“Shocks and shifts – regulation and supervision in a changing world” – Remarks by Deputy Governor Mary-Elizabeth McMunn

I am delighted to speak to you all this morning and many thanks to Mary for inviting me here today.¹

As my first speech in my new role as Deputy Governor, Financial Regulation, I wanted to:

• Share some perspectives on regulation and supervision, in particular in the context of the increasingly challenging environment which both regulators and industry are operating in.
• Set out what risk-based supervision means for me, and why and how we are moving to a new supervisory approach. 
• Discuss our approach to the “simplification” agenda in the area of Financial Regulation, as Europe looks to improve its competitiveness and prosperity for the future.

But first I would like to touch on the challenging macro-economic backdrop and risk landscape facing the financial sector.

Backdrop – volatility and uncertainty, shocks and shifts

Central banks, regulators, market participants and economists have all been speaking about heightened volatility, uncertainty and rapid change for a number of years now.

Looking back on the last decade two things strike me.

One: how true these pronouncements were. And two: that rather than abating, such uncertainty and change feels like it is accelerating, given the pace of change – political, economic, digital and environmental – underway.

When King and Kay popularised the term “radical uncertainty” in early 2020,² even they were unlikely to have foreseen how radical it would quickly become. 

And not just the global pandemic, and the return of war to Europe; but also the potentially significant geo-political shifts and geo-economic fragmentation that has emerged in the last few years – not to mention the potentially “radical” and indeed rapid technological transformation underway.

The last few months alone have seen an acceleration in these structural shifts – leading many to cite the maxim, often attributed to Lenin, that “there are decades where nothing happens; and weeks where decades happen.” 

Wise words. Though I can’t remember a decade in my professional life where nothing happened; and I have already lived through too many decade-long weeks to last a few lifetimes!

This period of profound change, and the increasingly fast-changing, uncertain and volatile world we are living through, informed our Regulatory and Supervisory Outlook which we published last month.³

The RSO set out our view of the current risk landscape – shaped by a complex interplay of forces – and our corresponding priorities and expectations for the period ahead.

While recognising the resilience built and demonstrated by the financial sector in recent years, the backdrop, outlook and uncertainty we are facing firmly leaves no room for complacency.

Quite the opposite.

In many ways we are transitioning to a structurally different world.

This will provide opportunities and risks.

But given the pace of change and the extent of potential fragmentation, firms and regulators need to be prepared for short term shocks as well as long term shifts, for novel as well as traditional risks, and for resilience – both financial and non-financial – to be tested in different ways.

Regulation and Supervision – the why

So, this is the backdrop against which we are operating. And as I have been told by colleagues, and indeed some of my predecessors, I am taking up this important role at an important time. Luckily I do so leading and supported by an excellent team of regulatory and supervisory experts, dedicated to delivering in the public interest.

But stepping back a bit, before I share my own perspectives on Regulation and Supervision, I want to address the question of why does financial regulation matter – for sometimes in the debate about the regulator and the regulations, we forget.

Well, I don’t need to tell you that a well-functioning financial system is an integral part of a well-functioning economy, and plays a key role in the financial wellbeing of our citizens, our businesses and our country.

Financial regulation in turn plays a crucial role in ensuring the financial system properly functions, and is delivering in the best interests of consumers and the wider economy.

Financial regulation enables activity; it provides certainty and stability; and it delivers trust, which underpins the very concept of money itself.

Through regulation and supervision we protect consumers, the system and the economy. We enable better outcomes for society, ensuring the system works in good times and bad – something that is in the interest of us all.

Regulating and supervising well naturally has some costs, but in our view those costs are outweighed by  benefits.

The costs of a financial crisis – in terms of costs to the State, the economic costs of the disruption, and the long tail of costs on households and businesses – are well understood, and dwarf the cost and burden of many 100s of years’ worth of regulation and supervision.⁴

But the fact that the benefits of regulation and supervision outweigh the costs overall, does not mean that all regulation and supervision delivers more benefits than costs. Rules and requirements and supervisory interventions do need to be consistently considered and re-considered, in terms of costs vs benefits.

Delivering regulation and supervision in a way that ensures the benefits are greater than the costs is not just the responsibility of good regulators, but is also in line with our mission of ensuring the financial system operates in the best interests of consumers and the wider economy, and indeed our mandate, which we must deliver in a way that is consistent with the proper and orderly functioning of financial markets.

Risk based supervision in a radically uncertain world

Risk based supervision was introduced by the Central Bank in 2011, as part of our response to the lessons of the financial crisis. It allows us to get the most out of our finite resources, deploying them in a manner that will achieve the best outcomes and to the areas that pose the greatest risks.

As former Deputy Governor Matthew Elderfield said at the time – “to make good use of our budget, we need to target the energy and expertise of our supervisors to where they will make the greatest difference… allocating scarce supervisory resources accordingly."⁵

Risk based supervision is therefore not about eliminating all risks. The Central Bank does not operate a no-failures regime – this would not be cost effective, and would not deliver the best outcomes for society. The financial systems’ job is to take and manage risks; and in a properly functioning market firms will fail.

