Tracker, Financial Services Regulation & Compliance - Banking

DOMESTIC

Central Bank of Ireland issues second Tracker Mortgage Examination status update
The CBI has released a further update on the progress of its Tracker Mortgage Examination, the second of its three updates expected this year. The CBI reports that lenders are currently co-operating in relation to the Examination and, in addition, the CBI is also engaging with Consumer Groups and the Financial Services Ombudsman to inform its work. The current state of play with the Examination is that lenders are currently carrying out internal reviews of their mortgage books to identify any customers potentially impacted by a 'failure to honour contractual entitlements' or to comply with the regulatory requirements regarding disclosure and transparency of information. In this regard, the CBI expects that one lender will be making a public announcement in relation to the progress it has made on its internal review 'shortly'. Once a review of any affected customer accounts has been completed (and external independent third party assurance has been carried out) lenders will be issued with a letter explaining the error and providing information on the relevant redress and compensation processes.

Central Bank of Ireland publishes Addendum to the Consumer Protection Code relating to variable rate mortgage holders 
The CBI has decided to introduce new protections for variable rate mortgage holders requiring lenders to explain to borrowers: (i) how their variable interest rates have been set; (ii) why any increases have been applied; and (iii) the level of information required to be provided to borrowers on variable rates about other products. Specifically, a statement of factors impacting on the rate must be provided in the form of a summary statement of the lender's policy for setting each variable interest rate to prospective borrowers in advance of the lending. Variable rate borrowers must also be notified of alternative mortgage options that could provide savings on an annual basis and also on the notification of any increase in the variable interest rate. These new measures will apply to regulated entities from 1 February 2017.

Central Bank of Ireland publishes Irish responses to July 2016 Bank Lending Survey 
The CBI has reported on the results of the July 2016 bank lending survey finding that demand for credit from enterprises and for consumer credit increased during the period. Both credit standards on loans to enterprises and lending to households remained unchanged in Q2 of 2016.

EUROPEAN

EBA publishes final draft Regulatory Technical Standards on the separation of payment card schemes and processing of entities
The EBA has published a final draft of its Regulatory Technical Standards (RTS) to support the Interchange Fee Regulation (Regulation (EU) 2015/751) which details the compliance requirements of payment card schemes and processing entities. The RTS obliges such firms to have specified accounting processes in place to produce annual information, as described in the RTS. In addition, payment card schemes and processing entities must have separate work places and ensure the independence of senior management, management bodies and staff. The RTS proposes to introduce requirements relating to the use of shared services and information management systems, the treatment of sensitive information and details processes to be followed.

European Banking Authority publishes Regulatory Technical Standard on preferential treatment
The EBA has issued final draft Regulatory Technical Standards (RTS) to be read with the liquidity coverage ratio Delegated Act. The RTS further specifies the criteria that have to be fulfilled for the application of preferential inflow and outflow rates in cross-border intergroup credit or liquidity lines, or within an IPS. The RTS provides rules for determining a low liquidity risk profile of the liquidity provider and receiver. The RTS requires the management bodies of credit institutions to submit a written and reasoned legal opinion in relation to the credit or liquidity line. The RTS also sets out monitoring requirements for liquidity providers.

European Banking Authority publishes 2016 stress test
The EBA has published its 2016 EU-wide stress test which assesses the resilience of large banks (covering around 70% of the banking assets across the EU) to adverse economic developments. The stress tests will act as an aid for bank supervisors to decide on the appropriate supervisory action to be applied in respect of each bank. The EBA has announced that its 2016 focus will be on setting Pillar 2 Guidance (which banks are expected to follow) which will require banks to maintain a level of capital that can support the repair of the real economy. The EBA launched its consultation on credit institutions’ credit risk management practices and accounting for expected credit losses. The EBA is currently consulting on draft Guidelines on credit risk management practices and accounting for expected losses, to build on Basel Committee Guidance. The consultation, which seeks responses up to 26 October 2016, aims to provide competent authorities with guidance for the evaluation of the effectiveness of a credit institution’s practices and policies that affect allowance levels.

