Tracker, Financial Services Regulation & Compliance - Banking Sept 2017

DOMESTIC:

Central Bank publishes updated guidance on Fitness and Probity for Credit Unions

The Central Bank issued updated Guidance on Fitness and Probity for Credit Unions and an online Individual Questionnaire (IQ) Template and also issued Consultation Paper 113 (CP113) on Potential Amendments to Fitness and Probity Regime for Credit Unions. The Central Bank is considering a number of potential changes to the Fitness and Probity regime for credit unions including the designation of additional PCFs and CFs and the timelines for introduction of any additional PCFs and CFs. The closing date of the CP113 is 10 November 2017.

Central Bank publishes Addendum to the Individual Questionnaire for Credit Institutions

The purpose of the Addendum is to align the Central Bank on line Individual Questionnaire with the ECB Fit and Proper Questionnaire adopted by the ECB Supervisory Board as the model to be used by National Competent Authorities. Both the Individual Questionnaire and the Addendum will be considered as part of the section 23 or section 23A of the Central Bank Reform Act, 2010 assessment defined as the ‘the application’ or the ‘Individual Questionnaire’. This is with effect from 21 September 2017. Applicants must complete the Addendum which incorporates this additional information to the ECB. When completed, it should be uploaded as an attachment to the F&P Questionnaire.

Central Bank publishes AnaCredit Data Return – Notes on Compilation – Version 2.4

These notes are designed to assist reporting agents complete the Central Bank AnaCredit Returns that will become effective from 31 December 2017 and 30 September 2018. The returns satisfy credit institutions’ reporting requirements as laid down in Regulation (EU) 2016/13 on the collection of granular credit and credit risk data. The notes provide information on the following returns:

• ACPRD for all credit institutions;
   
• ACR1B for all credit institutions except credit unions;
   
• ACR2B for all credit institutions except credit unions; and
   
• ACR1CU for credit unions only.

Deputy Governor Ed Sibley gives speech on Non-Performing Loans: The Irish perspective on a European problem

Deputy Governor highlighted that NPLs levels remain elevated and their sustainable resolution remains a key supervisory priority. Mr. Sibley stated that the Central Bank has become more prescriptive and they have set clear expectations on banks, including: segment specific strategies, detailed implementation plans, and enhanced board ownership. He noted that strategies and capability for dealing with them were inadequate and highlighted the importance of banks following the ECB final Guidance to banks on non-performing loans.

EUROPEAN:

European banking supervision - achievements, challenges and the way forward

A speech was given by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the ESE Conference 2017 on 28 September 2017. Ms. Lautenschläger speech focused on the need to write a solid and harmonised rulebook and the need to expand, harmonise and streamline the supervisory toolbox.

European Central Bank speech on the need for consolidation in the European banking sector

A speech was given by Danièle Nouy, Chair of the Supervisory Board of the ECB, at the VIII Financial Forum, Madrid, 27 September 2017. The theme throughout the speech was that overbanking may occur if there are too many banks. The Chair felt the banking sector can be too large when compared to other sectors of the economy and it can be too large in terms of assets and when compared with other sources of funding. The Chair outlined potential solutions to solve an oversized banking sector such as shrinking the banking sector and the role that mergers and acquisitions and the regulators and supervisors can play. The Chair recommended that all banks need to review their business models. The result will be a right-sized banking sector that can reliably serve the economy.

European Banking Authority publishes guidelines on internal governance under Directive 2013/36/EU

On 26 September 2017 the EBA has published its final report on guidelines on internal governance. The guidelines objective is to further harmonise institutions' internal governance arrangements, processes and mechanisms across the EU, in line with the new requirements introduced in the Capital Requirements Directive (CRD IV) and also taking into account the proportionality principle. The guidelines focus on the duties and responsibilities of the management body in its supervisory function in monitoring risk. These guidelines apply from 30 June 2018.

European Central Bank speech Developing models for policy analysis in central banks

A speech was given by Vítor Constâncio, Vice-President of the ECB, at the Annual Research Conference, Frankfurt am Main, 25-26 September 2017 which focused on building models for policy analysis in Central Banks. Mr. Constâncio concluded that building these models is associated with trade-offs and it is an important reason for Central Banks to not rely on a single model and a single modelling paradigm, but to make use of a suite of models based on different paradigms.

