Financial Services Regulation and Compliance - General Cross Sectoral May 2021

DOMESTIC

Climate Change a key focus for the CBI

On 3 May 2021 the CBI announced that it has decided to participate in a US dollar-denominated green bond investment fund, which has been established by the Bank for International Settlements. This investment is part of the CBI's goals to further integrate climate change-related investment principles within its investment assets.

Two pieces of research were carried out by the CBI to help inform their approach to climate-related risks. Deputy Governor of the CBI, Sharon Donnery, stated that this data shows us that the growth of green bond holdings across Europe shows the need for sustainable instruments to mitigate potential financial losses due to climate change.

Opening remarks by Governor Gabriel Makhlouf to the International Operational Risk Working Group

On 20 May 2021 the Governor of the CBI, Gabriel Makhlouf spoke to the International Operational Risk Working Group where he discussed the topics of cyber security risks, diversity and inclusion and effective operational risk management. The following were the main points to consider:

  • hybrid threats are rising as cyber and information security overlap with physical security and data protection risks
  • effective operational risk management allows the public to gain trust in the CBI's vision for institutions
  • a 'tone from the top' culture is critical in order for the management to have a culture that is risk aware and seeks if possible to design risk out of institutions

Opening Statement of FSPO, Ger Deering, to the Oireachtas Pensions Committee

On 25 May 2021 the Financial Services and Pensions Ombudsman (FSPO), Ger Deering, gave a speech to the Joint Committee on Public Petitions. Mr. Deering outlined that his office carries out the following work:​

  1. Complaints against Financial Service Providers (FSP). This can involve directing a FSP to reinstate a tracker mortgage interest rate, to recalculate the mortgage account balance or to admit and assess an insurance claim for payment benefit.
  2. Complaints against Pension Providers. It was stated by Mr. Deering that rectification can be directed but it cannot exceed the actual loss of the benefit under the pension scheme.
  3. Covid-19 related complaints. The measures that were introduced from the outset of the pandemic allowed for an early identification and analysis of complaints.
  4. Business interruption complaints. Mr. Deering noted that his office has prioritised the progression of complaints concerning business interruption insurance claims as policyholders need to get a quick understanding if they are entitled to benefit under their insurance policy or not.
  5. Tracker mortgage related complaints. Mr. Deering noted that his office's work involves scrutinising and considering the individual mortgage arrangements and to assess the merits of the complaint on the basis of its own individual circumstances. ​

Minister McGrath publishes General Scheme of Protected Disclosures (Amendment) Bill

On 12 May 2021 Minister McGrath published the General Scheme of the Protected Disclosures (Amendment) Bill/ The purpose of the Bill is to provide for the transposition of the EU Whistleblowing Directive into Irish Law, which has to be carried out by 17 December 2021.

The main changes will be the following:

  • Volunteers, unpaid trainees, board members, shareholders and job applicants will be protected by the Protected Disclosures Act.
  • If a private sector organisation has 50 or more employees, they must have formal channels and procedures set up for their employees to make protected disclosures.
  • Employers/prescribed persons must acknowledge a protected disclosure within seven days, as well as following-up and giving feedback within three months on the allegation that is made.
  • The burden of proof is reversed when a person brings a case to the Work Relations Commission where it concerns penalisation for making a protected disclosure. It is assumed that the penalisation occurs because the worker made a protected disclosure – the employer must prove otherwise.
  • A Protected Disclosure Office will be opened in the Office of the Ombudsman.
  • This General Scheme is now going to be referred to the Joint Committee on Finance, Public Expenditure and Reform and the Taoiseach for Pre-Legislative Scrutiny. ​

EUROPEAN

ECB publishes their May Supervision Newsletter

​The May ECB Supervision Newsletter outlines some COVID-19 related concerns on credit risk management and banking exposure to vulnerable sectors such as food and accommodation. The ECB are also reviewing if banks have adequately implemented the financial relief measures put in place by various European governments during the pandemic. 

