Shocks and shifts – Regulation and Supervision in a changing world

Deputy Governor of the Central Bank of Ireland Mary-Elizabeth McMunn spoke this morning (Thursday) at the Institute of Bankers.

In her first speech in her new role Deputy Governor McMunn set out her perspectives on regulation and supervision, and the key part it plays in making sure the financial sector is operating in the best interests of consumers and the wider economy.

Speaking of the challenging environment, Deputy Governor McMunn said: “While recognising the resilience built and demonstrated by the financial sector in recent years, the backdrop, outlook and uncertainty we are all facing leaves no room for complacency. Given the pace of change and the extent of potential fragmentation, firms and regulators need to be prepared for short term shocks as well as long term shifts, for novel as well as traditional risks, and for resilience – both financial and non-financial – to be tested in different ways.”

Acknowledging the rapidly changing financial sector, Deputy Governor McMunn said: “In recent years our regulatory responsibilities, and the sectors we supervise, have evolved significantly to become bigger, more complex, more interconnected and more digital. Innovation, digitalisation, and an increasingly interconnected risk landscape, are reshaping the risk environment of the sectors we supervise and the consumers we work to protect

“Recognising this, we at the Central Bank have moved to a more integrated approach to supervision, with multi-disciplinary teams working together to deliver our supervisory priorities in a more effective and efficient way across our broad mandate." 

Speaking about the regulatory simplification agenda Deputy Governor McMunn said:

“As Europe looks to ensure its economy is productive and competitive into the future, there has been a lot of focus on the simplification of regulation. From a financial regulation point of view, simplification is an agenda the Central Bank of Ireland welcomes.

 “Regulators should always be open to reviewing and considering existing frameworks, and seeing if we can deliver the same outcomes in different, simpler, ways.

“Simpler standards should not, however, mean lower standards – and it should go without saying that simpler standards need to deliver the same outcomes.

“The simplification agenda, done well, can deliver that. Done badly, it will deliver more costs than benefits.

“The financial sector plays too important a role in the economy and in the financial wellbeing of our fellow citizens for us to jeopardise long-term stability in pursuit of short-term growth.

“We cannot sacrifice resilience on the altar of efficiency. The standards cannot become so simple that they do not address complex risks.  The burden on firms cannot be alleviated to the detriment of important information that regulators and the market need to do their jobs.

“This is not to say there aren’t areas where we can simplify requirements, obligations and approaches. Indeed there are. We know that not all criticism is false. Humility is one of our core values, and it is important for regulators to be humble and open – ensuring our regulatory frameworks are up to date, proportionate, and meet their intended outcomes. 

“In this regard, we have identified and implemented areas where we could simplify and reduce the burden, while maintaining the high standards rightfully expected of us and of firms.

“We will continue to remember – and remind others of – the lessons from past regulatory cycles and financial crises. This includes the importance of a strong regulatory framework, of broad-based resilience, of robust risk based supervision, and strong governance and culture in firms – not to mention the willingness of independent regulators to call out risks and to act.

“Financial systems, and the societies they serve, are at their most vulnerable when economic and regulatory cycles collide. When resilience is removed precisely when it is most needed. Or when vulnerabilities build, just as protections are removed.

“It is our job as good policymakers to ensure our regulations are proportionate and appropriate. But it is also our job as an independent central bank and regulator to call out the risks should simplification slide into de-regulation and lower standards.

“This is critical to ensuring that we do not compromise on delivering the stability, resilience and protections that consumers and the wider economy needs – and that the public has every right to expect.”

ENDS