knowledge | 15 September 2022 |

Financial Services Regulatory Update – August 2022 Round Up

 

General Updates

Outsourcing Registers

On 9 August 2022, the Central Bank of Ireland (the “CBI”) published guidance on submitting outsourcing register templates for (re)insurance undertakings (here), markets firms (here), payments and e-money institutions (here) and less significant credit institutions (here).

All regulated financial service providers whose PRISM impact rating is ‘medium low’ or above (or its equivalent) will be required to submit their completed reporting template to the CBI via the online reporting system (“ONR”). Each Guidance provides detail on how to complete these submissions:

  • the first reference date for submission of data is 31 December 2021;
  • regulated financial service providers should submit their register with all outsourcing arrangements in place as of 31 December 2021 and only include contracts and written agreements with a start date before that date;
  • regulated financial service providers are expected to submit the completed register via the ONR by close of business on 07 October 2022; and
  • the CBI proposes that the submission deadline from 2023 onwards will be end-February of each year, with the reference date being 31 December of the previous year. The submission deadline for 2023 will be confirmed in due course.

Crowdfunding Q&A

On 24 August 2022, the CBI published an updated Minimum Competency Code 2017 (the “MCC”) and Minimum Competency Regulations 2017 Questions and Answers (here).

The update contains a new Q&A 2.6 confirming that the MCC and the Minimum Competency Regulations do not currently apply to crowdfunding service providers (“CSPs”) authorised under the Crowdfunding Regulation (Regulation (EU) 2020/1503).

The CBI states that the potential application of the MCC and the Minimum Competency Regulations 2017 to CSPs may be considered by the CBI in the future.

FVC/SPV Registrations

On 5 August 2022, the CBI updated the ‘Special Purpose Entities FVC and SPV Registration Form Guidance Notes’ (here).

The guidance notes are intended to guide the user through the process for registering a special purpose entity with the CBI to fulfil reporting requirements.

Beneficial Ownership of Financial Entities

On 16 August 2022, the CBI updated its beneficial ownership register FAQs (here).

The update relates to the guidance for submitting senior managing official details in the submission template. The CBI also states that completing the template field for further information/clarification in relation to nature, extent of ownership and control is now mandatory and not optional as under previous guidance.

On 18 August 2022, the CBI issued a letter ‘Beneficial Ownership Register for Certain Financial Vehicles – Proposed Changes in Q3 2022’ (here). The CBI notes that the verification of identity process for those beneficial owners who do not hold a PPS number, or who have not previously been approved in a pre-approval controlled function role, is live since 08 August 2022. The CBI also states that the new template allowing for the collection of PPS numbers will not be released on 13 September 2022 as previously communicated by the CBI.  

In the absence of the new template, certain financial vehicles (“CFVs”) should continue to engage with the verification of identity process, as previously outlined by the CBI, and consult relevant guidance.

The CBI states that it will confirm at the earliest opportunity to all CFVs the date from which PPS number collection will take place and all relevant guidance and supporting documentation will be updated in advance to support these changes.

CBI Levies

On 30 August 2022, the Central Bank Act 1942 (Section 32D) Regulations 2022 were signed into law by the CBI and came into operation on 31 August 2022 (here).

These Regulations prescribe levies for which regulated entities are liable in respect of each authorisation held for both the levy period (1 January 2021 to 31 December 2021) or the subsequent levy period (1 January 2022 to 31 December 2022).

Retail Banking Review

On 3 August 2022, the CBI published ‘Perspectives on the Evolution of Retail Banking in Ireland’ which sets out its response to the Department of Finance’s retail banking review public consultation (the “Consultation”) (here).

The CBI welcomes the retail banking review and makes a number of observations, including, that:

  • a wider social policy discussion involving all stakeholders in the cash cycle should be organised as a matter of priority;
  • the future retail banking landscape will likely see new entrants and new business models with disintermediation being a key feature; and
  • digital transition risks certain customers not having access to basic data and this transition will need to be managed to ensure customer preferences are not lost.

On 31 August 2022, the Competition and Consumer Protection Commission (“CCPC”) published its submission (dated 8 July 2022) to the Consultation (here).

The CCPC welcomes the Consultation and makes a number of observations, including, expressing concern about the forthcoming increase in the concentration levels of the retail banking sector in Ireland following the impending exits of Ulster Bank and KBC. The CCPC makes a number of recommendations, including, suggesting amending the mandate of the CBI to include competition objectives, reviewing regulations governing the credit union sector and reviewing the use of ‘suspended possession’ orders by Irish courts.

