Central Bank warns of risks coming from payment and e-money sector

March 1, 2024

The Governor of the Central Bank has warned of the heightened risk level associated with both the payment and e-money sector and the investment fund sector.

Gabriel Makhlouf said concerns about the payment and e-money sector reflect significant control weaknesses found in firms operating in this market, “where their rates of growth and ambition have outpaced their operational, governance, compliance and risk management capabilities.”

“Risks in the funds sector reflect structural vulnerabilities in parts of the sector such as leverage and liquidity mismatches, the impact of market volatility, market conduct risks, and the degree of interconnectedness with the wider financial system and economy,” the Governor said.

The warning came in the regulator’s annual letter to the Minister for Finance outlining the Central Bank’s financial regulation priorities for this year.

The correspondence also points to a range of other potential risks, including significant and widening geopolitical tensions with potential ramifications for supply chains and markets, geoeconomic fragmentation and a global economy that is less interconnected.

It also points to environmental and climate-related challenges, including the implications of the increased severity and frequency of extreme weather events.

While challenges from the increasingly rapid digitalisation of the economy and financial system are also referenced.

In a note of reassurance though the Governor also said the financial system here and across Europe has proved itself to be resilient in the face of the turmoil of recent times.

But he added that looking ahead, the risk environment remains elevated.

Other concerns, according to Mr Makhlouf, include the changed interest rate environment and the uncertain path for inflation which “has potential implications for the financial resilience of firms.”

He also pointed to the risks related to the interconnectedness of the financial system and the potential for economic shocks to be amplified.

“Third, operational risk and resilience continues to be a priority for the year ahead, with risks driven by technological change, cyber security needs, an increasing reliance on outsourcing, and a concentrated cloud service provider market,” Mr Makhlouf told the Minister.

The letter also lays out the Central Bank’s regulation priorities for this year, including revising and modernising the Consumer Protection Code, continuing to progress work to address systemic risks from the non-bank sector and implementing the Individual Accountability Framework.

The bank is also preparing for the implementation of the Digital Operational Resilience Act in the context of Ireland’s large technology sector and to put into effect the Markets in Crypto Asset Regulation.

The Credit Unions (Amendment) Act 2023, also has to be implemented, he said.

Policy work and supervisory expectations related to the use of artificial intelligence in financial services also have to be developed, he added.

Alongside the letter, the Central Bank also published for the first time a new Regulatory and Supervisory Outlook report.

“Specifically we want to see the leaders in firms adopt a proactive, consumer-centric and forward-looking approach to managing the risks and uncertainties facing their organisations and their customers,” the Governor said.

“All firms in the financial system need to ensure they are resilient to this challenging and uncertain operating environment, and are appropriately responding to changes underway and ahead.”

Article Source – Central Bank warns of risks coming from payment and e-money sector – RTE

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