms & auditors

• Hold workshops with fund service providers

• Q2

• Q4

• Inform and educate the public regarding the protection regime applicable to their assets at each stage of the investment

• Public awareness campaign delayed until Q2 2016 – legislative delay

• 2016

• Recommend changes to legislation to enhance supervisory powers where issues are identified

• Identify key issues arising in client asset landscape

• Recommend changes where warranted

• Q2 2016

• End 2016

Improve compliance by focusing on key enforcement priorities

• Advance enforcement cases to deliver on Enforcement Strategy

• Bank to continue to use its enforcement powers to bring enforcement cases to an acceptable outcome in order to deliver on Enforcement Strategy

• As necessary

• Publicise enforcement priorities for themed reviews and inspections including prudential issues, systems and controls, consumer issues and anti- money laundering

• Determine 2015 enforcement priorities following consultation with supervisory divisions and publicise priorities in conjunction with the 2015 Programme for Themed Reviews and Inspections

• Q1


107


• Ensure strong enforcement against Lower Impact firms

• At least 25% of administrative sanctions cases to relate to Low Impact or Medium Low Impact firms

• Q4

• Monitor the standards of Fitness and Probity required by the regulatory regime

• Further review and updating of all documents and guidance relevant to the Fitness and Probity regime as required

• End 2015

• Continue to provide advice and support to divisions within the Bank

• As required

• Ensure the results of enforcement actions are publicly available

• Continue to publish publicity notices, regarding enforcement actions taken on the Bank’s website

• As required

• Continue to provide details of regulatory actions taken in the Annual Performance Statement

• End 2015

Influence decision making and policy development through active participation in the EU Supervisory Bodies.

• Engage with new European framework for banking supervision

• Attend SSM Supervisory Board meetings and relevant work streams, when required

• Ongoing

• Provide briefings for the Bank’s representatives at the SSM Supervisory Board

• Ongoing

• Participation in Supervisory Policies Network (SPN) 2015 meetings (incl. sub-group meetings) and associated work programme

• Ongoing

• Provide input into briefings for other SSM Committees (e.g. Methodology and Standards (MSD) Network meetings)

• Ongoing

• Provide support to Bank’s representative at the European Systemic Risk Board (ESRB)

• Provide briefings as necessary on the areas identified by the Bank’s representative on the ESRB

• As required

• Provide responses as necessary on the Consultation Papers provided by the ESRB

• As required


• Attend meetings of the Supervisory Authorities including, as appropriate, the Managing Boards

• As required

• Participate in working groups and respond to Consultation Papers

• As required


108

High Level Goal 4 - Resolution of Financial Difficulties in Credit Institutions



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

• Monitoring metrics to be put in place

• Q2

• Retail Credit Risk will form part of 2015 planned Credit Inspections

• As per planned 2015 Inspection Programme

• Ensure that mortgage lenders have appropriate and effective solutions for borrowers in arrears

• MARS Steering work to transfer to MARS Operations Committee in 2015

• During 2015

• Ongoing engagement with mortgage lenders to ensure effective solutions for borrowers in arrears

• Review mortgage lenders’ year-end financial statements for compliance

• Undertake Retail Credit Inspections focusing on target aspects of institution portfolios

• 2015 Inspection Programme completed in accordance with plan

• Continue to review forbearance and loan modification techniques put forward by mortgage lenders

• Undertake Retail Credit Inspections focusing on target aspects of institution portfolios

• 2015 Inspection Programme completed in accordance with plan

• Publish quarterly mortgage arrears statistics and consumer based research to ensure transparency

• Publication of arrears statistics

• Quarterly

Small & Medium Enterprises (SME) Arrears Resolution

• Require the banks to develop and implement resolution-focused strategies for dealing with SME debt appropriately

• Inspection of SME portfolios • 2015 Inspection Programme completed in accordance with plan

Resolution of Credit Unions

• Continue the development and implementation of a strengthened regulatory framework for credit unions

• As set out in HLG3 • As set out in HLG3

• Work with ReBo to facilitate the ongoing time-bound restructuring and resolution of the credit union sector in line with the Bank’s restructuring and resolution policy

• Proactively engage with ReBo in relation to restructuring solutions and related policy matters

• Ongoing


109


• Consider any stabilisation plans that have been approved by ReBo and submitted to the Bank to identify if they should be approved in accordance with the relevant legislative provisions

• As required


• Ongoing

• Oversee consolidation/

mergers within the sector

• Take pre-emptive action on identified weak credit unions and undertake a targeted programme of asset reviews

• Ongoing

• Seek restructuring, stabilisation and resolution of identified credit unions, as appropriate

• As required

• Implement a tailored Fitness and Probity Regime for the credit union sector

• Publish updated Fitness and Probity regulations, standards and guidance for credit unions

• Q1

• Introduce Fitness and Probity regime for credit unions

º with assets of less than €10m

º authorised as retail intermediaries

• Q3


110

High Level Goal 5 – Protection of Consumers of Financial Services



Enhance the consumer protection framework

• AFM Mutual Learning Exercise

• Consider content of AFM report

• Ongoing

• Conduct corresponding exercise with AFM

• Timetable to be agreed with AFM

• Credit Servicing Legislation

• Continue to work with Department of Finance on the Bill and implement regime as and when enacted

