In March 2019 the Central Bank issued an industry communication setting out its expectations of regulated entities in identifying, mitigating and managing market conduct risk.  During the course of 2019, it conducted a thematic review to assess the approach of regulated entities operating in the wholesale market to market conduct risk.  The review was wide ranging.  It involved direct engagement with 24 regulated entities, over 150 interviews with directors, CEOs, risk and compliance officers and frontline staff, 10 on-site inspections, and visits to branches of Irish entities in other jurisdictions.

On 21 January 2020, the Central Bank wrote to CEOs (CEO letter) outlining the findings of its thematic review.


The overall theme of the Central Bank’s findings was a failure of entities to adequately identify market conduct risk, and consequently, their failure to appropriately mitigate and manage that risk.  The Central Bank identified the following key deficiencies:

  • Inadequacy of market conduct risk frameworks: For example, the Central Bank found that certain entities had failed to implement a structured market conduct risk identification process or a fit-for-purpose framework, and did not provide adequate management information on market conduct risk. This was compounded by a lack of understanding among staff as to what constitutes market conduct risk.  A lack of proactive identification of conflicts of interest was specifically mentioned by the Central Bank;
  • Inadequacy of market conduct risk governance: For example, the Central Bank found that some senior members of staff, including CEOs, did not fully understand or identify market conduct risk. They also failed to effectively oversee or challenge market conduct risk, particularly in Irish regulated entities that were part of global financial institution groups.  The limited oversight and control exercised by some Heads of Trading (PCF-29) was noted; and
  • Failure to identify risk of market abuse: For example, the Central Bank found that certain regulated entities were ineffective in their Market Abuse Regulation (MAR) trade surveillance and inconsistent in their Suspicious Transaction and Order Report (STOR) submissions. The Central Bank also identified poor quality communication between regulated entities and investor relations functions in some cases (leading to a risk of a breach of MAR requirements in relation to the disclosure of inside information).


In the CEO letter, the Central Bank outlined its expectations of regulated entities in approaching market conduct risk management.  The expectations in the CEO letter included:

  • Regulated entities having fully embedded market conduct risk frameworks and controls that employees fully understand;
  • Senior management taking full ownership of the governance of market risk conduct; and
  • Regulated entities establishing and maintaining effective mechanisms to prevent, detect and report potentially abusive behaviour, in line with their legislative obligations under MAR and related legislation.


The Central Bank stated its intention in the CEO letter to continue to monitor entities in respect of market conduct risk in 2020.  This monitoring will focus on the ability of regulated entities to identify market conduct risk, the strength of their governance frameworks and the flow of information within that framework.

The Central Bank will also “devote considerable supervisory resource” in the upcoming year on the management of inside information and STOR submissions.


The Central Bank has advised regulated entities that, in light of the CEO letter, it expects them to:

  • Place a renewed focus on the management of market conduct risk;
  • Address any shortcomings between their current frameworks and the expectations of the Central Bank as outlined in the CEO letter and the industry communication from March 2019; and
  • Remind themselves of the five key principles for a proper and effectively regulated securities market.

It has also asked that the content of the CEO letter be discussed by the boards of relevant regulated entities at their next meeting.

It is clear that market conduct risk management will continue to be a focus of the Central Bank, particularly as the scale and complexity of the wholesale market related activity in Ireland continues to grow as a result of Brexit.  Firms should therefore actively review and amend their internal structures to ensure they are meeting the expectations of the Central Bank in effectively identifying and managing market conduct risk.