More than most years, 2024 will first and foremost be a year of application and demonstration. 2023 saw a multitude of legislative and regulatory deadlines falling. With this invariably comes a period where firms come to terms with the application of the requirements necessitated by those deadlines. However hot on the heels of those compliance requirements, is the need to demonstrate that your governance and compliance systems are cogent and coherent.

While application and demonstration will be key to firms' day to day compliance work, we still expect a significant number of new developments to keep legal and compliance functions looking forward. As regulators, both domestically and at a European level, look to address the ever changing risks profile of the financial services sector, financial services firms can expect additional obligations to be imposed upon them in response to those risks. While the European elections may stymie the pace of some of those developments at a European level, a major change in the direction of travel on financial services regulation by the European Commission is not expected.

Ireland

So what do we know, looking firstly to the domestic picture? In keeping with the Central Bank's stated aim of more transparent cooperation with industry, the Central Bank on 29 February 2024 published its Regulatory and Supervisory Outlook ("Outlook"). This is the first Outlook of its kind, replacing previous methods of communicating those priorities such as its Dear CEO letter from February 2023. The Central Bank explains that this will be an annual report in which it will detail the Central Bank's position on the key trends and risks impacting the financial sector coupled with the regulatory and supervisory priorities which arise on the back of those trends and risks. Interestingly, they also explain that the priorities will be for a two year period. This will be welcomed by firms particularly when it comes to planning and allocating resources for their governance and compliance functions.

The Outlook details 6 cross sectoral supervisory priorities and what is expected of firms in response to these priorities. The priorities focus on

• managing risk;
• being consumer-centric;
• resiliency;
• managing change;
• addressing climate change risk; and
• responding to operating framework deficiencies.

In terms of Central Bank specific initiatives, there were no surprises there - revision of the Consumer Protection Code, continuing to progress work both internationally and domestically to address systemic risks from the non-bank sector, ongoing implementation of the Individual Accountability Framework and preparation for the implementation of Markets in Crypto Assets Regulation and the Digital Operational Resilience Act. The decision to include a spotlight section on AI to specifically flag that the Central Bank is undertaking policy work in this area and to detail what it sees as the initial supervisory implications of AI on financial services sector, is significant and should be noted by firms.

With regards to the specific sectors, the Central Bank considers each regulated sector in turn detailing the risks relevant to the sector and then outlines its key supervisory activities on the back of those risks. Much of what is detailed is as had been expected. What is interesting to note however, is the decision by the Central Bank outside of the Outlook, to specifically address the Payment and E-Money sector at a Central Bank event on Friday 1 March on the contents of the Outlook and to develop certain aspects in more detail. This was facilitated by remarks made Mary-Elizabeth McMunn, Director of Banking, Payments and Credit Union Supervision. Context is everything, and it is likely that this focus was deemed necessary in light of the Central Bank publishing its recommendations in response to the consultation on the National Payments Strategy on Monday 4 March. The four high-level priorities identified in that response align with the Outlook. This increased focus on this sector by the Central Bank speaks to its growing importance to the Irish economy but also the fact that many firms are coming to it from an unregulated background and as a result face greater challenges in transitioning to a regulated environment.

Europe

Turning to Europe, we expect a strong drive to move the Retail Investment Strategy, Solvency II Amendment Directive, PSD3/PSR and Basel III through the legislative phases (acknowledging that some are further along the track then others). Alongside the development of these new and updated level 1 measures, we will also expect to see significant level 2 measures in respect of DORA and MICA agreed upon to align with implementation dates of early 2025, as well as various level 2 measures to reflect the MiFID II Review. With regards to the AML/CFT package recently agreed, we expect preliminary considerations on the necessary technical standards to begin but as implementation in that context is three years from the date of publication in the Official Journal, which is yet to happen, time is not of the essence as it in the case of DORA and MICA for example.

For a more detailed consideration of many of the initiatives detailed, please see the latest episode of Matheson Talks Financial Regulation Podcast No.9: Look back to look forward as well as the FIG Top 5 at 5 dated 7 March 2024.