Financial Services Regulatory Update – April 2024 Round Up

Publication of SEAR Regulations; Finalised IAF Guidance

On 16 April 2024, and pursuant to Section 48 of the Central Bank (Supervision and Enforcement) Act 2013, the Central Bank of Ireland (the “CBI”) issued the finalised Senior Executive Accountability Regime (“SEAR”) Regulations (here) and related final guidance (here) on the Individual Accountability Framework (the “IAF”).

The SEAR Regulations apply generally from 1 July 2024. Provisions relating to non-executive directors and independent non-executive directors (“(I)NEDs”) apply from 1 July 2025. The CBI has said that it will shortly issue FAQs to assist firms with their ongoing implementation of the IAF, as well as system guidance for the submission of IAF documentation.

For more information on the IAF, see our IAF Hub here.

European Parliament adopts Final Text of CS3D

On 24 April 2024, the European Parliament formally adopted the final text (here) of the Corporate Sustainability Due Diligence Directive (the “CS3D” or “CSDDD”), provisionally agreed between the Parliament and the Council of the EU in March 2024.

The original proposal for the CS3D, published by the European Commission in February 2022 (previously reported in our briefing here), has been significantly watered down during the legislative process, as reflected in the final compromise text.

The final text awaits formal adoption by the Council of the EU, after which it will be published in the Official Journal of the EU. Following publication in the Official Journal, and its subsequent entry into force, EU Member States will have two years to transpose the provisions of the CS3D into national law.

For more information, see our recent briefing here.

EU approves Postponement of Sector-Specific ESRS

On 29 April 2024, the Council of the EU gave its final approval (see here) to postponing the adoption of the sector-specific European sustainability reporting standards (“ESRS”) for EU companies, and the general ESRS for non-EU companies, by two years, until 30 June 2026. This follows an agreement by MEPs on 10 April 2024 (see here).

The new rules do not affect the reporting timelines agreed under the Corporate Sustainability Reporting Directive (“CSRD”) (see our briefing here). In-scope  EU companies will have to report as agreed in line with the general ESRS (see our briefing here), which apply as of 1 January 2024, in respect of reports published in 2025.

European Parliament adopts Final Text of Regulation on ESG Rating Activities

On 24 April 2024, the European Parliament formally adopted the final text (here) of the Regulation on ESG rating activities. The new rules aim to strengthen the reliability and comparability of ESG ratings by improving the transparency and integrity of the operations of ESG ratings providers, and preventing potential conflicts of interests. Under the new rules, ESG rating providers will need to be authorised and supervised by the European Securities and Markets Authority (“ESMA”), and to comply with transparency requirements, in particular with regard to methodologies used and sources of information.

The text of the Regulation awaits formal adoption by the Council of the EU, after which it will be published in the Official Journal of the EU. The Regulation will apply 18 months after its entry into force.

Publication of Directive amending BRRD and SRM Regulation

On 22 April 2024, Directive (EU) 2024/1174 (here) was published in the Official Journal of the EU. The Directive amends the Bank Recovery and Resolution Directive (the “BRRD”) and the Single Resolution Mechanism (“SRM”) Regulation, to include targeted proportionality requirements in respect of the treatment of internal minimum requirements for own funds and eligible liabilities (“MREL”) in bank resolution groups.

The new rules aim to give resolution authorities the power of setting internal MREL on a consolidated basis, subject to certain conditions. Where a resolution authority allows a banking group to apply such consolidated treatment, intermediate subsidiaries will not be obliged to deduct individual holdings of internal MREL. In addition, the new rules introduce specific MREL treatment for “liquidation entities”. Those are defined as entities within a banking group earmarked for winding-up in accordance with insolvency laws, which would, therefore, not be subject to resolution action.

On this basis, liquidation entities will not be obliged to comply with an MREL requirement, unless a resolution authority decides otherwise on a case-by-case basis. The own funds of these liquidation entities issued to the intermediate entities will not need to be deducted except when they represent a material share of the own funds and eligible liabilities of the intermediate entity.

European Parliament adopts Final Texts of CRD VI and CRR III

On 25 April 2024, the European Parliament adopted the final texts of: (i) the proposed Regulation amending the Capital Requirements Regulation (the “CRR”) as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor (proposal known as “CRR III”) (here); and (ii) the proposed Directive amending the Capital Requirements Directive (the “CRD”) as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks (proposal known as “CRD VI”) (here).

The texts await formal adoption by the Council of the EU, after which they will be published in the Official Journal of the EU. The provisions of CRR III will apply (with certain exceptions) from 1 January 2025. EU Member States will be required to apply measures transposing the CRD VI within 18 months after entry into force.

