Financial Services Regulation and Compliance - Banking Nov 2019

DOMESTIC

Towards a climate-resilient financial system - Vasileios Madouros, Director for Financial Stability

In a speech delivered by Vasileios Madouros, Director for Financial Stability, the Central Bank of Ireland (CBI) set out what it is doing in the area of climate change. The CBI will increasingly be embedding climate risk issues into its financial stability assessments and supervision and has this year joined the Network for Greening the Financial System, a group of central banks and supervisors that exchange experiences and share best practices, to contribute to the development of climate risk management in the financial sector. The CBI is also active in a number of supervisory fora that are considering the impact of climate change on different parts of the financial sector, whether that is banks, insurance companies or investment funds.

Building financial resilience - Deputy Governor Ed Sibley

Speaking at the MABS Conference, ‘Money Advice and Budgeting – 2020 and Beyond’, Deputy Governor, Ed Sibley discussed the CBI’s role in building financial resilience and spoke about the fair treatment of borrowers in arrears and the work that is still to be done:

  • to improve the functioning of the financial services system, including in the behaviour, culture and accountability of management and boards in financial services firms
  • encouraging individuals to come forward to the CBI's dedicated Protected Disclosures team where they have concerns or information relating to suspected regulatory wrongdoing in financial services
  • connecting the different responsibilities of the Central Bank and how they come together to build financial resilience at a system and individual level and deliver strong consumer protection
  • with engagement, forbearance, restructuring and insolvency being tools that can be used to continue to reduce mortgage arrears

"On too many issues the Central Bank has had to push too many retail banks too hard and over too long to put customers first" - Deputy Governor, Ed Sibley

Speaking at the Banking & Payments Federation Ireland (BFPI) Annual Retail Banking Conference 2019, Ed Sibley outlined the CBI's concerns regarding the banks’ approaches to delivering for their customers. He said: “On too many serious issues – such as tracker mortgages, non-performing loans, some Brexit preparedness issues - the Central Bank has had to push too many retail banks too hard over too long to actually put customers first." Mr Sibley highlighted:

  • retail banks’ behaviours are not always consistent with their stated aims of rebuilding trust and relationships with their customers
  • substantial investment is required in Irish bank’s IT and data capabilities

EUROPEAN

Speech of Chairperson Jose Manuel Campa at the European Parliament Committee on Economic and Monetary Affairs

In his speech, Jose Manuel Campa, Chairperson of the European Banking Authority (EBA) delivered at European Parliament Committee on Economic and Monetary Affairs on 4 November 2019, identified three key areas of critical importance to stakeholders and the public and which will continue to define the EBA’s mission in the upcoming period. These include:

  • Basel 3 implementation and delivery of all mandates adopted from the Risk Reduction Measures Package to ensure that many of the remaining weaknesses in the existing prudential framework are addressed.
  • Ensure that the EU framework enables the adoption of new technologies that will bring potential for efficiency gains and new forms of competition, whilst at the same time effectively mitigating risks to consumers, the integrity of the banking system and, ultimately, financial stability.
  • Review of the ESA’s founding regulation and its implementation to ensure respect for diversity of banking structures and to enhance consumer protection, transparency, accountability and governance, particularly in the areas of conflict of interest and the transition to a gender-balanced Management Board.

EBF: Brexit - financial services are better prepared

The European Banking Federation (EBF) has stated that European financial service firms are more prepared than before to handle a possible no-deal Brexit scenario. According to an internal consultation among members of the European Banking Federation, many financial service firms have continued to step up their contingency planning in recent months. The statement outlined that the EBF continues to advocate in favour of a managed Brexit that is based on an official Withdrawal Agreement between the EU and the UK which would enable a short transition period that would give financial service firms, and other stakeholders in the economy, more time to prepare for a future agreement which still needs to be negotiated.

EBA publishes 2020 EU-wide stress test template guidance

The European Banking Authority (EBA) has published the final methodology and draft templates for the 2020 EU-wide stress test package along with the key milestones of the exercise. The stress test is a bottom-up exercise with constraints, including a static balance sheet assumption. The exercise is primarily focused on the assessment of the impact of risk drivers on the solvency of banks including credit risk (including securitisations), market risk, counterparty credit risk and operational risk (including conduct risk).

