Financial Services Regulation and Compliance - General Cross Sectoral June 2023

Domestic

On 1 June 2023, CBI Director of Financial Regulation, Policy & Risk, Gerry Cross, delivered remarks regarding the practical implications of the IAF for directors (available here). In particular, Mr. Cross noted that:

• IAF / SEAR is not intended to lead to a large number of enforcement cases against individuals. They should be regarded as a means of clarifying expectations.
• The IAF will support the supervisory relationship rather than representing something to be separately supervised. IAF measures, such as clarity, quality, coherence, etc., will form part of that supervisory engagement.
• It is acknowledged that individuals coming into a more senior or different role for the first time will, subject to certain minimum expectations as to competence and capability to operate at that level, be on a learning curve.
• While the default position is that each job sharing individual will have full accountability for inherent and prescribed responsibilities, this will be discharged where s/he can demonstrate that s/he took reasonable steps to discharge the responsibility.

CBI launches consultation on draft composite guidelines on the ASP

On 22 June 2023, the CBI launched a consultation on its draft composite guidelines on the administrative sanctions procedure (ASP) to accompany the recent Central Bank (Individual Accountability Framework) Act 2023 (the IAF Act) (available here). The consultation will close on 14 September 2023. For more on this development, please see our legal update here.

CBI publishes thematic assessment on embedding an effective conduct-focussed culture in wholesale market firms

On 12 June 2023, the CBI published a thematic assessment on the role of the board and senior management in fostering an effective conduct-focused culture in regulated firms engaging in wholesale market activity (available here). The report details the main findings of the assessment in areas such as leadership and decision-making, speak-up culture and hybrid working arrangements. The report sets out aspects of good practice and areas for improvement for firms to consider in the context of their own business models. In particular, the report singles out deficient management information and reporting, as well as a failure to articulate responsibilities for managing and mitigating market conduct risk in the role profiles and objectives for senior management.

European

Proposal to modernise payment services and open up financial services data

On 28 June 2023, the European Commission put forward a proposal to amend and modernise payments through the Payments Services Directive (PSD3) to ensure that consumers can continue to safely and securely make electronic payments and transactions in the EU, domestically or cross-border, in euro and non-euro. It also aims to provide greater choice of payment service providers on the market. Specific measures include:

• allowing payment service providers to share fraud-related information between themselves, increasing consumers' awareness
• levelling the playing field between banks and non-banks, in particular by allowing non-bank payment service providers access to all EU payment systems, with appropriate safeguards, and securing those providers' rights to a bank account
• combating and mitigating fraud by making a system for checking alignment of payees' IBAN numbers with their account names mandatory for all credit transfers

The European Commission also proposes a framework for financial data access, which will facilitate the sharing of data among providers to enable new, cheaper and better data-driven financial and information products and services, such as financial product comparison tools and personalised online advice. The form of customer data will be standardised, while data holders (i.e., financial institutions) will be obliged to make it available to data users (i.e., other financial institutions or fintech firms). This will all be subject to customer permission.

Proposal on Single Currency Package

On 28 June 2023, the European Commission put forward a proposal on the legal tender of euro banknotes and coins to ensure that they remain widely accepted as a means of payment and continue to be accessible to people and businesses. This will facilitate different payment preferences and ensure the financial inclusion of vulnerable groups, such as older people.

Separately, the European Commission has proposed a legal framework for a digital euro as a complement to euro banknotes and coins. The decision of if and when to issue a digital euro remains with the ECB.

The press release for this package is available here.

Provisional agreement reached on a directive on financial services contracts concluded at a distance

On 6 June 2023, the European Parliament and Council reached provisional political agreement on a directive concerning financial services contracts concluded at a distance (available here). This will repeal Directive 2002/65 of concerning the distance marketing of consumer financial services. The agreed text brings in several reforms, such as:

• modernising pre-contractual informational obligations
• limiting the use of dark pattern marketing techniques to influence consumer’s choices
• endowing consumers with the right to request human intervention where a trader is using online tools, such as chatbots

Service providers will also be obliged to provide an easily accessible ‘withdrawal function’ to facilitate withdrawal from contracts concluded at a distance.

As the Permanent Representatives’ Committee submitted a draft overall compromise package to the European Parliament for approval on 21 June, the text will soon be confirmed by the European Parliament and Council.

European Council agrees its position on directives strengthening sanctions enforcement

On 9 June 2023, the European Council agreed its negotiating position for a directive introducing criminal offences and penalties for EU sanctions violations, such as trading in sanctioned goods and assisting persons subject to Union restrictive measures to bypass an EU travel ban (available here). The directive will require Member States to update their legislation to allow for aggravating circumstances to be taken into account when determining the penalty to be applied, such as where the offence is committed by a public official. Limitation periods will be extended to allow for effective law enforcement.

The European Council also agreed its negotiating position for a directive setting minimum rules on the tracing, identification, freezing, confiscation, and management of criminal property (available here). The proposed directive will apply in respect of sanctions violations, and also in respect of other criminal activities. In certain limited circumstances, assets may be confiscated in the absence of a criminal conviction. Next, the European Council will enter into negotiations with the European Parliament on both of these directives.

