Nicholas Blake-Knox
Partner
Ireland
On 26 February 2026, the Central Bank of Ireland (the Central Bank) published its annual Regulatory and Supervisory Outlook Report 2026 (RSO) setting out the Central Bank’s perspective on the key trends and risks facing the financial sector, along with the regulatory and supervisory priorities for the next year in the context of those risks.
The RSO is accompanied by a Central Bank Dear CEO Letter re-emphasising industry-wide supervisory priorities for 2026 grouped under five overlapping themes as set out below. These priorities highlight the focus of the Central Bank's efforts on the effectiveness of the governance and risk management practices of firms, and the culture on display by those firms.
- Resilience to geopolitical risks and macro-financial uncertainties – including strengthening the financial sector's operational, cyber and financial resilience.
- Securing consumer and investor interests in a rapidly changing world – including implementing the revised Consumer Protection Code and enhancing safeguards against financial crime.
- Responding to technology-driven transformations – including continued focus on the use of artificial intelligence (AI) in the financial sector, developing its understanding and expectations for firms, supporting implementation of the EU AI Act and delivering a sandbox innovation programme on payments.
- Helping to address the environmental and societal structural transitions underway – including assessing firms' responses to climate-related risks and the increasing frequency of severe weather events. The 2026/27 focus areas include flood risk, insurance protection gaps and low retail investment participation.
- Enhancing how the Central Bank regulates and supervises – including specific focus on operational efficiencies and streamlining governance.
The publication of the RSO is set against a backdrop of heightened geopolitical and geoeconomic uncertainty, market volatility and accelerating technology and environmental transition. As in previous years, the Central Bank restates that effective governance, strong risk management and robust organisational culture remain central pillars of supervisory expectations across all regulated sectors, including the funds and fund services ecosystem.
Key themes and drivers of risk identified by the Central Bank
In considering the global and domestic risk landscape of the various sectors covered by the Central Bank's remit, it has identified the following eleven key risk areas falling broadly under three thematic headings and each of which are interconnected:
Risk theme A
Drivers: Macroeconomic and geopolitical environment
- Operational and cyber risks and resilience
- Asset valuation and market risks
- LiqTe RSO has attributed the highest ratings to the following risk areas facing the sector over a 2-year horizon:
Risk theme B
How regulated entities are responding to today's changing world
- Consumer and investor detriment risks
- Financial crime risks
- Risk management practices and risk transfer
- Data, AI and modelling risks
Risk theme C
Longer term structural forces at play
- Climate and other environmental-related risks
- Business model and strategic risks
The RSO has attributed the highest ratings to the following risk areas facing the sector over a 2-year horizon:
- Operational risks and resilience
Operational resilience remains a core supervisory concern amid increasing cyber threats, geopolitical disruption, operational complexity and growing reliance on a small number of technology providers and infrastructure for critical services.
- Asset valuation and market risks
Market volatility and increased allocations to less liquid assets such as private credit and private equity, continue to present valuation challenges within equity and debt. The RSO highlights the particular revaluation risk facing AI-related stocks and firms.
- Financial crime risks
Anti-money laundering and counter-terrorist financing (AML/CTF) risks remain a key supervisory priority, particularly due to the shift to digital-first financial services and crypto assets which have specific vulnerabilities to financial crime and the increasing volume of unauthorised activity, financial scams and fraud.
- Data, modelling and AI risks
The growing deployment of AI and advanced modelling tools introduces heightened operational risk, business model risk and consumer risk. The Central Bank notes that firms must ensure appropriate oversight frameworks where AI is deployed in decision-making or operational processes and calls for stronger model governance, data quality, transparency and accountability.
Funds sector 2026 supervisory priorities
At the level of the funds sector the RSO identifies its planned supervisory focus areas for 2026.
Governance and risk management
- Continuation of sectoral assessment of delegation in fund management companies (FMCs). The first industry communication from the review will issue in H1 2026.
- Conclude the Central Bank's review of the effectiveness of fund administration and depositary management of outsourcing.
- Review of governance and board effectiveness in fund administrators and depositaries.
- Review of compliance functions across fund administrators and depositaries. Commencing engagement in H1 2026.
- ESMA common supervisory action. Subject area will be confirmed by ESMA in due course.
- Supporting the transition to AIFMD II for funds and fund service providers (FSPs).
Operational and cyber resilience
- Focus on FMC and FSP implementation and monitoring of the requirements of the Digital Operational Resilience Act (DORA) including threat-led penetration testing. A survey is planned to issue in H1 2026.
- A risk-based approach to AML/CFT/financial sanctions will continue into 2026 through supervisory data requests including the new, enhanced Risk Evaluation Questionnaire (REQ). The enhanced REQ will capture detailed quantitative and qualitative risk information on ML/TF risk and the quality of AML/CFT controls
- A thematic inspection focused on transaction monitoring and suspicious transaction report (STR) reporting and engagements with firms across the sector.
- Engagement on the execution by impacted depositaries of their Capital Requirements Directive (CRD6) compliance plans.