In addition, banks are requested to project the impact of the scenarios on net interest income and to stress P&L and capital items not covered by other risk types. . The methodology and templates cover all relevant risk areas and incorporate the feedback received during the discussion with the industry in the summer of 2019. The stress test exercise will be formally launched in January 2020 and the results published by 31 July 2020. Key milestone dates of the 2020 EU-wide stress test exercise are:

  • launch of the exercise at the end of January 2020
  • first submission of results to the EBA at the beginning of April 2020
  • second submission to the EBA in mid-May 2020
  • final submission to the EBA in mid-July 2020
  • publication of results by end-July 2020

Banking regulation: Commission organises conference to consult on Basel III reforms

The European Commission hosted a conference on 12 November 2019 on the implementation in the European Union of new international rules for the banking sector. Known as the "finalisation of Basel III reforms”, these new rules aim to review the international prudential standards for banks. The EU Commission stated that the EU is committed to implementing the Basel III reforms faithfully, while focusing on European specificities and with the conference, and the associated public consultation, are inviting all stakeholders and citizens to contribute to a public consultation on this topic. Stakeholders have until 3 January 2020 to send their views to the European Commission.

EBA launches consultation on draft amended technical standards on passport notification

The European Banking Authority (EBA) has published a consultation paper on the draft amended Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) on passport notification. The review of the two regulations aims at improving the quality and consistency of information to be provided by a credit institution notifying its home competent authorities when it intends to open a branch or provide services in another Member State, as well as the communication between home and host authorities. The consultation runs until 13 February 2020.

EBA consults on specific supervisory reporting requirements for market risk

The European Banking Authority (EBA) has launched a public consultation on specific supervisory reporting requirements for market risk, which are the first elements of the Fundamental Review of the Trading Book (FRTB) introduced by the revised Capital Requirements Regulation (CRR2) in the prudential framework of the EU. The consultation paper includes proposals for a thresholds template, providing insights into the size of institutions’ trading books and the volume of their business subject to market risk, and a summary template, reflecting the own funds requirements under the ‘Alternative Standardised Approach’ for market risk (MKR-ASA). The consultation runs until 7 January 2020.

EBA launches consultation on disclosure and reporting of MREL and TLAC

The European Banking Authority (EBA) has launched a public consultation on the draft Implementing Technical Standard (ITS) on disclosure and reporting of the minimum requirement for own funds and eligible liabilities (MREL) and the total loss absorbency requirement (TLAC). This is the first time that the EBA has introduced harmonised reporting and disclosure requirements for MREL and TLAC. These draft ITS follow an integrated approach and, in the case of disclosures, are aligned with the Basel Pillar 3 standards. By integrating disclosures and reporting, the EBA seeks to maximise efficiency by institutions, and to facilitate the use of information by authorities and market participants. The consultation runs until 22 February 2020.

EBA research workshop on the future of stress tests in the banking sector

The European Banking Authority (EBA) held a research workshop on "The future of stress tests in the banking sector – approaches, governance and methodologies" on 27 and 28 November The workshop brought together economists from national supervisory authorities and leading academics to discuss the future of stress testing in the banking sector and explore what measures could be taken by policy makers to best benefit from the exercise. The proceedings of the conference will be available on the EBA website under the relevant section.

Non-performing loans: Council adopts position on a new mechanism for out-of-court enforcement

The EU is taking steps to deliver on its comprehensive strategy to deal with banks' bad loans. EU ambassadors have approved the Council's position on a proposal for a common framework and minimum requirements for out-of-court mechanism to recover the value from loans guaranteed with collateral in case the borrower is not able to pay it back. Effective out-of-court enforcement can help prevent the accumulation of non-performing loans (NPLs), as it provides banks with legal instruments to recover collateral more quickly. The proposed new mechanism for out-of-court accelerated collateral enforcement would have to be agreed between a credit institution and borrower upfront, normally when the loan is granted. It would only be available for business loans. Consumer loans would be excluded, as would loans for which the borrower's primary residence is used as collateral.

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

Date published: 10 December 2019