European Banking Authority launches consultation on the treatment of connected clients for large exposures under the Capital Requirements Regulation
The EBA has launched a consultation on updated draft Guidelines on the treatment of connected clients for large exposures. The consultation, which closes on 26 October 2016 seeks views on connected clients falling within the scope of the Capital Requirements Regulation and provides a list of indicators of control to be used by institutions for assessing connections based on control and assessing the existence of groups of connected clients of entities directly controlled by or directly interconnected with central governments. The EBA will hold a public hearing on the proposals on 5 September 2016.

European Banking Authority launches consultation on the appropriate basis for the target level of national resolution financing arrangements
The EBA is seeking submissions until 2 September 2006 on recommendations on the appropriate reference point for setting the target level of national resolution financing arrangements which flows from a requirement in the Bank Recovery and Resolution Directive to submit a report to the EU Commission on the industry funded resolution funds. The appropriateness of the basis for the target level is currently based on the basis of number of qualitative criteria and historical data and the draft EBA report recommends changing the basis for the target level from covered deposits to a total liability based measure. Following the consultation, the EU Commission may decide to submit a legislative proposal on the basis for the target level for resolution financing arrangements by 31 December 2016. Currently the target level in the EU is 1% of the covered deposits in the EU Member States concerned.

European Banking Authority provides updates on non-performing loans in the EU banking sector
The EBA has issued a report on recent trends in non-performing loan and forbearance for over 160 European banks, showing that non-performing loans in the EU remain up to three times higher than other global jurisdictions. In the report the EBA sets out three policy options for reducing the current impediments to the resolution of non-performing loans. The EBA recommends that the ongoing supervisory work which is currently pushing for improved provisioning and arrears management be supported. In addition, structural issues need to be addressed - the EBA points out that clearing backlogs in judicial systems and processes could improve the marketability of non-performing loans. The third policy area which needs to be addressed is enhancing the transparency of non-performing loans and real estate collateral valuation. The EBA, in its report, points to a revival of the EU debt securitisation market as a solution for widening the range of options banks can entertain in seeking a way to deal with their non-performing loans.

European Banking Authority launches data collection exercise for investment firms
The EBA has launched a data collection exercise which supports an EU Commission Call for Advice on a new prudential framework for MiFID investment firms in accordance with the requirement of the Capital Requirements Regulation. The EBA has published templates and instructions addressed to MiFID investment firms and to UCITS/AIFMD firms that offer MiFID services, which should be submitted to national competent authorities by 7 October 2016. An ad-hoc data collection for commodity dealers is expected to follow.

European Banking Authority publishes final draft Regulatory Technical Standards on the assessment methodology for the use of the Capital Requirements Regulation’s minimum Internal Ratings Based Approach requirements
The EBA has published final draft Regulatory Technical Standards (RTS) relating to how institutions determine their own funds requirements for credit risk taking under the Capital Requirements Regulation (CRR). The CRR allows scope for competent authorities to permit institutions to use the Internal Ratings Based Approach (IRB Approach) as part of that determination. The EBA final draft RTS harmonise the assessment methodology for the validation of credit risk models using the IRB Approach. The RTS specifies assessment criteria to be used by competent authorities in verification requests and provides clarifications on the independence of validation function from the credit risk control unit. In addition, information is provided in relation to the methodology to be used for the calculation of the difference between expected loss amounts and credit risk adjustments and of default-weighted averages.

Single Resolution Board publishes its first Annual Report
The Single Resolution Board (SRB) has published its first Annual Report providing analysis of its 2015 priorities, which included capacity-building, setting up its governance structure and setting out clear competences. The Chair of the SRB states in the report that an efficient Deposit Guarantee Scheme and an effective and efficient insolvency regime in Member States are needed to complement the EU resolution regime. SRB works with the National Resolution Authorities on resolution planning and enhancing the stability of the banking sector under the framework of the Bank Recovery and Resolution Directive (BRRD).

Single Resolution Board announces fund contributions
The Single Resolution Board has announced that it has collected over 10 billion euros in contributions to the Single Resolution Fund via the National Resolution Authorities in the participating EU Member States. The contributions are made up of the annual contributions of nearly 4,000 banks and investment firms whose individual contributions have been calculated on the basis of their respective liabilities. The Single Resolution Board is aiming to have an industry-funded resource corresponding to at least 1% of covered deposits within the participating EU Member States by the end of 2023.

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

Date published: 04 Aug 2016