European Central Bank publishes guide on materiality assessment for changes to counterparty credit risk models

The guide explains approval criteria for changes to internal models directly supervised banks use to calculate capital requirements for counterparty credit and credit valuation adjustment risks. The guide indicates how the ECB intends to interpret the existing legal framework. The guide also assists significant institutions who are directly supervised by ECB in their self-assessment of the materiality of changes and extensions to internal models used to calculate counterparty credit and credit valuation adjustment.

European Central Bank publishes feedback statement to the public consultation on the draft ECB guide to banks on materiality assessment

On 25 September 2017 the ECB published the responses to the consultation on the draft guide on materiality assessment for IMM and A-CVA model extensions and changes (EGMA). Amendments to the ECB guide have been made as a result of the comments received. Some of the main changes include the determination of the stressed period calibration (the recalibration of the stressed period is not a model change to be investigated) and the inclusion of securities financing transactions in the institutions overall risk-weighted exposure amounts for the CRR.

The European Banking Authority consults on amendments to technical standards on supervisory disclosure

The EBA has published a consultation to amend the Implementing Technical Standards (ITS) on supervisory disclosure, which specify the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities. The revised draft ITS will incorporate the changes to the EU legal framework and the establishment of the Single Supervisory Mechanism (SSM). The consultation runs until 22 December 2017.

European Central Bank to publish new unsecured overnight interest rate

The ECB has decided to develop a euro unsecured overnight interest rate based on data already available to the Eurosystem. The new rate, which would be produced before 2020, would complement existing benchmark rates produced by the private sector and serve as a backstop reference rate and will be based on transactions in euro that are reported by banks in accordance with the ECB’s money market statistical reporting.

European Central Bank publishes for consultation draft guides to bank licensing and fintech bank licensing

The ECB has launched a public consultation on two draft guides which explain the process of how entities can become banks and obtain a banking licence. The draft guide to assessments of licence applications, sets out the general process and the requirements for the assessment of such applications. The draft guide to assessments of fintech credit institution licence applications, is aimed at entities with a fintech business model who are looking to apply for a banking licence. The objective of the guides is to simplify the application process by making it more transparent. The consultation on the guides ends on 2 November 2017.

European Banking Authority welcomes the Commission proposal to strengthen the framework for its operation

The European Commission's put forward a proposal to adjust and upgrade its current framework to ensure the Authority is adequately equipped in terms of powers, governance and funding. The proposals aim to improve the mandates, governance and funding of the 3 ESAs and the functioning of the ESRB. This will ensure stronger and more integrated financial supervision across the EU. The EBA has noted its approval of its strengthened competencies in the areas of supervisory convergence and mediation, supporting the EBA's enhanced focus on more integrated and consistent supervisory processes and outcomes in the Single Market.

Regulation (EU) 2017/1538 of the European Central Bank is published amending Regulation (EU) 2015/534 on reporting of supervisory financial information (ECB/2017/25)

This Regulation applies to significant and less signficant supervised entities which are subject to national accounting frameworks based on Directive 86/635/EEC. The Regulation lays down the rules and procedures for financial reporting by banks or banking groups to the relevant supervisory authorities.

Regulation (EU) 2017/1539 is published laying down the date of application of Regulation (EU) 2017/1538 on reporting of supervisory financial information

Regulation (EU) 2017/1538 shall apply to less significant supervised entities which are subject to national accounting frameworks based on Directive 86/635/EEC and established in Germany or France from 1 January 2019.

European Banking Authority publishes discussion paper on significant risk transfer in securitisation

The paper seeks views on how to further harmonise the regulation and supervision of the risk transfer through securitisation further to the newly agreed European securitisation legislation. The paper puts forward proposals to strengthen the regulation and supervision framework of significant risk transfer and to improve regulatory certainty. The paper touches on creating a situation where institutions have an equal base for transferring risk through securitisation. The consultation runs until 19 December 2017.

Commission has adopted a Delegated Regulation on the final system of contributions to the administrative expenditures of the Single Resolution Board

This Delegated Regulation details the rules for the calculation and payment of contributions to the administrative expenditures of the Single Resolution Board (the Board). The Delegated Regulation outlines the final system of contributions to the administrative expenditures of the Board which requires banks to contribute in proportion to the resource requirements that they place on the Board, as estimated by observable data which focuses on the size and risk of activities.

