The Central Bank has been working on Brexit since before the UK Referendum. While hoping for the best, we continue to prepare for plausible worst-case scenarios, including a “hard” or “no deal” Brexit. Our regulatory approach is in line with sound European practices, which we influence and help shape.

The Irish economy is particularly exposed to risks from Brexit.  There is a high degree of interconnectedness between the Irish economy and the UK economy.  The domestic economy and cross-border trade could face significant challenges from a disorderly Brexit.

We expect firms to be realistic and prepare for all plausible scenarios.  We have worked to ensure that financial services firms are adequately prepared to cope with the possible effects of Brexit, with as little disruption for consumers as possible.  We will continue to work with regulated firms to ensure they act in the best interests of consumers.  This includes keeping customers informed of any potential disruptions so that they can make their own plans.

Risks are being mitigated but it is likely that, even with good preparation, some inherent risks will remain.

Since the UK voted to leave the EU, the Central Bank has instructed firms on the need to have appropriate contingency plans in place to ensure continuity of business and to address key risks that may arise from Brexit.  We continue to monitor progress in this area.  In cases where the potential impact could be greatest, the Central Bank has asked firms to provide details of their contingency plans for assessment.

The majority of Irish authorised banks, insurers and brokers have provided us with information on their assessment of Brexit-related risks and related contingency plans and timelines.  In the majority of cases, we consider that planning is adequate.  In some cases, progress is slower than expected.  While acknowledging the political uncertainty surrounding Brexit, we continue to challenge firms on their contingency plans and progress made to date. 

We are also engaging closely with banks to make sure they have sufficient resources to withstand a prolonged period of stress, including the risks posed by Brexit.

The UK’s decision to withdraw from the EU has resulted in a range of UK-based firms seeking authorisation from the Central Bank to relocate some of their activities, so that they can continue to provide services within the EU after Brexit. We have increased our headcount and reallocated senior and experienced staff to effectively manage the large volume of applications being processed over a relatively short period. In assessing these applications, we are focused on ensuring that any firms authorised in Ireland meet the high standards expected of any firm authorised in the EU.

In the absence of any agreed specific arrangements between the UK and the EU to ensure access to each other’s markets, UK firms will lose their right to conduct business in Ireland. 

At present, firms can provide financial services across the European Economic Area (EEA) by way of Freedom of Establishment (setting up a branch) or Freedom of Services (via the so-called financial services “passport”) without having to seek an authorisation in each country.

If there is a Withdrawal Agreement in place, UK firms will be able to continue to conduct business in Ireland and across the EEA by way of this passport for the duration of the agreed transition period (i.e. until December 2020, with the potential for the passport to be extended).

We expect that the majority of firms will take appropriate action to continue to provide services across the EU.

Financial services firms have a number of options available to them to mitigate this risk. Banks and insurance companies could set up a third-country branch, if appropriate.  Insurance companies can also transfer their portfolio to one of the other 27 Member States of the EU.

For firms providing services to Irish customers, we continue to monitor contingency plans. Where the Central Bank directly regulates the firm, we continue to engage with firms to monitor their progress.  For firms regulated in the UK we have ongoing engagement with the Financial Conduct Authority and Prudential Regulation Authority in the UK.  However, ultimately it is the responsibility of individual firms to ensure they have an appropriate plan in place.

In cases where the potential impact could be greatest, the Central Bank has asked firms to provide details of their contingency plans for assessment.

The majority of insurance firms selling policies from the UK and Gibraltar into Ireland are implementing plans to mitigate the risks of a “hard” or “no deal” Brexit.

Where firms do not take mitigating actions against the possibility of a “hard” or “no deal” Brexit, there is a risk to Irish consumers in relation to the continuity of service for cross border insurance contracts.  While most firms are planning for this scenario, it could affect consumers in a number of ways.  For example, it may not be possible to amend policies, or pay claims associated with policies, written prior to 29 March 2019.

Your insurance provider should be taking steps to prepare for the possibility of the UK withdrawing from the EU without a ratified agreement in place.  They should be able to provide you with details of their arrangements.

If you have any concerns about your insurance policy/policies, your insurance provider should be able to provide you with details of their arrangements.

If you have any concerns about your insurance policy/policies, your insurance provider should be able to provide you with details of their arrangements. They should be able to tell you whether you can amend policies, or whether they will pay claims associated with policies, written prior to 29 March 2019.

Earlier this year, arising from concerns about levels of preparedness, the Central Bank instructed insurers and brokers to:

• Take appropriate contingency measures to ensure the continuity of services for cross-border insurance policies between the UK and other Member States of the EU
• Inform existing and new customers and beneficiaries of the implications of these contingency measures
• Provide customers with clear information on the contingency measures taken or planned and how they might affect policies.

The Central Bank also works with regulators across Europe to exchange information about firms’ plans and actions needed to address any consumer protection concerns.

The Central Bank and the Single Supervisory Mechanism are working to ensure that banks have clear strategies and actions to address issues arising from Brexit, particularly in the light of a potential “hard” or “no deal” Brexit. This includes managing:

• The potential impact on banks’ exposures to UK markets.
• The potential impact of any negative spillover to the Irish economy.
• Potential changes in regulatory constraints on transactions between EU and UK firms.

The Central Bank continues to engage with banks to make sure that they have the capability to respond quickly and to work with their customers to reduce losses while having sufficient resources to survive a prolonged period of stress.

Recently the European Banking Authority published the results of EU-wide Stress Tests on the largest banks.  These tests indicated the improved ability of banks to withstand a plausible, but severe downturn.  In a period of uncertainty, such as Brexit, it is particularly important that banks conduct a variety of risk assessments to ensure  that they are not taking excessive risks.

The Central Bank has a clear responsibility to address the implications of Brexit for the financial system.  This includes taking a rigorous and efficient approach to the authorisation and supervision of firms seeking to set up or expand operations in Ireland.  It also includes assessing and mitigating the financial stability risks associated with disorderly Brexit scenarios.

Whatever form of Brexit materialises, the economic impact on Ireland will be negative and material. Uncertainty remains regarding the extent of the impact, which will depend on the timing and nature of the changes to trading arrangements as well as the capacity of the economy to adjust to the new arrangements.

Economic risks arise from direct exposures to the UK market but there are also indirect exposures.  For example, many firms in Ireland are vulnerable to interruptions in international supply chains and increased competition from UK firms in the event of a further sharp fall in sterling.

If a disorderly Brexit scenario results in an extended period of uncertainty about the future UK-EU relationship it would have a chilling effect on investment plans and be associated with a decline in a broad range of asset prices.

A hard Brexit – whereby the UK reverts to trading on World Trade Organisation rules – would have the most severe negative impact on the Irish economy.

However, even a more favourable Brexit outcome, with a free-trade deal or customs union type arrangement, would result in a loss of output in the Irish economy and higher unemployment.

As March 2019 draws closer, the resolution of the current uncertainty about the nature of the future UK-EU relationship has the potential to generate further economic and financial volatility, especially if there is an increasing likelihood of a harder version of Brexit.