The Governor of the Central Bank has called for continued global coordination that will lead to progress in dealing with systemic risks arising from the non-bank sector.
Gabriel Makhlouf said the existing regulatory framework provides a good starting point to deal with the issues, but has not been designed for this purpose.
Speaking in Washington DC, ahead of the Spring Meetings of the International Monetary Fund and World Bank, Mr Makhlouf said the issue is extremely complex.
“Globally, the non-bank sector has grown rapidly over the past decade, and Ireland has one of the largest funds industries in the world with around €4.5tn in assets under management,” the Governor said.
“It is playing an increasingly important role in the global financial system and real economy, and is also becoming a more important source of finance in Ireland.”
“This can bring many benefits and support economic growth, but it can also generate, in certain circumstances, risks to the financial system.”
Mr Makhlouf added that history had shown that there is potential for certain parts of the funds sector globally to amplify adverse shocks.
“It is vital that our oversight of the system keeps pace with this change,” he said.
“We in Ireland believe that this risk requires a macroprudential perspective and collaborative engagement between securities regulators, prudential regulators and central banks.”
He said Ireland has played an active role in recent years in international efforts to develop solutions to address financial stability risks in the funds sector.
“We have introduced leverage limits for property funds connected to our domestic economy,” he explained.
“We are working with peer regulators in the EU to finalise policy measures in relation to sterling-denominated liability-driven investment (LDI) funds.”
But he added that global and European coordination is needed.
He said the existing regulatory framework provides a good starting point, but it has not been designed for this purpose and solutions cannot be “one-size-fits-all”.
Last year the Central Bank published a discussion paper which aimed to help advance the development of an international framework around the issue.
Mr Makhlouf said feedback would be published from that in the coming months.