European Parliament adopts Position on CMDI Reforms

On 25 April 2024, the European Parliament adopted its first reading position in respect of:

• the proposed Directive amending the BRRD as regards early intervention measures, conditions for resolution and financing of resolution action (here);
• the proposed Regulation amending the Single Resolution Mechanism (“SRM”) Regulation as regards early intervention measures, conditions for resolution and funding of resolution action (here); and
• the proposed Directive amending the Deposit Guarantee Schemes Directive (“DGSD”) as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border co-operation, and transparency (here).

MEPs of the next Economic and Monetary Affairs Committee (after the June European Parliament elections) remain free to choose whether to open negotiations with the Council of the EU based on the negotiating mandate adopted by the April plenary, or whether to draw up a new negotiating mandate.

Findings of CBI Review of Early Mortgage Arrears Supports

On 24 April 2024, the CBI published, in a “Dear CEO” letter (here), the findings of a review of the supports banks, retail credit firms, and credit servicing firms provide to borrowers who are in, or facing, early mortgage arrears.

The CBI findings indicate that the mortgage arrears resolution framework set out in the Code of Conduct on Mortgage Arrears (“CCMA”) is well-positioned to support borrowers facing financial difficulty.

According to the CBI, its review shows that, while institutions are finding solutions for borrowers, there are number of key areas for improvement, including:

• Engagement: The review identified a number of customer service issues, including inadequate follow up with borrowers, poor staff knowledge or communication, and instances of failure to recognise signs of borrowers being in financial difficulty.
• Information provided to borrowers: Issues were identified that heighten the risk of ineffective disclosure where borrowers may not receive full and clear information to support them in tackling their arrears situation.
• Temporary alternative repayment arrangements: The review found minimal use of temporary alternative repayment arrangements to stop an arrears problem from worsening. According to the CBI, the circumstances in which temporary alternative repayment arrangements could be used were not always clear from firms’ policies.

Publication of Technical Standards supplementing CRD IV and CRR

On 24 April 2024, the following legislative acts were published in the Official Journal of the EU, supplementing the Capital Requirements Directive (“CRD IV”) and the CRR:

• Implementing Regulation (EU) 2024/855 (here) amending the implementing technical standards (“ITS”) laid down in Implementing Regulation (EU) 2021/451 as regards rules on the supervisory reporting of interest rate risk in the banking book;
• Delegated Regulation (EU) 2024/856 (here) supplementing CRD IV with regard to regulatory technical standards (“RTS”) specifying the supervisory shock scenarios, the common modelling and parametric assumptions and what constitutes a large decline; and
• Delegated Regulation (EU) 2024/857 (here) supplementing CRD IV with regard to RTS specifying a standardised methodology and a simplified standardised methodology to evaluate the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of an institution’s non-trading book activities.

CBI Update on Credit Union Sector

On 8 April 2024, the CBI published the tenth edition of its report (here) on the financial conditions of credit unions. The report provides an update on the financial performance and position of the sector, for the financial year ended 30 September 2023.

The latest report shows that total assets continued to increase across the credit union sector, with some positive trends regarding total loans issued and loans outstanding. However, according to the report, challenges remain, including a low loan-to-assets ratio, and an emerging increase in the level of reported early-stage loan arrears.

EBA consults on Draft RTS under CRR

On 24 April 2024, the European Banking Authority (the “EBA”) issued a consultation paper (here) on draft RTS on the method for identifying the main risk driver of a position and for determining whether a transaction represents a long or a short position under the CRR.

The EBA’s consultation runs until 24 July 2024.

ESMA consults on Proposed Revisions to CRA Framework

On 2 April 2024, ESMA issued a consultation paper (here) concerning proposed revisions to Delegated Regulation (EU) 447/2012 and Annex I Credit Rating Agencies Regulation (the “CRA Regulation”). The proposed amendments support the integration of ESG factors into the regulatory framework for credit rating agencies.

ESMA’s consultation runs until 21 June 2024.

European Parliament approves Solvency II Reforms and the Proposed IRRD

On 23 April 2024, the European Parliament announced (here) that MEPs have approved proposed reforms to the rules regulating insurance firms, found under the Solvency II Directive, as well as a new framework for the recovery and resolution of insurance firms, to be contained in a new Insurance Recovery and Resolution Directive (the “IRRD”).

According to the press release, changes to the Solvency II rules will free up large amounts of capital which insurance firms are required to keep in reserve, allowing the sector to channel more funds into economic recovery, and towards realisation of the objectives of the European Green Deal. Currently, the cost-of-capital rate, which determines reserve levels, is assumed to be equal to 6%, whereas the update will bring the rate down to 4.75%.

