Charting the course - leading financial services through complexity and change – Deputy Governor Sharon Donnery

• The macroeconomic environment is complex and uncertain and has implications for financial services. This is a leadership challenge. 
• The Central Bank is adapting its approach in response to the changing financial system
• Firms need to ensure that they have sufficient resources, sustainable business models and effective risk management to mitigate against the risks

Deputy Governor Central Bank of Ireland Sharon Donnery yesterday (Wednesday) addressed the Financial Services Ireland Annual Dinner.  

Speaking at the event, Deputy Governor Donnery outlined the challenges leaders of financial services face in charting a course through the uncertainty and complexity of the outlook global economic outlook. She said: “The financial system is less stable and more vulnerable to shocks. This requires us all - leaders in the financial system - whether in the public or private sphere, to recognise and respond to these challenges.” 

She explained the implications the changing environment has for the financial system, noting “rising inflation, higher interest rates, weaker growth prospects and financial market repricing have led to a deterioration in financial stability conditions across the euro area”.

She outlined how financial services operating out of Ireland are increasingly provided on a global and cross-border basis, noting the Central Bank’s role “as gatekeeper gives us a deep insight into what the financial system of tomorrow will look like”. “We are seeing a very different pipeline of firms applying to become regulated - firms with novel business models, and firms applying for a number of parallel authorisations. On authorisations, she said, “our experience has been and continues to be that firms which understand their proposed business model, the risks inherent in that and the compliance obligations in place to protect the wider system, are the firms which find the authorisation to be most straightforward.”

On the changing nature of regulation, she said “our collective regulatory response to the changes in the financial services industry will shape the next decade, so we need to think holistically about regulation, understand how the different pieces of the jigsaw fit together, and the impact this will have on the financial system as a whole”. “I think for regulators to be truly effective a shared social understanding of the benefits of effective regulation for both the regulator and the regulated but also society more broadly is important. This is what we strive to do in the Central Bank, while acknowledging it is something we must continue to develop and evolve.”

Speaking to firms she said “in a very uncertain and increasingly complex and uncertain environment, firms need to ensure that they have sufficient resources, sustainable business models and effective risk management to mitigate against the risks that they face. “But the key thing is for firms and their leaders to be dynamic in their understanding of the risks faced in a rapidly changing environment.”

On the Central Bank’s approach to managing change, complexity and uncertainty she said “a key priority of mine is to transform our approach to both regulation and supervision so we not only deliver on our mandate today, but we are fit for the future.” The financial services landscape is changing rapidly. The nature and extent of risk is evolving. For us to continue to deliver effectively on our mandate, both today – and tomorrow – our supervision will need to change.”