The Central Bank of Ireland’s focus on wind-down plans for payments and electronic money institutions.

Since the start of the year, many Central Bank of Ireland (CBI) articles and speeches have called out the Payments Institutions (PI) and Electronic Money Institutions (EMI) sector as being one of increased risk. One area of focus has been the wind-down plans for relevant institutions, ensuring that these are credible and prioritising minimising any negative impact on consumers.

Over the past seven years, Ireland's payments and e-money sector has seen remarkable growth. According to the CBI,  the number of firms has surged from 14 to 51, with safeguarded funds rocketing from €726 million to €7,820 million between 2016 and 2023. In terms of growth, this sector has outpaced all other sectors under CBI supervision.

Despite this growth, there's been a growing concern among regulators. The CBI has flagged numerous shortfalls during supervisory reviews in this sector. In its January 2023 "Dear CEO" letter, the CBI outlined five key areas that require attention across the sector.

The combination of rapid growth and supervisory concerns has resulted in the CBI elevating its overall rating for the sector. In a letter to the Department of Finance, the CBI Governor underscored the potential systemic implications of a firm failure within this sector for the EEA.

The CBI is also concerned that a failure of a payment institution or electronic money firm could have wider implications in the event of a disorderly wind-down. While the Central Bank of Ireland cannot prevent all failures, a credible wind-down plan can help mitigate risks and ensure minimal consumer impact.

For EMI firms, this was previously identified in the January 2023 “Dear CEO” letter, which stated:

The Central Bank has communicated that it has no tolerance for weaknesses in safeguarding arrangements and expects firms to have credible wind-up plans to fully return users’ funds in an efficient and timely manner in an exit and wind-up scenario.”

Firms developing a wind-down plan should consider the following points:

  1. Document the circumstances and scenarios that could lead to a wind-down. These should be linked to the business model and should estimate the time involved.
  2. Define the decision-making process and the stakeholders who should be involved.
  3. Estimate personnel, costs and resources required throughout the organisation and how these change over time (as part of the wind-down process).
  4. Highlight both internal and external risks that need to be managed.
  5. Draft a communications strategy to ensure timely and effective communication to all relevant stakeholders, such as shareholders, regulators and consumers.
  6. Create a strategy for how safeguarded assets will be transferred appropriately and timely, to relevant firms, where applicable.

An effective wind-down plan should be regularly reviewed to ensure it is relevant and up to date. For example, following a change in business plan or strategy, it should be revisited to reflect these developments at the firm.

In summary, the payments and electronic money sector is now a key supervisory concern for the CBI. Significant growth in the sector, combined with supervisory shortfalls, has created an uncomfortable environment where a firm’s failure could risk a fundamental issue across the EEA. A well-documented, credible wind-down plan that is regularly updated can demonstrate a mature governance framework and reduce the risk of a disorderly failure.

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