## IMF staff report — Ireland FSAP Update (_cr16318) ## Source details **Canonical URL:** [IMF staff report — Ireland FSAP Update (_cr16318)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16318.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16318.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16318.pdf.json) --- ### SSM implementation and prudential supervision - Effective operational implementation of the Single Supervisory Mechanism (SSM) is well established in Ireland; all authorities are actively engaged and committed to the new ECB-led supervisory framework. - SSM strengthened prudential regulation and supervision since 2013, enhancing consistency across the euro area and shielding supervision from undue pressures. - Prudential regulation and supervision in Ireland improved greatly since the 2013 Basel Core Principles (BCP) assessment; action taken in most areas identified in 2013 as needing amelioration. ### Major transitional challenges - Current supervisory engagement practices indicate the balance between proportionality and harmonization is tilted toward harmonization, possibly creating unnecessary burdens. - Remaining national discretions and ancillary national regulations should be revisited to simplify and harmonize while respecting Irish banking specificities. - Ireland would benefit from an enhanced SSM-wide approach to active supervision of credit risk and related provisioning/write-backs. - Onsite credit-risk inspection to independently assess asset quality is a priority across the SSM, including in Ireland. - High level of NPLs remains a critical supervisory concern; SSM initiatives to develop timely, active, and intrusive supervisory guidelines are welcome. ### Supervisory powers, auditors, and accounting standards - Guidelines should be accompanied by ensuring supervisors have effective powers to require credit institutions to adjust classification of individual assets and increase provisioning for prudential purposes (rather than relying solely on accounting principles). - Supervisors should engage external auditors to discuss differences in loan classification and provisioning outcomes and to reinforce implementation of International Financial Reporting Standards (IFRS), particularly strict application of IFRS 9 on financial instruments. ### Future trends with prudential implications - Supervisors should analyze stability implications of longer-term banking industry trends (pressures on profitability, challenges from new entrants enabled by advances in information technology). - Government expected to dispose of ownership stakes in commercial banks; authorities are encouraged to reflect on prudential supervision implications. ### Human resources and institutional capacity - High turnover of Central Bank supervisory staff is a challenge; risks identified in 2013 have materialized as experienced staff are attracted to ECB and private sector roles. - Even though headcount has increased and situation is broadly manageable, continued very high turnover may compromise institutional memory and practical experience depth. - Central Bank needs to offer an attractive and flexible package of material and non-material rewards to recruit and retain experience and skills for particular positions. - Approximately two thirds of staff in the banking supervision divisions in the Central Bank has been there for less than two years. ### Cooperation and mission appreciation - Irish authorities were very cooperative and open in assisting with preparation of the note and the FSAP; organizational skill and enthusiasm support a positive assessment of supervision quality in Ireland. ### Main recommendations (as presented in Executive Summary) - Continue to streamline options under national discretion and ancillary national regulations and legislations within the SSM-wide thrust for regulatory harmonization (paragraphs 18–20). — MT - Further enhance the efficiency and enforceability of SSM supervision of credit risk by considering the effectiveness of supervisory powers to require banks to adjust classification and provisioning for prudential purposes (paragraph 38). — NT - Consider strengthening SSM supervisory guidance on credit risk by including time-bound requirements for uncollectible loans and a nonaccrual principle for the income recognition of NPLs (paragraph 39). — NT - Enhance the current SSM prudential engagement with external auditors regarding credit risk and IFRS application by banks (paragraph 39). — NT - Remain vigilant that harmonization of the SSM supervisory processes is balanced by application of the principle of proportionality (paragraph 25). — On-going - Analyze further the stability implications of longer-term trends in the banking industry and implications for banking supervision in Ireland (paragraph 23). — NT - Review Central Bank personnel policies to attract and retain experienced staff (paragraphs 44–45). — NT - Further enhance the efficiency of the preparatory work undertaken within the Central Bank which supports decision-making within the SSM (paragraph 16). — NT - Note: “NT-near-term” denotes up to 2 years; “MT-medium-term” denotes 2–5 years. --- ### A. The Implementation of the SSM — roles, dates, and operational implications - Key dates and legal basis: - On November 4, 2014, prudential supervisory responsibilities and decision making powers moved to the ECB. - CRD IV/CRR came into force on January 1, 2014. - Central Bank designated National Competent Authority (NCA) under S.I. 158 of 2014 and CRR, subject to competences assumed by the ECB under Council Regulation (EU) No 1024/2013 (“SSMR”) and Regulation (EU) No 468/2014 (“SSMFR”); S.I. 495 of 2014 amended S.I. 158 of 2014. - Roles and oversight: - ECB is competent authority for micro-prudential supervision of Significant Institutions (SIs) operating in Ireland. - Central Bank remains responsible for supervision of Less Significant Institutions (LSIs) and must ensure supervisory teams in Ireland are adequately resourced and effective. - ECB oversees Central Bank’s supervision of LSIs. - Operational dynamics and resourcing: - Common SSM methodologies, processes, and procedures are fully operational in the Central Bank. - SSM places much decision-making at the Supervisory Board and Governing Council of the ECB; Central Bank’s active membership requires significant preparatory work by a small number of experts. - Central Bank created new teams and an SSM Advisory Committee to support Supervisory Board agenda preparation; review of Central Bank’s approach to SSM briefing support is timely to ensure efficiency and recognize resource strains. ### B. Regulatory and legislative framework — harmonization and national particularities - ECB is reviewing CRD IV/CRR discretions; Governing Council adopted an ECB Guide on options and discretions in March 2016. - Central Bank communicated policy positions on options and discretions in May 2014 (2014 Implementation Notice); update recommended as ECB harmonization advances. - ECB cannot legally harmonize areas allocated in CRD IV/CRR to member states (mostly macroprudential measures and systemic capital buffers). - National legal transpositions create complexity: licensing assessments, fit and proper authorizations, enforcement and sanctioning powers, and third-country branch authorizations require alignment between national legislation and SSM decision-making, sometimes causing delays. ### C. Supervisory approach and process - Supervisory philosophy: - Intrusive, assertive, risk-based, forward-looking supervision adopted and intensified post-2008–11 crisis. - Central Bank’s PRISM (introduced 2011) is risk-based and proportionate; ECB used PRISM basis for IMAS migration. - SREP and supervisory consistency: - SSM Supervisory Review and Evaluation Process (SREP) developed by the ECB along EBA guidelines is central; Joint Supervisory