Beneficial Ownership of Trusts

During the month of August, Revenue made a number of updates to its communications relating to the Central Register of Beneficial Ownership of Trusts (the “CRBOT”):

  • on 12 August 2022, Revenue updated its general information for relevant trusts, trustees and tax agents concerning the CRBOT (here);
  • on 18 August 2022, Revenue updated its FAQs and troubleshooting information for UK trustees and advisors (here) and its troubleshooting and user manual for registering trusts on the CRBOT (here); and
  • on 29 August 2022, Revenue updated its webpage on the information required for the CRBOT (here).

RTS - Payments

On 3 August 2022, the European Commission (the “Commission”) adopted a Delegated Regulation amending the regulatory technical standards (“RTS”)  as regards the 90-day exemption for account access under the revised Payment Services Directive (“PSD2”) (here).

The amendments to the RTS:

  • introduce a new mandatory exemption from the strong customer authentication (“SCA”) requirement that will mandate account providers not to apply SCA when customers use an account information service provider to access their payment account information (provided certain conditions are met); 
  • limit the scope of the voluntary exemption in Article 10 of the RTS to instances where the customer accesses the account information directly; and
  • extend the renewal timeline of SCA from every 90 days to every 180 days where the above exemptions apply.

The Council of the EU (the “Council”) and the European Parliament (the “Parliament”) will now scrutinise the draft Delegated Regulation.

Settlement Discipline Q&A

On 3 August 2022, ESMA updated its Q&As on the Implementation of Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories (here). The updates to ESMA’s Q&A relate to Part III ‘Settlement Discipline’.

New sub-sections (f) and (g), in Question 3, Part III provide further clarity on the calculation of cash penalties. In particular, sub-section (g) confirms that the parameters to be used for the calculation of cash penalties set out in Commission Delegated Regulation (EU) 2017/389 do not provide for flexibility in their application or how they are set.

In addition, a new Question 10, Part III, ‘Bilateral cancellation facility’ confirms that participants may contractually waive the right to use a bilateral cancellation facility and also confirms that a right of cancellation sits with the participants rather than with the CSD (unless the participants decide to delegate this right to the CSD).

LIBOR Transition

On 16 August 2022, the Financial Conduct Authority (the “FCA”) published a statement encouraging issuers and bondholders of outstanding LIBOR-linked bonds to take the necessary action to transition outstanding LIBOR-linked bonds to risk-free rates (“RFRs”) (here).

The FCA encourages issuers of LIBOR-linked bonds issued under English and other non-US laws that make consent solicitation practicable to schedule consent solicitation processes for conversion to fair alternative RFRs. The FCA states that bond issuers are responsible for initiating the process and that holders of LIBOR-linked bonds can request that issuers initiate the conversion process.

On 30 August 2022, ICE Benchmark Administration (“IBA”) published a consultation on its intention to cease publishing USD LIBOR ICE Swap Rate settings for all tenors immediately after publication on 30 June 2023 (here). However, IBA has reiterated that the consultation is not an announcement that it will either cease or continue the publication of USD LIBOR ICE Swap Rate after June 2023. Feedback on the consultation is requested by 7 October 2022.

FSPO Decisions

On 30 August 2022, the Financial Services and Pensions Ombudsman (the “FSPO”) updated its database of decisions to include decisions up to 31 May 2022 (here).  The FSPO is required to publish legally binding decisions which are issued in response to complaints concerning financial service providers. Decisions are published on an anonymised basis.

ESG/Sustainability

European Sustainability Reporting Standards

On 8 August 2022, ESMA responded to the European Financial Reporting Advisory Group’s (“EFRAG”) public consultation on the first set of draft European Sustainability Reporting Standards (“ESRS”) (here).

ESMA’s response noted its support for a strong materiality assessment but also expressed concern with the proposed ‘rebuttable presumption’ approach. ESMA also encouraged EFRAG to continue engagement with the International Sustainability Standards Board to ensure greater alignment of the ESRS and the IFRS Sustainability Standards to benefit both users and companies.

On 9 August 2022, Insurance Europe published its response to the EFRAG consultation on the draft ESRS (here). Insurance Europe made several observations, including recommending a phased introduction and stating that the ‘rebuttable presumption’ should not be introduced. Insurance Europe also made comments aimed at ensuring the ESRS are of sufficient quality and achieve their objectives.

