IRELAND 19 February 2018
Office of the Comptroller and Auditor General - Press release VFM examination report on The Central Bank
Office of the Comptroller and Auditor General
2 February 2000
The Comptroller and Auditor General, Mr. John Purcell, has conducted an examination of the practices used by the Central Bank to determine the effectiveness of its regulation of credit and investment institutions.
Regulation can be divided into three components of supervision. Prudential supervision is concerned with the financial stability and standards of governance of the institution. Systemic supervision monitors the risks to the financial sector as a whole. Conduct of business supervision is concerned with the adequacy of protection available to consumers of financial products, i.e. depositors and investors. The regulation of the relationship between the consumer and the institution is undertaken by the Director of Consumer Affairs under the Consumer Protection Act. However some degree of consumer protection is provided through regulating the prudential well being of the institution and the financial sector as a whole.
The Central Bank has been responsible for the regulation of credit institutions (principally banks and building societies) since 1971. Financial regulation work includes the licensing of institutions to operate in Ireland, and a mix of off-site monitoring of prudential information and on-site inspections of documentation and internal control arrangements. The regulation of investment institutions involves similar activities but the number and size of institutions involved are significantly different. Since 1995, the scope of regulation has been expanded to cover the procedures in force in the institutions to counter money laundering.
The determination of the effectiveness of regulation is a complex activity. The Central Bank applies current international practices for supervision and updates its requirements and procedures on an on-going basis. In recent years, the perception of the effectiveness of regulation has been changing from a rule based approach to a risk analysis and management approach. Several opportunities to improve the documentation of these new approaches were noted in the examination.
A report on the examination is being presented to Dáil ?reann today. The main findings of the examination are summarised overleaf.
For further information about the report contents, please contact:
Jennifer O Halloran at (01) 679 3122
The Central Bank has ultimate or primary responsibility for the regulation of 57 credit institutions. Seven banking licenses make up 34% of the total asset value of these institutions. The Central Bank also regulates over 2,600 investment institutions, of which nearly 1,700 are authorised collective investment schemes.
The nature of the activities of investment institutions and their more recent origin in Ireland means that there is a greater degree of consumer protection in the Central Banks regulation of investment institutions.
Regulation work for credit and investment institutions is planned based on an assessment by the bank inspector of the prudential risks in each institution. The documentation of risk assessment is limited as a summary risk profile of the institution is not made and a formal scoring mechanism for determining the extent of risk is not used. The restatement of the objectives of regulation in a form which facilitates the measurement of achievement would facilitate the evaluation of effectiveness.
On-site inspection work is confined to the headquarters of the institution for efficiency reasons. Although the external auditors of the institutions are required to report material defects in internal control or suspicions of impropriety to the Central Bank no such reports have been received and management letters commenting on the internal controls framework of the institutions are not issued in all cases. There is scope for improving the reporting arrangements so that more assurance on internal control can be obtained from the work of external auditors.
The Central Bank maintains that its resources were focused optimally to ensure that all required inspections were made. However, the actual number of inspections performed and review meetings held in the past three years has fallen short of the benchmark used for the frequency of this work.
An independent review in 1998 concluded that the active approach of the Central Bank had contributed to a strong structural basis for the anti-money laundering measures in the institutions. The majority of suspicious transaction reports to the Money Laundering Investigation Unit have come from institutions regulated by the Central Bank. However, the development of processes to determine the effectiveness of the regulation of the anti-money laundering measures is at an early stage.
Several departments in the Bank undertake activities which contribute to its systemic regulation role but the identification of these activities and the role they play in contributing to systemic regulation is not set out in writing. At present, the incidence of institutional failure is the main measure of effectiveness used internationally. A more comprehensive set of measures which reflect systemic risk should be found.
The contents of this page were last updated on 26/09/03