Teams (JSTs) analyze business models, governance, profitability, risks, capital, and liquidity to issue SREP decision letters. - Central Bank applies the same approach to LSIs as for SIs; SSM Supervisory Manual guides LSI supervision and is being updated. - Proportionality concerns: - Initial SSM phase emphasized harmonization and rigorous procedures; attention needed to re-balance toward proportionality and differentiation by complexity/risk to avoid resource strain and process-driven supervision. - Example: SREP’s robust detailed list of risk indicators may constrain proportionality; supervisory engagement planning could be more proportionate and flexible. ### D. Reorganization and inspection practices - Central Bank reorganization mirrored SSM model with three banking divisions: - On-going Supervision (BSSD) - On-site Inspections (BSID) - Specialist horizontal function (Analysis Division—BSAD) - Inspection durations (post-SSM): - For an SI: inspections can last 12 weeks, including some 8 weeks spent onsite. - For an LSI: inspections can last an average of 8 weeks, with 4-5 weeks spent onsite. - Granularity and frequency of inspections increased; dedicated credit inspection team established aligned with ECB centralized onsite inspection units. ### E. Supervisory coverage and institution counts/asset figures (end-2015) - SIs and subsidiaries supervised by ECB JSTs: - Four SIs and five subsidiaries operating in Ireland; total assets of €284bn and €64bn respectively. - JSTs led by JST coordinator at ECB with sub-coordinator at Central Bank; JST composition averages one ECB to three Central Bank staff. - LSIs: - 13 LSIs operating in Ireland with total assets of €116bn. - ECB categorized Irish LSIs in 2015 as: seven High Priority, three Medium Priority, and three Low Priority. - Branches: - Central Bank developed strategy for 30 bank branches from the European Economic Area operating in Ireland. - As of end-2015: 17 branches are “SSM branches” supervised by JSTs (total assets €80bn); 13 “Non-SSM branches” under direct Central Bank responsibility (total assets €17bn). - Credit unions: - 354 registered credit unions as of 31 December, 2015 with total assets of €15bn; Registry of Credit Unions implementing peer-review recommendations and expanding onsite supervision focus on credit risk. ### F. Credit risk, NPLs, and supervisory measures - NPLs priority and effects: - High NPLs tie up capital, reduce profitability, raise funding costs, and dampen credit supply; resolving impaired loans can stimulate demand for new loans from restructured viable firms and promote wind-down of unviable firms. - Situation remains challenging particularly in SIs under direct ECB supervision despite falling NPLs in Ireland. - Strengthening enforcement toolkit: - Direct supervisory powers to require asset reclassification and increased provisioning for prudential purposes would strengthen enforcement compared with relying on Pillar 2 capital add-ons. - Supervisory enforcement of reclassifications affects profit and loss accounts, payout/compensation policies, disciplines managers, forces collection of impaired loans, and reduces operational expenses. - Additional supervisory guidance recommended: - Implement time-bound requirements for uncollectable loans. - Adopt a nonaccrual principle for income recognition of NPLs for prudential purposes. - Consider public disclosure of granular NPL information, following the EBA 2015 EU-wide transparency exercise, including disclosure of accrual treatment of NPLs. - Enhance dialogue between supervisors and external auditors to reinforce IFRS implementation and strict application of IFRS 9 on financial instruments. - SSM NPL Taskforce expected to collect good practices and propose ECB Guidelines to strengthen SSM-wide supervisory guidance on credit risk. - Central Bank experience and actions: - Issued “Impairment Provisioning and Disclosure Guidelines” in May 2013; conducted Asset Quality Reviews (AQR), Mortgage Arrears Resolution Targets (MART), and a detailed 2015 provisions review with JSTs. - Deep dives and credit file reviews have been undertaken: 2013 Balance Assessment, 2014 SSM/ECB Comprehensive Assessment, 2015 Impairment Provisioning Review. - Central Bank Director of Credit Institutions Supervision chairs the SSM NPL task force. - Limitations of current enforcement practice: - When banks fail supervisory expectations on classification/provisioning, supervisors may adjust ratings or impose higher capital under Pillar 2; Pillar 2 is seen as less effective and less transparent than direct powers to require reclassification/provisioning adjustments. ### G. Supervisory philosophy and accounting incentives - Philosophical divide: - Some supervisors treat loan classification/provisioning as accounting domain and prefer capital add-ons; others have explicit powers for prudential reclassification and provisioning distinct from accounting. - Accounting standard issues: - IFRS incurred-loss approach is backward-looking; IFRS 9 (effective in 2018) expected to address this. - IFRS permits accrual of interest income from NPLs, inflating profitability and reducing incentives to dispose of NPLs. - Guidance on collateral valuation in impairment recognition is unclear. - Remedies focus on strict implementation guidelines and intrusive supervision rather than changing accounting standards. ### H. Corrective actions, sanctioning, and resolution powers - Corrective actions and supervisory acts: - For SIs in Ireland, corrective actions achieved by supervisory expectations and supervisory acts (recommendations or risk mitigation programs) which are not legally binding but have been sufficient. - Escalation to Supervisory Board is available if expectations are unmet; option operational but not used in Ireland to date. - Corrective actions for LSIs: - Central Bank uses risk mitigation programs to require LSIs to address inspection and supervisory review findings. - Central Bank’s corrective and sanctioning powers enhanced through SSM supervisory practices and post-2013 legislation. - Sanctioning responsibilities: - Sanctioning is shared: ECB has exclusive competence for pecuniary sanctions on SIs for breaches of directly applicable EU law related to ECB tasks. - Central Bank may impose non-pecuniary penalties and pecuniary/non-pecuniary penalties on SIs for breaches of national legislation (if ECB requires it to open proceedings). - Central Bank can impose sanctions on LSIs and their management for breaches; ECB has exclusive competence to impose sanctions on LSIs for breaches of ECB regulations imposing obligations vis-à-vis the ECB. - Resolution framework: - Central Bank is Ireland’s National Resolution Authority. - “2015 Regulations” transpose the Banking Recovery and Resolution Directive into Irish law; SRB assumed direct responsibility for resolution planning/decision-making for SIs and pan-European banks, Central Bank retains responsibility for other LSIs. - Resolution Division established and structurally separated from supervisory functions; reports to the Director of Resolution and Corporate Affairs with cooperation on recovery and resolution matters. ### I. Interaction between macroprudential and microprudential analyses - Internal structures: - Central Bank has internal committees (e.g., Financial Stability Committee, Supervisory Risk Committee) with cross participation facilitating exchange between macroprudential and microprudential functions. - Example of cooperation: analysis of the impact of “Brexit.” - Macroprudential responsibilities: - Macroprudential policy for banking is shared between Central Bank and ECB; SSM Regulation confers specific tasks relating to CRR/CRD IV instruments (transposed via Statutory Instrument No. 158 of 2014). - ECB can apply more stringent measures than national authorities (“top-up power”) but cannot set lower requirements than