Financial Services Regulation & Compliance - Cross Sectoral January 2019

DOMESTIC

Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 commenced

The Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 has commenced. This Act provides for the regulation of credit servicing firms and for that purpose to amend the Central Bank Act 1997. From 21 January 2019, the Irish credit servicing regime has been amended to regulate persons who hold legal title to credit and/or control the overall strategy or key decisions in relation to a portfolio of loans. The introduction of the Act means that a number of previously unregulated entities that hold legal title to relevant portfolios of Irish loans and/or control the overall strategy or key decisions relating to credit, are now subject to regulation and a requirement to apply to the CBI for authorisation to carry on the business of a credit servicing firm.  

General scheme of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2019 published

The General Scheme of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2019 (the Bill) has been published by the Department of Justice. The scheme sets out the heads of the Bill which will give effect to many of the provisions of the Fifth EU Money Laundering Directive (5MLD). The current AML/CTF legislation is set out in the Criminal Justice (Money Laundering and Terrorist Financing) Acts, 2010 to 2018. The main themes of the proposed amendments include an extension to the category of designated persons, extended triggers for conducting CDD measures and the introduction of additional CDD measures prior to establishing a business relationship.

General Scheme of the Miscellaneous Provisions (Withdrawal of the United Kingdom from the European Union on 29 March 2019) Bill 2019 published

The General Scheme of the Miscellaneous Provisions (Withdrawal of the United Kingdom from the European Union on 29 March 2019) Bill 2019 has been published. The Bill proposes a number of contingency measures to mitigate the risks associated with a no deal Brexit, in which the UK would become a third country, falling outside the Single Market and Customs Union, and the framework of EU law. Contingency measures are specifically proposed in the areas of health, education, energy, financial services, taxation, transport, employment and justice. The Bill generally focuses on the broad themes of protecting the citizen, and supporting the economy, enterprise and jobs. The Bill will go to the legislative drafting department of the Office of the Attorney General where the measures will be considered.

Department of Finance delivers initial assessment of economic and fiscal impact of a no deal Brexit

The Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD, has discussed the economic and fiscal impacts of a disorderly exit of the UK from the European Union with Government. It was noted that under a disorderly exit of the UK from the EU, the Irish economy could be 4.25% smaller than the current projections over the medium-term. Employment would increase more slowly and the unemployment rate could rise by 2 percentage points. It was also noted that the public finances would deteriorate, the modest surplus projected for 2020 would turn to deficit. Minister Donohoe also noted that the updated multi-annual forecasts will be published in the Stability Programme in April.

European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019 implemented

The European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019 have been implemented. These regulations give effect to paragraphs (1) to (3) and paragraph (7) of Article 31 of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 and to Article 22(1a) of Council Directive 2011/16/EU of 15 February 2011. These regulations pertain to the retention of records and trustees' duty to keep and maintain a beneficial ownership register.

European Union (General Framework for Securitisation and Specific Framework for Simple, Transparent and Standardised Securitisation) Regulations 2018 [S.I. No. 656 of 2018] implemented

The new EU Securitisation Regulation became directly effective across the EU on 1 January 2019. The related Irish Securitisation Regulations were published on 18 January 2019. They designate the CBI as competent authority for the purposes of the EU Securitisation Regulation, and deal with the manner in which securitisations should be notified to the Central Bank. The regulations provide for the powers of CBI and enforcement in relation to both regulated and non-regulated financial service providers.

Deputy Governor Ed Sibley delivers speech titled "Safety and soundness - Strategic priorities for the next three" years

Deputy Governor of the CBI, Ed Sibley, delivered a speech titled "Safety and soundness - Strategic priorities for the next three" years. The speech focussed on the CBI's strategic priorities, specifically; resilience, Brexit, strengthening consumer protection, engaging and influencing and enhancing organisation capability. It was noted that there has been considerable progress in enhancing the resilience of the financial system, and the banking system in particular, but there is still more to be done to deliver a trustworthy financial system that is sustainably serving the needs of the economy and its consumers.

CBI publishes updates to Credit Servicing Firms FAQ

The CBI has published an update to its FAQ's on credit servicing firms. The update pertains to how the law has changed under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018. The Act has expanded the activity of credit servicing to include ownership of legal title to credit granted under a credit agreement, and associated ownership activities. If a loan is now transferred, the holder of the legal title to the credit must be authorised by the CBI as a credit servicing firm. The Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, now amended, continues to make sure that all relevant consumer protections will continue to apply to the loan when it is sold on to another firm.

