Central Bank 2026 Regulatory and Supervisory Outlook

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Central Bank 2026 Regulatory and Supervisory Outlook – Funds

February 27, 2026

On 26 February 2026, the Central Bank of Ireland (Central Bank) published its 2026 Regulatory and Supervisory Outlook (RSO) report, outlining its perspectives on the key trends and risks shaping the financial sector and its supervisory priorities for the year ahead.

For further information on the Central Bank’s financial regulation priorities 2026, the global and domestic risk environment, risk themes and related drivers and supervisory priorities, please see our related cross sectoral article here and for other sector specific information in the RSO (including a MiFID investment firm related RSO article here and a markets (including Crypto and MiFID firms) related RSO article here) please refer to our Knowledge page on the William Fry website.

Sectoral Focus – Funds

In our sector specific articles, trends, risks and vulnerabilities are considered from a sectoral perspective in line with the Central Bank’s supervisory approach. In this article we look at the Funds industry where the aim of the Central Bank’s outcomes link directly to the risks and focus on ensuring the integrity of the market with well governed and resilient firms, effective safeguarding of client assets, securing investors’ interests, transparent disclosure and high standards of compliance with applicable rules.

Executive summary

Planned activities by the Central Bank in 2026 will cover 7 focus areas, to include thematic reviews with a particular focus on effectiveness of governance.

In the area of governance and risk management, the assessment of delegation in fund management companies (FMCs) will continue with the first industry communication from the review to issue in H1 2026. There will also be an ESMA common supervisory action with subject matter to be confirmed. In the area of operational and cyber resilience, the Central Bank will focus on FMC and fund service provider (FSP) implementation and monitoring of DORA. In the context of AML supervision, a thematic review of suspicious transaction reporting (STR) will take place. In the area of asset valuation and market risks the Central Bank will undertake a thematic review focusing on hard-to-value assets, reviewing policies, models and controls for level 3 assets (including real estate, private equity, private credit and other illiquid securities) across selected Irish authorised funds, managers and depositaries. A Value at Risk (VaR) model review is planned, with a focus on UCITS that opt to the use of the VaR approach and the effectiveness of the levels of oversight by depositaries. In the area of liquidity and leverage risks there will be a review on liquidity management in bond funds. In the area of product costs and disclosures there will be continued engagement on costs and fees with a focus on value for money. In the area of data and artificial intelligence the Central Bank will continue to engage on firms’ use of AI. In the area of climate and ESG-related risks the Central Bank will continue to deploy its ESG dashboard tool for SFDR compliance and continue to monitor compliance with the ESMA fund naming guidelines.

Below is a more detailed look at the Central Bank’s approach in each of the 7 areas of focus.

Focus Area 1: Governance and risk management

Deficiencies in governance and risk management practices can affect the operational soundness of firms and increase the likelihood of investor detriment.

A key governance risk arises when local boards or executive committees have insufficient substance or have inadequate decision-making and management capacity.

Tone from the top shapes organisational culture and when commercial objectives overshadow investor protection and conduct risk it may result in poor outcomes, particularly for retail or vulnerable investors.

The approach to assessing governance risk in 2026 will be through sectoral reviews focusing on themes such as delegation, board effectiveness and depositary oversight of fund managers.

The main planned activities relating to this supervisory focus area in 2026/2027 include:

Continuation of the Central Bank’s sectoral assessment of delegation in fund management companies (FMCs) with the first industry communication from the review in H1.
Conclude the review of the effectiveness of fund administration and depositary management of outsourcing.
Review of governance and board effectiveness in fund administrators and depositories.
Review of compliance functions across fund administrators and depositaries. (Commencing engagement in H1 2026).
ESMA Common Supervisory Action.
Supporting the transition to AIFMD II for funds and fund service providers.

Focus Area 2: Operational and cyber resilience

Strong operational risk management, including scenario testing and business continuity planning, is necessary to mitigate threats from cyber incidents, natural disasters and power outages.

