Financial Services Regulation and Compliance - General Cross Sectoral Feb 2022

Domestic

Ireland for Finance Action Plan 2022 - The strategy for the development of Ireland's International Financial Services Sector to 2025

On 3 February 2022, the Department of Finance launched the 'Ireland for Finance Action Plan 2022'. This is the fourth annual action plan under Ireland for Finance, the whole-of-government strategy for the further development of the international financial services sector for 2019-2025. It is supported by ongoing collaboration between public and private stakeholders and educational institutions to ensure the talent and expertise can continue to be successfully harnessed to build on existing achievements.

The five key themes identified as priorities within the strategy are:

  1. sustainable finance
  2. fintech and digital finance
  3. diversity and talent
  4. regionalisation and promotion
  5. operating environment

Protected Disclosures (Amendment) Bill 2022 is published

On 9 February 2022, the Minister for Public Expenditure and Reform, Michael McGrath TD, published the Protected Disclosures (Amendment) Bill 2022 which will enhance and strengthen the protections for whistle-blowers in Ireland.

The Bill transposes the EU Whistleblowing Directive, as well as amending and extending the Protected Disclosures Act 2014 in providing protections for volunteers, shareholders, board members and job applicants for the first time.

Private sector organisations with 50 or more employees will be required to establish formal channels and procedures for their employees to make protected disclosures, as is currently the case in the public sector. This will be monitored and enforced by the Inspectorate of the Workplace Relations Commission. A new Office of the Protected Disclosures Commissioner will be established in the Office of the Ombudsman to support the operation of the new legislation.

The Bill is currently before Dáil Éireann, at the third stage of the Irish legislative process.

Trends and Transitions: an Irish perspective on global and European regulation - Remarks by Governor Makhlouf to the European Financial Forum

On 17 February 2022, Governor Makhlouf delivered his remarks to the European Financial Forum on 'Trends and Transitions: an Irish perspective on global and European regulation'. Governor Makhlouf's speech focused on the theme of resilience, particularly in times of transition.

In relation to the green transition, he noted that the future would see new regulations putting requirements on institutions to embed ESG risks into their strategies and risk management frameworks. The role of the CBI's new Climate Risk and Sustainable Finance Forum will play in bringing together key industry and other stakeholders to share knowledge and understanding of the implications of climate change for the Irish financial system was emphasised.

In relation to the digital transition, Governor Makhlouf highlighted the establishment of the  'Innovation Hub' which allows fintech firms – as they moved from the world of technology into a regulated financial environment – to engage with the CBI outside of existing formal regulator and firm engagement processes. The hub will be reviewed this year to ensure the CBI are engaging effectively in light of the rapidly changing landscape.

Governor Makhlouf also commented on the aim to boost the role of the European Union on the world stage, which encapsulates initiatives like completing Banking Union, making progress on the Capital Markets Union and improving the implementation and enforcement of the EU’s sanctions regimes. This transition underlies ambitions towards greater economic and financial strategic autonomy.

The Competition (Amendment) Bill 2022 is published

Significant and wide-ranging new powers of intervention will be given to the Irish merger control authority i.e. the Competition and Consumer Protection Commission (CCPC), under the recently-published Competition (Amendment) Bill 2022 (Bill).

If enacted as currently drafted, the Bill would give effect to Directive (EU) 2019/1 (i.e. ECN+) by further empowering the CCPC to investigate and enforce EU competition law in Ireland. Competition Act 2002 (as amended) (Competition Act) will be:

  1. a system for the compulsory notification of "below threshold" deals
  2. the CCPC will be able to impose interim measures on deals
  3. gun-jumping – an offence to put a deal notified to the CCPC into effect before it is approved by the CCPC and the CCPC will have the power to bring gun-jumping prosecutions before the District Courts
  4. the CCPC will be able to unwind/dissolve completed deals
  5. enhanced dawn raid powers to the CCPC

The Bill was referred to the Select Committee on Enterprise, Trade and Employment on 9 February 2022. As a priority piece of legislation for the Irish Government, the Bill's enactment is likely to be in the near term.

European

The European Commission presents the EU Taxonomy Complementary Climate Delegated Act

On 2 February 2022, the European Commission presented an EU Taxonomy Complementary Climate Delegated Act (CCDA) on climate change mitigation and adaptation covering certain gas and nuclear activities.

The aim of the EU Taxonomy is to help improve the flow of money towards sustainable activities across the European Union. Enabling investors to re-orient investments towards more sustainable technologies and businesses will be key in making Europe climate neutral by 2050. The CCDA sets out the technical screening criteria for climate change mitigation and climate change adaptation for additional economic activities in the energy sectors, which were not included in the Taxonomy Climate Delegated Act, in particular in the natural gas and nuclear energy sectors. Moreover, to enhance market transparency and the information of investors, the CCDA provides for specific disclosure requirements for the natural gas and nuclear energy sectors by amending the Taxonomy Disclosures Delegated Act

Once translated into all official EU languages, the Complementary Delegated Act will be formally transmitted to the co-legislators for their scrutiny. Once the scrutiny period is over and if neither of the co-legislators objects, the Complementary Delegated Act will enter into force and apply as of 1 January 2023.