national. - For instruments outside CRR/CRD IV (e.g., limits on loan-to-value and loan-to-income), national authorities have full powers though ECB can suggest their use. ### Follow-up on 2013 BCP assessment - Overall progress: - 2013 BCP assessment resulted in overall satisfactory compliance; substantive post-crisis steps: institutional amendments, increased supervisory staff, proactive supervision, expanded prudential requirements, improved enforcement powers. - Some areas required continued attention; full effectiveness of reforms required time for seasoning and staff experience accumulation. - Specific follow-up actions: - Credit risk supervision: increased onsite inspections; dedicated inspections division (BSID) and credit inspection team established; frequency/depth of credit inspections for LSIs increased. - Related Party Lending: Central Bank conducted July 2014 survey; concluded lending remains primary related party transaction area; similar exercise planned for 2016. - PRISM calibration: engagement model amended so minimum prudential engagement is determined by “Priority” (impact and risk) rather than “Impact” alone; LSIs continue under PRISM, with SSM pilot for migration to IMAS. - Legislative powers and auditors: Central Bank views existing powers (Section 46(2) and Section 46(1) of Central Bank Act, 1989) as enabling direction to credit institutions regarding auditor appointments; mission had recommended explicit legislative power to reject/rescind external auditors. *Source: IMF staff report text provided in content unit _cr16318 (IMF, Ireland FSAP Update, March 2–16, 2016).* ### EXECUTIVE SUMMARY ___________________________________________________________________________ 4 ### EXECUTIVE SUMMARY ### Key findings on SSM implementation and prudential supervision - The effective operational implementation of the Single Supervisory Mechanism (SSM) is well established in Ireland, and all authorities are actively engaged and committed to the new ECB-led supervisory framework. - The SSM has further strengthened the prudential regulation and supervision of banks since the time of the 2013 assessment, enhancing the consistency of supervisory practices across the euro area, and shielding supervision from undue pressures from special interests. - The prudential regulation and supervision of banks in Ireland has improved greatly since the 2013 assessment of observance of the Basel Core Principles for Effective Banking Supervision (BCP). That assessment found that regulation and supervision were already generally effective and thorough. - Action has been taken in most of the areas identified in 2013 as in need of amelioration. ### Transitional challenges from SSM implementation - Current practices in supervisory engagement suggest that the balance between the principle of proportionality and the need for harmonization is currently tilted towards the latter. This tendency may be creating possible unnecessary burdens on supervisors and credit institutions. - Remaining areas of national discretion and ancillary national regulations can be revisited with the objective of being simplified and harmonized, respecting the specificities of the banking system of Ireland. - Ireland would benefit from an enhanced SSM-wide approach to effective and active supervision of credit risk and related provisioning and write-backs. - Onsite credit-risk inspection to assess independently the quality of banks’ assets is a priority in the SSM, including in Ireland. - The high level of NPLs remains a critical area of supervisory concern. Current SSM initiatives to develop timely, active, and intrusive supervisory guidelines are welcome. ### Supervisory powers, auditors, and accounting standards - Guidelines should be accompanied by ensuring that supervisors have effective powers to require credit institutions to adjust their classification of individual assets and increase levels of provisioning for prudential purposes (rather than just on accounting principles). - Supervisors should engage in a focused dialogue with external auditors to discuss differences in approaches and reporting outcomes in the area of loan classification and provisioning, and to reinforce the implementation of the International Financial Reporting Standards (IFRS)—particularly a strict application of IFRS 9, on financial instruments. ### Future trends and prudential implications - As Ireland and the euro area move beyond the immediate post-crisis period, supervisors will have occasion to analyze the stability implications of longer-term trends in the banking industry (e.g., pressures on profitability, challenges from new entrants enabled by advances in information technology). - The government is expected to dispose of its ownership stakes in the commercial banks; authorities are encouraged to reflect further on how these possibilities might affect prudential supervision. ### Human resources and institutional capacity - High turnover of Central Bank supervisory staff presents a challenge. Concerns regarding the Central Bank’s ability to seek and retain experienced supervisors were already pointed out during the 2013 BCP assessment. - Even if staff headcount has increased and the situation is broadly manageable, turnover has been exacerbated and the risks identified in 2013 have materialized—i.e., experienced Central Bank staff is attracted to the benefits of working directly for the ECB and in the private sector as the Irish economy picks up. - Continued very high turnover may eventually compromise institutional memory and the depth of practical experience among the staff. - The Central Bank needs to be able to offer an attractive and flexible package of material and non-material rewards and incentives that addresses its difficulties in recruiting and retaining appropriate experience and skill sets for particular positions. ### Cooperation and mission appreciation - The authorities were very cooperative and open in assisting with the preparation of this note and the FSAP generally. - The organizational skill and enthusiasm displayed supports the positive assessment of the quality of supervision in Ireland. ### Main recommendations (Table 1) - Continue to streamline options under national discretion and ancillary national regulations and legislations within the SSM-wide thrust for regulatory harmonization (paragraphs 18–20). — MT - Further enhance the efficiency and enforceability of SSM supervision of credit risk by considering the effectiveness of supervisory powers to require banks to adjust classification and provisioning for prudential purposes (paragraph 38). — NT - Consider strengthening SSM supervisory guidance on credit risk by including time-bound requirements for uncollectible loans and a nonaccrual principle for the income recognition of NPLs (paragraph 39). — NT - Enhance the current SSM prudential engagement with external auditors regarding credit risk and IFRS application by banks (paragraph 39). — NT - Remain vigilant that harmonization of the SSM supervisory processes is balanced by application of the principle of proportionality (paragraph 25). — On-going - Analyze further the stability implications of longer-term trends in the banking industry and implications for banking supervision in Ireland (paragraph 23). — NT - Review Central Bank personnel policies to attract and retain experienced staff (paragraphs 44–45). — NT - Further enhance the efficiency of the preparatory work undertaken within the Central Bank which supports decision-making within the SSM (paragraph 16). — NT - Note: “NT-near-term” denotes up to 2 years; “MT-medium-term” denotes 2–5 years. *Source: EXECUTIVE SUMMARY, _cr16318 (IMF, Ireland FSAP Update, March 2–16, 2016).