The newsletter outlines the new regulatory regime for investment firms involving large investment firms being supervised as banks by the ECB. Preparing for benchmark rates reforms are covered along with an article on improving valuation risk management. 

The ECB is now using a targeted review of internal models across banks' monitoring of credit, market and counterparty risk with the aim of making internal models more reliable and comparable across institutions, to enable the convergence of supervisory practices.​

EBA launches consultation on central AML/CFT database

The EBA has launched a consultation on draft RTS on a central database on anti-money laundering (AML)/countering the financing of terrorism (CFT) in the EU. The consultation is open until 17 June 2021. ​The database will host up to date information on AML/CFT weaknesses identified by national competent authorities across the EU and the measures taken to rectify those weaknesses. ​

The draft RTS proposed in this consultation paper specify the definition and the materiality identified by the competent authorities, the type of information collected and how much information will be communicated to the EBA.

EBA launches a consultation on new guidelines on cooperation and information exchange in the area of AML/CFT

On 27 May 2021 the EBA launched a consultation paper on its new guidelines that outlines how prudential supervisors, AML/CFT supervisors and financial intelligence units should cooperate and exchange information in relation to AML/CFT. The guidelines support cooperation and information exchange in relation to authorisations of new institution, ongoing supervision including risk assessment and the imposition of supervisory measures and sanctions, including the withdrawal of the authorisation. Overall these guidelines provide the authorities with a more effective way to exchange information and bring clarity when it comes to what information to exchange, with whom and when.

This consultation is open until 27 August 2021.

ESMA publishes guidelines on outsourcing to cloud service providers

ESMA guidelines on outsourcing to cloud service providers will apply to all cloud outsourcing arrangements entered into, renewed or amended on or after 31 July 2021. The guidelines will apply to AIFMs, depositaries of AIFs, UCITS ManCos and depositaries, CCPs, TRs, investment firms and credit institutions when carrying out investment services and activities, data reporting services providers, market operators of trading venues, CSDs, credit rating agencies, securitisation repositories and administrators of critical benchmarks.

Requirements include governance and documentation of a cloud outsourcing strategy, with clear responsibilities for cloud outsourcing arrangements assigned, the maintenance of a cloud outsourcing register to document specified information, due diligence and contractual requirements. 

ESMA updates its Q&As relating to the Prospectus Regulation

On 5 May 2021 ESMA updated its Q&As on the Prospectus Regulations by including three new Q&As. The objective of these new Q&As is to promote common supervisory practices and approaches in the application of prospectus supervision and to give guidance to market parties on how national competent authorities should apply the Prospectus Regulation. The new Q&As clarify the application of Article 4(1) of the CRA Regulation to credit rating disclosure in prospectuses; how to determine home Member State in the context of global depository receipts over shares; and the publication of supplements to prospectuses when new audited annual financial information is published by a non-equity issuer.

ESMA publishes a call for evidence on digital finance

ESMA has published a call for evidence on digital finance in order to assist the preparation of its technical advice to the European Commission. In September 2020 the European Commission published a digital finance package, following which it issued a request for technical advice to the European Supervisory Authorities.

ESMA is now seeking information on three key topics:

  1. fragmented value chains in finance
  2. digital platforms and bundling of financial services
  3. mixed activity groups who provide both financial and non-financial services

The closing date for submissions is 1 August 2021. The European Commission has requested the delivery of the report by 31 January 2022

ESMA responds to European Commission consultation on the ESAs

On 26 May 2021 ESMA published its response to the European Commission's consultation on the functioning of ESA. The response looks at some issues and limitations that could be addressed in the ESMA Regulation. The recommendations include: reinforcing ESMA's approach to supervisory convergence, reviewing the benefits of EU level direct supervision, building ESMA's data capabilities, ensuring that the single rulebook is still fit-for-purpose and alleviating funding issues.

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

Date published: 4 June 2021