• As per legislative timetable

• Commence review of SME Code

• Publish Consultation Paper • CP published 11 January (closing date 13 April)

• Submissions to be analysed and final Regulations developed

• Q4

• Input into EU Directives and their transposition and participation on key European Supervisory Authority (ESA) consumer protection committees

• Continue to participate and influence discussions on EU Directives as necessary, including assisting national transposition of recently agreed Directives

• As required

• Continue to support the work of the Joint Committee and ESAs through attendance at meetings, membership of working groups and contributions to initiatives

• In line with ESA work programme

Ensure that consumers are treated fairly by financial institutions

• Conduct a series of themed reviews/inspections – publish list

• Publish Consumer Protection Outlook Report

• Q1

• Complete themed inspection of lender’s compliance with Code of Conduct on Mortgage Arrears (CCMA) and Publish findings of themed inspection

• Q2

• Commence themed review on responsible lending to examine the sale of credit products by the main lenders to ensure that consumers’ interests are being fully protected

• H2

• Follow up with firms to confirm that they are responding appropriately to the guidance sales incentives issued in July 2014

• Ongoing

• Commence themed review of Compliance with Professional Indemnity Insurance Requirements

• Q4


111


• Commence themed review of Compliance with financial position of retail intermediaries

• Q4

• Provide feedback to individual firms on the Sales of Pensions themed inspection

• Q1

• Review sale of certain long term financial products to ensure that firms can demonstrate compliance and are meetings the longer term needs of consumers

• Q3

• Identify high risk areas of concern for execution only sales and implement bespoke regulatory plan to mitigate risks

• Commence Q2

Low Impact firms (retail intermediaries, payment institutions and moneylenders) – deal with emerging risks in each sector

• Develop regulatory framework for each sector

• Establish centralised Gatekeeper Function within Consumer Protection Directorate

• Q1

• Complete project to enhance approach to Gatekeeper role

• Q4

• Complete PRISM Engaements

• Ongoing

• Conduct thematic review of debt management firms compliance with the new regulations

• H2


• Conduct inspections of newly authorised Retail Intermediary firms on risk-based analysis

• Q4

• Focus supervisory work on firms that are not meeting the minimum standards in terms of complying with reporting and other obligations to the Bank

• Ongoing

• Implement risk based supervision

• Ongoing

• Publish Moneylender Industry Newsletter

• Q3

• Continue to engage with industry representative body

• Ongoing

• Prudential monitoring via on-line returns

• Continue to monitor returns and follow up on issues identified to ensure timely resolution

• Ongoing

• Conduct a number of regional roadshows for retail intermediaries

• 3 Intermediary Times to be published ( Special editions to be published as required)

• End 2015

• 2 Roadshows to take place in 2015

• End 2015


112


Engagement with key stakeholders

• Further develop the role of the Consumer Advisory Group (CAG)

• Appoint new member • Q1

• Continue to foster relationships with key stakeholders

• Continued implementation of stakeholder strategy

• Ongoing


113

High Level Goal 8 – Operational Efficiency and Cost Effectiveness



Implement Regulatory Transactions Strategy

Improve quality of process

• Deliver improved and automated processes for authorisations, passporting revocations and acquiring transactions

• Progress automating QIAIF authorisation process

• Ongoing

• Progress automating Funds authorisation process

• Ongoing

• Progress automation of Funds Service Providers authorisation process for delivery in H1 2016

• Ongoing

• Progress automation of Retail Intermediary authorisation process for delivery in H1 2016

• Ongoing

• New Contact Centre will become operational

• Q1 2015

Improve quality of service

• Implement and publicly measure external service standards, including target turnaround times

• Publish performance against Regulatory Transactions Service Standards (i) Fitness and Probity; (ii) Authorisations

• Q1 and Q3

• Retail Intermediaries, Payment Firms, Bureaux de Change Businesses and Moneylenders – publish performance report for Q4 2014

• Q1

• Implement on-line portal with improved information, guidance and media content

• Improved guidance (including online tutorial videos and how-to guides) for automated authorisation processes

• Q2 and Q4

• Implement self-service information management model

• Outline an implementation date

• Q3

• Review authorisation service standards

• The Bank and the Department of Finance will, in accordance with their respective legal roles, review the authorisation service standards reported by the Bank in 2015

• end 2015


114


Central B

ank of Ireland

Annual P

erform

ance Statem

ent - Financial Reg

ulation 2014 - 2015

Annual Performance Statement Financial Regulation 2014 - 2015

Banc Ceannais na hÉireann Bosca OP 559, Sráid an Dáma, Baile Átha Cliath 2, Éire

Central Bank of Ireland PO Box 559, Dame Street, Dublin 2, Ireland

Telephone +353 1 224 6278 Fax +353 1 671 6561 Web www.centralbank.ie Email [email protected]