On 28 February 2025, the Central Bank of Ireland (Central Bank) published an overview of the recent supervisory model changes in its ‘Our Approach to Supervision’ document.

The Central Bank regulates and supervises different financial services sectors of varying sizes, and changes in the financial services industry since the Central Bank introduced (PRISM) as its risk-based supervisory framework in 2011, have necessitated an evolved approach to supervision.

This new approach will include integrated supervision, with multidisciplinary teams working together to deliver the Central Bank’s supervisory priorities more effectively.

The supervisory changes will have a significant impact on firms in the future.

Safeguarding Outcomes

The Central Bank emphasises the combined importance of financial regulation, supervision (involving engagement, analysis and oversight of firms) and implementation, monitoring and enforcement of regulations to achieve its four safeguarding outcomes, which are:

• protection of consumer and investor interests;
• the integrity of the financial system;
• the safety and soundness of firms; and
• financial stability.

Changes to Supervision

The evolution of the Central Bank’s new approach is based on the following design considerations:

• Outcomes-focused and risk-based supervision – remains fundamental to the Central Bank’s approach. Given the size and complexity of the financial services sector, the risk-based, outcomes-focused approach to supervision allows the Central Bank to deploy its resources to achieve the best outcomes effectively and to the areas that pose the most significant risks to safeguarding outcomes.
• Integrated supervision – Supervising sectors and firms holistically for all safeguarding outcomes undertaken by supervisory teams from vertical and horizontal areas.
• Risk response and remediation – Taking a more agile approach to intervention, using appropriate escalation within the supervisory toolkit, up to and including enforcement. Where issues or concerns are identified, the Central Bank may communicate these to individual firm(s) or sector(s) and explain the outcomes it wants achieved by, for example, issuing a ‘Dear CEO’ letter, implementing a risk mitigation programme (requiring a firm to prepare a skilled person report), or using its direction-making powers.
• Supervisory effectiveness – building on the integrated nature of the central banking and regulatory mandate, and as part of the European System of Financial Supervision (ESFS), to achieve greater effectiveness.
• Supervisory efficiency – integrating to the greatest extent possible, to deliver efficiencies in the Central Bank’s supervisory approach.

New Sectoral Supervisory Framework

A common framework, which considers the prevailing risk landscape, the Central Bank’s risk appetite and tolerance, and the nature and scale of the firms, sectors, and products under supervision, will be used to assess different risks.

The Central Bank views the financial system as consisting of three overarching industry categories of related products and services (with each category containing a number of sectors) as follows:

• Banking & Payments
• Insurance
• Capital Markets & Funds.

Each sector is supervised in an integrated, holistic way with a multi-year supervisory strategy. The strategies are refreshed annually to ensure current and emerging risks, threats and vulnerabilities are considered.

The Central Bank’s risk assessment process, which identifies and prioritises risks, threats, and vulnerabilities, looks at the external macro environment to identify threats and vulnerabilities specific to a sector or an individual firm. As part of this engagement, the Central Bank publishes an annual Regulatory & Supervisory Outlook report (RSO) setting out key trends and risks influencing the financial services sector operating landscape and, consequently, the Central Bank’s regulatory and supervisory priorities. For further information on the 2025 RSO, please see here. 

Supervisory actions and interventions

The Central Bank will deliver supervision through a broad range of supervisory actions and interventions, which are used to prevent or mitigate risks posed to the safeguarding outcomes. These actions and interventions range from awareness and expectation-setting activities to programmatic supervision with individual firms and sectors, escalating to policy and/or enforcement and resolution actions. Programmatic supervision includes:

• Direct engagement with sectors, firms and individuals
• Thematic reviews, onsite inspections, deep dives/investigations, risk analysis and assessment
• Activities in line with European and international responsibilities (e.g. the Supervisory Review & Evaluation Process)
• Firm specific risk assessments (e.g. Business Model & Strategy risk)
• Monitoring and review of submissions (e.g. regulatory returns, breach and incident reports)
• Ensuring firms take appropriate risk mitigation actions to address issues identified
• Identifying and communicating best practices to drive continuous improvement in the financial system.

Supervisory Principles – What firms can expect

• Outcomes Focused – The Central Bank clearly communicates its supervisory concerns to sectors and firms, highlighting expected outcomes and timelines and uses its regulatory and supervisory powers proportionately to support this.
• Risk-Based – Supervisory efforts are focused on material risks to the safeguarding outcomes. The greatest potential impacts of risks, threats or vulnerabilities attract increased supervision, to ensure that the financial system operates in a manner that supports the effective and sustainable functioning of the economy, delivers positive outcomes for the users of financial services and protects the integrity of the financial system.
• Judgement Led – Using data, analysis and information received by the Central Bank together with its professional judgement increases the Central Bank’s ability to react to new developments, intervene in a timely manner, leverage its integrated mandate, and escalate where, and when necessary.
• Forward Looking – The Central Bank is taking a longer-term view, anticipating the impact of current trends and emerging risks in a national and international context, so that it is better positioned to respond quickly and effectively.
• Firms’ Responsibilities – Responsibility for risk identification, management and mitigation rests first and foremost with the board and management teams of firms.

PRISM Replacement

PRISM is replaced as the Central Bank’s framework for supervising regulated entities. Under the Central Bank’s revised supervisory approach:

• Firms that could significantly impact the achievement of the safeguarding outcomes (significant firms) will receive direct supervision with a dedicated Central Bank supervision team. They will be subject to close supervisory engagement and continuous assessment across several specific risk categories such as: Business Model & Strategy Risk; Culture, Governance & Risk Management; Operational Resilience Risk; Financial Resilience Risk and Financial Crime Risk. The Central Bank will have a set level of engagement with key individuals in these firms annually.
• Less significant firms will not be directly supervised. They will instead be subject to increasing sectoral and cross-sectoral thematic engagements as part of an integrated supervisory approach with multi-disciplinary teams working together to deliver the Central Bank’s supervisory priorities.

Contact Us

Our Financial Regulation team can assist you with any regulatory queries. For more information, please contact Shane Kelleher, Louise McNabola or your usual William Fry contact.

Contributed by Jane Balfe.