“Remaining nimble when responding to new challenges and shifting landscapes will be critical as we face the future” – Governor Makhlouf

• The rapidly evolving nature of technology presents opportunities and risks for, businesses, regulators and the financial system – we all must ensure they are future-ready.
• Climate change is a significant risk that requires actions on the part of everyone in the financial sector, and the Central Bank will lead by example.
• Deputy Governor Ed Sibley highlighted the need to ensure the financial system is prudentially sound and responsive to emerging risks posed by technology.
• Central Bank to establish new Industry Forum chaired by Governor, and will host a regular Financial System Conference. 

Governor Makhlouf today (11 November 2021) delivered a keynote address at the 14th European Single Supervisory Mechanism (SSM) Roundtable. The Governor’s address, entitled “Innovation, disruption, and change: the Great Disintermediation”, focused on the changing landscape of the financial system, including issues such as the impact of climate change, technology and the need for firms and regulators to be future-ready.

Highlighting the shifting landscape, the Governor noted, “For financial services, technological developments around digitalisation, cloud technology and blockchain are driving change and innovation in ways we could not have imagined just a few years ago. In the realm of payments, we have seen an acceleration of digital transformation, with a surge in online transactions and contactless payments during the pandemic.”

Reflecting on the impact of these developments on consumer habits, the Governor said, “Consumer behaviour has also long been changing.” However, “the pandemic has accelerated the dynamics of change across the economy and financial system”. The Governor noted that while it is important to embrace the challenges posed by these innovations, he stressed the need to ensure they do not adversely impact financial inclusion. He said, “It is worth remembering that in embracing digitalisation, there are costs – in the inability of less-digitally advanced customers to access banking services, and the increased threat posed by cyber-attacks, for example.”

On the significant issue of climate change, Governor Makhlouf reiterated that “it is a reality we cannot ignore.” He said, “Greenwashing’ is an area I am particularly concerned about. ‘Green’ market practices are currently almost exclusively based on voluntary principles and standards, which leaves a lot of room for different interpretations. There is a spectrum of risks here from the accidental error to the deliberate misdeed.” Highlighting the Central Bank’s continuing proactive actions in this area, he emphasised that “we must all act now so we do not let the next generation down.”

The Governor also discussed the need to ensure operational resilience is robust in the face of emerging risks and disruption. He said, “The pandemic has led to a realignment in thinking. It is no longer a case of considering ‘what if’ disruptions occur, but rather ‘when’ disruptions occur.” He continued, “Firms must consider whether they have measures in place to limit the impacts of possible disruption and the capacity to maintain the delivery of critical services to consumers and market participants.” This readiness applies also to regulators, and the Governor noted, “While the policy landscape is maturing, central banks need to maintain a high level of cooperation globally to ensure system-wide resilience is robust and keeps pace with the evolving environment.”

Governor Makhlouf also discussed the Central Bank’s new Strategy and how it is responding to these developments and innovations. He said, “To be more future-focused and become more open, we have to transform key aspects of the way that we operate. This means a constant process of change right across the Central Bank, always asking how we can do things better.” He concluded, “We all will need to be flexible in the delivery of our strategies while prioritising competing demands, and in safeguarding the delivery of the fundamentals of our work. Remaining nimble when responding to new challenges and shifting landscapes will be critical as we face the future.”

Deputy Governor Ed Sibley also delivered a keynote address at today’s event. The Deputy Governor echoed Governor Makhlouf’s comments on the risks posed by climate change and technology. He further highlighted the need to ensure that the financial system is resilient and responsive to change, both on a macroprudential level and in its governance and culture. Mr Sibley referred to the Central Bank’s recent signing of the Joint Statement to the European Commission on the implementation of Basel III, and the recent publication by the Government of the General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021, as significant developments in ensuring the financial system is prudentially sound and that consumers are protected. 

ENDS

• The Central Bank will formalise the current industry roundtables into a new Industry Forum to be chaired by the Governor. Membership of the Industry Forum will be broad enough to sufficiently represent the financial services industry, while also ensuring the group will facilitate effective discussion and engagement. The Industry Forum will meet up to twice per year, with meetings commencing in 2022.
• The Central Bank will host a regular Financial System Conference that will be open to the public and be a forum where stakeholders can engage with the Central Bank, and with each other, about the strategic issues affecting the oversight and operation of the financial system in Ireland.
• Further information on the above can be found in Feedback Statement – Consultation Paper 136 on Enhancing our Engagement with Stakeholders published today.