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:

• The CBI emphasises the provisions of the existing consumer protection framework which is designed to ensure that consumers’ best interests are protected, particularly during financial difficulties.  People experiencing particular vulnerabilities as a result of COVID-19 must be provided with whatever reasonable arrangements and/or assistance may be necessary in dealings with regulated entities.
• Banks will introduce three-month payment moratoria on mortgages and personal and business loans for some business and personal customers affected by COVID-19.  Ireland’s main credit-servicing firms and non-bank mortgage lenders will also introduce these measures. Related press releases from the BPFI are available here and here.
• The CBI expects all regulated firms to take a consumer-focused approach and to act in the best interests of their customers.  All existing protections for customers who face actual or potential financial difficulties continue to apply.
• The CBI and lenders are working to develop practical measures so that the credit record of those who avail of a payment break gets an appropriate recording on the Central Credit Register.

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:

• Consultation on Guidelines on Internal Controls for CRAs;
• Consultation on MiFIR report on SI;
• Guidelines on securitisation repository data completeness and consistency thresholds;
• Consultation on MiFID II/ MiFIR review report on the transparency regime for equity, and equity-like instruments, the double volume cap mechanism and the trading obligations for shares;
• Draft Regulatory Technical Standards under the Benchmarks Regulation;
• Draft technical standards on the provision of investment services and activities in the Union by third-country firms under MiFID II and MiFIR; and
• Consultation paper on MiFIR Review Report on Transparency for Non-equity TOD.

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:

• emphasises the importance of keeping markets, and clearing and settlement systems open to ensure critical payments and transactions can be fulfilled and capital can flow and sets out observations drawn from recent market closures; and
• sets out critical information that public sector authorities and infrastructure firms need to swiftly and definitively communicate to market participants in the event that a market is closed (preferably at least 2 business days before the closure) so that they are able to identify and apply contractual fallbacks. 

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.

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:

• Business continuity.  Insurers must be able to maintain services to their clients.  They must be able to implement the necessary measures to ensure business continuity.  National competent authorities should be flexible regarding the timing of supervisory reporting and public disclosure regarding end-2019.  EIOPA will coordinate the specifics of the approach.  EIOPA will also limit its requests for information and the consultations to the industry to essential elements needed to assess and monitor the impact of the current situation in the market.  The deadline of the Holistic Impact Assessment for the 2020 Solvency II Review will also be extended by two months, to 1 June 2020.  EIOPA will announce details on postponing additional reporting and information requirements in the coming days.
• Solvency and capital position.  Under Solvency II, EU insurance companies are required to hold sufficient eligible own funds on an on-going basis to cover their Solvency Capital Requirement (“SCR”).  The SCR enables insurance undertakings to absorb significant losses and gives confidence to policyholders and beneficiaries that payments will be made as they fall due.  Solvency II includes a ladder of supervisory intervention between the SCR and the Minimum Capital Requirement.  This allows for flexibility in cases of extreme situations, including measures to extend the recovery period of affected insurers, for example, as foreseen by Article 138 of the Solvency II Directive.  EIOPA states that recent stress tests have shown that the sector is well capitalised and able to withhold severe but plausible shocks to the system.  The Solvency II framework also contains various tools that can be used to mitigate risks and impacts to the sector. Both EIOPA and national competent authorities stand ready to implement these tools to protect policyholders and safeguard financial stability.  Insurance companies should also take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration.

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.

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.

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.

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.

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:

• Contactless payments.  The Minister is requesting industry to increase the limit on contactless payments to €50 in order to support public health policy.
• Deferral on stamp duty.  The Minister has decided to defer the collection of stamp duty on credit cards to July, which is normally levied in April, for which he will legislate for in due course.
• BPFI actions to ensure operational continuity.  Extensive work has been ongoing across the BPFI and its members to ensure the continuity of banking services to the public.

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).