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The Central Bank serves the public interest by safeguarding monetary and financial stability and by working to ensure that the financial system operates in the best interests of consumers and the wider economy. A core element of our approach is to ensure that the financial system is sufficiently resilient to withstand future shocks and that the impact of these shocks is mitigated.
This public service mandate, together with the specific responsibilities laid out in legislation, underpins all that central banks do, and connects their five strategic priorities for the next three years. Specifically:
Central Bank recognises that the only way that the financial system can serve the needs of the economy and its consumers is for its participants to take risk. In other words, risk-taking benefits the economy and consumers. But poorly understood or insufficiently controlled risk-taking is clearly undesirable, given the associated negative consequences of uncontrolled failure.
So the work of regulation and supervision is complex. While it must be evidence-based and outcomes focused, it does require finely-balanced judgement to operate in the grey areas between the two ends of this spectrum of risk.
A more resilient system is better able to withstand shocks and continue to support the economy and its customers in good times and bad. It becomes less of a transmission mechanism for shocks and, potentially, plays more of a smoothing role in reducing volatility. In recent years, volatility in the cost of insurance in Ireland has undoubtedly caused challenges for insurance customers.
Central Bank is only in the foothills of the potential testing of the resilience of the financial system that a hard Brexit will cause. It has short-term and long-term implications for the structure of the Irish economy and the Irish financial system. Any form of Brexit will be damaging for Ireland, with a hard Brexit especially so. Recognising these risks, the Central Bank has been focused on Brexit risks since before the 2016 UK referendum. In recent months, Central Bank has stepped up its work on mitigating the most material 'cliff-edge' risks of a hard Brexit.
It is over three years now since Solvency II came into effect. The introduction of Solvency II represented a significant milestone for the insurance industry. There is need to continue to develop the Solvency II regime, to ensure it remains relevant and appropriately protects policyholders and beneficiaries.
Solvency II will be reviewed in 2020. This review will provide the opportunity to examine the practical implementation of Solvency II, ensure it remains fit for purpose, adapts to changes in market conditions and evolving business models, while continuing to meet its fundamental objectives.
Input to the 2020 review of Solvency II will be a key area of focus for the Central Bank this year.
For my part, I will be interested in recovery and resolution and the insurance guarantee schemes. Two areas that are not included in the scope of the Call for Advice but could be considered by EIOPA in the call for advice are: