The International Monetary Fund (IMF) has called for "improvements" in official supervision of the insurance and reinsurance sectors in the Republic and said there was scope for more robust on-site visits to insurers.
In a new report, which said that the Irish financial system was well-placed to absorb the impact of a downturn in house prices or in economic growth generally, the body said evolving market conditions in the financial sector would require "parallel ongoing strengthening" in the regulatory regime.
The IMF report on the stability of the Ireland's financial system is separate to its annual review of the economy, which was published a week ago. It last conducted a similar stability assessment in 2000.
The body's call for stronger supervision of the insurance sector follows the Cologne Re affair last year, in which a major IFSC-based reinsurance firm was implicated in fraudulent deals with the global insurance giant AIG.
"There will be a need to continuously review the adequacy of supervisory regulatory resources to take account of market and regulatory developments and the growth of the international financial services sector," said the IMF.
"There is scope to undertake more robust on-site visits to insurers, especially as regards independent assessments of their risk management and corporate governance practices."
While stating that the introduction of a formal regulatory regime for the reinsurance industry will be a challenge, the IMF said good progress had been achieved in strengthening the Republic's regulatory and supervisory framework since 2000.
"The strategy of creating a unified approach to risk with common elements across different sectors where appropriate, but differentiated where necessary, is being put into practice well," it said.
It also suggested that consideration should be given to upgrading the position of prudential director on the board of the Financial Regulator to put it on a par with the position of consumer director.
The business lobby Ibec supported this idea and said the report in general represented "good news" for Ireland. "The IMF has commended Ireland for its overall approach to regulation for the financial services sector," said Aileen O'Donoghue, director of Ibec's financial services Ireland division.
"The IMF endorses the approach and the results of their report clearly do not support the recent questions about the robustness of the Irish regulatory regime."
While Ms O'Donoghue said the integrated approach to financial services regulation ensured a highly credible and robust system, she acknowledged that the IMF had outlined "important areas for improvement".
The IMF cited results of stress tests on lenders by the Central Bank and Financial Regulator to back its finding that "major domestic lending institutions have adequate capital buffers to cover a range of large but plausible hypothetical shocks".