* ### 11. The rest of the note is divided into two sections: The first section discusses a selected list ### _cr16318 - 11. The rest of the note is divided into two sections: The first section discusses a selected list ### Overview - The note is divided into two sections: the first discusses a selected list of relevant topics about supervisory practices for banking activities conducted in Ireland; the second updates the 2013 BCP assessment and actions taken by the authorities, with principle-by-principle documentation presented in Table 2. - Table 2 summarizes "Actions Taken by the Authorities to Address 2013 BCP Recommendations" with itemized CP (Core Principle) recommendations and the authorities' responses. ### Table 2 — Actions Taken to Address 2013 BCP Recommendations (selected entries) - CP2. Independence - Recommendation: Amend existing legislation to detail the framework for Central Bank independence. Also address reasons for removal of Commission members to be similar to Governor. - Action: The Irish Authorities considered no action as necessary. - Rationale: Independence of banking supervision addressed through creation of the SSM. Central Bank independence was already considered in legal reforms after the financial crisis. Implementation of the SSM provides for independence in Article 19 SSMR. - CP2. Resources - Recommendation: Take steps to fill vacancies in banking supervision. - Action: Addressed. - Rationale: Vacancies have been filled and headcount increased. Human resources continue to be an issue for effectiveness of supervision although of a different nature. - CP5. Licensing criteria - Recommendation: Consider options for improving the Central Bank’s ability to conduct fit and proper reviews during licensing of banks owned by unregulated parents; study enforceability of special conditions to the license that must be accepted by parent company at time of approval. - Action: Central Bank considered no action as necessary. - Rationale: With SSM implementation, the Central Bank is no longer the competent authority for licensing and conditions can only be imposed by the ECB (other than for Third Country Branches). - CP9. Supervisory techniques and tools - Recommendation: Consider distribution of resources and supervisory tasks across Medium Low and Low Impact ratings. Consider expanding key risk indicators in PRISM to include operational risk and interest-rate risk in the banking book. - Action: Addressed. - Rationale: SSM implementation, SSM-wide supervisory process for LSIs, and amendments to supervisory engagement model have addressed these recommendations. - CP15. Risk management process - Recommendation: For banks accredited to use internal models, annual assessment that banks comply with supervisory standards (e.g. validation). Implementation of framework to assess IT across regulated banks. - Action: Addressed. - Rationale: SSM requires an annual review of credit institutions’ approved models. Only one LSI uses internal models, where the home supervisor performs this assessment. The ECB and a new dedicated Central Bank IT inspection team assess IT risks across banks. - CP17. Credit risk - Recommendation: Increase frequency and loan sample size for Medium Low banks. - Action: Addressed. - Rationale: Since SSM implementation, frequency and loan sample sizes have increased for medium low banks (now termed LSIs). A dedicated credit inspection team conducts onsite inspections. - CP18. Problem assets, provisions, and reserves - Recommendation: Greater frequency and depth of onsite reviews of loan loss provisioning practices (e.g., testing of assumptions against experience, recognition of default, prudent valuations). - Action: Addressed. - Rationale: Frequency and depth of on-site reviews increased; dedicated onsite inspection team for credit risk aligned with centralized inspections units at the ECB. - CP20. Transactions with related parties - Recommendation: Amend the Related Party Lending code to include asset sales, deposits and other areas; expand information in Related Party Lending regulatory reports for offsite compliance assessment. - Action: Central Bank considered no action as necessary. - Rationale: Central Bank completed a survey supporting adequacy of current code; amendments not introduced. Central Bank continues to monitor compliance and will amend as needed. - CP27. Financial reporting and external audit - Recommendation: Enact legislation giving the Central Bank the power to reject or rescind external auditors. - Action: Central Bank considered no action as necessary. - Rationale: Central Bank considers it already has adequate powers to direct credit institutions not to appoint or reappoint auditors. Use of such powers has not been required to date. ### A. The Implementation of the SSM - Key dates and arrangements: - On November 4, 2014, prudential supervisory responsibilities and decision making powers moved to the ECB. - The ECB is the competent authority responsible for micro-prudential supervision of the SIs operating in Ireland; the Central Bank remains responsible for supervision of the LSIs operating in Ireland. - The Central Bank is designated as the National Competent Authority (NCA) for the purposes of S.I. 158 of 2014 and CRR, subject to competences assumed by the ECB under Council Regulation (EU) No 1024/2013 (“SSMR”) and Regulation (EU) No 468/2014 of the ECB (“SSMFR”). The European Union (Single Supervisory Mechanism) Regulations 2014 (S.I. 495 of 2014) amended, inter alia, S.I. 158 of 2014. - Roles and oversight: - The Central Bank must ensure supervisory teams in Ireland are adequately resourced and that direct responsibilities are conducted to highest quality and effectiveness. - The ECB oversees the Central Bank’s supervision of the LSIs. - Operational experience and dynamics: - Common SSM methodologies, processes, and procedures are fully operational in the Central Bank. - Central Bank staff recognize SSM strengths, including ability to leverage expertise across ECB and NCAs, notably in supervision of credit risk. - Balance between centralization and decentralization is critical; need to recognize specific circumstances of Irish banks (different business models, risks, domestic SIs vs internationally owned LSIs). - Central Bank retains important responsibilities: participation in JSTs, direct supervision of LSIs, performance of “non-core supervisory responsibilities” for all banks (mainly conduct of business and anti-money laundering), and conducting core supervisory responsibilities on behalf of the ECB—responsibilities with substantial resource implications. - The transfer of competences has required internal discussions about practical responsibilities and interactions, but has not prevented effective SSM implementation. - Decision-making and resourcing implications: - SSM places much decision-making at the Supervisory Board and Governing Council of the ECB. - Central Bank’s active membership in both bodies means significant preparatory work by a small number of supervisory and policy experts at the Central Bank. - To support participation, new teams and processes created, including creation of an SSM Advisory Committee providing inputs to the SSM Briefing Team on Supervisory Board agenda items. - It is timely for the Central Bank to review its approach to supporting and providing briefings for SSM decision-making to ensure efficiency and effectiveness and to recognize strains on Central Bank supervisory resources. ### B. Regulatory and Legislative Framework - Recent EU framework changes: - The fourth Capital Requirements Directive (CRD IV) and Capital Requirements Regulations (CRR) came into force on January 1, 2014. - CRD IV/CRR require enhancements in quality and quantity of capital, determination of capital requirements, minimum liquidity requirements, and quality/granularity of regulatory reporting. EBA standards and guidelines have further enhanced these areas. - Options and discretions review: - The ECB, with NCAs, is reviewing provisions in CRD IV/CRR that