Central Bank finds weak regulatory controls at some IFSC banks

The Central Bank has criticised a number of international banks with operations in Dublin's IFSC for having weak regulatory reporting control environments and, in some cases, regulatory breaches.

On-site inspections of banks were conducted by authorised officers of the Central Bank with a view to assessing the extent to which the bank can rely on the accuracy and integrity of regulatory returns submitted by international institutions.

The inspectors found problems including mistakes in the calculation of credit Risk Weighted Assets (RWAs), the failure to control weaknesses and inadequate resources in the regulatory reporting function.

Findings

“A number of the findings in this inspection are not acceptable and have resulted in regulatory breaches in certain instances. We will continue to use our supervisory and inspection resources to ensure that the issues identified are comprehensively remediated,” said Fiona MacMahon, head of banking supervision at the Central Bank.

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The report stresses the need for regulatory returns to be accurate so that it can properly monitor banks’ capital adequacy. With that aim in mind the inspection specifically focused on the banks’ processes for the generation of RWAs, off-balance sheet items, large exposure returns and liquidity coverage ratio.

Prone to errors

Among the Central Bank’s concerns was that, in the majority of banks inspected, the end-to-end regulatory reporting processes were predominantly manual and therefore required manual interventions. This meant that these interventions were not appropriately documented and rely on the knowledge and experience of a limited number of key staff.

As a result of those poor practices, a number of the banks inspected were significantly prone to errors.

“Banks must have a robust regulatory reporting framework as the Central Bank places reliance on regulatory returns to enable it to monitor banks and to act in a timely manner where risks arise,” said Ms MacMahon.

The international banks that were the subject of this inspection are categorised as “less significant” institutions according to the criteria of the Single Supervisory Mechanism.

The Central Bank has written to all of the international banks studied to inform them about the outcome of the inspection while remediation plans have also been issued.