Less than a week after the European Securities and Markets Authority (ESMA) outlined liquidity risks and consumer protection as one of its top priorities in the coming years, the Central Bank of Ireland (CBI) has followed suit in making consumer protection, conduct regulation and liquidity a major priority this year.
Speaking at the Association of Compliance Officers of Ireland, Derville Rowland, Director General of Financial Conduct at the Central Bank, said that ‘strengthening consumer protection is a key priority for the Central Bank’ in 2020. She added that, ‘with more than 10,000 entities to regulate and supervise, it is essential we identify and prioritise addressing key consumer protection risks.’
Moreover, given Ireland’s growing prominence in the fund industry, Rowland said that fund supervision, in particular, will expand in 2020, including working more closely with ESMA in order to drive EU supervisory convergence and raise overall supervisory standards.
Other relevant highlights include:
(i) Role of the CBI as gatekeeper will become ‘ever-more risk-based’ and will include ‘implementing important new legislative mandates to strengthen the regulatory framework’ in the future.
(ii) The CBI is concluding its review of how the sector is implementing its rules and guidance related to fund management company effectiveness.
(iii) Commencing a review of UCITS’ use of securities lending.
(iv) The CBI is working together with ESMA to complete a common supervisory action on liquidity management in certain investment vehicles such as UCITS.
Like ESMA, liquidity and fund structures have quickly become a keen focus of the CBI, especially after last year’s tumult.
‘The recent experience of investors in UK asset manager Woodford has raised questions as to whether existing rules in respect of liquidity risk are sufficient,’ Rowland explained. ‘Liquidity risk in the funds sector more broadly is an important issue and one that we have been closely engaged in at EU and international fora. From a financial stability perspective, we will conduct a deep dive on property funds to assess the resilience of this growing form of market-based finance.’
Investors have begun to shun direct property funds due to liquidity fears, with the UK Direct Property sector losing £3.4 billion over the course of 2019, including outflows in every month of the year.
But with ESMA recently highlighting risks in Fund of Fund vehicles as well as high yield corporate debt funds, the CBI could well widen its scope and cooperation to take a deeper dive on all Irish-domiciled funds.
Having outlined its desire to implement new legislative mandates to strengthen the current framework, more consumer-focussed rules and protections can be expected in the future.