Eleventh package of EU sanctions against Russia adopted

On 23 June 2023, the EU adopted its 11th round of sanctions against Russia, focussing on enforcement and implementation of existing measures. A new anti-circumvention tool will allow the EU to restrict the trade of specified goods and technology to certain third countries deemed to be at continued and particularly high risk of circumvention. Certain goods and technologies may no longer be exported from the EU to third countries via the territory of Russia. The package also includes additional measures targeting Russia’s energy exports. The press release is available here.

EBA issues opinion in response to the European Commission’s proposed amendments to the draft technical standards on crowdfunding service providers

On 14 June 2023, the EBA published an opinion on the amendments proposed by the European Commission to the EBA final draft RTS on requirements on crowdfunding service providers regarding the ‘storage limitation’ principles of the GDPR. The EBA has accepted the proposed amendment. The opinion is available here.

European Council agrees its position on legislating for listing as part of wider Capital Markets Union strategy

On 14 June 2023, the European Council agreed its negotiating position for a directive and regulation reducing the administrative burden on companies going through a listing process and companies already listed on EU public markets (available here). This will further the wider Capital Markets Union agenda of easing access to capital market funding. This package will amend:

• Regulation 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the prospectus regulation)
• Regulation 596/2014 on market abuse (the market abuse regulation – MAR)
• Regulation 600/2014 on markets in financial instruments (MiFIR)
• Directive 2014/65 on markets in financial instruments (MiFID II)

It will also repeal Directive 2001/34 on the admission of securities to official stock exchange listing and on information to be published on those securities. Next, the European Council will enter into negotiations with the European Parliament.

ESAs launch consultation on first batch of DORA policy products

On 19 June 2023, the ESAs launched a public consultation on the first batch of policy products under the Digital Operational Resilience Act (DORA) (available here). The policy instruments submitted for consultation are:

• RTS on ICT risk management framework and RTS on simplified ICT risk management framework
• RTS on criteria for the classification of ICT-related incidents
• RTS to specify the policy on ICT services performed by ICT third-party providers
• ITS to establish the templates for the register of information

These technical standards aim to ensure a consistent and harmonised legal framework in the areas of ICT risk management, major ICT-related incident reporting and ICT third-party risk management. The consultation runs until 11 September 2023. Finalised drafts of these standards must be submitted by 17 January 2024.

EU and UK sign memorandum of understanding on cooperation regarding the provision of financial services

As noted in our May publication, the European Commission last month adopted a draft memorandum of understanding (MoU) establishing a framework for structured regulatory cooperation in the area of financial services with the United Kingdom. On 27 June, both parties signed the MoU. As previously noted, the MoU will not affect UK financial services providers' access to the EU.

Provisional agreement reached on amendment to Central Securities Depositories Regulation

On 27 June 2023, the European Parliament and Council reached provisional political agreement on amendments to the central securities depositories (CSD) Regulation (available here). The new law will reduce the financial and regulatory burden on CSDs and improve their ability to operate across borders, while also strengthening financial stability.

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

EBA report on ML / TF Risks associated with payment institutions

On 16 June 2023, the EBA released a report on the ML / TF risks associated with payment institutions. This report concludes that payment institutions are inherently high-risk entities, and that this risk is generally not being managed adequately. Internal systems and controls are often not sufficiently robust. Supervisory practices vary significantly. Some Member States are perceived as applying AML / CFT controls less stringently, attracting payments institutions who use authorisation to passport across the entire bloc. The use of agents was noted as carrying particularly high ML / TF risk, especially in a cross-border context. The report is available here.

ESAs publish their progress reports on greenwashing in the financial sector

On 31 May / 1 June, the ESAs each published progress reports on greenwashing in the financial sector. The ESAs propose a common high-level understanding of ‘greenwashing’ as a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participant. The ESAs will publish final greenwashing reports in May 2024 and will consider final recommendations, including on possible changes to the EU regulatory framework. The reports are available here.

Negotiations on Corporate Sustainability Due Diligence Directive commence

On 8 June 2023, trilogue negotiations on the Corporate Sustainability Due Diligence Directive commenced. Notably, the European Parliament proposes to include the provision of financial services by regulated financial entities within the scope of the directive, while the European Council suggests leaving this to the discretion of individual Member States. This may have a major impact on the operations of such firms. For more on our coverage of this development, click here.

ESAs publish their progress reports on greenwashing in the financial sector

On 31 May / 1 June, the ESAs each published progress reports on greenwashing in the financial sector. The ESAs propose a common high-level understanding of ‘greenwashing’ as a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participant. The ESAs will publish final greenwashing reports in May 2024 and will consider final recommendations, including on possible changes to the EU regulatory framework. The reports are available here.

European Commission launches consultation on draft delegated act for the first set of ESRS

On 12 June, the European Commission published its draft European Sustainability Reporting Standards (ESRS) incorporating previous feedback from the European Financial Reporting Advisory Group (EFRAG). The proposal includes an additional phase-in measure and removes certain mandatory reporting requirements. The draft ESRS are available here. The consultation will close on 14 September 2023.

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

Date published: 11 July 2023