Tracker, Financial Services Regulation & Compliance - Banking

DOMESTIC

European Union (Bank Recovery and Resolution) Regulations come into force

• The European Union (Bank Recovery and Resolution) Regulations 2015, transposing the Bank Recovery and Resolution Directive (BRRD), came into force on July 15, except for regulations 79 to 94 dealing with the 'bail-in tool' which do not come into force until 1 January 2016.
• The Central Bank has been designated Ireland’s National Resolution Authority for the purposes of BRRD. The day-to-day responsibility for resolution matters will sit with a dedicated Special Resolution Unit reporting to the Director of Resolution and Corporate Affairs, John Coyle. With effect from 1 January 2016 the decision making in respect of problems at significant and cross border banks will be taken at European level.

Central Bank publishes a Schedule of Reporting Dates
A Schedule of Reporting Dates for Central Bank supervisory purposes, particularly pursuant to CRD IV, is available at the library page of the Central Bank's website.

Central Bank publishes Target2-Ireland Terms and Conditions
Target2-Ireland Terms and Conditions effective of 22 June 2015, are now available on the library page of the Central Bank website.

Permanent TSB are putting in place a comprehensive redress and compensation programme following Central Bank investigation
The Central Bank confirmed certain failings by Permanent TSB and its subsidiary company Springboard Mortgages Limited (Springboard) associated with tracker mortgage options and rates. Permanent TSB has agreed to implement a redress and compensation programme as a result of these failings. 

Settlement Agreement between the Central Bank and Irish Nationwide Building Society (INBS)
INBS admitted to breaching seven aspects of its own commercial lending and risk management process and three legislative requirements between 2004 and 2008, with over a thousand instances of such breaches being identified. The Central Bank reprimanded INBS and levied a fine of €5m but admitted that it would not be able to enforce the fine due to the lack of assets of the Society.

Central Bank finds that 20% of mortgage borrowers could save by switching mortgage lender
The Central Bank published an Economic Letter entitled 'Switch and Save in the Irish Mortgage Market'. The research examines the opportunities that exist for mortgage holders to switch between lenders and find that over 20% of mortgage holders could save but that mortgage switching activity is "exceptionally low".

Central Bank publishes Irish responses to the July 2015 Euro Area Bank Lending Survey
The results of the survey indicate that during the second quarter of 2015 there has been no change in credit standards on loans to enterprises across all loan categories and that such credit standards are expected to remain unchanged during the third quarter. Similarly, no change was determined in credit standards in respect of consumer credit and other lending or access to retail and wholesale funding sources. Access to funding sources is expected to remain unchanged during the third quarter of 2015. With regard to the impact of CRD IV as well as other regulatory or supervisory actions, banks’ risk-weighted assets as well as their capital were, for the most part, unchanged during the first half of 2015 with only minor changes expected during the second half of 2015.

EU & INTERNATIONAL

Bank Recovery and Resolution Directive (BRRD)

• The EBA published its final Guidelines and final draft Implementing Technical Standards (ITS) relating to the eligibility of institutions for simplified obligations in the context of recovery planning, resolution planning and resolvability assessments under BRRD.
• The EBA issued final draft ITS on the procedures, forms and templates for submitting information on resolution plans under BRRD.
• The EBA published its final draft Regulatory Technical Standards (RTS) setting out the general criteria against which valuers should be assessed to determine whether they comply with the legal requirement of independence for the purposes of performing valuation tasks under BRRD.
• The EBA published its final draft RTS on the Minimum Requirement for Own Funds and Eligible Liabilities (MREL), and on the contractual recognition of bail-in. Both standards provide further specification of essential elements to ensure the effectiveness of the resolution regime established by BRRD.
• The EBA issues final standards on processes for notifying that a banking institution is failing under BRRD.

FSB publishes its second Annual Report

The Financial Stability Board (FSB) published its second Annual Report covering the period April 1, 2014 to March 31, 2015. The Report provides the financial statements for the year and an overview of the FSB’s ongoing work relating to global financial sector reforms. Several initiatives are to be finalised before the end of 2015 including a revised Total Loss-Absorbing Capacity standard.

EBA publishes RWA assessment

The EBA has published two reports on the consistency of Risk-Weighted Assets (RWAs) across large EU institutions for large corporate, sovereign and institutions’ Internal-Ratings Based portfolios, (collectively referred to as “low default portfolios” - LDP), as well as for the calculation of counterparty credit risk exposures under the Internal Model Method and the credit value adjustments according to the advanced approach. The reports summarise the findings obtained from two benchmarking exercises conducted in line with the mandate laid down in the Capital Requirements Directive (CRD) and related draft technical standards. The benchmarking exercises aim at improving the comparability of EU banks’ RWAs.

EBA identifies divergent supervisory practices in the implementation of its Guidelines on the suitability of members of the management body and key function

The EBA published its peer review report on the assessment of the suitability of members of the management body and key function holders. The report shows that National Competent Authorities (NCAs) largely comply with the EBA guidelines. The EBA analysis identified best practices carried out by some NCAs, but also highlighted significant differences remaining between NCAs’ supervisory approaches. The EBA concluded that the existing EBA guidelines have not led to sufficient convergence in supervisory practices, and proposed the incorporation in its forthcoming review of the guidelines of a number of specific best practices observed. The EBA also intends to send an opinion to the European Commission suggesting a change in the underlying Capital Requirements Directive (CRD) framework.

