McMunn: Funds sector faces geopolitical and tech shifts
Deputy Governor McMunn of the Central Bank of Ireland outlined key priorities for the Irish funds sector, emphasizing resilience, innovation, and regulation amidst rapid geopolitical and technological change. He noted the sector's significant growth to €5.6 trillion in assets under management.
Geopolitical shifts and tech transformation
Deputy Governor McMunn highlighted the profound changes impacting the Irish funds sector, which has grown significantly from €1.6 trillion to €5.6 trillion in assets under management over the past decade, making Ireland the world's third-largest fund domicile.
He noted that the rules-based international order underpinning globalisation is under strain, leading to reconfigured trade relationships, expanded sanctions regimes, and capital flows increasingly subject to political considerations.
These geopolitical shifts necessitate adaptability, resilience, and trust in the internationally oriented Irish funds sector.
Alongside this, technological transformation, driven by artificial intelligence (AI), distributed ledger technology (DLT), cloud computing, and advanced data analytics, is reshaping financial services delivery, risk management, and supervision.
McMunn emphasized that while technology presents opportunities for better outcomes, its deployment raises questions about explainability, accountability, bias, and operational resilience, requiring thoughtful governance and robust risk management.
Lessons from market turmoil
McMunn stressed the increasing importance of resilience, drawing lessons from recent market episodes such as the "dash for cash" and the LDI crisis.
Work has focused on mitigating vulnerabilities in the non-bank financial institution (NBFI) sector, particularly concerning excessive leverage and liquidity mismatch.
The Central Bank of Ireland has engaged internationally and implemented domestic macroprudential measures for property and sterling-denominated LDI funds.
Today, in cooperation with French and Luxembourg counterparts, the CBI is publishing a consultation on Money Market Fund (MMF) Weekly Liquid Asset Levels.
This guidance aims to strengthen the resilience of EU MMFs by aligning liquidity levels with market resilience identified by the European Commission.
Technology: Good servant, bad master
The rapid pace of technological innovation, particularly AI and tokenisation, demands a proactive adaptation of regulatory frameworks to ensure fundamental protections are maintained.
Effective governance, robust risk management, and sound evaluation are not constraints but essential enablers for technology to deliver sustainable and trustworthy financial services.
The true test of governance frameworks lies in their performance under stress, requiring clear escalation pathways and the expertise to make difficult decisions when circumstances demand it.