The ESAs recommend actions to ensure the EU’s regulatory and supervisory framework remains fit-for-purpose in the digital age

On 7 February 2022, the European Supervisory Authorities (ESAs) including EIOPA published a joint report in response to the call for advice on digital finance from the European Commission. The proposals in the report are intended to address risks arising from the transformation of value chains, platformisation and the emergence of new "mixed-activity groups" – these are groups, which combine financial and non-financial activities.

The report aims to ensure the regulatory and supervisory framework remain fit-for-purpose in the digital age include ten cross-sectoral recommendations and two insurance specific recommendations.

The proposals include:

  • a holistic approach to the regulation and supervision of the financial services value chain
  • increasing consumer protection through a range of measures including enhanced disclosures, complaints handling mechanisms, and improved digital and financial literacy
  • further convergence in the classification of cross-border services and in addressing money laundering/financing of terrorism risks in a digital context
  • effective regulation and supervision of ‘mixed-activity groups’, including a review of prudential consolidation requirements
  • active monitoring of the use of social media in financial services

The European Commission adopts a proposal for a directive on corporate sustainability due diligence

On 23 February 2022, the European Commission (EC) adopted a proposal for a directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains.

Companies will be required to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss. A number of Members States have already introduced national rules on due diligence and some companies have taken measures at their own initiative. However, the EC has noted that there is a need for a larger scale improvement that is difficult to achieve with voluntary action. This proposal establishes a corporate sustainability due diligence duty to address negative human rights and environmental impacts.

The new due diligence rules will apply to the following companies and sectors:

  • EU companies:
    • Group 1: all EU limited liability companies of substantial size and economic power (with 500+ employees and €150m+ in net turnover worldwide).
    • Group 2: Other limited liability companies operating in defined high impact sectors, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of €40m worldwide and more. For these companies, rules will start to apply two years later than for group 1.
  • Non-EU companies active in the EU with turnover threshold aligned with Group 1 and 2, generated in the EU.

Small and medium enterprises (SMEs) are not directly in the scope of this proposal.

The proposal also introduces directors' duties to set up and oversee the implementation of due diligence and to integrate it into the corporate strategy. In addition, when fulfilling their duty to act in the best interest of the company, directors must take into account the human rights, climate change and environmental consequences of their decisions. Where companies' directors enjoy variable remuneration, they will be incentivised to contribute to combating climate change by reference to the corporate plan.

National administrative authorities appointed by Member States will be responsible for supervising these new rules and may impose fines in case of non-compliance. In addition, victims will have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.

European Commission has raised a further €5 billion in NextGenerationEU funds

On 8 February 2022, the European Commission announced that it has raised a further €5bn in NextGenerationEU funds on behalf of the EU in another successful deal. Due on 6 July 2051, the 30-year bond – executed as an increase to an existing EU-Bond – brings the total financing raised under the programme to €78.5bn.

The deal is the sixth syndicated transaction the Commission has executed under NextGenerationEU. Added to the €2.5bn raised for the programme via bond auction in January, the deal takes the Commission to €7.5bn of its €50bn funding target for the first six months of 2022.

ESMA publishes its Sustainable Finance Roadmap 2022-2024

On 10 February 2022, ESMA published its sustainable Finance Roadmap for 2022 – 2024 (the roadmap). Building on ESMA’s 2020 Strategy on Sustainable Finance, the roadmap sets out ESMA’s deliverables on sustainable finance and how they will be implemented over the next three years. The roadmap will serve as a practical tool to ensure that ESMA delivers on the wide array of sustainable finance tasks across several sectors in a coordinated way.

The roadmap has set three priorities for ESMA's sustainable finance activities in the period from 2022 to 2024:

  1. tackling greenwashing and promoting transparency
  2. building NCAs’ and ESMA’s capacities to understand and address the supervisory implications of new regulation and of novel market practices in the area of sustainable finance
  3. monitoring, assessing and analysing ESG markets and risks

The roadmap will remain under review during the entire implementation period of 2022 to 2024 to ensure it continues to address the most significant challenges related to ESMA's sustainable finance mandate.

Keynote speech by President von der Leyen at the 'Masters of Digital 2022' event

In delivering the keynote speech at the "Masters of Digital 2022" event, Present of the European Commission, Ursula von der Leyen spoke on the progress of making the 2020's Europe's Digital Decade. President von der Leyen commented on NextGenerationEU, which has over €125bn euros in digital investment. She referred to this initiative as the "Marshall Plan for a digital Europe".

In relation to regulation in the digital realm, President von der Leyen spoke firstly of the Digital Markets Act and the Digital Services Act. These two Acts lay out the basic principles for all digital companies in Europe and create a level playing field for all businesses and clear rights for all users. Further, President von der Leyen also spoke of the Artificial Intelligence Act, which creates a “guard-rail” for one of the most crucial technologies of our age. It encourages companies and programmers to keep advancing and innovating and the Commission is expanding its investment in Artificial Intelligence (AI).

On upcoming regulation, President von der Leyen stated that the Data Act would be presented by the Commission later in the month, with the Cyber Resilience Act following later this year.

Finally, insight into the upcoming European Chips Act was presented by President von der Leyen. The goal is to ensure 20% of the world's microchips production is in Europe by 2030. The European Chips Act will back this ambition with considerable investment, by enabling more than €12bn euros in additional public and private investment by 2030.

Sanctions imposed in response to the crisis in the Ukraine

Over the course of 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: 13 March 2022