provide discretion to competent authorities. - The ECB held a public consultation on draft ECB Regulation on exercise of options and discretions; an ECB Guide on options and discretions available in Union law was adopted by the Governing Council in March 2016. - Prior to SSM commencement, the Central Bank communicated policy positions on options and discretions in May 2014 (2014 Implementation Notice on S.I. 158 of 2014 and the CRR). - The Central Bank should consider updating its Implementation Notice on options and discretions once ECB harmonization advances further. - In the vast majority of cases, ECB policy positions have been consistent with Central Bank’s pre-SSM positions; a small number of options/discretions differ (e.g., large exposure waivers for covered bonds). - ECB cannot legally harmonize areas allocated in CRD IV/CRR to member states (mostly macroprudential measures and systemic capital buffers). - Legal and national compliance challenges: - Single supervisory framework must comply with national legislation for LSIs and SIs alike due to differing transpositions of directives and domestic legislation. - Examples for Ireland: - Licensing applications must be assessed by national authorities in compliance with national ancillary legislation, with analysis and decision making conducted by the ECB in accordance with EU legislation. - All fit and proper authorizations of members of supervisory body for SIs are assessed against national criteria in conjunction with the ECB and then submitted to the ECB Governing Council. - Enforcement and sanctioning powers of the ECB are largely based on national legislation. - Third-country branch authorizations fall within NCA competence (relevant as Ireland is a hub for international financial groups). - Delays in decision making can be attributed to need for further regulatory harmonization. - Enhanced harmonization of supervisory practices will require further harmonization of regulatory and legislative framework, while being conscious of national particularities during SSM operational implementation. ### C. The Supervisory Approach - Overall approach: - Intrusive and effective banking supervision aimed at contributing to safety and soundness of banking system and stability of financial system. - Central Bank shares objectives and aims to take proportionate approach in an intrusive and assertive manner. - This approach was intensified after the 2008–11 financial crisis toward more intrusive, intensive and outcomes-focused supervision. - Risk-based framework: - Banking supervision is risk-based within the SSM framework; SSM implemented prudential supervision framework for euro area banks based on sound practices for independent, forward-looking, and risk-based supervision. - Central Bank introduced PRISM in 2011 as a risk-based and proportionate supervisory framework. - The ECB purchased PRISM as basis for its Information Management System (IMAS), easing Central Bank migration to IMAS. - Forward-looking priorities: - Priority work areas: analysis of bank business models; advance preparation for supervisory issues from bank privatization and other structural changes. - Anticipated changes in next few years may include partial or full sale of the state’s stakes in commercial banks and competitive pressures from new financial technology providers. - Potential consequences: significant changes in bank ownership, payments and lending services provision, altered competition conditions, and prudential and consumer-protection concerns. - Authorities are undertaking thematic and bank-specific reviews of business models, accounting for market-wide effects. ### D. The Supervisory Process - SREP and consistency: - Credit institutions covered by SSM are targeted to be supervised according to the same methodology. - Central piece of SSM supervisory process is the Supervisory Review and Evaluation Process (SREP), developed by ECB along EBA guidelines. - Under SSM SREP, JSTs and supervisory teams analyze business models, internal governance, profitability, banking risks and their effects on capital, and liquidity to issue SREP decision letters. - Central Bank decided overall approach to supervision of LSIs would be the same as for SIs; SSM Supervisory Manual (currently being updated) provides direction for LSI supervision. - Approach ensures consistent and homogenous supervisory practices across Irish credit institutions; ECB role in ensuring cross-jurisdiction consistency is key. - Proportionality and resource considerations: - More attention needed to application of proportionality in SSM supervisory processes to avoid unnecessary burdens on supervisors and credit institutions. - Initial SSM phase emphasized rigorous, pro-active procedures and harmonization; as initial phase ends, focus should shift to differentiating across banks based on complexity and inherent risks. - Strains on resources create risk of supervision becoming excessively process-driven for harmonization’s sake, rather than delivering effective and efficient supervisory discipline for SIs and LSIs. - Examples: - SREP specifies supervisors go through robust and detailed list of risk indicators, which may constrain proportionality. - Supervisory engagement planning may benefit from enhanced focus on proportionality and flexibility. *IRELAND INTERNATIONAL MONETARY FUND* ### 26. The introduction of the SSM provided the opportunity for further strategic review of ### _cr16318 - 26. The introduction of the SSM provided the opportunity for further strategic review of ### Reorganization of banking supervision at the Central Bank - Creation of three separate but inter-dependent banking divisions mirroring the SSM operating model: - On-going Supervision (Supervision Division—BSSD) - On-site Inspections (Inspections Division—BSID) - Specialist horizontal function (Analysis Division—BSAD) - BSID complements BSSD; BSAD and on-site inspections provide materially enhanced evidence to support and challenge supervisory assessments and to inform proposed Risk Mitigation Programs required of credit institutions. - New Central Bank divisions are closely aligned with centralized divisions in the Directorate General Microprudential Supervision of the ECB. ### SSM Supervisory Manual and changes to inspection practices - The ECB developed the SSM Supervisory Manual, a comprehensive methodology for ongoing and onsite supervision setting out specific procedures for supervisory processes in the SSM. - Pre-SSM practice: inspections generally carried out by the ongoing supervision team; number and focus determined by PRISM minimum engagement cycle; specialist teams could assist; inspections rarely exceeded two weeks onsite. - Current inspection durations: - For an SI: inspections can last 12 weeks, including some 8 weeks spent onsite. - For an LSI: inspections can last an average of 8 weeks, with 4-5 weeks spent onsite. - Granularity of inspections has increased due to SSM Manual guidance and longer onsite periods. ### Supervision of individual institutions: SIs, subsidiaries, LSIs, branches, and credit unions - Competent authority: - With SSM introduction, the ECB became the competent authority for supervision of credit institutions in Ireland. - SIs are supervised directly by the ECB under the SSM Supervisory Manual. - The Central Bank remains responsible for direct supervision of LSIs through PRISM, with ECB oversight; Central Bank adapting LSI supervision to the ECB Supervisory Manual and SSM working to migrate LSI supervision to IMAS. - SIs and subsidiaries: - Supervision of four SIs and five subsidiaries of SIs operating in Ireland is the exclusive responsibility of the ECB through dedicated JSTs (total assets of €284bn and €64bn respectively, end-2015). - JST composition and operation: - Led by a JST coordinator based at the ECB with a JST sub-coordinator based at the Central Bank. - JSTs