As such we work to ensure firms are effectively managing their risks, and that impacts on consumers and the wider economy are minimised should risks crystallise.

So what makes a good risk based supervisor?

Risk-based supervision should – by definition – focus on the most material risks, what matters most. It should involve using data, judgement, insight, and challenge.

It does not mean adopting a defensive or reactive strategy focused on risk elimination or preventing negative things from happening. On the contrary, supervisors must be comfortable accepting risk, as they make risk based decisions all the time.⁶ It means adopting a proactive and forward-looking approach – setting clear objectives and identifying and responding in a timely way to the risks that could prevent the achievement of those objectives.

Risk based supervision should focus on remediating issues and delivering positive outcomes – underpinned by our full supervisory toolkit, up to and including the credible threat of enforcement. 

For this reason, in addition to being risk-based our supervisory principles include being:

• Outcomes Focused:  With clear communication of the outcomes we want to see and the timelines in which we expect them to be achieved – if necessary using our regulatory and supervisory powers proportionately to achieve these outcomes.
• Forward Looking: We take a longer-term view, anticipating the impact of current trends and emerging risks in a national and international context, so that we are better positioned to respond quickly and effectively;
• Judgement Led: Recognising of course, in an uncertain world we are always “looking through a glass, darkly”, our approach to supervision uses data, analysis and information we receive in the course of our activities and is informed by our professional judgement.
• And Firm Responsibilities – where responsibility for risk identification, management and mitigation rests first and foremost with the boards and management teams of firms themselves.

Since we introduced risk-based supervision nearly a decade and a half ago many things have changed – though our risk-based approach has not.  Our regulatory responsibilities, and the sectors we supervise, have evolved significantly, however. This is particularly true in recent years, given the rapid change the financial sector has undergone, to become bigger, more complex, more interconnected and more digital.

Innovation, digitalisation, and an increasingly interconnected risk landscape, are reshaping the risk environment of the sectors we supervise and the consumers we work to protect.

When our responsibilities, the sector, and the risk context change, we need to change too – to ensure we continue to deliver on our mandate now and into the future.

We recognised this in our strategy, and responded through the development of a new supervisory approach, guided by the desire to deliver an effective approach to supervision, which “remembers the lessons of the past, anticipates future risks, and seeks to continuously improve."⁷

Our new approach builds on the strong foundations of our existing risk-based approach to supervision, incorporates our European and international supervisory responsibilities, and the domestic and European regulatory framework in which we operate.

The approach does not change the safeguarding outcomes we are pursuing. Rather it recognises the changing nature of the financial system – which increasingly transcends traditional regulatory distinctions such as ‘prudential’, ‘conduct’, and ‘anti money laundering’.

Recognising this we have moved to a more integrated approach to supervision, enabling our multi-disciplinary teams to better work together to deliver our supervisory priorities in a more effective and efficient way.

This latter point is key – and essential to responding to the changing risk context facing the sector and its consumers.

The inter-related and often interdependent nature of our four safeguarding outcomes – which are: safety and soundness of firms, consumer and investor protection, financial integrity and financial stability – requires an integrated approach. 

And to maintain resilience and ensure consumers of financial services are protected in this changing and increasingly complex environment, our approach needs to be more agile, data-led and scalable.

Through integration we will harness the variety of skills, expertise and experience of the supervisors and teams  across our broad mandate; and we will be more effective and efficient in our supervisory communications and interventions – speaking to you with one voice and dealing with risks in a more holistic way.

This new approach is essential to ensuring we can continue to deliver our important role regulating and supervising the financial sector in the public’s interest.

This was the case when we embarked on transforming regulation and supervision in the Central Bank a number of years ago. The intervening years, and indeed the last few months, have only served to strengthen this case – ensuring we have the risk-based supervisory approach we need for a radically uncertain world.

Simplification – simpler standards, same outcomes

Having set out the challenging external backdrop, and the importance of regulation and supervision in the face of that backdrop, I would like to turn to a key topic on our collective agenda – namely “simplification”.

As Europe looks to ensure its economy is productive and competitive into the future, there has been a lot of focus on the simplification of regulation, including financial regulation. While regulation is only one of many aspects of the necessary response to Europe’s economic and productivity challenges, for the people in this room it is an important one.

From a financial regulation point of view, simplification is an agenda the Central Bank of Ireland welcomes.

Precisely because financial regulation is so important, it is so important to get right. 

This means that Regulators should always be open to reviewing and considering existing frameworks, and seeing if we can deliver the same outcomes in different, and indeed “simpler”, ways. Indeed, sometimes simpler may actually be better, in terms of delivering what we are seeking to achieve. 

Simpler standards should not, however, mean lower standards – and it should go without saying that simpler standards need to deliver the same outcomes. 

The simplification agenda, done well, can deliver that.

And so the Central Bank will proactively engage with these efforts, not least as simplifying our frameworks and processes is consistent with our current approach of regulating and supervising for outcomes, and indeed the six principles of regulation we have previously set out⁸ and our new supervisory approach.

