Regulatory News

“Brexit is driving an expansion in both the size and complexity of the internationally-orientated section of the Irish financial services industry” – Governor Philip R. Lane

31 Jan 2018 Press Release

Governor Philip R. Lane

  • Buoyancy of domestic demand and global economic conditions has allowed the Irish economy to expand at a robust level, despite Brexit. View remains that Brexit will have a long-term negative impact on the Irish economy. 
  • Central Bank has been working to ensure that Irish-resident financial firms with UK exposures are making adequate preparations for Brexit. 
  • Governor Lane outlined details of report of ESRB High-Level Task Force on Safe Assets which examined the feasibility of a new asset class: sovereign bond backed securities (SBBS). 

Speaking at the European Financial Forum today in Dublin, Governor of the Central Bank of Ireland, Philip R. Lane discussed the ongoing impact of Brexit. He said that while the Irish economy continues to expand at a robust level, due to the buoyancy of domestic demand and global economic conditions, the Central Bank remains of the view that the long term effect of Brexit will be negative. He added that the main channel by which Brexit has had a macroeconomic impact has been through the 15 percent depreciation of Sterling against the euro since the referendum.

He said, “One part of our work has been to ensure that Irish-resident financial firms with UK exposures are making adequate preparations for Brexit. Even if firms may hope for a soft type of Brexit, it is essential that all entities with significant exposures are prepared for downside risks. In addition, Brexit is driving an expansion in both the size and complexity of the internationally-orientated section of the Irish financial services industry.

In engaging with firms, it is clear that there is considerable uncertainty and complexity for firms in dealing with Brexit. Among the issues raised by firms are: risk transfer; appropriate governance structures; contract continuity; and the treatment of third country branches by both the home and host regulators. This uncertain environment is a complicating factor, since applicants for authorisation need to prepare robust plans that deal with a range of scenarios.”

He also discussed the report of the ESRB High-Level Task Force on Safe Assets, which was chaired by Governor Lane. The report examines the feasibility of a new asset class: sovereign bond backed securities (SBBS). He said, “Although simple in concept, the design of this new asset class throws up many issues and challenges. The task force report runs to two volumes and 300 pages in its attempt to provide strong analytical foundations for a wider discussion of this concept among finance ministries, investors and market analysts. In terms of policy issues, a core finding of the task force is that a necessary condition for the development of SBBS markets is for European regulation to treat the senior SBBS securities no more severely than national sovereign bonds, while the regulations covering the riskier mezzanine and junior SBBS securities should reflect their greater exposures to sovereign risk. To this end, the European Commission is currently examining an enabling regulatory framework that would remove such barriers to the issuance of SBBS.”



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