Supervision Process for Credit Institutions  

Introduction

Since the commencement of the Single Supervisory Mechanism (“SSM”) on 4 November 2014, the European Central Bank (“ECB”) has become the competent authority for the supervision of significant institutions in the euro area, while less significant institutions (“LSI”) continue to be supervised by national competent authorities (“NCA”). The ECB is responsible for the effective and consistent functioning of the SSM and exercises oversight over the functioning of the system, based on the distribution of responsibilities between the ECB and NCAs, as set out in the SSM Regulation.

This development has resulted in a number of fundamental changes to how supervision is conducted.  The SSM is built on collaboration between the ECB and the national competent authorities (“NCA”) within each member state, such that resources from both the ECB and the NCAs work together to deliver the SSM’s supervisory responsibilities.  The Central Bank of Ireland (“Central Bank”) is the NCA for Ireland.

Significant Institutions

The ECB directly supervises the significant institutions in Ireland through Joint Supervisory Teams (“JST”); these teams comprise staff from the ECB and the Central Bank and are responsible for the day-to-day supervision of these institutions. The SSM takes a risk-based approach to supervision, which is based on both qualitative and quantitative approaches, and involves judgement and forward-looking critical assessments. Among other duties, these teams are responsible for the ongoing assessment of an institution’s risk profile, its solvency, liquidity, recovery planning, and for preparing draft decisions to be presented to the Supervisory Board of the SSM. Significant institutions are subject to in-depth onsite inspections of individual risk areas, risk controls and governance.

Less Significant Institutions

The Central Bank retains direct supervisory responsibility for LSI’s, in close cooperation and with oversight from the ECB. The Central Bank is responsible for the day-to-day supervision of these credit institutions including, inter alia, the ongoing assessment of an institution’s risk profile, its solvency, liquidity, and recovery planning. LSIs are also subject to in-depth onsite inspections of individual risk areas, risk controls and governance.  

In carrying out its prudential tasks, as defined in the SSM Regulation, the ECB applies all relevant EU laws while the NCAs apply national law. The ECB is subject to technical standards developed by the European Banking Authority (“EBA”) and adopted by the European Commission, and to the EBA’s European Supervisory Handbook.

Anti-Money Laundering

The Central Bank is the competent authority in Ireland for the monitoring and supervision of financial and credit institutions’ compliance with their obligations under the Criminal Justice Act 2013 (“the Act”).  The Central Bank is empowered to take measures that are reasonably necessary to ensure that credit and financial institutions comply with the provisions of the Act. For further information, please visit our section on Anti-Money Laundering and Countering the Financing of Terrorism.

Conduct

The Central Bank’s Consumer Protection Directorate is involved in the development, implementation and supervision on all financial conduct of business regulation for all types of regulated entities, including credit institutions.

Fitness and Probity

The ECB is responsible for the Fitness and Probity (“F&P”) assessments of the following applicants:

  1. The management board of significant credit institutions;
  2. Key Function Holders in significant credit institutions; and
  3. The management board of all credit institutions applying for authorisation.

The Central Bank retains the responsibility for the F&P assessments for all Pre-Approval Controlled Function roles in LSI’s. Please refer to our Fitness and Probity pages for more detail.

Recovery Planning

Boith SI and LSI are required to  prepare their own recovery plans, within these plans financial institutions must demonstrate that they have a sufficient number of credible recovery options that if deployed would restore the viability of the institution during a severe financial stressThe Banking Recovery and Resolution Directive - BRRD 2014/59/EU was transposed into Irish law by Statutory Instrument number 289 of 2015 (Banking Recovery and Resolution Regulation 2015) in July 2015. This Statutory Instrument and the European recovery framework requires Financial Institutions to undertake recovery planning at least annually in order to prepare for and stabilise their financial position during a severe financial stress.

Regulatory Requirements

Please refer to our Regulatory Requirements pages for more detail.