knowledge | 23 March 2020 |
COVID-19: Financial Services Round-Up for 16-22 March 2020
The Central Bank of Ireland (“CBI”) announced the reduction of the Countercyclical Capital Buffer, from 1% to 0%. This decision will free up in excess of €1 billion in bank capital. The Minister for Finance has also decided to defer the introduction of the Systemic Risk Buffer.
See our briefing here.
On 19 March 2020, the CBI published a press release following its meeting with the Banking & Payments Federation Ireland (“BPFI”) and five retail banks (here).
Key items from the press release include the following:
|European Securities and Markets Authority (ESMA)||
ESMA has extended the response date for all ongoing consultations with a closing date on, or after, 16 March by four weeks (here). The announcement concerns the following consultations:
ESMA’s Securities and Markets Stakeholder Group has published an own initiative report, advising ESMA on measures relating to COVID-19 (here). It covers issues such as regulatory forbearance/postponing deadlines and coordination and supervisory convergence.
ISDA sent a letter to the Financial Stability Board and International Organization of Securities Commissions on maintaining market access during jurisdictional responses to COVID-19 (here). In the letter, ISDA:
|Markets in Financial Instruments Directive||
ESMA issued a public statement (here) to clarify issues regarding the application by firms of the MiFID II requirements on the recording of telephone conversations.
According to the Statement, if firms are unable to record voice communications in the current exceptional situation, ESMA expects them to consider what alternative steps they could take to mitigate the risks related to the lack of recording. This could include the use of written minutes or notes of telephone conversations when providing services to clients, subject to prior information being provided to the client of the impossibility to record the call and that written minutes or notes of the call will be taken instead. In these scenarios, firms should also ensure enhanced monitoring and ex-post review of relevant orders and transactions.
ESMA expects firms to deploy all possible efforts to ensure that the above measures remain temporary and that recording of telephone conversations is restored as soon as possible.
|Non-performing Loans (“NPLs”)||
The European Central Bank (“ECB”) has introduced supervisory flexibility regarding the treatment of NPLs (here). Supervisors will exercise flexibility regarding the classification of debtors as “unlikely to pay” when banks call on public guarantees granted in the context of COVID-19. Supervisors will also exercise certain flexibilities regarding loans under COVID-19 related public moratoriums. Loans which become non-performing and are under public guarantees will benefit from preferential prudential treatment as regards supervisory expectations about loss provisioning. Supervisors will also deploy full flexibility when discussing the implementation of NPL reduction strategies with banks, taking into account current market conditions.
In addition, excessive volatility of loan loss provisioning should be tackled at this juncture to avoid excessive procyclicality of regulatory capital and published financial statements. According to the ECB, all banks should avoid procyclical assumptions in their models to determine provisions and those banks that have not done this so far should opt for the IFRS 9 transitional rules.
These measures to mitigate credit risk come in addition to the capital and operational relief measures announced on 12 March 2020.
On 17 March 2020, the European Insurance and Occupational Pensions Authority (“EIOPA”) published a statement on actions to mitigate the impact of COVID-19 on the EU insurance sector (here).
EIOPA’s key messages are as follows:
EIOPA will continue to monitor the situation and will take or propose to EU institutions any measure necessary in order to mitigate the impact of market volatility to the stability of the insurance sector in Europe and safeguard the protection of policyholders.
|Pandemic Emergency Purchase Programme||
On 18 March 2020, the Governing Council of the ECB announced a €750 billion Pandemic Emergency Purchase Programme of private and public sector securities (here).
The purpose of the programme is to counter serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by COVID-19. Purchases will be conducted until the end of 2020.
|Securities Financing Transactions Regulation||
On 19 March 2020, ESMA issued a public statement on the postponement of reporting obligations related to securities financing transactions (“SFTs”) under the Securities Financing Transactions Regulation (“SFTR”) (here).
Reporting under the SFTR was due to start on 13 April 2020 for banks and certain investment firms. In its public statement, ESMA states that it expects competent authorities not to prioritise their supervisory actions towards entities in scope of the SFTR reporting obligations as of 13 April 2020 and until 13 July 2020, including with respect to SFTs concluded during that period.
ESMA does not consider it necessary to register any trade repository (“TR”) ahead of 13 April 2020. However, ESMA expects TRs to be registered sufficiently ahead of the next phase of the reporting regime, ie 13 July 2020, for entities that will start reporting on that date.
See our briefing here.
|Short Selling Regulation||
On 16 March 2020, ESMA published a decision temporarily requiring the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital after the entry into force of the decision (here).
The temporary transparency obligations apply to any natural or legal person, irrespective of their country of residence. They do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making or stabilisation activities. The measure enters into force immediately and applies for a period of three months.
According to ESMA, lowering the reporting threshold is a precautionary action that is essential for authorities to monitor developments in markets under the exceptional circumstances linked to the ongoing COVID-19 pandemic.
ESMA has also issued official opinions agreeing to emergency short selling prohibitions by various EU Member States in response to COVID-19, including by the Commissione Nazionale per le Società e la Borsa (CONSOB) in Italy and the Autorité des marchés financiers (AMF) in France.
|Announcement from Minister for Finance on measures to support impacted individuals and businesses||
On 18 March 2020, the Minister for Finance, Paschal Donohoe TD published a press release outlining measures to support individuals and businesses impacted by COVID-19 (here).
These measures include:
|You may also be interested in…||
The McCann FitzGerald website has a dedicated COVID-19 section containing FAQs, briefings and guidance on a range of legal and business issues that may need to be addressed. This includes a briefing on pandemic planning for financial service providers, which outlines some of the earlier measures adopted by regulators in relation to COVID-19 (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.