“Given the size and role played by the funds sector, it is important that we take stock of recent events, consider vulnerabilities identified and address how these should be mitigated” - Director General, Derville Rowland

• COVID-19 crisis exposed vulnerabilities in the funds, asset management and wider non-bank sector that need addressing
• Central Bank published research on these issues today contributing to wider international work analysing these issues
• Firms must be well run and operate to highest standards - CP86 framework must be fully implemented

Speaking at the Irish Funds Conference today, Director General Derville Rowland assessed the impact of COVID-19 on the sector.

The Director General said: “This sector plays a vital role in the functioning of the financial system and the financing of the real economy. But we need to assess the vulnerabilities exposed by the COVID-19 crisis, identify the lessons to be learned, and further enhance the resilience of the system. There is significant work taking place in international fora analysing these issues, and we are actively contributing to these considerations. Today, the Central Bank publishes new research as part of that process, examining the behaviour of Irish-domiciled funds during the COVID-19 crisis, and the persisting effect of the pandemic on money market funds and money markets.”

Ms Rowland noted that macroprudential policy for the market-based finance sector remains at an early stage of development.  “This is why we are assessing what steps need to be taken to complete the macroprudential framework for the market-based finance sector. Our view is that a considered and completed framework would be good for the sector as a whole as well as for the stability of the financial system and ultimately the real economy. We look forward to continuing to work with international counterparts to further that objective.”

Ms Rowland also highlighted the findings from the Central Bank’s review of the CP86 Framework, noting the essential need for firms to be well governed, well run and operating to the highest standards. There can be no compromise on the objectives of the Framework as “investment funds are the repository of the enormous trust of their investors who place their savings and investments for the future with them. Fund management companies and their management and staff are responsible for fulfilling that trust.”

Looking to the end of the Brexit transition period on 31 December 2020, the Director General said: “We must not lose sight of the Brexit risks which may materialise over the coming months - risks arising both from the change in legal paradigm and from the potential further shock to the economy.  The pathway to the end of the transition point and makeup of the future relationship remains uncertain.  Despite extensive preparations under way for a considerable period of time, not all these risks have been, or can be, mitigated. For this reason it is essential that firms remain proactive and vigilant in their planning and mindful of the risks that remain.”

Today the Central Bank published two papers presenting research by the Central Bank on how COVID-19 has impacted the funds industry. “The persisting effect of the pandemic on Money Market Funds and money markets (PDF 939KB)”, written by Brian Golden, examines the impact of a sudden surge in demand for cash in March, on money markets in general and Irish-resident Money Market Funds (MMFs) in particular. “Repricing of risk and EME assets: the behaviour of Irish-domiciled funds during the COVID-19 crisis (PDF 724.89KB)”, written by Silvia Calò, Lorenz Emter, and Vahagn Galstyan, examines how emerging market economies experienced significant outflows of portfolio investment capital and how Irish-domiciled funds contributed to these portfolio outflows through sales of EME securities in response to heightened redemptions.