Michael Hodson delivers speech titled " Asset Management after Brexit: Responding to the New Reality"

The CBI has published a speech delivered by Michael Hodson, Director of Asset Management and Investment Banking, which was delivered to the British Irish Chamber of Commerce Financial Services Seminar. In terms of Brexit, it was noted that both the industry and regulators must remain mindful as the Brexit clock is still ticking and the risk remains of a hard Brexit scenario. The hard Brexit and cliff effects were discussed noting that one of the most salient risks relates to the loss of the financial services passport.

In the context of the CBI's authorisations role, it was noted that there has been an increase in the number of firms seeking authorisation with applications ranging from banks, investment firms, electronic money institutions and insurance companies. It was noted that the CBI recognise the importance of the relationships that they have built with the FCA/PRA and the CBI's intention to maintain and grow these relationships regardless of the Brexit outcome.

CBI publishes its first Quarterly Bulletin of 2019

The CBI published its first Quarterly Bulletin of 2019 discussing how the uncertain backdrop poses risks to economic growth. The bulletin noted that a disorderly Brexit scenario could lead to around 4% lower output in first year, but employment and growth are to remain positive overall. It was noted that economic growth is still expected to slow, even in a smooth Brexit scenario, given the advanced stage of the current economic cycle and more uncertain international economic environment. The bulletin also reported that domestic and other external risks to the forecast will persist.

CBI launches consultation on new draft AML/CTF Guidelines for the Financial Sector

The CBI has launched a consultation relating to new draft AML/CTF Guidelines for the Financial Sector. Regulated businesses are invited to give feedback on the draft Guidelines by 5 April 2019. The Guidelines set out the expectations of the Central Bank regarding the factors that firms should take into account when identifying, assessing and managing ML/TF risks.

EUROPEAN

ESMA publishes Securities and Markets Stakeholder Group (SMSG) end of term report for 2018

ESMA has published the SMSG end of term report for 2018 which assesses the group's current composition and makes recommendations for the future tasks of ESMA. Within the report the SMSG share its experiences with the public with a view to enhance the functioning of the SMSG as well as the overall European System of Financial Supervision of which it is a part. The report covers five areas: the role of the SMSG, the composition of the SMSG, how the Group works, the lessons the SMSG has drawn from its work and an overview of the papers adopted by the SMSG in this mandate period.

European Supervisory Authority (ESA) joint committee publishes report on regulatory sandboxes and innovation hubs

The ESA has published a report discussing regulatory sandboxes and innovation hubs. The report outlines the initiatives adopted to facilitate financial innovation including the establishment of innovation facilitators which typically include innovation hubs and regulatory sandboxes. Innovation hubs provide a dedicated point of contact for firms to raise enquiries with competent authorities on FinTech related issues and to seek non-binding guidance on regulatory expectations.

Regulatory sandboxes are schemes to enable firms to test innovative financial products, financial services or business models pursuant to a specific testing plan agreed and monitored by a competent authority. In this report the ESAs set out a comparative analysis of the innovation facilitators used to date and best practices on the design and operation of these. The report also sets out options to be considered to promote coordination between innovation facilitators and support the upscaling of FinTech across the EU.

EBA releases its annual assessment of the consistency of internal model outcomes

EBA published two reports on the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements. The reports cover credit risk for high and low default portfolios as well as market risk. The results confirm previous findings, with the majority of RWs variability explained by fundamentals. These benchmarking exercises, conducted by the EBA on an annual basis are a fundamental supervisory and convergence tool to address unwarranted inconsistencies and restoring trust in internal models.

European Commission issues public consultation to evaluate the Consumer Credit Directive

European Commission has issued a public consultation to evaluate the Consumer Credit Directive. The goal of the open public consultation is to ensure that all relevant stakeholders have the opportunity to express their views on the functioning of the Consumer Credit Directive. The primary stakeholders of the Directive are consumers and creditors across the EU. The Commission is working on facilitating consumers’ access to good quality financial services offered outside their Member State.

The development of a fairer single market is one of the European Commission’s key priorities. Regarding consumer credit in particular, the Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers has been adopted to encourage cross-border credit agreements while ensuring high protection standards for consumers. The closing date for responses to this consultation is 8 April 2019.

