"Financial regulation in a fast changing world" - Speech by Gerry Cross, Director of Financial Regulation: Policy & Risk, at IACT Annual Conference

17 November 2021 Speech

Gerry Cross

Speech delivered at Irish Association of Corporate Treasurers (IACT) Annual Conference


Good afternoon. It is a pleasure to speak at the Annual Conference of the Irish Association of Corporate Treasurers. Many thanks to the Association for the invitation.
The IACT is an important voice of key actors in the economy. As an integrated financial regulator for the Central Bank of Ireland the economy is at the heart of our mandate: the optimal functioning of the economy and the economic wellbeing of citizens.

At the Central Bank of Ireland we have recently published our new multi-year Strategy.1 The Strategy is the outcome of an intensive gerrprocess of analysis, consultation and engagement. We have looked at the current financial and economic landscape, likely developments over the next five years and beyond, and considered how we should position ourselves, prioritise our actions, and focus our efforts during that period to realise the opportunities and address the challenges that will arise.

Our Strategy lays the foundation for how we will prioritise our work over the next five years. It identifies four strategic themes for the Central Bank. Safeguarding: that is the fulfilment of our mandate to maintain price stability and financial stability and to ensure that the interests of consumers are secured. Future focused: in a world of rapid change we seek to understand the dynamics of change and to carry out our work in a manner that allows the benefits of such change to be realised while the risks are managed. Open and engaged: we will enhance our engagement with the full range of our stakeholders – citizens, consumers, and businesses including both those that we regulate and those that we do not. We want to improve the quality of our discussion with them so that we can better understand their challenges, concerns and perspectives and better explain our approach and what we are doing. And, fourthly, Transforming. We will change the way we operate to keep up and be successful in a changing world. We will be focused on being more agile, enhancing our skills and capabilities, and making even better use of technology.

The mission of the Central Bank is set out clearly in the Strategy. It is to serve the public interest by maintaining monetary and financial stability while ensuring that the financial system operates in the best interests of consumers and the wider economy. I am here today to discuss with you financial regulation. Financial regulation is there to ensure that the financial system operates in a manner that supports the effective – and of course sustainable – functioning of the economy and that contributes significantly to the economic wellbeing of citizens.

There are a number of topics that we could usefully discuss this afternoon. However, given time constraints let me focus on a few key issues: technological innovation, climate change, and individual accountability. But let me start with stakeholder engagement our revised approach to which we published last week as the Feedback Statement to our Consultation Paper 136.2

Stakeholder engagement

If we at the Central Bank of Ireland are to fulfil our mandate effectively two things are important: firstly that we have the best possible knowledge and understanding about the environment in which we carry out our responsibilities. For a central bank and regulator this is centrally important: to understand as fully as possible the context in which we operate and the likely impact of measures that we propose to take. And secondly, that we are able to communicate and explain as well as we possibly can what we are doing and the reasons why we are doing it. A very large part of policy success is driven by the extent to which those who are impacted by a particular policy, directly or indirectly, understand it and are able to internalise it in their own activities and approaches.

High quality stakeholder engagement is central to achieving these objectives. At the Central Bank we engage widely with stakeholders from a range of different perspectives. During the course of the last year we have been doing a review of how we carry out our stakeholder engagement to see if there are ways in which we can enhance it. We carried out a consultation exercise focused on Consultation Paper 136. We received a high quality set of responses. Over the recent weeks we have been considering these responses and as I have said we have just published our feedback statement on the consultation paper and are now moving to implement the new arrangements.

We will continue to reflect on the more granular, implementation-related feedback that we received as we implement these enhancements.

Amongst the enhancements that we will make are the following:

  • We are planning to enhance our engagement with consumers and the users of financial services. One important aspect of this will be to increase the role of the Central Bank Consumer Advisory Group – both in terms of the scope of its engagement and its membership. We will also enhance our engagement with civil society through our civil society roundtables;
  • Particularly relevant to participants in this conference, we will build further on our current engagement with business across the economy. In particular we will establish a forum that will bring together a wide range of business voices from across the economy;
  • We will enhance our engagement with the financial services sector by establishing an Industry Forum that will be chaired by the Governor. We will also set up sectoral engagement structures to deepen our discussions with different sectors and areas of financial services.
  • We will establish other initiatives to facilitate engagement with stakeholders on specific topics or themes. In a letter to Chairs and CEOs of regulated financial firms on our supervisory expectations concerning the management of climate risk, Governor Makhlouf indicated our intention to establish a new Climate Risk and Sustainable Finance Forum.3
  • And we will organise during 2022 our first Financial System Conference which will bring together the full range of stakeholders and interested parties to consider and discuss key features of financial regulation and oversight.


All well functioning markets depend upon innovation to be successful. Markets in financial services are no exception. They need innovation if they are to deliver on their role of optimally supporting the economy and the economic welfare of citizens.

It is a very positive thing therefore that we live in an age of rapid technological change and innovation. This brings significant opportunities for enhanced benefits for consumers and other users of financial services and for economic performance overall. It also brings challenges to be addressed and risks to be managed.