An overreliance on external providers can dilute local management’s control over key activities. High levels of delegation and outsourcing across the funds sector can present challenges to the maintenance of control over risk and portfolio management, business continuity, the application of AI processes and cyber security. Robust due diligence, governance and ongoing oversight are essential to manage concentration, dependency and conduct risks.

As noted in the banking sector report, the impact of CRD6 will result in material business model restructuring for financial groups engaged in cross border core banking activities. This includes existing Irish depositary businesses with global custody operations, or more specifically, to their related banking activities which are required to deliver those custody services to Irish funds.

Across the funds sector, financial crime risk continues to require attention.

The main planned activities relating to these supervisory focus areas in 2026 include:

Focus on FMC and FSP implementation and monitoring of the requirements of DORA including threat-led penetration testing.
A risk-based approach to AML/CFT/FS will continue into 2026 through supervisory data requests including the new, enhanced Risk Evaluation Questionnaire (REQ). The enhanced REQ will capture detailed quantitative and qualitative risk information on ML/TF risk and the quality of AML/CFT controls. This data will be used to: (a) identify firm and sector-specific issues and emerging trends; (b) guide supervisory strategy; and (c) satisfy incoming data requirements for the AMLA.
A thematic inspection focused on transaction monitoring and STR reporting and engagements with firms across the sector.
Engagement on the execution by impacted depositaries of their CRD6 compliance plans.

Focus Area 3: Asset valuation and market risks

Funds must accurately value all portfolio assets including those without readily available market prices.

Supervisory focus will remain on valuation governance and financial resilience where uncertainty is greater. In 2026 the Central Bank will undertake a thematic review focusing on hard-to-value assets, reviewing policies, models and controls for level 3 assets (including real estate, private equity, private credit and other illiquid securities) across selected Irish authorised funds, managers and depositaries. This will be complemented by ongoing risk-based engagement relevant to specific cohorts of funds along with reactive supervisory work related to NAV calculation errors.

The main planned activities relating to this supervisory focus area in 2026/2027 include:

Responsive supervision of proposed and implemented changes in firms operating processes and arrangements, with a focus on capacity to respond effectively to stresses in market conditions.
Deeper dive into the appropriateness of industry approaches and processes for monitoring investment restrictions and reporting regulatory breaches.
Value at Risk (VaR) model review with a focus on UCITS that opt to the use of the VaR approach and the effectiveness of the levels of oversight by depositaries.
Continued enhancement and use of fund data and risk models by the Central Bank to deliver a data-led, agile and risk-based approach to the effective and efficient oversight of the funds sector.
Review of valuation oversight with a focus on hard to value assets and the oversight role of the depositary.

Focus Area 4: Liquidity and leverage risks

Pockets of vulnerability persist where funds have higher leverage or liquidity transformation, or both. Firms are expected to maintain robust, documented leverage and liquidity risk management frameworks proportionate to their risk profile.

There will be a continued focus on liquidity risk management, including through communication of the Central Bank’s recent work on liquidity management tools as well as a thematic review on cohorts identified by the fund risk model as engaging in significant liquidity transformation. The Central Bank’s initial focus will be on selected Irish authorised bond funds and managers. In parallel, under Article 25 of the Alternative Investment Fund Managers Directive (AIFMD), it will analyse leverage-related systemic risks across funds and cohorts, identify the most leveraged alternative investment funds and undertake targeted reviews of those funds and their Irish AIFMs, including where Irish AIFMs oversee non-Irish funds. This will involve examining liquidity risk management, stress testing and contingency arrangements. There will be continued supervision of Irish authorised property and LDI funds within their respective macroprudential frameworks and engagement with firms where vulnerabilities are identified.

The main planned activities relating to this supervisory focus area in 2026/2027 include:

Review on liquidity risk management in bond funds to assess how firms manage the mismatch between investor redemptions and asset liquidity.
Review the progress of relevant AIFMs on leverage reduction and maintenance plans across property funds. Property funds questionnaire issued in Q1. Submission of return, assessment of responses and follow up engagement through H2 2026.