use the uniform SSM Supervisory Manual methodology. - JSTs comprise ECB and Central Bank staff in an average proportion of one to three. - Central Bank staff assigned to the four SIs is full time dedicated to JST work; Central Bank indicates flexibility to reassign staff to specific assignments if needed. - Structural challenges to monitor: remote team working, multinational cultural factors, and communication cascading within SSM/ECB; managerial competence of JST coordinators and sub-coordinators is mitigating issues. - LSIs: - There are 13 LSIs operating in Ireland with total assets of €116bn as of end-2015. - In 2015, the ECB categorized Irish LSIs as: seven High Priority, three Medium Priority, and three Low Priority. - Re-alignment of Medium Low PRISM impact credit institutions with High and Medium Priority LSI categorization resulted in increased supervisory effort. - LSI supervision continues to be conducted by the Central Bank in accordance with PRISM principles, with supervisory engagement under PRISM amended to reflect High/Medium/Low priority per SSM LSI prioritization methodology. - ECB and NCAs regularly develop joint supervisory standards; ECB reviewing its risk assessment methodology and updating the SSM Manual in respect of LSI supervision, impacting engagement models and fostering convergence across SSM members. - Foreign bank branches: - Central Bank developed a Supervisory Engagement Strategy and associated SEP for the 30 bank branches from the European Economic Area operating in Ireland. - As of end-2015: - 17 branches are considered “SSM branches” supervised by the JSTs (total assets €80bn). - 13 branches are “Non-SSM branches,” under direct Central Bank responsibility (total assets of €17bn). - A bespoke supervisory strategy and engagement plan developed for one third-country branch recently established in Ireland. - Credit unions: - Central Bank assumed regulation and supervision of credit unions in 2003 (437 then); as of 31 December, 2015 there were 354 registered credit unions with total assets of €15bn. - Credit unions are regulated and supervised under credit union legislation by the Registry of Credit Unions, a division of the Central Bank headed by the Registrar of Credit Unions, reporting to the Director of Credit Institutions Supervision. - In 2015, the International Credit Union Regulators’ Network (ICURN) conducted a peer review of the Registry of Credit Unions (first such peer review). The review concluded the Central Bank effectively performs its functions and has introduced a comprehensive regulatory structure. - Registry is addressing peer review recommendations, including adjusting PRISM engagement to expand onsite supervision, enhancing communication and engagement with the sector, and refocusing scarce resources on key risk areas—particularly credit risk. - The sector is undergoing intense restructuring; the Registry will continue monitoring and intervening per statutory functions. - Registry supervisory approach for 2016 and beyond will ensure focus on viability and strategic planning; slow pace of sector transformation is a key concern. ### Credit risk, NPLs, and supervisory measures - NPLs remain a high-priority concern for supervisors at the Central Bank and the ECB: - High NPLs tie up bank capital, reduce profitability, raise funding costs, and dampen credit supply. - Resolving impaired loans can stimulate sound demand for new loans from restructured viable firms and promote winding down of unviable firms. - Situation remains challenging particularly in SIs under direct ECB supervision despite falling NPLs in Ireland. - Measures to strengthen regulatory framework: - Supervisors directly requiring credit institutions to adjust classifications of individual assets and levels of provisioning for prudential purposes would strengthen the framework. - Alternative: capital add-ons (Pillar 2) are possible but international experience suggests requiring reclassifications and increased loss provisioning is more effective and efficient. - Supervisory enforcement of reclassifications affects profit and loss accounts, bank payout and compensation policies, disciplines bank managers, forces collection of impaired loans, and reduces operational expenses; is more transparent and presents a fair prudential view. - Additional supervisory guidance recommended: - Implement time-bound requirements for uncollectable loans. - Adopt a nonaccrual principle for income recognition of NPLs for prudential purposes. - Consider public disclosure of granular NPL information, following the EBA 2015 EU-wide transparency exercise, including disclosure of accrual treatment of NPLs. - Enhance dialogue between supervisors and banks’ external auditors to reinforce IFRS implementation based on supervisory guidance consistent with accounting standards and to ensure strict application of IFRS 9 on financial instruments. - SSM initiatives (SSM NPL Taskforce) expected to collect good practices and propose ECB Guidelines to strengthen SSM-wide supervisory guidance on credit risk. - Current supervisory practices and experience: - Central Bank issued supervisory guidance on impairment triggers and provisions (sound precedent) and intervened to address identified NPL misclassification and under-provisioning. - Central Bank experience includes deep dives based on credit file reviews and supervisory exercises: 2013 Balance Assessment, 2014 SSM/ECB Comprehensive Assessment, and 2015 Impairment Provisioning Review (in collaboration with JSTs). - Central Bank strengthened dedicated credit inspection team aligned with ECB centralized onsite inspection units; activities identify poor practices and require remediation via risk mitigation plans. - Central Bank’s Director of Credit Institutions Supervision chairs the SSM NPL task force. - Limitations of current enforcement practice: - When banks do not meet supervisory expectations on classification and provisioning, supervisors may reflect deficiencies in supervisory ratings or impose higher capital requirements under Pillar 2. - Evidence exists of successful application of the Pillar 2 procedure, but Pillar 2 is recognized as less effective and less transparent than direct supervisory powers to require adjustments to classifications and provisioning. - Some SSM supervisory staff acknowledged that Pillar 2 is not the most effective way to address prudential concerns in credit portfolios. ### Final considerations on supervisory philosophy and accounting incentives - Supervisory divergence across Europe: - A deep philosophical divide exists on the supervisor’s role regarding loan classification and loss provisioning. - Some supervisors view capital as the supervisor’s exclusive domain and limit enforcement to capital add-ons, viewing direct requirements on classification/provisioning as intrusion into accounting/auditing domain. - Other supervisors have explicit powers to require prudential reclassifications and provisioning adjustments distinct from accounting purposes. - Accounting standards and incentives: - Accounting standards as implemented across Europe weaken incentives to resolve NPLs. - IFRS incurred-loss approach is backward-looking (expected to be addressed by IFRS 9 effective in 2018) and leaves room for judgment that may result in insufficient provisions. - IFRS allows accrual of interest income from NPLs, inflating profitability and lowering incentives to dispose of NPLs. - Guidance on collateral valuation in impairment loss recognition is unclear. - Remedies do not require changing accounting standards but can be effected through strict implementation guidelines and intrusive, active supervision. *Source: IMF staff report text provided in content unit _cr16318 - 26.