ESG Ratings

On 3 August 2022, the Commission published a summary report on the targeted consultation on the functioning of the ESG ratings market in the EU and on the consideration of ESG factors in credit ratings (here).

The Report outlines the results of the Commission’s consultation which received 168 responses. The Commission notes:

  • for half of the respondents, ESG ratings are determinant in assessing the way they manage sustainability risks and opportunities and their impact on the outside world;
  • the majority of respondents expect to increase their usage of ESG ratings, at least to some degree but often to a large degree. This expected increase is most marked for investor users; and
  • a large majority of respondents (83%) consider that the lack of transparency on the methodologies used by the providers is a problem in the ESG ratings market.

The Commission states that the results of this consultation will be reflected in preparation of future initiatives.

Sustainable Finance Education

On 31 August 2022, the International Organization of Securities Commissions (“IOSCO”) published its final report on retail investor education in the context of sustainable finance markets and products (here).

The report identifies some of the main challenges and recommends sound practices for providing investor education on sustainable finance for retail investors. The report also includes a collection of examples of investor education materials and tools for possible reference or use by IOSCO members. IOSCO notes that it may be appropriate to consider undertaking additional work in this area in the short and medium term as sustainable finance continues to develop across the securities markets.

Capital Requirements/Credit Institutions

CCyB Rate Announcement

On 24 August 2022, the CBI announced it would maintain the countercyclical capital buffer (the “CCyB”) rate on Irish exposures at 0.5 per cent (here).  The CBI states that it will look to build-up the CCyB rate to 1.5 per cent in mid-2023, however the CBI notes this increase will be dependent on the evolution of macro-financial conditions.

RTS - Securitisation

On 9 August 2022, the European Banking Authority (the “EBA”) published a consultation paper on draft RTS specifying the determination by originator institutions of the exposure value of synthetic excess spread (“SES”) under the Capital Requirements Regulation (here).

The EBA’s draft RTS aim to create a more risk sensitive prudential framework with regards to synthetic securitisation by addressing potential regulatory arbitrage opportunities. The deadline for comments is 14 October 2022.

RTS – Market Risk

On 11 August 2022, the Commission approved a Delegated Regulation regarding RTS specifying the calculation methods of gross jump-to-default amounts for exposures to debt and equity instruments and for exposures to default risk arising from certain derivative instruments and specifying the determination of notional amounts of instruments other than the instruments referred to in Article 325w(4) of the Capital Requirements Regulation (here). The RTS focus on how gross jump-to-default amounts should be calculated for institutions’ exposures.

The Council and the Parliament will now scrutinise the draft Delegated Regulation.

RTS – Own Funds

On 16 August 2022, the Commission adopted a Delegated Regulation containing RTS specifying exotic underlyings and the instruments bearing residual risks for the purposes of the calculation of own funds requirements for residual risks under the Capital Requirements Regulation (here).

The RTS specify:

  • instruments deemed to be exotic underlyings;
  • instruments deemed to be instruments bearing residual risks; and
  • risks that do not constitute residual risks.

The Council and the Parliament will now scrutinise the draft Delegated Regulation

Supervisory Sanctions – Annual Report

On 12 August 2022, the European Central Bank (the “ECB”) published its annual report on sanctioning activities in the Single Supervisory Mechanism (the “SSM”) for 2021 (here).  

The ECB notes that:

  • the focus of formal sanctioning proceedings conducted and penalties imposed in the SSM in 2021 by competent authorities was mainly on breaches of prudential requirements in the area of internal governance;
  • there was an upward trend in sanctioning activities for infringements related to supervisory reporting;
  • the number of proceedings conducted related to large exposures and liquidity went up; and
  • there was an increase in penalties imposed in relation to liquidity, qualifying holdings, recovery and prudential consolidation.

The ECB states that governance is expected to remain a focus of sanctioning activities in the SSM.

Supervisory Sanctions – Capital Requirements

On 12 July 2022, the ECB imposed administrative penalties of €4.275 million on Crédit Agricole SA (here) and €300,000 and €190,000 on its subsidiaries Crédit Agricole Corporate and Investment Bank (here) and Crédit Agricole Consumer Finance (here), after the ECB held that the banks classified shares as Common Equity Tier 1 (“CET1”) capital without prior permission.