European Commission publishes proposal for a regulation establishing a European Systemic Risk Board (ESRB)

The European Commission has published a proposal for a regulation amending Regulation (EU) No 1092/2010 on European Union macro-prudential oversight of the financial system and establishing an ESRB. The ESRB is responsible for macro-prudential oversight of the financial system in the EU and setting guidance on the use of macro-prudential instruments. However, the recent institutional changes related to Banking Union and efforts to build a Capital Markets Union, make the context in which the ESRB was set up different from the one it now operates in.

Improvements to the ESRB’s composition and how it cooperates with European institutions are needed to take account of incremental changes to the macroprudential framework and the regulatory developments that have taken place. Strengthening the ESRB's efficiency and effectiveness will improve coordination of macroprudential policies within the EU and enable the ESRB to better fulfil its mandate.

ESMA publishes report to Commission on the application of accepted market practices

ESMA published its annual report to the Commission on the application of accepted market practices (AMPs) pursuant to Article 13(10) of Market Abuse Regulation (MAR). The Report contains information on the AMPs established in the EU both under the Market Abuse Directive and under the MAR, and data on their application. AMPs are a defence against allegations of market manipulation. In particular, dealings in financial markets which are carried out for legitimate reasons and in conformity with an established AMP will not constitute market manipulation.

ESMA’s report provides an overview on the establishment and application of AMPs in the EU.  Particular reference is made to the AMPs established on the basis of the Market Abuse Directive which were still in force when MAR became applicable, and the AMPs which have been established under MAR. The report includes ESMA’s views on the application of AMPs together with recommendations to National Competent Authorities.

European Commission publishes Vice-President Valdis Dombrovskis Keynote speech at the Euronext New Year ceremony

The European Commission published the key note speech delivered by Vice-President Dombrovskis at the Euronext New Year ceremony. The speech pertained to the Capital Markets Union and it was noted that Europe needs a genuine single market for capital to support growth and innovation and to strengthen our Economic and Monetary Union. The speech focussed on two priorities that are defining the future of finance: Sustainable Finance and Fintech.

The Commission adopted an ambitious Action Plan for sustainable finance. This includes a proposal to develop an EU-wide taxonomy for sustainable economic activities. A proposal to require investment managers to disclose how they integrate sustainability considerations into their investment and advisory processes are also included. Valdis concluded by noting that this will be the year to set a path for the EU financial sector for years to come, by laying down the building blocks of the Capital Markets Union.

EBA publishes final guidance regarding the exposures to be associated with high risk

The EBA published its final Guidelines regarding the types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). Through these Guidelines, the EBA aims to enable a higher degree of comparability in terms of current practices in identifying exposures associated with high risk. It also aims to facilitate the transition to the upcoming implementation of the revised Basel standards will only apply as of 2022.

The Guidelines consist of two sections. The first one clarifies the notions of investments in venture capital firms and private equity and the second section specifies the types of exposures listed under Article 128(3) of the CRR, which should be considered as high risk and provides stakeholders with a clear identification scheme to follow in their process of identification of exposures associated with high risk. The Guidelines should be implemented by 1 July 2019.

EBA publishes update to Single Rulebook Q&A pertaining to Regulation No. 575/2013 (CRR)

The EBA has published updates to the Single Rulebook Q&A pertaining to Regulation No. 575/2013 (CRR). The updates included confirmation as to the inclusion of interim profits in CET1 on a consolidated basis. The EBA noted that permission to include interim profits within CET1 capital under the conditions as set out in Article 26(2) of Regulation (EU) No 575/2013 (CRR) may be granted by competent authorities at several levels of consolidation within a group, and the respective decisions made by competent authorities are not linked. The permission may be granted by the consolidating supervisor in the absence of permission granted at the individual level, especially in the case where an institution is supervised only at the consolidated level due to a derogation following Article 7 CRR.

EBA publishes update to Single Rulebook Q&A pertaining to Directive 2015/2366/EU (PSD2)

The EBA has published updates to the Single Rulebook Q&A pertaining to Directive 2015/2366/EU (PSD2). The update relates to information to be provided by an Account Servicing Payment Service Provider (ASPSP) to payment initiation service provider (PISP). The update also features the EBA's clarifications on access to names and surnames through the Application Programming Interface (API) and the management of the trustee beneficiary exemption, information flows between Payment Service Providers (PSPs) in the payment transaction.

ESMA publishes updates to Q&As on the Implementation of Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories

ESMA has published updates to Q&As on the Implementation of the Central Securities Depositories Regulation (CSDR), Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories. The updated Q&As provide answers to questions regarding practical issues on the implementation of the new CSDR regime, in particular the settlement discipline regime in relation to cash penalties.