* ### 44. Current headcount and skill set support the quality of the supervision of banking ### 44. Current headcount and skill set support the quality of the supervision of banking ### Headcount, skills, and workload - Current headcount and skill set support the quality of the supervision of banking activities in Ireland; however, the increasing expansion of supervisory tasks has to be mindful of the full-time equivalent employees needed to carry them out. - Central Bank supervisory staff has significantly increased since the 2013 BCP assessment; meanwhile, the ECB has already started a second general recruitment process for additional staff to cover ECB supervisory responsibilities. - Both the Central Bank and ECB are conscious about matching staff and skills to the intensity and the diversity of the work undertaken in Ireland. - Authorities are encouraged to monitor properly the work load of the supervisory functions, including resources allocated to perform their respective activities. - Anecdotal evidence suggests that there might be a sense of fatigue after this first intensive initial period of work, something that the competent authorities are encouraged to monitor. ### Retention and recruitment challenges - The Central Bank has to retain and attract sufficient numbers of experienced staff to: - staff JSTs and inspection teams, - supervise the LSIs, and - provide horizontal analysis. - The Central Bank banking supervisory functions have difficulty in retaining and recruiting new and experienced staff. - Even if staff headcount has increased since the 2013 BCP assessment and the situation is currently manageable, high turnover has been exacerbated and the risks identified in 2013 have materialized—i.e. experienced Central Bank staff has been recruited by the ECB, and by the private sector as the Irish economy is picking up. - Approximately two thirds of staff in the banking supervision divisions in the Central Bank has been there for less than two years. - Continued very high turnover may eventually compromise the effectiveness of the Central Bank contribution within the SSM project. - Recommendations and strategic responses noted in the text: - A Central Bank internal organization review could consider this issue and develop a strategy to address material disparities within an SSM wide context. - The Central Bank needs to offer an attractive and flexible employee value proposition that addresses its difficulty in recruiting and retaining appropriate experience and skill sets for particular positions. ### Follow-up on 2013 BCP findings related to resources - The 2013 BCP assessment identified limited supervisory resources and high staff turnover as concerns that may slow reforms. - Post-2013, headcount has increased; however, human resource constraints continue to be an issue, now focused on staff retention and turnover at the Central Bank and ECB staffing reconsiderations. --- ### H. Corrective Actions and Resolution Powers ### Corrective actions and supervisory acts - Since the inception of the SSM, corrective actions for SIs operating in Ireland have been achieved through means of expressing supervisory expectations. - After ongoing supervisory work and inspections, JSTs normally issue supervisory acts (in the form of recommendations or risk mitigation programs) to enforce corrective actions. - These supervisory acts express supervisors’ expectations and are not legally binding; however, this has been sufficient for supervisory discipline in Ireland. - If supervisory expectations were not met in a timely fashion, supervisors have the possibility to escalate them as a decision to the Supervisory Board. This option has not been used in Ireland but is operational in the SSM if need be. ### Corrective actions for LSIs - In relation to LSIs, the Central Bank takes corrective actions to address unsafe and unsound practices and sets out risk mitigation programs to be addressed by LSIs. - Central Bank supervisory teams use risk mitigation programs as the mechanism to require credit institutions to address findings from inspections and supervisory reviews. - The Central Bank’s corrective and sanctioning powers have been enhanced through the implementation of the SSM updated supervisory practices and additional legislation enacted since 2013. ### Sanctioning responsibilities - Sanctioning is a shared responsibility between the ECB and the Central Bank. - The ECB has exclusive competence for imposing pecuniary sanctions on SIs in respect of breaches of directly applicable EU law relating to the tasks of the ECB. - With regard to: - the imposition of non-pecuniary penalties on SIs, and - the imposition of pecuniary and non-pecuniary penalties on SIs in relation to breaches of national legislation transposing relevant EU Directives, the Central Bank may impose sanctions in these circumstances if the ECB requires it to “open proceedings with a view to taking action in order to ensure that appropriate penalties are imposed.” - Similarly, with regard to the imposition of pecuniary and non-pecuniary penalties on natural persons concerned in the management of SIs, the Central Bank may impose sanctions where appropriate. - The Central Bank has the power to impose sanctions on LSIs and their management for breaches (although the ECB has exclusive competence to impose sanctions on LSIs for breaches of ECB regulations, which impose obligations on the LSIs vis-à-vis the ECB). - The Central Bank also retains the power to impose sanctions in relation to breaches by SIs and LSIs and their management of national law that do not relate to the tasks of the ECB. ### Resolution framework and institutional arrangements - The Central Bank operates as Ireland’s National Resolution Authority. - The “2015 Regulations” transpose the Banking Recovery and Resolution Directive into Irish law and introduce a regime of recovery and resolution planning for credit institutions. - Under the Single Resolution Mechanism (SRM), the SRB has assumed direct responsibility for resolution planning and decision-making for SIs and pan-European banks while the Central Bank maintains such responsibility for other LSIs. - The SRM and the 2015 Regulations provide the SRB/Central Bank with tools to achieve their orderly resolution in the event of failure. - Following these regulations, the part of the Central Bank that carries out resolution-related responsibilities has to be structurally separate from the part that carries out supervisory responsibilities. - The Central Bank has established the Resolution Division to assist the Governor in the exercise of his resolution functions. - This division sits in the Central Banking side of the Central Bank, rather than in the Financial Regulation side, and reports directly to the Director of Resolution and Corporate Affairs. - Notwithstanding this structural separation, there is cooperation on recovery and resolution matters with the banking supervision and crisis management teams. --- ### I. Interaction between Macroprudential and Microprudential Analyses ### Internal structures and collaboration - The Central Bank is active in providing internal structures that facilitate the interaction between macroprudential and microprudential analyses. - Flexible and efficient committees with cross participation of senior officials and staff from various Central Bank Divisions with financial stability and micro-prudential responsibilities are set up within the Central Bank (e.g., the in-house Financial Stability Committee and the Supervisory Risk Committee). - These structures promote the exchange of information and collaboration between the two Central Bank functions. - The analysis of the impact of “Brexit” was mentioned as a good example of both parts working together. - The Central Bank also seeks the views of industry participants, academics, other regulators, as well as the public through consultations. ### Macroprudential policy responsibilities - Macroprudential policy regarding banking is a shared competency between