European Banking Authority publishes final technical standards on MREL reporting by resolution authorities

The EBA has published its final draft implementing technical standards on procedures and templates for the identification and transmission of information by resolution authorities to the EBA, on minimum requirements for own funds and eligible liabilities under Article 45(17) of Directive 2014/59/EU (the BRRD). The BRRD provides that resolution authorities, after consulting the relevant competent authorities, shall ensure that institutions meet at all times a minimum requirement for own funds and liabilities eligible for bail-in (MREL). MREL must be set for each and every institution based on criteria laid down in the BRRD and further specified in the Regulatory Technical Standards on MREL.

Mario Draghi reports on President of the European Central Bank, reports on the decisions of the Governing Council of the European Central Bank, on 7 September 2017

It was decided by the Governing Council to keep the key ECB interest rates unchanged. Rates are expected to remain at present or lower levels for an extended period of time, and well past the horizon of their net asset purchases. Regarding non-standard monetary policy measures, it was confirmed that the ECBs net asset purchases, at the new monthly pace of €60 billion, are intended to run until the end of December 2017 if necessitated, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

European Banking Authority publishes Guidelines on ICT Risk Assessment under the Supervisory Review and Evaluation process (SREP)

The guidelines outline the EBA view of appropriate supervisory practices within the European System of Financial Supervision. They also depict how Union law should be applied in a particular area. The guidelines specify the assessment criteria that competent authorities should apply in the supervisory assessment of institutions’ governance and strategy on ICT and the supervisory assessment of institutions’ ICT risk exposures and controls.

European Banking Authority publishes questions and answers in relation to the Capital Requirements Regulation (EU) No 575/2013 in the Single Rulebook Q&A on the following topics:

• With regards to the equities and depositary receipts (DRs) issued is the net position in a combination of equity and related DR determined by taken into account the existence, availability and direction of the conversion programme? (Article 327);
   
• concerning Aircraft loans as collateral for covered bonds (Article 129);
   
• Reporting of Pillar 2 requirements in C 03.00 (Article 99);
   
• Permission for delta models for back-to-back positions ((Articles 329(1), 352(1), 358(3));
   
• Validation rule v0786_m (Article 99);
   
• LCR treatment of cash pooling services (Article 420, 422).

European Banking Authority issues Opinion on the design of a new prudential framework for investment firms

The Opinion recommends developing a single and harmonised set of requirements that are reasonably simple, proportionate and relevant to the nature of investment firms authorised to provide MiFID services and activities. The Opinion covers the design and calibration of capital and liquidity requirements, consolidated supervision, reporting requirements, the suitability of the proposed framework for commodity derivatives firms and the need for macroprudential tools.

European Banking Authority and US Agencies finalise a Framework Cooperation Arrangement on Bank Resolution

The EBA has signed a Framework Cooperation Arrangement with US financial regulatory Agencies. The Framework describes principles for future cooperation arrangements between any EU Authority and any U.S. Authority in order to support cross-border crisis management information sharing and cooperation including, to, memoranda of understanding, statements of cooperation, and cooperation agreements.

European Central Bank speech on maintaining price stability with unconventional monetary policy measures

Peter Praet, Member of the Executive Board of the ECB has given a speech on the central role monetary policy plays in the recovery of the financial system and the main mechanisms of the ECB's measures which have impacted the economy. Mr. Praet noted that the ECB has created a package of complementary policy measures which they have readjusted to keep in line with evolving macroeconomic conditions. The ECB is focusing on the outlook for price stability, and the state of monetary policy transmission.

European Banking Authority publishes Annual Work Programme for 2018

The EBA's work programme outlines its objectives for 2018 which intends to focus on the CRR/CD and BRRD developments which includes a review of the impact of the BCBS's revision of the trading book, an increased focus on analysing the impact of Brexit to protect the public interest, applying proportionality towards policy developments, providing a continued input to regulation concerning Fintech and the problem of NPL's throughout Europe. There will also be an increased emphasis on strengthening the EBA's function as a data hub for banks by developing their data infrastructure and data analysis capabilities.

European Central Bank publishes consultation on NPL guidance for banks

The ECB has published a consultation on a draft addendum to the ECB guidance on non-performing loans. It is proposed that this draft addendum, which supplements the guidance published in March 2017, will be applicable to new NPLs. It outlines quantitative supervisory expectations for minimum levels of prudential provisions for new NPLs. There will be a public hearing on this consultation on 30 November 2017 and it will run until the 8 December 2017.

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

Date published: 09 October 2017