In relation to the calculation of cash penalties ESMA confirmed that cash penalties amounts should be calculated per settlement currency (and do not need to be converted into euros). In relation to cases of the non-application of cash penalties, ESMA listed situations where cash penalties should not be applied either because an insolvency proceeding has been opened against a failing participant or because settlement cannot be performed for reasons independent from any of the involved participants.

ESMA publishes updates to the Q&A on the Benchmark Regulation

ESMA has issued an update to its Q&As on the European Benchmark Regulation (BMR). Two new Q&As provide clarification on provisions of the BMR regarding the scope of application of the Commission Delegated Regulations adopted under the BMR depending on the type of benchmark and in particular; regulated-data benchmarks, interest-rate benchmarks and commodity benchmarks. The purpose of the document is to promote common supervisory approaches and practices in the application of the BMR. The content of the document is aimed at competent authorities under the Regulation to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. It also provides guidance to market participants by providing clarity on the BMR requirements.

EBA publishes report on the results from the 2018 Market Risk Benchmarking exercise

The EBA has published the results of the 2018 supervisory benchmarking exercise pursuant to Article 78 of the Capital Requirements Directive (CRD) and the related regulatory and implementing technical standards (RTS and ITS) that define the scope, procedures and portfolios for benchmarking internal models for market risk. The report summarises the conclusions drawn from a hypothetical portfolio exercise that was conducted by the EBA during 2017/18.

The primary objective of this exercise was to assess the level of variability observed in risk-weighted assets (RWA) for market risk produced by banks’ internal models. The EBA noted that the analysis might help in determining possible supervisory activities to address uniformity and harmonisation across the Member States, and in promoting in-depth future cross investigations on this matter.

EBA publishes report with advice for the European Commission on crypto-assets

The EBA published a report containing an analysis of the range of crypto assets and virtual currencies (VCs) which exist and assess the applicability and suitability of current EU law to crypto assets as set out in the EBAs FinTech roadmap.  Based on the analysis conducted by the EBA there are limited cases in which crypto-assets may qualify as electronic money so typically crypto-assets fall outside the scope of EU financial services regulation. The report also notes the divergent approaches to the regulation of these activities that are emerging across the EU.

The factors outlined give rise to potential issues, including regarding consumer protection, operational resilience and market integrity. The EBA sets out advice to the European Commission regarding the need for a comprehensive cost/benefit analysis to determine what, if any, action is required at the EU level at this stage to address these issues. The EBA also identifies a number of steps that it will take in 2019 to enhance monitoring in relation to financial institutions’ crypto-asset activities, including with regard to consumer-facing disclosure practices.

ESMA provides standards on supervisory cooperation under the Securitisation Regulation

ESMA has issued today its final Regulatory Technical Standards (RTS) regarding cooperation between competent authorities (CAs) and the ESAs under Regulation (EU) 2017/2402 (the Securitisation Regulation). ESMA’s RTS clarify how CAs and the ESAs should cooperate with each other in the field of securitisation transactions. As investors, originators, sponsors, original lenders and Securitisation Special Purpose Entity (SSPE) can be established in different Member States and supervised by different CAs. 

Close cooperation between CAs and the ESAs is critical to achieve an effective system of supervision for securitisation transactions in the Union. Therefore, ESMA’s RTS set out the general cooperation obligations, the information to be exchanged and the common notifications procedures in the event of infringements of the Securitisation Regulation. ESMA submitted its draft RTS for endorsement to the European Commission, which has three months to do so. Once fully implemented, these RTS will contribute to delivering a regulatory rule-book for the European securitisation market.

ESMA issues statement on near-term implementation of the Securitisation Regulation

ESMA has issued a statement on near-term implementation of the Securitisation Regulation. This statement aims to provide additional information to facilitate market participants’ understanding of several aspects of ESMA’s implementation of its responsibilities deriving from the Securitisation Regulation, which began to apply on 1 January 2019.

The statement is addressed to, among others, securitisation market participants, including firms considering registering with ESMA to provide securitisation repository services under the Securitisation Regulation, securitisation reporting entities, investors or potential investors, and other users of securitisation data. The statement also discusses ESMA's registration process for securitisation repositories, arrangements for securitisation repository thresholds and the STS notification interim reporting structures. 

For more information please contact a member of the Financial Regulation team.

Date published: 12 February 2019