This is the first such report that the Central Bank will publish annually to complement sector-specific supervisory feedback issued through publications, consultative forums and conferences.

Risk Outlook
The Central Bank cited the high-interest rate environment, inflation, illiquid asset price corrections amid tighter financing conditions, geopolitical uncertainties, the extent of elections across the globe, the cost-of-living crisis, climate change, technology and the rapid pace of digital innovation as some of the macro-environmental factors driving risk in the financial system.
These risks have shaped the Central Bank’s financial regulation and supervision priorities for 2024 resulting in six overarching supervisory priorities set out below.

Overarching Supervisory Priorities
• Proactive risk management and consumer-centric leadership
The Central Bank expects to see regulated entities adapting their approach to take account of the (changing) scale and complexity of their business models; the changing operating environment and the increased risks and uncertainties facing firms while actively considering their customers’ interests.

• Resilience to the challenging macro environment
Firms should be resilient and prepared for macro environment risks, including the impact of potential interest rate rises, economic uncertainty and further deterioration in asset values.

• Addressing operating framework deficiencies
Deficiencies identified in governance, risk management and control frameworks (e.g. anti-money laundering/counter-financing of terrorism controls) should be addressed to ensure they are effective now and in the future.

• Managing change effectively
The Central Bank expects firms to keep pace with changes in the financial system and consumer needs and expectations through evolving business strategies. Cyber security, data security and the maintenance of customer trust will require ongoing investment and focus by firms.

• Climate change and net zero transition
Regulated entities should enhance their role in the transition to a net zero economy. The Central Bank will look at the materiality of the flood protection gap in Ireland and the risk of greenwashing in the promotion and sale of financial products to investors.

• Regulation and supervision
The Central Bank will continue shaping its supervisory approach to be more data-driven, agile and scalable.

Sectoral Supervisory Priorities
The six overarching supervisory priorities are supported by more detailed supervisory priorities for each segment of the financial sector over a two-year time horizon. These include:

• Banking
Banks’ abilities to manage their asset and liability risk, credit risk (including vulnerable asset portfolios), operational risk and consumer protection are seen by the Central Bank as fundamental. Banks will be subject to a thematic review on engagement with borrowers in, or facing, early arrears. Implementation of ESG supervisory expectations and remediation actions and progress towards enhancing ESG disclosures are also a supervisory priority for banks.

• Payment Institutions and Electronic Money Institutions
This sector is encouraged to address deficiencies in safeguarding, governance, risk management and control frameworks, conduct and culture, business models, operational resilience, and outsourcing. Such deficiencies might arise, for example, in cases where such a firm’s rates of growth and ambition have outpaced the firm’s operational, governance, compliance and risk management capabilities.

• Retail Credit Firms and Credit Servicing Firms
The Central Bank will look at how such firms engage with borrowers in, or facing, early arrears (under a thematic review). Other supervisory activities will include the authorisation process for new/transitional retail credit firms and the implementation of the EU Credit Servicing Directive. The Central Bank will focus on firms having the necessary processes and controls in place to engage with borrowers and manage loan books. These firms will also be challenged to resolve distressed debt.

• Insurance and Reinsurance
There will be a supervisory focus on the integration of climate change and sustainability considerations by (re)insurers and firms’ assessment of the materiality of their climate risk exposures, as outlined in the climate guidance issued by the Central Bank in March 2023. The Central Bank has indicated that it will review:
• Reserving assumptions considering higher inflation and interest rate scenarios.
• Governance and underwriting in sectors or business lines which have grown or changed in risk profile.
• Governance arrangements where third-country branches are used to conduct regulated functions or activities.
• Oversight of critical outsourcing relationships and maturity of operational resilience frameworks.
• Consumer protection risk management frameworks, health insurance renewal process, and customer service.

• Asset Management and Investment Funds
Key supervisory activities will include risk-based scrutiny and approval of prospectus applications, fund applications, fund service provider applications and new trading venues, European supervisory initiatives, EU Green Bond authorisations, thematic reviews and assessments, artificial intelligence, and market abuse.

• MIFID Investment Firms
The Central Bank will conduct risk assessments on (i) compliance and risk resourcing and effectiveness and (ii) IT and operational risk frameworks. There will also be a focus on the application of MiFID II marketing and advertising requirements and the integration of sustainability requirements in firms’ suitability assessments and product governance processes.