Financial Services Regulation and Compliance - Banking and Payments January 2024
Domestic
Client asset requirements become applicable to credit institutions
On 1 January 2024, the client assets requirements (CAR) contained in Part 6 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2023 (Investment Firms Regulations), became applicable to credit institutions.
Credit institutions, in respect of carrying out MiFID investment business, must now comply with the CAR, including segregation, designation and reconciliation requirements.
Minister McGrath secures Government approval for Access to Cash legislation
On 23 January 2024, the Minister for Finance, Michael McGrath TD, published the General Scheme of the Access to Cash Bill following approval by Government at a Cabinet meeting.
The Access to Cash Bill stems from a recommendation made by the Retail Banking Review, published in November 2022. The review highlighted the continuing importance of cash in ensuring that people do not experience financial exclusion, that consumers can budget efficiently, and that there is a safety net in the event of electronic banking or the payments infrastructure being impacted by outages or cyber-attacks.
Looking over the Horizon: Governor Makhlouf on the long-term outlook for the Irish economy
On 30 January 2024, Governor of the Central Bank of Ireland (CBI), Gabriel Makhlouf addressed students at University College Cork following a meeting of the Central Bank Commission.
Governor Makhlouf highlighted several major structural changes underway which will shape long-term economic factors over the next 50 years as including demographic change, climate change, the rapid advance in digital technology and global trade fragmentation.
He emphasised the need for policymakers to balance short-term priorities with long-term objectives, achieving the necessary scale of investment in housing and climate-related priorities while avoiding unnecessary inflationary pressures over the medium term, and investment in infrastructure, human capital and innovation. He also commented on the recent European Central Bank (ECB) rate decision, stating that maintaining current interest rates could help bring euro area inflation back to target.
European
ECB to conduct cyber resilience stress testing this year
On 3 January 2024, the European Central Bank (ECB) announced that it will be conducting a cyber resilience stress test on 109 directly supervised credit institutions in 2024.
The announcement follows the ECB’s evaluation of credit institutions’ management of IT and cyber risks in 2023. The cyber resilience stress test in 2024 will assess how credit institutions respond to and recover from a cyberattack. The main findings will be communicated in summer 2024 as part of the supervisory review and evaluation process (SREP), which assesses an institution’s individual risk profile. The test, a principally qualitative exercise, will not impact a credit institution’s Pillar 2 guidance.
The EBA revises reporting requirements for market risk
On 11 January 2024, the EBA published amendments to the reporting requirements for market risk. As the implementation of the fundamental review of the trading book (FRTB) in the EU approaches, the EBA revised the information to be reported on the own funds requirements under the alternative approaches, and adds reporting on reclassifications of instrument between the regulatory books.
The amending technical standards complement the high-level information on the alternative standardised approach (ASA) that has been reported since 2021 with details on the instruments and positions in scope of the ASA, as well as a summary and detailed information on the instruments and positions in scope of the alternative internal model approach (AIMA). The amending technical standards also introduce a template capturing information on the reclassification of instruments.
Banks remain robust but higher interest rates could impact their asset quality, the EBA finds
On 12 January 2024, the EBA published its Q3 2023 quarterly risk dashboard together with the risk assessment questionnaire. The publication also includes information on minimum requirement for own funds and eligible liabilities. EU/EEA banks remained highly profitable, well capitalised and maintained robust liquidity. Banks expect the asset quality to deteriorate as higher interest rates affect borrowers.
The EBA publishes an analysis of specific aspects of the net stable funding ratio framework
On 16 January 2024, the EBA published its report about certain specific aspects of the net stable funding ratio framework (the report). The report provides an evaluation of the materiality of the specific items analysed as well as an assessment of the impact of possible changes to the current prudential treatment.
The EBA conducted a mainly qualitative analysis, supplemented by sensitivity analysis, of derivative contracts, securities financing transactions and unsecured transactions with a residual maturity of less than six months with financial customers, holding of securities to hedge derivative contracts. In relation to those items for which data was available, the report provides an evaluation of the materiality of the phenomena as well as an assessment of the impact of possible changes to the current prudential treatment.
EBA consults on targeted amendments to the prudent valuation framework
On 16 January 2024, the EBA published a consultation paper on targeted amendments to the regulatory technical standards (RTS) on prudent valuation, aiming to promote a more harmonised application of the RTS and to reduce the observed variability of additional value adjustments (AVAs) under the core approach, as well as to set the rules for the application of the prudent valuation framework in extraordinary circumstances. The consultation runs until 16 April 2024.
Building on a review of the implementation of the requirements that institutions operating in the EU should apply for the valuation of their fair-valued assets and liabilities for prudential purposes since 2016, the consultation paper proposes targeted amendments to the RTS to promote best practices and ensure a more harmonised application of the RTS.
EBA consults on amending the data collection for the benchmarking exercise in 2025
On 18 January 2024, the EBA published a consultation paper amending the Commission Implementing Regulation EU 2016/2070 on the benchmarking of credit risk, market risk and IFRS9 models for the 2025 exercise.
Perhaps the most notable is in the market risk framework, where the EBA is proposing new templates for the collection of the internal model approach risk measures under the FRTB. For credit risk only minor changes are being proposed.
The consultation runs until 27 March 2024.
The EBA consults on guidelines on the management of ESG risks
On 18 January 2024, the EBA launched a public consultation on draft guidelines on the management of Environmental, Social and Governance (ESG) risks (the guidelines).
The guidelines set requirements for the internal processes and ESG risks management arrangements that credit institutions should have in place. The guidelines prescribe principles for the development and content of credit institutions’ plans in accordance with the Capital Requirement Directive (CRD6), with a view to monitoring and adequately addressing the financial risks stemming from ESG factors.
The consultation runs until 18 April 2024.
The EBA seeks inputs from credit institutions on the classification methodologies for exposures to ESG risks
On 29 January 2024, the EBA launched an industry survey to receive input from credit institutions on their methodologies to classify exposures to ESG risks, as well as on the accessibility and availability of ESG data for this purpose. The objective of the survey is to collect qualitative information on credit institutions’ current practices to inform the EBA’s work on the feasibility of introducing a standardised methodology to identify and qualify exposures to ESG risks.
The deadline to respond to the industry survey is 29 March 2024.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation Advisory team.
Date published: 26 February 2024