Focus Area 5: Product costs and disclosures

An investor-centric culture is essential to protect consumer and investor interests and to mitigate the risk of funds or firms failing to identify, escalate or remediate issues that could cause harm, particularly to retail and vulnerable clients. Given the risks connected to these instruments combined with the growth in digital retail platforms, it is important that funds and FSPs adequately consider their unique features, their transparency and their suitability for the fund’s target market.

Through its gatekeeping process, the Central Bank will continue to constructively engage with industry in relation to the potential to establish funds that give exposure to instruments which have previously been considered as presenting comparatively higher risk. Firms must ensure product design, target market assessment and distribution practices align with investor needs and risk tolerances.

With a view to protecting the best interests of investors, costs and fees charged to investors must be clearly justified and transparent.

The Irish funds sector has a significant part to play in providing good quality, understandable products to retail investors that meet their needs, delivering on the core elements of the Savings and Investment Union agenda.

For recent developments on the EU Savings and Investments Union strategy, please see our articles here and here.

The main planned activities relating to this supervisory focus area in 2026/2027 include:

Continued engagement both domestically with regulated firms in the funds sector and internationally with ESMA on costs and fees with a focus on value for money. Ongoing supervisory engagement where breaches relating to inappropriate cost/fee structures or disclosures have been identified.
Gatekeeping, which is a vital tool for the Central Bank regarding assessing fund disclosures, levels of costs and transparency for prospective investors.
Consistent application of the principles of the Consumer Protection Code, assessing how firms are implementing it.

Focus Area 6: Data and artificial intelligence

Whilst there continues to be improvements in data quality across the funds sector, the risk remains that poor data quality, accuracy and reliability can undermine effective governance and decision-making within firms and the Central Bank’s ability to supervise. In the Central Bank’s most recent sectoral review of delegation it observed significant gaps at some FMCs in data accessibility, contingency planning for data loss or interruption and in governance of data.

The growing deployment of AI across the funds sector brings its own set of risks when awareness, governance and controls are inadequate. The growing reliance on third-party AI service providers further compounds oversight and data management challenges. Where firms are utilising these services, they must have appropriate governance and controls frameworks in place to mitigate against the relevant risks.

As firms increasingly rely on sophisticated quantitative models for stress testing, scenario analysis and statistical assessments, the potential for errors in model design, calibration or implementation rises. Rigorous model governance, including thorough validation, ongoing performance monitoring and strong documentation, is essential to mitigate these risks across the funds sector.

The main planned activities relating to this supervisory focus area in 2026/2027 include:

Continued enhancement and use by the Central Bank of fund data and risk models to deliver a data-led, agile and risk-based approach to the effective and efficient oversight of the funds sector.
Continued engagement to understand firms’ approach to and usage of AI in their business models.

Focus Area 7: Climate and ESG-related risks

The Central Bank’s approach to supervising climate and ESG risk spans both the authorisation and ongoing supervisory engagement processes.

There is a continued level of regulatory divergence across the theme of ESG can impact the consistent application of sustainability standards and market conduct across markets. Any revisions expected through the implementation of SFDR 2.0 will be an area of focus for regulators.

The Central Bank recently published an industry report outlining its supervisory findings and expectations from the ESMA CSA on sustainability and disclosure risk. There are areas for improvement under SFDR including inconsistent sustainability risk monitoring, data quality challenges and unclear product disclosures. The report emphasises firms’ responsibility to maintain robust controls, ensure transparent disclosures and stay aligned with evolving regulatory guidance to prevent greenwashing and support investor decision-making aligned with sustainability preferences.

The main planned activities relating to this supervisory focus area in 2026/2027 include:

Sustainability work will continue using the Central Bank’s ESG dashboard tool to assess firms’ compliance with SFDR.
Compliance with the Fund Naming Guidelines will continue to be monitored at both the gate and through data-led supervisory reviews.