As I have mentioned, one of the four strategic themes set out in our recently published strategy is that of being future focused. A key aspect of this is how we will approach this context of rapid technological innovation. I would say that the role of a regulator is, within the scope of its mandate, to try to create the context in which the potential benefits of technological innovation for consumers, businesses and society can be realised while the risks are effectively managed.

It is in this spirit that we have operated our Innovation Hub over the past nearly four years as a facility whereby we can engage in an open and informal way firms and individuals involved in technological innovation. We have sought to provide them with a mechanism to engage with the Central Bank and to understand if there are regulatory aspects to their work and how to address those if and as they arise. During this period, we have had a significant level of engagement with innovative firms. While we have learned and gained a lot from these engagements, we hope and understand from the feedback we have received that they have too.

Through our engagements with firms at the Innovation Hub we have been able to observe trends and development of innovation in financial services. We are seeing that changes to the regulatory perimeter are driving enquiries. This year, for example, there has been an increase in enquiries from firms interested in the new Crowdfunding and Virtual Asset Service Provider (VASP) regimes.

In payments, we have seen enquiries focused on addressing issues in the increase in cashless payments. Enquiries have been both PSD2-related and, increasingly, e-money related. On crypto-related activities, we have observed growing activity reflecting greater institutional interest, a trend reflected in the wider market.

Regarding Regtech we have observed continued innovative activity in AML/KYC solutions, some of which leverage AI.

Finally, the recognition of climate risk as a source of financial risk has meant that, for both regulators and firms, the issue of how to accurately measure and manage this risk without a large bank of historical data is a challenge. The Innovation Hub has seen a growing number of firms developing climate-focused technology solutions which seek to strengthen capabilities around data collection, analysis and presentation.

Looking ahead, as legislation such as the Markets in Crypto Assets Regulation and the EU’s Artificial Intelligence Act, and initiatives on Open Finance and BigTech advance, we will expect and welcome an ongoing high level of enquiries to and engagement through the Innovation Hub.

More generally, we will continue to adopt an integrated approach to innovation which leverages our unique features as an integrated central bank and financial regulator and allows us to consider the issues from a variety of perspectives to come to overall optimal approaches.

In the area of payments for example, we will focus on how the payments system and payments services can best evolve to meet the needs of consumers and the economy while ensuring that the risks and challenges that might emerge – be they to financial stability, consumer interests, the clean functioning of the system etc – are effectively addressed. We will include in this integrated view such aspects as the consideration in our role as a member of the European System of Central Banks of the development of a Central Bank Digital Currency, the evolving European payments architecture and the drive for cross-border instant payments, the role and risks of crypto assets and tokens and their underpinning technology, the growing role of VASPs and CASPs, the benefits and challenges of decentralised finance systems.

We will focus on ensuring that consumer interests are secured and well-served in a context of pervasive digitalisation. In the Consultation Paper on our review of the Consumer Protection Code which we will be publishing next year, we will pay significant attention to making sure that consumers are able to achieve the benefits of highly digitalised financial services provision without finding themselves disadvantaged because of the speed and intangibility of the medium and the underlying complexity of arrangements.

It is not my aim here to set out all of the different aspects of rapid technological innovation that we will be considering. But rather to note that it is an area that will be a high priority for us in the period ahead and that we will bring to our work here as elsewhere the integrated approach deriving from the multiple aspects of our mandate that provides an important advantage.

The European context here is also very important. Technological innovation is a key theme across a large number of European and international bodies and entities. We will continue to engage impactfully across these authorities and bodies, continuing to provide thought leadership and influence reflecting both the integrated perspective that I have been describing and the role of Ireland as a significant financial services and technological jurisdiction.

Climate change

The third item that I want to discuss today is climate change and the approach that we are taking to this as a financial regulator.

Addressing the risks of climate change and supporting the transition to a carbon neutral economy forms a further significant component of our recently published multi year strategy. This means that climate change will be a central focus for us across our various mandates over coming years. Perhaps it is useful for me to set out the three important ways in which climate issues are relevant to our role as a financial regulator.

The first is that financial firms are materially exposed to financial losses associated with both the physical and transitional risks of climate change. Whether that be for example banks’ exposures to physical collateral located in areas subject to climate risk impact such as increased risk of flooding; or insurers’ exposure to storm, flood or fire risks, the science is now clear that these risks are being materially exacerbated by climate change. Equally importantly, we have seen clearly over the past 18 months how different industrial and commercial sectors can be very differently impacted by the combination of natural events and society’s response thereto. In the context of climate change it is clear that certain areas of activity will become economically unsustainable as we move to a net carbon economy, while others will have an investment risk profile that will be determined by how they respond to the changing political-economic imperatives. This means that it will be centrally important for financial firms to robustly internalise climate and transition related risks in their risk measurement and management arrangements, and as supervisors, we will be seeking evidence that this is taking place. (See our Supervisory Expectations letter to Chairs and CEOs mentioned above.)

