Central Bank publishes feedback statement on macroprudential policy for investment funds

The Central Bank of Ireland has today (Tuesday 23 July) published a Feedback Statement (PDF 898.66KB) to the Discussion Paper on an approach to macroprudential policy for investment funds.

Given the growing importance of the global funds sector for the financing of the economy and the wider financial system, the Discussion Paper outlined key considerations for developing a macroprudential framework for this sector. The written feedback received was complemented by a range of engagements with a broad set of stakeholders, including an international conference held in May this year. Today’s publication summarises the feedback received and the Central Bank’s perspective on the key themes raised by respondents.

Vasileios Madouros, Deputy Governor for Monetary and Financial Stability, said: “I want to thank all stakeholders who engaged with us on this important policy agenda. Our aim was to advance the discussion on strengthening the macroprudential lens in the oversight of the funds sector, and we value the wide range of feedback received by stakeholders.

“The funds sector globally has grown significantly in recent years. This can entail benefits, by diversifying the sources of financing to the economy. But, for those benefits to be realised, this growing form of financing needs to be resilient when shocks hit. So, as the financial system evolves, the regulatory framework also needs to adapt. While it will take time, strengthening the macroprudential lens in the oversight of the sector remains a priority for the Central Bank, working with colleagues internationally.

“Given the global nature of capital markets, our next steps for progressing this policy agenda are taking place in co-ordination with international counterparts. We are actively contributing to ongoing work at the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) to strengthen resilience of non-bank financial institutions. The Central Bank’s focus is on the implementation of the recently updated FSB recommendations on open-ended funds in Europe and the FSB’s ongoing work on addressing vulnerabilities from non-bank leverage. Building on the Discussion Paper, and the feedback received, we will also be contributing to the European Commission’s consultation on a macroprudential framework for non-bank financial intermediation.

“Domestically, the Central Bank’s focus is on evaluating the implementation of the two macroprudential measures already introduced, for Irish authorised property funds and Irish authorised GBP-denominated LDI funds. We also continue to actively monitor the sector for evolving financial vulnerabilities and to deepen our understanding of the nature and magnitude of systemic risk across different fund cohorts, through ongoing analysis and research.” 

Notes

• Written responses to Discussion Paper 11.

• The investment fund sector now represents approximately 16 per cent of all global financial assets in 2022. The investment fund sector grew from just over €18 trillion in 2008 to €68 trillion in 2022.Total assets of the NBFI sector in Ireland were €6.2 trillion as of end 2022, from €1.5 trillion in 2008. Investment funds accounted for around 80 per cent of that growth.

• Ireland is now one of the world’s largest hubs for investment funds at a global level. Similar to global developments, the significant growth in the Irish funds sector during this period has been driven by both net inflows and valuation effects.

• The Irish-resident funds sector is largely internationally-focused and includes a diverse range of entities, with a variety of business models and investment strategies.