Financial Services Regulation and Compliance - Banking Apr 2022

Domestic

Central Bank publishes "Dear CEO" letter outlining its supervisory expectations for the withdrawal of retail banks from the Irish market

On 27 April 2022, the Central Bank of Ireland (CBI) issued a "Dear CEO" letter setting out its supervisory expectations for banks during the withdrawal of retail banks from the Irish market. The CBI expects banks to reinforce their duty to take action to ensure the account switching exercise is completed smoothly and the best interests of consumers are protected. The letter requests banks to submit details of plans to support customers in the switching process by close of business Wednesday 11 May.

Central Bank publishes "Dear CEO" letter on retail banking exits and account migrations

On 27 April 2022, the Central Bank of Ireland (CBI) issued a second "Dear CEO" letter reinforcing its supervisory expectations on retail banking exits and account migrations as set out in the Dear CEO letter of June 2021 and invites CEOs to a roundtable meeting on this subject. The letter sets out five risks that warrant particular attention at this time:

1. notice periods
2. application of the switching process
3. new provider making commercial decisions in a manner that facilitates a customer making and executing a switch
4. direct debit originators and/or other service providers
5. vulnerable customers

The roundtable meeting will be held at 11am on Tuesday 17 May 2022 in the CBI.

The importance of effective governance, culture, and agility in a changing environment

On 27 April 2022, Derville Rowland, the Director General of Financial Conduct, delivered remarks at the Institute of Banking/Compliance Institute seminar. In her speech, Director Rowland discussed the following:

• The Individual Accountability Framework (IAF) which consist of conduct standards, a senior executive accountability regime, enhancements to the current fitness & probity regime and a strengthened enforcement process. Director Rowland noted firms should be taking preparatory steps now and be fully mindful of existing obligations, both at firm and individual level.
• Structural changes in the Irish retail banking sector, including a profound shift to digitally enabled services, growth in the number of authorised payments and e-money firms, and the withdrawal of Ulster Bank and KBC.
• Sustainable finance and the risks of greenwashing. Director Rowland highlighted the CBI's supervisory expectations include that firms demonstrate clear ownership of climate risks affecting their firms and promote a culture that places emphasis on climate and other ESG risks. Firms should have appropriate risk management frameworks in place, undertake scenario analysis and stress testing, and assess their business models for climate risks.

Opening remarks by Deputy Governor Sharon Donnery at the Central Bank Conference to inform the 2021-2022 mortgage measures framework review

On 26 April 2022, Sharon Donnery, Deputy Governor of the CBI, delivered the opening statement at the Central Bank Conference to inform the 2021-2022 mortgage measures framework review. In her opening remarks, Deputy Governor Donnery discussed in 2021, the CBI conducted an overarching review of the entire framework around the mortgage measures in parallel to the review of mortgage measures. Deputy Governor Donnery noted that the CBI will move towards finalising the mortgage measures framework after the conference. The feedback from the conference and public engagements together with further research and analysis by the CBI will inform the final conclusions on the design of the framework and implications for the calibration and implementation of the mortgage measures. The framework review is due to conclude in the second half of 2022. 

European

EBA proposes to simplify and improve the macroprudential framework

On 29 April 2022, the European Banking Authority (EBA) published its response to the European Commission's Call for Advice on the review of the macroprudential framework, proposing a set of recommendations to simplify the procedures around some of the existing macroprudential tools and to increase harmonisation for others. The EBA made the following recommendations:

• to rebuild regulatory capital buffers to sufficient levels so that they can be released when needed again in the future
• to undertake a comprehensive evaluation of the interaction of macroprudential measures with other capital requirements, such as leverage ratio, own funds and eligible liabilities (MREL) requirements
• to maintain clear roles and responsibilities of the different authorities involved in microprudential and macroprudential policy as well as close coordination between them
• to include a legal mandate in the Capital Requirements Directive (CRD) to develop methodologies covering both the identification of other systemically important institutions (O-SIIs) and the setting of buffer rates
• to simplify the text of the CRD and the Capital Requirements Regulation (CRR) around governance procedures for some macroprudential measures
• to perform further assessments on the ability of current macroprudential tools to address environmental, crypto assets and cyber security risks, and
• ​to establish an oversight and monitoring system for non-bank lenders and enlarge the scope of the macroprudential framework to cover non-bank lenders

