Financial Services Regulation and Compliance - Banking June 2023

Domestic

CBI publishes first Financial Stability Review of 2023

The Central Bank of Ireland (CBI) has published its first Financial Stability Review (FSR) of 2023 (see here), outlining its assessment of the risks facing the financial system. The FSR finds that domestic banks currently have additional headroom above regulatory capital and liquidity requirements, providing capacity to absorb shocks. The profitability of domestic banks is also expected to increase through the interest margin channel.

In this context, the CBI is increasing the countercyclical capital buffer (CCyB) from 1 to 1.5%, effective from June 2024. This follows the CBI’s June 2022 announcement that it would build the CCyB towards 1.5% - the applicable rate for a risk profile that is neither elevated nor subdued. The increase in the CCyB is not expected to have a material effect on credit supply or on the real economy.

European

Provisional agreement reached on implementation of Basel III reforms

On 27 June 2023, the European Parliament and Council reached provisional political agreement on the implementation of the Basel III reforms, amending the Capital Requirements Regulation and Capital Requirements Directive (available here).

  • The text includes provision for the 'output floor', limiting banks' variability of capital levels computed by using internal models, and the appropriate transitional arrangements to allow sufficient time for market players to adapt.
  • The text also improves the treatment of credit risk, market risk, and operational risk, and provides for additional proportionality, particularly in respect of small and non-complex institutions.
  • A harmonised 'fit and proper' framework for assessing the suitability of members of the institutions' management bodies and key function holders has been agreed.
  • Agreement on rules to safeguard supervisory independence was reached, notably by providing for a minimum cooling-off period for staff and members of governance bodies of competent authorities before they can take up positions in supervised institutions, and a limit on the time in office for the members of the governance bodies.
  • Negotiators also agreed on a transitional prudential regime for crypto assets and on amendments to enhance banks' management of ESG risks.

The text must be confirmed by the European Parliament and Council before it can be formally adopted.

Provisional agreement reached on a directive allowing law enforcement better and faster access to financial information

On 6 June 2023, the European Parliament and Council reached provisional political agreement on a directive allowing national authorities access to financial information. The press release is available here. Under the new regime, law enforcement authorities and asset recovery offices will have direct access to bank account information across the Union, through the single access point interconnecting bank account registries. The directive will also establish a common format for banks and crypto companies to provide the information on transactions – i.e. transaction records – to law enforcement authorities. The text must be confirmed by the European Parliament and Council before it can be formally adopted.

EBA publishes final amending ITS on supervisory disclosure under CRD

On 21 June 2023, the EBA published its final draft amending ITS on supervisory disclosures which specify the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities (available here). These amendments reflect changes resulting from the legislation adopting the banking package under Directive (EU) 2019/878 amending Directive 2013/36/EU (CRD V) and Regulation (EU) 2019/876 amending Regulation (EU) No 575/2013 (CRR2). It is hoped that these ITS will enhance the quality and comparability of the reported data by supervisors and provide the market with more information.

ECB launches consultation on revised guide to internal models

On 22 June 2023, the ECB launched a consultation on its revised guide to internal models (available here). The guide explains how the ECB understands the rules applicable to banks when they use internal models to calculate how much capital they need. Specifically, the revision outlines how climate-related risks ought to be accounted for. It also clarifies requirements for common definitions of default, counterparty credit risk, default risk in the trading book, and how to return to the standardised approach. The consultation closes on 15 September 2023.

SRB calls for additional ‘firepower’ to deal with collapsed lenders

On 25 June 2023, Chair of the Single Resolution Board (SRB) Dominique Laboureix called for additional ‘firepower’ to protect depositors and rethink how lenders are wound down after recent failures underscored the need for swift and decisive action in a crisis (available here). Specifically, Mr Laboureix wants the ECB to agree to fund banks in resolution, potentially backed by an EU government guarantee.

Directive on Consumer Credits nears publication

The Personal Representatives Committee of the European Council has submitted a draft of the Directive on Consumer Credits to the European Parliament for approval. As the European Council and European Parliament have already reached provisional political agreement, adoption should proceed smoothly.

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

Date published: 11 July 2023