Done badly, however, the simplification agenda will – put simply – deliver more costs than benefits. 

And so it is important to call out the risks should the legitimate aims of simplifying our frameworks go too far – and indeed it is very much our responsibility to do so. For the financial sector plays too important a role in the economy and the financial well-being of our citizens for us to jeopardise long term stability in pursuit of short term growth.

In that regard, regulators should be firm that we cannot sacrifice resilience on the altar of efficiency.

The standards cannot become so simple that they do not address complex risks.

And the burden cannot be alleviated to the detriment of important information regulators and the market need to do their jobs.

Equally, simplification cannot mean no new rules – for the framework must evolve alongside the financial system, if it is to remain fit for purpose and not introduce undue risks.

None of this is to say there aren’t areas where we can simplify requirements, obligations and approaches. Indeed there are.  We know that not all criticism is wrong. Humility is one of our core values, and therefore it is important for regulators to be humble and open – regularly ensuring our regulatory frameworks are up to date, proportionate, and meet their intended outcomes.⁹

In this regard, we have already identified and indeed implemented areas where we could simplify and reduce the burden. This includes:

• Authorisation – where as part of our ongoing commitment to efficiency and in the face of feedback that we could improve our clarity and responsiveness to incoming applications, we have increased engagement and significantly improved our processes¹⁰  and this work continues.   
• Fitness & Probity – as part of the implementation of the Enria review we have already or will introduce a number of changes, including the establishment of a Fitness and Probity unit and improving our processes. We will shortly consult on enhancing the clarity of our expectations (by consolidating our guidance) as well as a simplification of the PCF list – as an initial step ahead of a more substantial review.
• Operational resilience – whereby in implementing DORA, aspects of reporting requirements that risked duplication or overlap with the new framework are being removed. 
• And of course our new supervisory approach, which as I have said delivers efficiency and effectiveness through integration, and should look and feel simpler for the firms we supervise.

We have done all this while maintaining the high standards the public expects from Central Bank and regulated financial service providers.

Throughout the rest of this year we will  engage  with you on where you feel simplification is merited or where the burden could be alleviated, while delivering the same outcomes. However, such changes must be done in a way that retains the hard won protections that have been built in the financial system over the last decade, and must ensure regulatory authorities can continue to perform their important role of supervising the financial sector.

To sum up, in the period ahead the Central Bank as an organisation intends to take the following approach on this issue:

1. We will proactively engage in the simplification agenda, identifying areas ourselves where regulation and supervision could be simplified, or the administrative burden eased – without compromising on the standards required to deliver on our mandate and maintain our safeguarding outcomes.
2. We will openly engage with all stakeholders, making the case for the value of regulation, while listening to areas where there are unnecessary rules or complexity – or where the same outcomes could be achieved in simpler ways. 
3. We will better explain and demonstrate the benefits of different aspects of the regulatory framework, including enhancing our use and approach to weighing the costs and benefits of regulatory interventions.
4. We will continue to ensure that we are maximising our collective resources, living our risk appetite and being effective and efficient in our regulation and supervision – all of which our new supervisory approach will help us deliver.
5. While proactively and openly engaging on these issues, however, we will remember – and remind others – of the lessons from past regulatory cycles and financial crises. This includes the importance of a strong regulatory framework, of broad-based resilience, of robust risk based supervision, and strong governance and culture in firms – not to mention the willingness of independent regulators to call out risks, and indeed to act.

This last point is important. For financial systems, and the societies they serve, are at their most vulnerable when economic and regulatory cycles collide. When resilience is removed precisely when it is most needed. Or when vulnerabilities build, just as protections are removed.

It is our job as a good policymakers to ensure our regulations are proportionate and appropriate. But it is also our job as an independent central bank and regulator to call out the risks should simplification slide into de-regulation and lower standards.

This is critical to ensuring that we do not compromise on delivering the stability, resilience and protections that consumers and the wider economy needs – and indeed the public expects.¹¹

Thank you

[1] Many thanks to Cian O’Laoide for help preparing these remarks, and to Steven Cull, Vasileios Madouros, and Gabriel Makhlouf for their helpful comments.

[2] See Kay, J. A., & King, M. A. (2020). Radical uncertainty: decision-making beyond the numbers

[3] See Regulatory and Supervisory Outlook 2025 (PDF 2.15MB) February 2025

[4] See also Donnery Maintaining stability in the face of volatility November 2023 and Carstens: Investing in banking supervision June 2023

[5] See Elderfield Risk Based supervision in Ireland December 2011

[6] See Gully What makes an effective prudential supervisor November 2023

[7] See Sibley The Banking Crisis – A Decade On September 2018

[8] (i) forward looking, (ii) connected, (iii) proportionate, (iv) predictable, (v) transparent and (vi) agile.

[9] See also Makhlouf Progress, not regress – financial regulation in challenging times November 2024 

[10] See also Donnery Authorisation and Gatekeeping Report (PDF 705.08KB) May 2024

[11] See also Makhlouf Financial Regulation Priorities (PDF 2.63MB) February 2025