The ECB had imposed penalties in 2018, however these penalites were challenged by Crédit Agricole before the Court of Justice of the EU (the “CJEU”). The CJEU upheld the banks’ liability but annulled the previous penalties as it determined that the procedure for determining penalties was not sufficiently explained.

The ECB has now updated and applied a new methodology for setting administrative pecuniary penalties and re-imposed these penalties.

Crypto-assets

.On 17 August 2022, the ECB published an article on the licensing of crypto-asset activities in its supervision newsletter (here). In the article, the ECB notes that as crypto-asset markets develop, banks are considering whether to get involved, and the ECB sees its role as ensuring banks do so safely and soundly.

In Germany, certain crypto-asset activities are subject to a banking licence requirement and several banks have requested to be authorised to conduct these licensed activities. It is in this context that the ECB states it is taking steps to harmonise the assessment of licensing requests.

The ECB confirms that, as is the case with any other licensing procedure, the ECB and the relevant national competent authority apply capital requirements criteria when assessing licensing requests covering crypto-asset activities and services.  In this respect, the ECB states that it pays particular attention to business models, internal governance and fit and proper assessments.

The ECB states that crypto-asset activities will remain an area of focus for European banking supervision in years to come.

Prime Brokerage Services

On 17 August 2022, the ECB published an article in its supervision newsletter on supervisory expectations for prime brokerage services (here).

The article discusses the Archegos collapse and the steps taken by the ECB to learn from this incident. The ECB outlines the risks relating to prime brokerage, the complex interconnections between banks and non-bank financial institutions and states that sound risk management, governance and culture are essential in addressing risks stemming from prime brokerage.

Sanctions/Restrictive Measures

Russian Restrictive Measures

On 4 August 2022, the Council issued a press release (here) in respect of Russia’s aggression against Ukraine, announcing that the EU imposed restrictive measures on additional persons. Legislation implementing this decision was introduced (here), (here) and (here).

During August 2022, the Commission updated its consolidated frequently asked questions (“FAQs”) (here) (on 29 August 2022) followed by updates to its Q&A on asset freezes (here) and on central securities depositories concerning sanctions adopted following Russia’s military aggression against Ukraine (here) (both updated on 30 August 2022).

Insurance / Insurance Distribution

Guidance on Climate Change Risk

On 3 August 2022, the CBI launched a public consultation on proposals to introduce guidance on climate change risks for the insurance sector (here). The proposed guidance aims to clarify the CBI’s expectations and facilitate the development of appropriate governance and risk management frameworks for (re)insurers to address climate change risks in their business.

The proposed guidance includes overarching principles and applies proportionality considerations to expectations, depending on the nature, scale and complexity of the (re)insurer. These overarching principles include, that (re)insurers should:

  • have an iterative approach to building capacity, expertise and methodologies in this area;
  • consider the impact of ‘double materiality’ on their activities;
  • consider the impact of climate change over the short, medium and long term in assessing exposures; and
  • ensure group policies and activities are appropriately adapted for the local entity.

The CBI also published an infographic (here) which lays out the approach to the assessment and ongoing management of a (re)insurer’s exposure to climate change risk set out in the proposed guidance. The deadline for responses is 26 October 2022.

Data Reporting to CBI

On 25 August 2022, the ECB published an opinion on the reporting to the CBI of certain insurance data (here).  The opinion was prompted by a request from the Chairman of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach for an opinion on the Judicial Council (Amendment) Bill 2021.

The opinion specifically relates to the CBI’s task of collecting information about the effect of personal injuries guidelines on individuals who hold insurance policies with insurance providers and how the costs of performing this task will be covered.

The ECB states that the CBI will be unable to cover the cost of collecting the required information from its own resources (for reasons relating to central bank independence). The CBI will be required to recoup these costs from levies to be paid by insurance undertakings or from advances from the Minister for Finance.

ORSA – Climate Change Scenarios

On 2 August 2022, the EIOPA published application guidance (here) on running climate change materiality assessment and using climate change scenarios in the own risk and solvency assessment (“ORSA”). This guidance is an aid to undertakings conducting ORSAs under Solvency II. EIOPA states the guidance is not intended to be a supervisory convergence tool under the EIOPA Regulation and also emphasises that insurers should not restrict themselves to the aspects covered in the guidance.

