“Twin Peaks” approach to financial regulation comes to Ireland

Maria Nikolova

The Central Bank of Ireland Commission has approved the restructuring of the Central Bank’s Financial Regulation functions under two pillars: Prudential Regulation and Financial Conduct.

It was in April 2013 that the UK Financial Services Authority (FSA) got split into Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), with the move known informally as the “Twin Peaks” regulatory model. This approach to financial regulation is now setting its foot in Ireland, as the Central Bank of Ireland Commission has approved the restructuring of the Central Bank’s Financial Regulation functions under two pillars: Prudential Regulation and Financial Conduct.

The Prudential Regulation pillar will include the directorates for credit institutions; insurance; and asset management supervision, whereas the Financial Conduct pillar will include the directorates for consumer protection; securities and markets supervision; and enforcement. The Policy and Risk Directorate will support both pillars but will be part of the Financial Conduct pillar for administrative purposes.

The Central Banking pillar and the Operations pillar of the Central Bank will stay unchanged.

The structure of the senior management team faces changes. Prudential Regulation will be led by a Deputy Governor (Prudential Regulation). The Financial Conduct pillar will be led by a newly-created role: Director General (Financial Conduct). Both role holders will report to the Governor and will be members of the Central Bank’s most senior management committee, the Governor’s Committee.

Governor Philip R. Lane explained that two factors are behind the changes. The first is the increased scale of financial regulation activity, due to the expanded mandate of the Bank and “the shift to a more intrusive method of supervision”. The second factor is the new level of European engagement.

“This restructuring will provide the Central Bank with strong foundations to carry out its vital financial regulatory mandate, ensure the Central Bank can maintain its strong performance across the European Supervisory Authorities and ensure robust protection of consumers and investors in line with our mandate and our mission to safeguard stability and protect consumers”, he said.

The details about the timing of the implementation of the changes are not yet known. However, the competition for the Deputy Governor and Director General roles will open next week.

In the meantime, the CFD industry regulation in Ireland is poised for an overhaul, as the Central Bank of Ireland seeks to bolster investor protection. The consultation on the planned changes closed yesterday, May 29, 2017, and it is up to the regulator now to consider the responses to the consultation paper and to announce its decision in due course.

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