the Central Bank and the ECB. - The SSM Regulation confers on the national authorities and the ECB specific tasks relating to macroprudential instruments for the banking sector set out in the CRR and CRD IV, which was transposed into Irish law using Statutory Instrument No. 158 of 2014. - The ECB can apply more stringent measures than those applied by Central Bank (“top-up power”), but cannot set lower requirements than those set nationally. - For instruments outside of the CRR and CRD IV, such as limits on loan-to-value and loan-to-income, the national authorities have the full powers and responsibilities, but the ECB can suggest national authorities to use their powers over these instruments. --- ### Follow up on findings from the 2013 BCP assessment ### Overall progress and caveats - The IMF-led Basel Core Principles assessment, finalized in November 2013 and published in May 2014, resulted in an overall satisfactory level of compliance with the BCPs. - Substantive steps had been taken by the Central Bank post-banking crisis in terms of: - amending the institutional setting, - increasing the quantity and caliber of supervisory staff, - designing and implementing a proactive and intensive approach to supervision, - expanding prudential requirements, and - improving enforcement powers. - The reform process was relatively young and the mission found that some areas required continued attention for its effective implementation. - Gauging the full effectiveness of the reforms required time for the new framework to season and for staff to gain experience through its use. ### A. Approach to the Supervision of Credit Risk - The 2013 BCP assessment encouraged the Central Bank to review banks’ practices to determine whether provisioning fully reflected loss experience. - The Central Bank issued “Impairment Provisioning and Disclosure Guidelines” in May 2013, with an initial focus on the covered banks. - Post 2013, the SSM, including the Central Bank, conducted considerable work in terms of the Asset Quality Reviews (AQR), Mortgage Arrears Resolution Targets (MART), and a detailed provisions review in 2015 in collaboration with the JSTs. - The 2013 mission recognized that the Central Bank did not have direct powers to reclassify assets and increase provisions, nor the legal power to overrule a decision by a bank’s external auditor; in such circumstances the Central Bank would rely upon its own regulatory powers to increase capital as per Regulation 70 of SI 661. - The mission recommended greater frequency and depth of onsite reviews of loan loss provisioning practices (e.g., testing of assumptions against experience, recognition of default, and prudent valuations). - Since the implementation of the SSM, onsite inspections have increased for SIs and LSIs. - The Central Bank has established a dedicated inspections division (BSID), which includes a credit inspection team. - The frequency and depth of credit inspections for LSIs has increased, addressing the 2013 deficiencies. ### Related Party Lending monitoring - The 2013 mission recommended amending and strengthening the monitoring of banks’ compliance with the Related Party Lending Code. - To address the recommendation, the Central Bank conducted a survey of all credit institutions in July 2014 to ascertain the extent of non-credit related party transactions and to determine whether there were any potential risks outside the scope of the current Code. - The results concluded that lending remains the most significant area of related party transactions. - A similar exercise was planned for 2016 to ensure the conclusion remains valid. - The Central Bank remains satisfied that the Code incorporates a detailed reporting framework to ensure monitoring compliance, but will continue to monitor adherence and may review the reporting framework if evidence of non-compliance emerges. ### B. Calibration of the Supervisory Approach (PRISM) - The 2013 BCP assessment raised the issue of the calibration of PRISM for Medium Low and Low Impact banks. - The Central Bank made significant progress in implementing PRISM, a risk-based, proactive, and intensive approach to supervision. - Previously, PRISM engagement was heavily skewed to the eight highest impact banks, with a reactive approach to lower impact firms, risking material accumulation of risks across lower impact firms. - The engagement model for the lower risk categories was reviewed as the SSM entered into force. - The SSM Supervisory Manual sets out processes, procedures, and methodology for the supervision of both Significant and Less Significant institutions, including supervisory tasks and key risk indicators. - The supervisory approach was amended so that the minimum prudential engagement level is no longer determined by “Impact” but by “Priority,” a combined assessment of impact and risk profiles. - Since November 4, 2014, the ECB is the competent authority for the supervision of SIs, while the Central Bank remains responsible for the supervision of LSIs, with oversight by the SSM. - LSIs and Third Country branches continue to be supervised through PRISM. - The authorities note that the SSM is considering that the LSIs will also migrate to IMAS and an SSM sponsored pilot project has commenced to assess such migration. ### C. Supervisory Resources and High Staff Turnover - Limited supervisory resources and high staff turnover were identified in 2013 as areas of concern that may slow the pace and effectiveness of reforms. - High-quality and experienced staff retention was identified as a problem and turnover in some areas of supervision was high. - A strategy to retain staff was recommended, starting by filling vacancies in supervision. - Following the 2013 recommendations, headcount has increased; however, human resource constraints continue to be an issue—staff retention and turnover are further exacerbated at the Central Bank, and the ECB is also reconsidering its staffing needs. ### D. Legislative Changes to Foster Central Bank’s Powers and Actions - The 2013 mission encouraged Irish authorities to propose legal amendments to codify and foster the independence of the Central Bank. - The 2013 legal framework exposed the regulatory process to political considerations by providing the Minister for Finance with several points of influence (e.g., approval of levy structure, denying a license application, involuntary revocation of a banking license, and budget setting). - The Government took care to reaffirm the Central Bank’s independence when introducing reforming legislation following the financial crisis. - Measures were introduced to strengthen the powers of the Central Bank and extend its remit into new areas such as bank resolution. - In the context of the SSM, the independence of banking supervision has been materially enhanced as the ECB is now the competent authority for banking authorizations (with the exception of third country branches) and revocations, and directly supervises SIs. - The mission recommended enacting legislation giving the Central Bank the power to reject or rescind external auditors; the Central Bank understands it can exercise other powers to the same effect: - Section 46(2) of the Central Bank Act, 1989, enables the Central Bank to direct a holder not to appoint or not to re-appoint to the office of auditor, or directors not to fill a casual vacancy in that office with a named person. - A credit institution is required to provide the Central Bank with at least 15 days’ notice prior to filling the post of the auditor of the firm (Section 46(1) of the Central Bank Act, 1989). - These powers enable the Central Bank to direct the credit institution not to appoint the proposed auditor. *Source: _cr16318 - 44. Current headcount and skill set support the quality of the supervision of banking* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16318.pdf_