European Commission publishes the Delegated Regulation (EU) 2022/676 supplementing Article 18 of Capital Requirements Regulation

On 26 April 2022, the European Commission (EC) published the Commission Delegated Regulation (EU) 2022/676 (the delegated regulation), containing regulatory technical standards on the methods of prudential consolidation, in the Official Journal of the European Union (OJEU). The delegated regulation specifies the conditions in accordance with which consolidation is to be carried out in the cases referred to in Article 18(3) to (6) and Article 18(8) of Regulation No 575/2013 (CRR). The delegated regulation will enter into force on the 16 May 2022.

EBA publishes final draft regulatory technical standards on the risk retention requirements for securitisations

On 12 April 2022, the EBA published its final draft regulatory technical standards (RTS) specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in the Securitisation Regulation and as amended by the Capital Markets Recovery Package (CMRP). The RTS aim to provide clarity on the risk retention requirements ensuring a better alignment of interests and reducing the risk of moral hazard. The draft RTS include several modifications to the RTS adopted by the EBA in 2018 and specify in greater detail the risk retention requirements. The draft RTS will replace the existing 2014 Commission Delegated Regulation and a transitional period will apply to securitisations whose securities were issued before its application date.

EBA issues an opinion on the European Commission’s proposed amendments to the EBA final draft technical standards for own funds and eligible liabilities

On 8 April 2022, the EBA published its opinion on the amendments proposed by the EC to the EBA final draft Regulatory Technical Standards (RTS) for own funds and eligible liabilities. The EBA expressed its disagreement with two substantive changes proposed by the Commission related to:

1. the provisions covering the notions of direct and indirect funding
2. the prior permission process for certain types of liquidation entities

The EBA has submitted the amended draft RTS to the Commission.

EBA publishes final Report on the amendment of its technical standards on the exemption to strong customer authentication for account access

On 5 April 2022, the EBA published its final report on the amendment of its regulatory technical standards (RTS) on strong customer authentication (SCA) and common and secure communication (CSC) under the payment services directive (PSD2). The amendment aims to reduce frictions for customers using such services and to mitigate the impact that the frequent application of SCA and the inconsistent application of the current exemption have on AISPs’ services. Amendments include a new mandatory exemption to SCA requiring account providers not to apply SCA when customers use an account information service provider (AISP) to access their payment account information. The frequency for the renewal of SCA will also be extended from 90 days to every 180 days. The draft amending RTS will be submitted to the Commission for endorsement. The amendments will apply seven months after entry into force.

EBA launches survey for banks on the application of the infrastructure supporting factor

On 5 April 2022, the EBA launched a survey for banks on their experiences with the application of the so-called infrastructure supporting factor in accordance with the Capital Requirement Regulation (CRR 2) (the survey). The survey aims to assess the application of the supporting factor and provide valuable information on the materiality of infrastructure project loans across EU banks. The survey runs until 27 May 2022.

National Competent Authorities (NCAs) will disseminate the survey directly to the largest banks. A virtual industry roundtable to discuss the application of the infrastructure supporting factor will take place on 21 April 2022.

Annual supervisory fees for 2021

On 5 April 2022, the ECB adopted Decision (EU) 2022/514 on the total amount of annual supervisory fees for 2021. The decision sets out the annual supervisory fees to be paid by significant supervised entities and significant supervised groups, less significant supervised entities and less significant supervised groups.

Sanctions imposed in response to the crisis in the Ukraine

Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.

For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.

Date published 12 MAy 2022