Secondly, we are, as you all know, seeing significant investor and consumer demand for financial services that are very well aligned with the sustainability imperative. This represents a significant opportunity, but also a significant challenge for financial firms. The opportunity of course is to develop their product offering to reflect this green demand. The challenge is to ensure that in meeting this demand firms reinforce trust and confidence in the functioning of the financial sector. And do nothing to undermine those. There is an important opportunity to take significant strides to restore trust in the sector after the decline that was experienced following the financial crisis. On the flipside, if firms are seen to be seeking to exploit the opportunity in a way that does not reflect a real commitment to climate outcomes embedded in their actions and approach, then that will be a significant failure exacerbated by the scale of the issues at stake here.

And thirdly under Green Deal legislation, the financial sector and financial regulators, have been tasked with a key role in delivering the funding of the transition to a sustainable economy. Without the necessary funding, the net zero goal will not be achieved. For us in Europe, this ambition can be met in large part through the implementation of the European Commission’s Action Plan and Renewed Strategy on sustainable finance, published respectively in 2018 and July this year, to facilitate the transition to a sustainable economy. A key part of these plans is about identifying and disclosing climate risks, essentially seeking to provide a tool to ensure that in deciding on their investments, investors are able to see clearly both the risks and the impacts associated with their investment options. For regulators this means that we will be required to enhance our own impact and evolve our skill sets to make us better at climate-related supervision.

For economic actors seeking funding in the market, the implications of this are clear. Firstly, the ongoing and accelerating move to carbon neutrality means that funding from or through the financial sector will increasingly favour activities that are in line with the European Green Taxonomy and with sustainability principles more generally. Secondly, demand for climate impact data from the corporate sector is strong and growing. The European Commission’s proposal for a Corporate Sustainability Reporting Directive embodies the “double materiality” principle of non-financial reporting by requiring European companies to report both on how sustainability issues affect their business but also on how their business impacts on people and the environment. It extends the scope of such reporting to a wide range of European companies and is currently under negotiation in the EU Council and European Parliament. It will significantly enhance the landscape for corporate reporting on sustainability issues.

Individual accountability

Finally, let me say a few words on the issue of individual accountability in the running of financial services firms. As you know, the Oireachtas is currently considering proposed legislation which will enhance the framework for governance and accountability in the financial sector. This legislation grew out of the Central Bank’s review of behaviour and culture in the retail banking sector.4 It is intended to support high quality governance and culture in the financial sector as a whole and is grounded in what should reasonably be expected from well-run firms.

There are four key components of the proposed legislation. These are:

  • Conduct Standards which set out the standards of behaviour expected of regulated firms and individuals working in financial services, with enhanced standards for senior executives;
  • A Senior Executive Accountability Regime (SEAR) which requires clarity as to where responsibility and decision-making lie for different aspects of a firm’s business, and the taking of reasonable steps to make sure that those responsibilities are fully discharged;
  • Enhancements to the current Fitness & Probity (F&P) Regime5 to strengthen the onus on firms to proactively assess individuals in controlled functions on an ongoing basis; and
  • An improved enforcement process, to ensure that we can pursue individuals for misconduct without first having to demonstrate a breach of regulation by the firm itself. The removal of the so-called “participation link”.6

These components will interact to incentivise positive behaviours and promote improved governance and culture within firms. They will provide a proportionate and predictable framework to help the financial sector fulfil its role of supporting the economy and serving the best interests of consumers and other users of financial services.

Importantly, we want to avoid a pendulum swing from an undue focus on the collective (the firm) to an overly-dominant focus on individuals in terms of standards and expectations. It is important that both aspects are in place and both apply in line with what should reasonably expected. To ensure the proper balance between the firm and individual accountability, the framework will include in the standards placed on individuals the expectation that they will contribute effectively to the collective decision making of the firm.


In conclusion, this is an important moment for the financial sector and for financial regulation. There are many challenges and opportunities inherent in the current economic context. The financial sector has significant role to play in ensuring that these challenges can be met and the opportunities taken. And financial regulation has an important role to play in creating the context in which this can be achieved. The Central Bank’s recently published multi-year strategy sets out how we in the Central Bank of Ireland will be approaching these and other issues over the coming period.

Thank you for your attention.

1 Central Bank of Ireland - Our Strategy

2 CP136 - Consultation on Enhancing our Engagement with Stakeholders

3 Supervisory expectations of regulated firms regarding climate and other ESG issues

4 Behaviour and Culture Report into Irish retail banks

5 The Fitness and Probity Regime applies to persons in key positions within regulated financial services providers (referred to in the legislation as controlled functions (‘CFs’) and pre-approval controlled functions (‘PCFs’)). The core function of the Fitness and Probity Regime is to ensure that persons in senior positions are competent and capable, honest, ethical and of integrity and financially sound.

6 Under the Administrative Sanctions Procedure, the Central Bank may only pursue a ‘person concerned in the management’ of a firm where (1) a case has first been proven against the firm, and (2) the Central Bank can then prove that the individual participated in a breach by the firm. This is often referred to as the “hurdle of participation”, which would be removed under the proposals in the Bill.