Central Bank beefs up risk probes

INSPECTIONS into mortgage arrears cases will be a core target in 2012 under the Central Bank’s new framework for supervising risk levels in financial institutions.

The PRISM (Probability Risk and Impact SysteM) framework will sharpen the Central Bank’s immediate focus on mortgage lenders and upon the risks that pose the greatest threat to financial stability and consumers.

The first ‘themed’ inspections of 2012 will be based upon market intelligence, with mortgage arrears cases referred by Financial Services Ombudsman first in line for consideration.

Central Bank deputy governor, Matthew Elderfield, said: “Themed inspections will continue to be an important supervisory tool. A themed inspection focuses on a specific topic rather than on a range of topics and is usually carried out on firms that represent a significant proportion of market share — in line with our risk-based approach.

“Themes and firms for inspection are selected based on our market intelligence from a range of sources, including issues noted during ongoing supervision, complaints received and referrals from the Financial Services Ombudsman.

“Our major on-going thematic exercise for the next year will be on mortgage arrears. This exercise is unlike anything we have done in the past. It will be on-going and will involve reviewing multiple work streams.”

Speaking at an ACCA Ireland annual function in Dublin yesterday, Mr Elderfield said that the new PRISM system would help the Central Bank to spot problems at source.

He also said that Central Bank staff levels would reach their regulatory complement of 714 by the end of 2011, up from 531 in 2010, and 385 at the end of 2009. He said this staffing level was appropriate to the goals of the PRISM framework.

Mr Elderfield said: “I am asking our supervisors to ask firms difficult questions, to be sceptical, to challenge established truths and to not necessarily take the first answer they are given. I wish them to be assertive. Assertive does not mean rude or aggressive — it is perfectly possible, indeed it is highly desirable, to be both polite and challenging.”

The system has been implemented for all banks and insurance firms and will reach all supervised firms by the end of June 2012.