view of the outsourcing landscape and the effectiveness of its management across the irish financial services sector. conclusion i will conclude here. financial services firms are built on the premise of taking risk. but there are wider societal dependencies on the financial system and the services it provides. it is therefore critically important that the financial system works well, and serves the needs of the economy and its customers in a sustainable way over the long - term. as i have referred to in other speeches, and as is evident by recent events, there is a breakdown in trust in many aspects of financial services provision. this is problematic in its own right, but also will cause unnecessary frictions and costs within the system itself. compliance functions and other parts of the second and third lines of defence within regulated firms have an important role in play in rebuilding that trust, and in doing so, support and, perhaps counter - intuitively, liberate your firms to be more successful over the long term. i thank you for your attention. 1 with thanks to steven cull for his assistance in preparing my remarks. 2 see the banking landscape – ed sibley, director of credit institutions supervision – 14 march 2017. 3 the role of financial regulation in protecting consumers - 23 february 2017. 4 the probability risk and impact systemtm ( prismtm ) is the central bank ’ s risk - based framework for the supervision of regulated firms. it supports our challenging firms, judging the risks they pose to the economy and the consumer and mitigating those risks we judge to be unacceptable. see introduction to prism. 5 see, for example, bernstein, peter l. ( 1996 ). against the gods : the remarkable story of risk. 6 see association of compliance officers in ireland. 7 markets in financial instruments directive. 8 with respect to the appointment of directors and senior management, including assessments of : director independence ; conflicts of interest among board members ; and suitability of senior management with respect to their knowledge, experience, skill and competence for their roles. 9 for example, compliance policies and mandates frequently do not reflect basel committee on banking supervision best practice, as they do not contain information on : ( i ) measures to ensure the compliance function ’ s independence ; ( ii ) the relationship of compliance with the risk and internal audit functions ; ( iii ) the 6 / 7 bis central bankers'speeches right to obtain access to information from staff ; and ( iv ) the right to conduct investigations of possible breaches of compliance policy and appoint external experts.

patrick honohan : adverse selection and moral hazard in forecasting and limiting arrears and loan losses on mortgages speech by mr patrick honohan, governor of the central bank of ireland, based on an address on 7 october to the society of actuaries in ireland, on the occasion of his being conferred with an honorary fellowship of the society, dublin, 10 october 2013. * * * home ground for the actuary is measurement and evaluation of financial risk over time as it relates to human life and human behaviour ; insurance has been the canonical application. it is instructive to use some insurance analogies to help describe how the central bank of ireland is performing the underlying forecasting and policy analysis around the important and topical issue challenge of mortgage arrears. as with much insurance business, the standard irish residential mortgage is a long - lived contract requiring calculations involving complex interest and the time dimension of evolving uncertainty. in addition, behavioural issues such as moral hazard and adverse selection also come into play. the fact that the mortgage has long been seen as a very simple, very safe, product for the lender, because of secular rises in ( nominal ) house prices, sizable tax preference for the borrower and a strong credit discipline, has masked these complexities. but they are now coming to the fore in ireland following the sharp fall in house prices, accompanied by the unprecedented decline in overall employment and a lengthy recession, from which recovery remains extremely gradual. two key policy questions that arise in the current situation and which we are studying closely at the central bank, are ( i ) the assessment of what the overall future loan - losses ( over a few decades ahead ) of the banks from their existing mortgage portfolio might be, in order to guide provisioning and capital requirements and ( ii ) the design of optimal treatment by lenders of distressed mortgages. the insurance analogy can help direct analysis of these questions, for which indeed there no adequate standard answers in the international literature on mortgage lending. lessons have been learnt from banking crises in other countries, but those which have experienced banking crises on a comparable scale have faced very different legal, institutional and macroeconomic circumstances. nevertheless, we need good answers to these questions. our prudential capital adequacy review ( pcar ) of march 2011 forms the basis of current capital requirements on the irish banks. i have previously explained in some detail the timeline that led up to this assessment and the flow of partial information which defeated our attempts to manage expectations