Basel Committee issues revised guide to account opening for consultation

The Basel Committee on Banking Supervision has issued, for public consultation, a revised version of the General guide to account opening. When finalised, the revised General guide to account opening will be added as an annex to the Committee's Sound management of risks related to money laundering and financing of terrorism guidelines, published in January 2014. The proposed guide expands on, and should be read in conjunction with, the 2014 guidelines. It aims to support banks in implementing the FATF standards and guidance, which requires the adoption of specific policies and procedures, in particular on account opening. Comments should be submitted by 22 October 2015.

Basel Committee releases Guidelines for identifying and dealing with weak banks

The Guidelines supersede the Committee's 2002 guidance on the topic and encompass a number of key changes in light of the recent economic crisis including a greater emphasis on the need for early intervention and the use of recovery and resolution tools as well as an expansion of the guidelines for information-sharing and cooperation among relevant authorities.

Commission launches consultation on how revised bank capital requirements have affected lending

The European Commission is starting a consultation on how some of the capital requirements rules have worked in practice – for example, whether they have affected lending to small businesses and financing of infrastructure projects. A questionnaire is available for completion by interested parties, with the consultation closing on 7 October 2015. The Commission will publish a feedback report and organise a public hearing later this year. A final report will be published in 2016.

EBA streamlines intra-group financial support for banking institutions

The EBA published final draft RTS and Guidelines on the provision of group financial support, as well as final draft ITS detailing the disclosure requirements of these activities. These Technical Standards and Guidelines specify the conditions under which one entity of a banking group can provide support to another entity of the same group in financial difficulties within the BRRD framework.

Bank of England notify ESRB of their countercyclical capital buffer rate

The Bank of England notified the European Systemic Risk Board (ESRB) that the countercyclical capital buffer rate of 0% continues to apply and that the rates set by Sweden and Norway will be reciprocated.

EBA launch a consultation on Regulatory Technical Standards (RTS) on the conditions that Competent Authorities have to take into account when tightening capital requirements for mortgage exposures

The proposed RTS illustrate the conditions, as well as financial stability considerations, that would ensure a harmonised approach in setting higher risk weights and higher minimum loss given default (LGD) values. The consultation runs until 6 October 2015.

Basel Committee issues revised principles on corporate governance for banks

The revised principles supersede guidance published by the Committee in 2010. The revised guidance emphasises the critical importance of effective corporate governance for the safe and sound functioning of banks. It stresses the importance of risk governance as part of a bank's overall corporate governance framework and promotes the value of strong boards and board committees together with effective control functions.

EBA defines functioning of EU banking resolution colleges

The EBA published its Final draft RTS that specify the operational functioning of the resolution colleges established for those groups that operate on a cross-border basis in the European Economic Area (EEA). These RTS have been developed within the framework established by the BRRD and specify how resolution colleges should function, from their establishment, going concern function and resolution planning, to situations of cross-border resolution.

EBA publishes its seventh semi-annual report on risks and vulnerabilities of the EU banking sector

The EBA published its regular risk assessment report. The report is based on December 2014 data. The report therefore does not cover the current challenges posed by the situation in Greece. However, the report notes that direct exposures to Greek counterparties are limited. Nonetheless, indirect challenges of contagion remain a concern and will require careful monitoring and coordination of supervisory activities across the single market.

ECB publishes results of the July 2015 euro area bank lending survey

Results included continued net easing of credit standards on loans to enterprises; net easing of credit standards on loans to households for house purchase; further improvement in net demand for loans to enterprises and loans for house purchase; and that additional liquidity from the targeted longer-term refinancing operations (TLTROs) continues to be used for granting loans.

Prudential Regulation Authority announces changes to depositor and policyholder protection

The UK Prudential Regulation Authority (PRA) has announced changes to depositor and policyholder protection provided by the Financial Services Compensation Scheme (FSCS). For the majority of depositors currently covered by the FSCS, the existing level of deposit protection (£85,000) will be maintained for six months before changing to £75,000 after December 31, 2015.

PRA publishes new approach to setting Pillar 2 capital requirements for the banking sector

In January 2015, the UK Prudential Regulation Authority (PRA) published a consultation paper that contained proposals on its Pillar 2 policy. The purpose of the proposals was to enhance the transparency and accountability of the PRA’s approach to setting Pillar 2 capital requirements while at the same time ensuring that the approach is applied in a consistent and proportionate way across the population of relevant firms. In July 2015, the PRA published its feedback statement, supervisory statements and statement of policy alongside its reporting instrument. The changes that have been made in response to the feedback seek to further enhance proportionality, for example by clarifying the role of supervisory judgment, own capital assessments and the published supervisory methodologies in dealing with specific business models.

FCA and PRA publish final rules on improving accountability in the banking sector

The UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) published the final rules confirming the approach to improving individual accountability in the banking sector. The final rules cover the Senior Managers Regime; the Certification Regime; and new Conduct Rules. Firms subject to the new regime need to take a number of actions, including:

• Identify individuals requiring approval, including those existing SIF holders who will map across to the Senior Managers Regime;
• Construct an overall Firm Responsibilities Map, and a Statement of Responsibilities for each individual senior manager per legal entity;
• Submit grandfathering notifications by 8 February 2016;
• Identify all individuals caught by the Certification Regime by 7 March 2016; and
• Train senior managers and certified staff on Conduct Rules before 7 March 2016 and other staff before 7 March 2017.

FCA announces new cash saving accounts switching rules

The FCA announced that switching cash savings accounts will be simpler under new rules which will require firms to provide clear disclosure on interest rates and interest rate changes. The FCA is also aiming to ensure the ability to switch ISAs within seven days. The changes follow the FCA’s market study which showed that competition was not working efficiently in the cash savings market.

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

Date published: 04 August 2015