Central Bank of Ireland publishes Securities Markets Risk Outlook Report 2021

• Securities Markets Risk Outlook Report identifies key conduct risks to securities markets in the coming year
• External shocks, the transition to a greener securities market, misconduct risks and increasing complexity are identified as key areas that firms must manage
• Firms must ensure meaningful transparency, robust governance arrangements and enhance data quality

The Central Bank of Ireland has today (8 February 2021) published its first Securities Markets Risk Outlook Report. The Report details key conduct risks to securities markets and sets out actions firms should take in order to identify, mitigate and manage those risks. The Report also outlines the Central Bank’s supervisory priorities for securities markets in 2021.

The Report follows a year of significant global economic and financial uncertainty. It identifies a number of key areas that the Central Bank expects firms to address. These include:

• Impact of external shocks: firms are expected to stress-test their operations and plan for shocks, including those arising from COVID-19 and Brexit, based on plausible worst-case scenarios.
• The migration to a greener securities market: by financing initiatives and trends aimed at stemming the climate crisis, sustainable finance can play a key role in ensuring that securities markets aid a successful transition to greener economic activities.
• Increasing complexity: firms must take appropriate steps to manage the increasing complexity and fragmentation in securities markets.
• Ensuring meaningful transparency: it is essential that investors and market participants can make informed decisions based on available information and reliable pricing.
• Increased use of indices: firms must ensure they understand the risks and implications and be transparent with the market on their use.
• Misconduct risk: firms must identify, mitigate and manage misconduct risk, with a particular focus on the risk of market abuse.
• Governance: governance arrangements must be fit for purpose and properly resourced, including as businesses expand or change.
• Data quality: firms must take steps to improve the quality of the data used in their business and reported to the Central Bank.

The Central Bank has also planned a number of work items that relate specifically to the risk outlook published in today’s Report. These include an industry-wide review of compliance with the Market Abuse Regulation and further work arising from findings in its 2020 thematic reviews in the funds sector. The Central Bank will also continue its work with European Securities and Markets Authority (ESMA) and fellow EU regulators to progress Common Supervisory Actions in relation to UCITS (in the field of liquidity risk management and in costs and fees). This is in addition to the Central Bank’s ongoing trigger-based supervision of conduct risk in securities markets.

Colm Kincaid, Director of Securities and Markets Supervision, said, “How regulated firms and other market participants conduct themselves on securities markets has a powerful impact on trust in financial services. In this, the Central Bank of Ireland’s first Securities Markets Risk Outlook Report, we focus therefore on the key conduct risks where we expect firms to take concrete steps in 2021.

“Our work programme for 2021 will also reflect this risk outlook and the expectations we are setting today. Firms can expect us to challenge them on these expectations throughout 2021 and beyond, underpinned by the detailed rulebook that is in place and the range of powers available to us to enforce that rulebook.”