Central Bank’s Annual Report and Annual Performance Statement 2018

The Central Bank of Ireland (the “Central Bank”) published its Annual Report and Annual Performance Statement 2018 (collectively, the “Reports”), on 29 May 2019. The Reports provide an overview of the key activities and work undertaken by the Central Bank during the course of 2018, both generally, in the context of Brexit and enforcement and, more specifically, in the sectors of banking and insurance, as well as in asset management and investment banking.


Brexit was a key area of focus for the Central Bank generally in 2018, with the Central Bank seeking to ensure that financial stability and consumer protection risks were mitigated to the greatest extent possible, particularly in relation to the cliff-edge risks associated with a no-deal Brexit.

According to the Central Bank, it took a number of measures to address the risk of lack of service continuity, which it considered to be the biggest threat to consumers, including by requiring evidence of effective contingency planning through active supervisory engagement with firms.

In its capacity as gatekeeper, the Central Bank saw a significant increase in authorisation activity including large and complex authorisations and existing firms seeking to change their business plans to materially expand the scale of their existing operations.

More specifically, in the insurance sector, the Central Bank reviewed 23 applications, authorised six firms and completed the remaining applications in early 2019. There was also a significant increase in regulatory transactions arising from changes to business plans, acquiring transactions and portfolio transfers.

In the area of asset management and investment banking, the Central Bank completed 56 authorisations, including five extensions to existing authorised firms (this compares to an average of 18 in the previous two years). Significant authorisation activity remained ongoing in the first quarter of 2019.

Regarding the Fitness and Probity Regime, there was a 51% increase in applications relating to pre-approval controlled functions, much of which was related to Brexit. Of the applications that were processed during 2018, 83% were approved while 17% were either returned as incomplete or were withdrawn by the applicant (87% and 13% respectively in 2017). For further information on fitness and probity, see our briefing here.


In addition to Brexit, the Central Bank placed considerable supervisory emphasis on ensuring that banks (and other regulated firms) improved their resilience against current and emerging risks.  To enable banks better prepare for future downturns, the Central Bank raised the countercyclical capital buffer (CCyB) to 1% CET1, effective July 2019.  Key additional areas of focus included non-performing loans (“NPLs”), the tracker mortgage examination (“TME”) and culture.

Non-Performing Loans (NPLs)

To ensure that institutions continued to progress towards a minimal level of NPLs, the Central Bank maintained intensive supervisory engagement throughout 2018. It completed two on-site inspections relating to NPLs and imposed risk mitigation plans in instances where it identified a failure to meet supervisory expectations.

At the end of the period covered by the Report, the stock of NPLs across retail credit institutions stood at €22.5bn, a reduction of €11.9bn year-on-year resulting in an aggregate NPL ratio of 10.4%.

Reducing NPLs, while ensuring borrowers are treated fairly, and improving the resilience of financial institutions’ balance sheets to future shocks will remain a key priority for the Central Bank in 2019.

Tracker Mortgage Examination (TME)

The TME is the largest, most complex and significant supervisory review the Central Bank has undertaken in respect of its consumer protection mandate. Key outcomes of the TME in 2018 included:

  • ensuring lenders identified all groups of impacted customers - by end-December 2018, lenders had identified 39,800 affected customers; and
  • driving lenders to complete redress and compensation programmes as swiftly as possible – by end-December, lenders had paid €647m in redress and compensation and 97% of customers identified and verified as impacted had been remediated.

The supervisory work has now entered in its final phases and enforcement investigations are being progressed in parallel. The Central Bank expects to publish a final report on the TME in 2019.

Prior to the publication of the Report, the Central Bank settled its first TME related case imposing a €21 million penalty on PTSB.

Other Activities

In July 2018, the Central Bank published the findings from a review of the current culture at the five retail banks. On foot of the review, the Central Bank required the board of each bank to create an action plan to address the concerns identified and mitigate the associated risks. According to the Central Bank, these actions plans will be an important component in its ongoing supervision of these retail banks. For further information, see our briefing here.


On-site inspection activity on the insurance side increased in 2018 and the Central Bank noted and acted on deficiencies in relation to Solvency II obligations around:

  • risk management frameworks – identified deficiencies included instances where there was a disconnect between the front line of the business and the risk function, as well as inconsistent practices across business units; and
  • regulatory reporting – identified deficiencies included issues such as basic reporting policies not being in place and deficiencies relating to the risk function and internal audit function. 

The Central Bank also revised its engagement model for medium low risk firms to increase the effectiveness of cross-border supervision. Other areas of focus included emerging issues such as cyber risk, culture and recovery and resolution.

Asset Management and Investment Banking

Asset management and investment banking supervision focused on MiFID II implementation, compliance with Investor Money Regulations, cyber risk, governance and internal controls, and UCITS performance fees.

  • MiFID II Implementation – the Central Bank focused on the core elements of MiFID II, namely the improvement of consumer outcomes and increased transparency in market trading with targeted firm engagements and the commencement of two thematic reviews in this area. The Central Bank also embarked on the development of a proportionate risk-based supervisory framework that focuses on the conduct risk management framework at firms undertaking a diverse range of MiFID activities in wholesale markets;
  • Investor Money Regulations - the 2018 supervisory work programme focused specifically on compliance with Investor Money Regulations and cyber risk, in addition to strengthening governance and internal controls within supervised entities;
  • Governance – the Central Bank placed increased focus on the amount of time required to effectively carry out the designated person role. Looking to 2019, the Central Bank plans to include its Fund Management Company Guidance in its thematic review programme with the aim of identifying and publicising observed standards of industry compliance;
  • Performance Fees – the Central Bank carried out a thematic review of UCITS performance fees, which examined the methodologies used to calculate performance fees to ascertain if they were in line with the Central Bank’s UCITS Performance Fees Guidance. Following on from that review, a total of €1.5m has been refunded to 636 shareholders and 12 risk mitigation programmes have issued across individual UCITS and fund service providers. Moreover, on 31 May, the Central Bank published its updated and consolidated Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1))(Undertakings for Collective Investment in Transferable Securities) Regulations 2019, which (among other things) places the Central Bank’s Guidance on UCITS Performance Fees on a statutory footing.


In 2018 the Central Bank completed ten enforcement actions against regulated firms under the Administrative Sanctions Procedure and imposed fines totalling €7.441million. The Central Bank also revoked the authorisation of one firm which failed to comply with its authorisation requirements. Under the Fitness and Probity regime, the Central Bank prohibited two individuals from holding any role in the financial services sector indefinitely.

2019 Priorities

The Central Bank’s Strategic Plan for the period 2019-2021 started to apply in January 2019 and, identifies five priority themes that will help guide its work over the next three years, namely; Strengthening Resilience; Brexit; Strengthening Consumer Protection; Engaging and Influencing; and Enhancing Organisation Capability.

You can access the Reports here.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.