Central Bank of Ireland publishes Securities Markets Risk Outlook Report 2022

• Securities Markets Risk Outlook Report identifies key conduct risks to securities markets in the coming year
• Sustainable finance, misconduct risks, market dynamics, and financial innovation are identified as key areas that firms must manage
• Firms must demonstrate clear leadership on climate issues, have robust governance processes and ensure services are resilient to cyber risk

The Central Bank of Ireland has today (8 February 2022) published its Securities Markets Risk Outlook Report. The report details key conduct risks to securities markets and sets out actions firms should take to identify, mitigate and manage those risks. The report also outlines the Central Bank’s supervisory priorities for securities markets in 2022.

The report is published against a backdrop of continued uncertainty due to the impact of Covid-19 and an acceleration in the pace of change across securities markets, including investor behaviours, technological developments, and the transition to a carbon-neutral economy.

The report identifies a number of key areas that the Central Bank expects firms to address. These include:

• Misconduct Risk: As the scale and complexity of securities markets grow, so too does the risk of misconduct arising. Firms have extensive obligations to detect, prevent and report misconduct, and must review their compliance with the Market Abuse Regulations (MAR).
• Sustainable Finance: Sustainable finance has a role to play in the transition towards a carbon-neutral economy. Firms are expected to demonstrate clear leadership on the climate issues facing their business and emphasise a culture of compliance with climate and sustainability principles.
• Governance: Boards should not only receive but also challenge the information they receive to effect good governance.
• Conflicts of interest: As the financial services sector is increasingly interconnected, we expect firms to ensure regulatory requirements on identifying, mitigating and managing conflicts of interest are being met.
• Financial Innovation: Innovation presents both opportunities and risks to securities markets and investors. We expect firms to have regard to the features and complexities of the product they are offering to consumers.
• Data: Given its importance, firms can expect increased engagement with the Central Bank in respect of data quality issues.
• Cyber Security: Digital transformation has increased the risk of cyberattacks, with cyber security becoming a threat to financial stability. Firms need to take steps to understand critical business services and ensure they are more resilient to disruption from operational and cyber risk.
• Market Dynamics: We expect firms to have an appropriate risk management framework in place to identify, manage and mitigate the potential risks arising from the use of leverage and liquidity risk within a fund’s portfolio, including regular stress testing scenarios.

The Central Bank has also planned a number of work items that relate specifically to the risk outlook published in today’s Report. This will include completing the Common Supervisory Action (CSA) on Valuations in the funds sector; and undertaking a number of full conduct risk assessments on firms. Assessment and investigation of suspected market abuse will also be a priority.

Patricia Dunne, Director of Securities and Markets Supervision, said: “While financial markets have demonstrated resilience, vulnerabilities remain. It is imperative that securities markets are open, transparent and trusted, and operate in the best interest of investors. Today’s report focuses on key risks and outlines our expectations of firms, so they can take concrete steps to identify, mitigate and manage risks. Firms can expect us to take appropriate action in instances where they have not considered the risks outlined in this report or where we identify behaviour that falls short of our expectations.”