The Central Bank has published a paper on the implementation of risk-based supervision through its Probability Risk and Impact SysteM (PRISM). First introduced in 2011, PRISM provides the systematic risk-based framework within which the Central Bank supervises financial services firms. This paper is an update to a similar publication issued by the Central Bank in November 2011.

The 2016 paper is split into three sections. The first section outlines the Central Bank’s rationale for risk-based supervision, being that it facilitates efficient supervision by focusing resources on firms which pose the greatest risk to financial stability and consumers. PRISM is designed to deliver value to the tax-payer by deploying supervisors where they can make the greatest difference. The second section expands on the concept of risk-based supervision and sets out a list of nine benefits of PRISM including the adoption of a consistent approach to assessing risk across all firms supervised by the Central Bank. The third section details the mechanics of PRISM and covers a number of different aspects of the system including what a firm’s “impact” and “probability” means and how those are assessed by the Central Bank. It explains the resourcing of supervision under PRISM and how the Central Bank engages with firms under the model.

The four appendices expand on these points. They provide: (i) practical commentary around what PRISM means for your firm; (ii) details of the Central Bank’s areas of focus (such as governance) and methods of engagement (including assessing firms’ stress testing methodologies); (iii) the categories of risk probability including the separate probability risk categories developed for insurance firms as a result of Solvency II; and (iv) impact metrics for each category of firm across the financial services sectors.

A link to the paper is here