Central Bank invites feedback on discussion paper for macroprudential policy for investment funds

The Central Bank of Ireland is inviting feedback from stakeholders after today (Tuesday 18 July) publishing a discussion paper on an approach to developing a macroprudential policy framework for investment funds. 

The publication aims to advance the ongoing international and European discussions on how a macroprudential perspective in the regulation of the funds sector could be achieved. It outlines key considerations for developing and operationalising such a framework.

The size of the funds sector globally has grown significantly in recent years. It is playing an increasingly important role in the global financial system and real economy, and is also becoming a more important source of finance in Ireland.

Increased financial intermediation through the funds sector brings many benefits and supports economic growth. Like all forms of financial intermediation, however, the activities of the funds sector can also entail risks that, in certain circumstances, can become systemically relevant.  Recent episodes, including the COVID-19 shock, demonstrate the potential for certain cohorts within the funds sector globally to amplify adverse shocks.

A macroprudential framework for the funds sector would take a system-wide perspective and aim to ensure that this growing segment of the financial sector is more resilient to stresses and less likely to amplify adverse shocks. In turn, this would better equip the sector to serve as a resilient form of financing, supporting broader economic activity. This has been a key focus of work for the Central Bank of Ireland and policymakers globally.

Following the publication of this Discussion Paper, the Central Bank of Ireland is seeking feedback from stakeholders on a number of issues raised in the discussion paper to inform further analysis and policy work in this area. Feedback can be provided via a survey by 15 November 2023. The Central Bank will consider the feedback received and will publish a feedback statement next year.

Vasileios Madouros, Deputy Governor, Monetary and Financial Stability, said:  “As the financial system evolves, it is important that the regulatory framework also adapts. Developing and operationalising a macroprudential framework for the funds sector has been a priority for the Central Bank in recent years. This discussion paper intends to facilitate discussion and progress in this area internationally. The Central Bank is actively working with colleagues and institutions globally in this area and our aim is that the Discussion Paper will generate debate and focus attention on how a macroprudential perspective in the regulation of the funds sector could be achieved. We look forward to engaging with stakeholders on their views and encourage them to submit feedback to inform our work.” 

Notes to Editor

• The investment fund sector now represents approximately 17 per cent of all global financial assets in 2021. The investment fund sector grew from just over €18 trillion in 2008 to €72 trillion in 2021.Total assets of the NBFI sector in Ireland were €6.3 trillion as of end-2021, from €1.5 trillion in 2008. Investment funds accounted for around 80 per cent of that growth.
• Similar to global developments, the significant growth in the Irish funds sector during this period has been driven by both net inflows and valuation effects.
• Ireland is now one of the world’s largest hubs for investment funds at a global level.
• The Irish-resident funds sector is largely internationally-focused and includes a diverse range of entities, with a variety of business models and investment strategies.
• Ireland hosts the largest money market fund (MMF) sector in Europe, with assets totalling over €700 billion in the fourth quarter of 2022. Ireland is also host to the largest exchange traded fund (ETF) sector in Europe with total assets of over €900 billion.