knowledge | 7 April 2020 |
COVID-19: Financial Services Round-Up for 30 March – 5 April 2020
|Consumer Protection - Insurance||
EIOPA published a statement addressed to insurers and intermediaries to mitigate the impact of COVID-19 on consumers (here). Among other things, EIOPA asks insurers and intermediaries to:
|Dividend Distribution/Remuneration – banks and insurers||
The EBA and EIOPA have each published a statement on dividend distributions, share buybacks and variable remuneration in light of COVID-19 (here) and (here). The Statements call on institutions and insurers, respectively, to refrain from dividend distribution or share buybacks for the purpose of remunerating shareholders and to assess their remuneration policies in line with the risks stemming from the economic situation. Institutions and insurers that consider themselves bound to pay-out dividends or make share buybacks should revert to their competent authorities.
|ESMA – Risk Assessment||
The European Securities and Markets Authority (ESMA), the EU securities markets regulator, updated its risk assessment to account for the impact of the COVID-19 pandemic (here). ESMA sees a prolonged period of risk to institutional and retail investors of market corrections and very high risks across the whole of ESMA’s remit.
On 27 March 2020, the Government imposed a wide-spread lock-down in an effort to combat COVID-19. Workers in essential services are exempt from the lock-down, and, on 28 March 2020, the Government published guidance as to what constitutes an essential service, including in the area of banking and financial services.
Subsequently, the CBI published a statement on essential services (here), setting out its expectations of financial services firms with regard to identifying and maintaining such services. According to that Statement, the CBI expects that the CEO and other relevant members of senior management are accountable for ensuring an adequate process so that only individuals in roles necessary to perform essential financial services, who cannot work remotely, are designated as essential financial services workers.
As regards business continuity, the CBI expects financial service firms’ boards and senior management to actively monitor developments in order to be in the best position to pre-empt and respond to rapidly changing circumstances. In the context of maintaining essential financial services, this includes, but is not limited to:
|Extensions – EIOPA and the European Commission||
On 2 April 2020, EIOPA announced extensions to the consultation period for currently open consultations (here), as well as delays for certain discussion notes/papers, information requests and data collection work.
The European Commission also updated its consultation webpage to state that it is extending the deadlines for responding to certain consultations due to COVID-19 (here), including the following consultations:
The EBA published a statement to mitigate financial crime risks in light of the COVID-19 pandemic (here).
In its statement, the EBA reminds credit and financial institutions that it remains important to continue to put in place and maintain effective systems and controls to ensure that the EU’s financial system is not abused for money laundering or terrorist financing purposes. In addition, the EBA calls on competent authorities that are responsible for the AML/CFT supervision of credit and financial institutions to support their efforts, including by considering how to adapt the use of their supervisory tools temporarily to ensure ongoing compliance by credit and financial institutions with their AML/CFT obligations.
The Financial Action Task Force published a statement by its President on addressing COVID-19 related financial crime risks (here). The statement covered the following topics:
|Financial Stability Board||
The Financial Stability Board published a new webpage outlining its work to address the financial stability risks of COVID-19 (here). It also published a press release on its actions to ensuring continuity in essential services (here).
ICMA has published a note on its standard force majeure clause and the COVID-19 pandemic (here). The two-page note discusses the intended use of the clause, historic use of the clause in practice and the application of the clause in the context of the COVID-19 pandemic.
The note also states that ICMA is not planning to make any changes to the clause and that, pursuant to Recommendation 10.1 of the ICMA Primary Market Handbook, documentation for a new bond issue that falls within the scope of the ICMA Primary Market Handbook should contain the ICMA force majeure clause.
On 31 March 2020, the Executive Committee of Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines supported by ICMA published a press release confirming that the existing guidance for Social and Sustainability Bonds is immediately applicable to efforts addressing the COVID-19 crisis (here). It has published additional information for issuers in the form of a new Q&A and case studies.
The EBA published a final report containing guidelines on legislative and non-legislative moratoria on loan repayments in the light of the COVID-19 pandemic (here). The aim of these Guidelines is to clarify the requirements for public and private moratoria, which if fulfilled, will help avoid the classification of exposures under the definition of forbearance or as defaulted under distressed restructuring.
Publication of the guidelines follows an earlier statement in March 2020 in which the EBA provided clarification on a number of aspects relating to the use of private and public moratoria.
|Margin Requirements for Non-Centrally Cleared Derivatives||
The Basel Committee on Banking Supervision and IOSCO agreed to extend the deadline for completing the final two implementation phases of the margin requirements for non-centrally cleared derivatives, by one year (here). Following on from this extension, the final implementation phase will take place on 1 September 2022, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than €8 billion will be subject to the requirements. As an intermediate step, from 1 September 2021 covered entities with an AANA of non-centrally cleared derivatives greater than €50 billion will be subject to the requirements.
|MiFID II – Best Execution||
ESMA published a statement providing clarification on the issues regarding the publication by execution venues and firms of the general best execution reports required under Delegated Regulation (EU) 2017/575 (RTS 27) and Delegated Regulation (EU) 2017/576 (RTS 28) (the “Statement”) (here).
According to Statement, ESMA and the national competent authorities are aware of difficulties encountered by execution venues and firms in complying these reports due to COVID-19. Accordingly, ESMA recommends that national competent authorities take into account these circumstances by considering the possibility that:
ESMA encourages national competent authorities not to prioritise supervisory action against execution venues and firms in respect of the deadlines of the general best execution reports for the periods referred to above. It also encourages competent authorities to generally apply a risk-based approach in the exercise of supervisory powers in their day-to-day enforcement of the applicable legislation concerning these deadlines.
The Single Resolution Board (“SRB”) published a letter it sent to banks under its remit setting out potential operational relief measures related to the COVID-19 outbreak (here). According to the SRB:
The SRB will monitor market conditions in the next few months and potential impact on transition periods needed for the build-up of MREL. It states that it is ready to use its discretion and the flexibility given by the regulatory framework to adapt transition periods and interim targets applied to banking groups, as well as to adjust MREL targets in line with capital requirements, particularly, capital buffers.
On 31 March 2020, the EBA published a statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19 (here). The statement follows its earlier publication on actions to mitigate the impact of the COVID-19 outbreak on the EU banking sector. It provides additional clarity on mitigating measures in the areas of supervisory reporting and Pillar 3 disclosures. In particular, the EBA provides details on its call for competent authorities to offer leeway on reporting dates for reports with remittance dates between March and the end of May 2020. It indicates that, in general, institutions should be allowed up to one additional month to submit the required data, and that each competent and resolution authority should clarify the precise terms for institutions in their jurisdiction.
The statement also suggests that competent and resolution authorities do not prioritise their supervisory actions towards ad-hoc data collections that are not specifically needed to monitor institutions in the context of the COVID-19 outbreak. In line with this commitment and in coordination with the Basel Committee on Banking Supervision, the EBA has decided to cancel the QIS exercise based on June 2020 data.
|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 (here).
This briefing is 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.