Asset valuation and market risks
- Responsive supervision of changes in firms’ operating processes and arrangements, focusing on their capacity to respond to stressed market conditions.
- Deep dive into industry approaches to monitoring investment restrictions and reporting breaches.
- Value at Risk (VaR) model review with a focus on UCITS' that opt to use the VaR approach and the effectiveness of the levels of oversight by depositaries.
- Continued enhancement and use of fund data and risk models by the Central Bank to deliver a data-led, agile and risk-based approach to the effective and efficient oversight of the funds sector.
- Review of valuation oversight with a focus on hard to value assets and the oversight role of the depositary. This will involve a thematic review focusing on hard-to-value assets, reviewing policies, models and controls for level 3 assets (including real estate, private equity, private credit and other illiquid securities) across selected Irish authorised funds, managers and depositaries. This will be complemented by ongoing risk-based engagement relevant to specific cohorts of funds along with reactive supervisory work related to NAV calculation errors.
Liquidity and leverage risks
- Review of liquidity risk management in bond funds to assess how firms manage the mismatch between investor redemptions and asset liquidity.
- Review the progress of relevant AIFMs on leverage reduction and maintenance plans across property funds.
Product costs and disclosures
- Continued engagement domestically and internationally (including with ESMA) on costs and fees, with emphasis on value for money. Ongoing supervisory engagement where inappropriate cost/fee structures or disclosures are identified.
- Gatekeeping, which is a vital tool for the Central Bank regarding assessing fund disclosures, levels of costs and transparency for prospective investors
- Consistent application of the principles of the Consumer Protection Code, assessing how firms are implementing it.
Data and artificial intelligence
- Continued enhancement and use by the Central Bank of fund data and risk models to deliver a data-led, agile and risk-based approach to the effective and efficient oversight of the funds sector.
- Continued engagement to understand firms’ approach to and usage of AI in their business models.
Climate and ESG‑related risks
- Sustainability work will continue using the Central Bank’s ESG dashboard tool to assess firms’ compliance with SFDR.
- Compliance with the Fund Naming Guidelines will continue to be monitored at both the authorisation phase and through data-led supervisory reviews.
Spotlight chapters
The report also includes three Spotlight chapters covering AI, operational resilience and consumer and investor protection relevant to funds and FSPs, particularly given the sector’s reliance on outsourcing, complex investment structures and increased adoption of data driven technologies.
- Supervisory perspective on AI – the rapid evolution of AI in the financial sector is continuing to grow but public trust is lower than average with adoption rates varying across age demographics. The chapter notes that Ireland demonstrates strong AI readiness and talent depth, ranking in the top half of Stanford's AI Vibrancy Index. This spotlight considers three aspects related to financial services: the deployment of agentic AI, AI-related consumer protection risks and operational resilience. The Central Bank notes the rapidly growing and transformative technical capabilities that AI has, and that firms must adhere to the following standards when deploying AI.
- Strategic alignment: i.e. appropriate for the specific business challenge.
- Accountability and explainability: i.e. clear accountability and responsibility, human oversight of decisions and their explainability.
- Proportionate governance: i.e. risk management practices commensurate with the scale, scope and sensitivity of the AI deployment.
- Compliance: i.e. including processes to ensure all EU AI Act obligations are met, including transparency requirements.
- Importance of operational resilience in service provision – the Central Bank emphasises the importance of providing resilient services which in turn increases confidence among consumers and investors. The introduction of DORA put in place a framework to strengthen the financial sectors resilience to operational disruption, particularly information and communication risks. The Central Bank sets out areas that firms can focus on to ensure resilient services and effective information and communication technology risk management are in place.
- Better outcomes for consumers and investors – focusing on how firms operate and the customer experience, digitalisation and financial crime.
Key regulatory initiatives
A number of key EU and domestic regulatory developments are highlighted in Appendix A of the RSO including:
- The recent Central Bank Guidance on Fitness and Probity and review of the PCF framework.
- The EU legislative proposals in the areas of:
- regulatory simplification,
- Markets Integration & Supervision Package
- Retail Investment Strategy
- Securitisation Framework
- Sustainable Finance Disclosure Regulation review.
- The transposition of AIFMD II and updates to its UCITS Regulations and AIF Rulebook.
- The Central Bank's discussion paper on distributed ledger technology (DLT) & tokenisation in financial services (5 March 2026).
Next steps
These recent publications from the Central Bank provide a helpful overview for boards and officers of funds, FSPs and other market participants as they navigate the regulatory year ahead. The RSO confirms a continuation of the Central Bank's increasingly forward-looking and data-driven supervisory approach. While many supervisory themes remain consistent with prior years, the growing emphasis on operational resilience, increased use of AI and an outcome-focused supervisory approach heighten expectations of the funds and FSPs operating in Ireland. Funds and FSPs may wish to align with the Central Bank's expectations by ensuring that the risks and supervisory priorities outlined in the Dear CEO Letter and the RSO respectively are monitored and addressed in the firm's horizon planning, risk assessment and risk mitigation programmes.