Personal Injuries Resolution Board Bill 2022

On 2 August 2022, the Government published the Personal Injuries Resolution Board Bill 2022 (here). The Bill amends the Personal Injuries Assessment Board Act 2003-2019 to facilitate an increase in the number of personal injuries claims that may be resolved through the Board’s processes and without recourse to litigation. The Bill also changes the name of the Personal Injuries Assessment Board (“PIAB”) to the Personal Injuries Resolution Board (“PIRB”) to reflect new mediation functions.

Solvency II

On 9 August 2022, Implementing Regulation (EU) 2022/1384 was published in the Official Journal (here). The Implementing Regulation outlines technical information for insurers and reinsurers for use when calculating technical provisions and basic own funds for reporting under the Solvency II Directive, between the period 30 June 2022 to 29 September 2022.

The Implementing Regulation entered into force on 10 August 2022.

Investment Firms / MiFID

RTS - Investment Policy

On 25 August 2022, a Corrigendum to Commission Delegated Regulation (EU) 2022/1159 supplementing the Investment Firms Regulation (the “IFR”) with regard to RTS relating to the disclosure of firms' investment policies was published in the Official Journal (here).

The Corrigendum inserts a table on the description of voting behaviour and a template on voting behaviour into Annex I to the Delegated Regulation.

Investment Funds

AIFMD II

On 9 August 2022, the ECB published an Opinion on the Commission’s proposal for a Directive to amend the AIFMD (Directive 2011/61/EU) and the UCITS Directive (Directive 2009/65/EC) (here).

The ECB welcomes the Commission proposals, but notes it would like the proposals to also have covered:

  • the operationalisation and development of macroprudential tools applied ex ante as a means of reducing risks to the financial system; and
  • ensuring that detailed data on individual alternative investment funds ("AIFs") are made available to the Eurosystem.

The ECB proposes that any review of AIFMD II should also cover developments in macroprudential tools to manage liquidity risk and how alternative investment fund managers (“AIFMs”) of leveraged open-ended AIFs set leverage limits and how competent authorities use their supervisory powers in respect of such leverage limits. Specific drafting proposals are attached to the ECB Opinion.

Other

Selected Consultations, Discussion Papers, Speeches and Reports Published

BIS and IOSCO –  A Discussion Paper on Central Counterparty Practices to address Non Default Losses (here)

CBI – Regulatory Service Standards Performance Report January-June 2022 (here)

EBA – Sustainable EBA (here)

ECB - Opinion on the Establishment and Functioning of the European Single Access Point (here)

ESMA – Memorandum of Understanding between ESMA and South Africa’s Financial Sector Conduct Authority, Prudential Authority and the South African Reserve Bank Related to CCPs Established in South Africa (here)

ESMA - Response to the Commission’s Consultation on the Regime applicable to the use of Benchmarks administered in a Third Country (“TC”) under the Benchmarks Regulation (Regulation (EU) 2016/1011) (here)

ESMA – Newsletter - Spotlight on Markets - no36 (here)

European Commission – Report to the European Parliament and the Council on the Treatment of Central Counterparty Equity in the Write-down and Conversion Tool under Regulation (EU) 2021/23 (here)

European Commission - Final Report on Disclosure, Inducements and Suitability Rules following its Retail Investors Study (here)

Financial Conduct Authority and the Prudential Regulation Authority - Joint Announcement on Investigations into the Fitness and Probity of Former Senior Managers in Halifax Bank of Scotland plc (here)

ISDA – ‘In Review’ -  A Compendium of Links to New Documents, Research Papers, Press Releases and Comment Letters published by ISDA in August 2022 (here)

ISDA – ‘Strengthening Markets - IQ August 2022’ – ISDA’s Quarterly Review (here)

You may also be interested in:

McCann FitzGerald LLP regularly publishes briefings on topics relevant to financial services briefings, among others. You may be interested in the following briefings:

Global Legal Insights - Mergers & Acquisitions 2022 (here)

Crowdfunding Update – August 2022 (here)

Draft Irish Rules on FDI: Have We Got the Balance Right? (here)

Financial Services Regulatory Update – July 2022 Round Up (here)

Irish Product Liability and Safety Update – August 2022 (here)

Preventive Restructuring Regulations 2022 (here)

Moneylending: Amending Act will restrict interest and term of loan agreements and modernise the sector (here)

FinTech Growth In Ireland: Trends And Developments (Article published in the IFC Review here)


This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.

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