Financial Services Regulation and Compliance - Banking September 2022

Domestic

Minister Donohoe welcomes latest SME credit demand survey

On 5 September 2022, the Department of Finance published the latest SME credit demand survey. The survey is conducted biannually by the department to monitor trends in access to credit for SMEs. This year the survey covered over 1,500 respondents. The key results of this survey include:

  • 16% of SMEs applied for bank credit (-4%, March 2021).
  • 5% of SMEs applied for non-bank finance.
  • 76% of SMEs reported that sufficient internal funds was the reason for not seeking credit.
  • 45% of all businesses reported increased turnover in the six months up to March 2022 with 18% reporting a decrease. This is a significant improvement from the low levels recorded in March 2021.
  • All sectors reported an improvement in turnover performance compared to March 2021. The biggest improvement was seen for the Hotel and restaurant (66%) sector.
  • 61% of SMEs reported profit during 2022, compared to 53% in 2021. 10% reported a loss in 2022 while 25% broke even.
  • Two-thirds of SMEs agree that investing in climate change adaptation is important.
  • For 38% of SMEs, energy costs were less than 2% of cost of sales, while for 26% the energy costs were between 2-5% of cost of sales. For 9%, energy costs are more than 10% of cost of sales.
  • Electricity costs are a significant proportion of total energy costs.
  • 35% of SMEs have committed funds to invest in energy efficiency over the next year.

On the publication of the SME Credit Demand Survey Minister for Finance Paschal Donohoe thanked the SMEs who contributed and stated:

"The SME Credit Demand Survey series is an invaluable resource that allows us to develop, refine and implement policy measures to support our indigenous businesses and allows the Department of Finance gain an essential understanding of the Irish SME environment."

Credit institutions resolution fund levy (amendment) regulations 2022 [S.I. No. 477 of 2022]

On 27 September 2022, the Minister for Finance, Pascal Donoghue published S.I. No. 477/2022 - Credit Institutions Resolution Fund Levy (Amendment) Regulations 2022, which amended the Credit Institutions Resolution Fund Levy Regulations 2012. The Minister for Finance announced that the credit institution resolution levy for 2023 will be set at 0.024725%, a slight reduction from 0.024914% of assets in 2022. The resolution levy should increase the size of the resolution fund by €5m per annum.

European

EBA publishes its report on the first mandatory exercise on Basel III full implementation impact

On 30 September 2022, the European Banking Authority (EBA) published its first mandatory Basel III Monitoring Report that assesses the impact that Basel III full implementation will have on EU banks in 2028. The results of the Basel III capital monitoring exercise show that European banks' minimum Tier 1 capital requirement would increase by 15% at the full implementation date in 2028, without taking into consideration EU-specific adjustments.

Excluding the leverage ratio contribution, the impact of the reforms is 18.2%, of which the leading factors are the output floor (6.3%) and credit risk (4.4%).  The minimum Tier 1 capital requirement for large and internationally active banks (Group 1) would increase by 16%. The respective requirement for the global systemically important institutions (G-SIIs, subset of Group 1) and that of Group 2 banks would increase by 24.7% and 9.6%, respectively.

EBA publishes its work programme for 2023

On 29 September 2022, the EBA published its annual work programme for 2023, describing the key strategic areas of work for the coming year, as well as related activities and tasks.

In 2023, the EBA will continue delivering on the priorities defined for the period 2022-2024 in its main programming document. The EBA's focus will be on:

  • finalising the Basel implementation in the EU
  • running an enhanced EU-wide stress test
  • providing data to all stakeholders
  • addressing the new challenges arising from the digitalisation of finance
  • further contributing to the build-up of the capacity to fight ML/FT and to protect consumers in the EU

Moreover, it will continue to pay particular attention to the European ESG agenda, in its regulatory and risk assessment mandates, as well as in its own organisation, building on its recent EU Eco-Management and Audit Scheme registration.

The EBA updates data used for the identification of global systemically important institutions

On 29 September 2022, the EBA disclosed data items specific to the recognition of the Banking Union and of institutions that are part of the Single Resolution Mechanism. For the first time the EBA is publishing data items specific to banks headquartered in the Banking Union in the context of the G-SII identification methodology and buffer rates allocation.

The publication covers 13 indicators, and updated underlying data for the 30 largest institutions in the EU whose leverage ratio exposure measure exceeds €200bn. Acting as a central data hub in the disclosure process, the EBA updates this data on a yearly basis and provides user-friendly tools to aggregate it across the EU.

This end-2021 data will assist competent authorities to identify a subset of banks as global systemically important institutions (G-SIIs), following the final decision by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB).

ECB consults on guide of how to assess buyers of qualifying stakes in banks

On 28 September 2022, the ECB launched a public consultation on the draft guide to qualifying holding procedures.

The guide aims to clarify how the ECB assesses applications to acquire qualifying holdings in banks in order to increase the transparency of this process for market participants. It builds on the applicable legal framework and on the experience gained over the years in assessing this type of transactions.

The guide explains who is obliged to undergo qualifying holding assessments, the documentation required to apply and how the ECB assesses these transactions. It also provides information on complex acquisition structures, the application of the principle of proportionality and specific procedural elements. Deadline for submitting comments is midnight CET on 9 November 2022.

ECB opinion on the enhancement of individual accountability and governance relating to senior executives in the Irish financial services industry

On 13 September 2022, the ECB published its opinion on the Central Bank (Individual Accountability Framework) Bill 2022 (the Bill). The ECB strongly welcomed the measures envisaged by the Bill. The ECB noted within the SSM the Bill would support suitability assessments and enable a better and more accurate grounding when material concerns lead to negative outcomes or reassessments. It also provided that the Bill will reinforce the governance framework of credit institutions.

In relation to the proposed power to be granted to the CBI to prescribe by regulations a pre-approval controlled function, the ECB notes that in the case of significant credit institutions the approval of appointments is subject to the exclusive competence of the ECB. The ECB, therefore, provided that Section 23A of the Central Bank Reform Act 2010, should be clarified so that the role of the ECB in respect of the supervision of significant supervised entities is maintained in line with the SSM Regulation.

EBA launches 2022 EU-wide transparency exercise

On 23 September 2022, the EBA launched its annual EU-wide transparency exercise, as part of its wider efforts to monitor risks and vulnerabilities and to reinforce market discipline. As done previously, the exercise is exclusively based on supervisory reporting data, which will keep the burden for the banks to a minimum. Results are expected to be published at the beginning of December together with the annual Risk Assessment Report (RAR).

The EBA expects to release more than one million data points, on average more than 10,000 data points per bank, with about 120 participating banks. As in the previous years, the data will cover capital positions, profitability, financial assets, risk exposure amounts, sovereign exposures and asset quality.

The EBA has started the interaction with the participating banks, which includes their verification of pre-populated templates and any data quality correction to be executed through the supervisory reporting channel.

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: 17 October 2022