The update will also simplify supervision, while empowering supervisors on systemic risks. At the initiative of the European Parliament, supervisors will be required to better cooperate with each other where insurers operate in other Member States.

The update includes new provisions requiring insurance firms to better take into account sustainability-related risks, and to report in more detail about such risks, to ensure policyholders can better understand firms’ green credentials.

MEPs also approved the proposed IRRD, which will establish a recovery and resolution framework for insurance firms, similar to that already existing for banks. It will help address failing (re)insurance undertakings, ensuring that undertakings can be recovered or wound down, without the need for taxpayers to foot the bill.

The legislative texts await formal approval by the Council of the EU, after which they will be published in the Official Journal of the EU. Following their publication in the Official Journal and their subsequent entry into force, Members States and industry will have two years to comply with the reforms.

EIOPA’s 2024 Stress Test

On 2 April 2024, the European Insurance and Occupational Pensions Authority (“EIOPA”) launched its 2024 stress test (see here), which will subject participating EEA insurers to a hypothetical scenario of severe but plausible adverse developments in financial and economic conditions (set out here). The sample for the 2024 stress test will include 48 insurance undertakings, representing over 75% of the EEA market in terms of total assets.

Participating undertakings will have until mid-August 2024 to calculate results based on the prescribed scenario and submit them to their national supervisors. The results of the 2024 stress test will be published in December 2024.

Publication of MiFID II / MiFIR Data

On 30 April 2024, ESMA published the results of: (i) the annual transparency calculations for non-equity instruments (here); (ii) new quarterly liquidity assessment of bonds (here); and (iii) the quarterly systematic internaliser ("SI") calculations (here) under the Markets in Financial Instruments Directive (“MiFID II”) and the Markets in Financial Instruments Regulation (“MiFIR”).

ESMA issues Opinion on RTS under ELTIF 2.0

In a recent Opinion (here), ESMA suggested limited changes to amendments proposed by the European Commission to the draft RTS under the revised regulatory framework for European long-term investment funds (the “ELTIF Regulation” or “ELTIF 2.0”).

Following communication of ESMA’s Opinion to the European Commission, the Commission may adopt ESMA’s suggested amendments, with or without amendments, or reject them.  The European Fund and Asset Management Association (“EFAMA”) and other industry bodies, including Irish Funds, have provided their views to the European Commission on the latest proposals set out in ESMA’s Opinion, with some continued pushback from industry on certain elements of the ESMA proposals.

For more information, see our recent briefing here.

ESMA Advice to CBI regarding Investment Restrictions on GBP LDI Funds

ESMA has issued advice (here), dated 26 April 2024, to the CBI in respect of the CBI’s intention to impose an investment restriction, pursuant to Article 25(3) of the Alternative Investment Fund Managers Directive (“AIFMD”), on alternative investment fund managers (“AIFMs”) established in Ireland and managing GBP-denominated alternative investment funds (“AIFs”) pursuing a liability-driven investment (“LDI”) strategy.

ESMA’s analysis concludes that the relevant conditions under AIFMD are met and that the measures proposed by the CBI are justified and should contribute to improving the resilience of EU GBP LDI funds. ESMA’s advice encourages the CBI to monitor the evolution of the GBP LDI funds, and to assess the necessity to recalibrate its yield buffer.

EU Directive on Sanctions Violations

On 29 April 2024, Directive (EU) 2024/1226 (here) was published in the Official Journal of the EU, following its final approval by the EU institutions. The aim of the new Directive is to harmonise criminal offences and penalties for violations of EU sanctions across the EU. Until now, Member States were responsible for the enforcement of EU sanctions, which led to penalties for violations ranging from criminal prosecution to administrative sanctions, depending on the country. With this new Directive, the EU hopes to improve the effectiveness of EU sanctions, and to limit sanctions circumvention and so-called “forum shopping”.

The Directive enters into force on the twentieth day following its publication in the Official Journal of the EU. Member States will then have 12 months to implement its provisions.

For more information, see our recent briefing here.

European Parliament adopts EMIR 3

On 24 April 2024, the EMIR 3 trilogue agreement was approved by European Parliament in Plenary. The ratified EMIR Regulation and the Directive can be found here and here (reform proposals together known as "EMIR 3").

The final texts are expected to be announced in the new European Parliament Plenary in autumn 2024 and to receive final sign-off from the Council of the EU. It is anticipated that EMIR 3 will come into effect some time in Q4 2024. Most provisions are expressed to apply from entry into force, save for certain provisions amending the clearing thresholds, which are expressed to apply from the entry into force of related RTS.

For detailed information on EMIR 3 (in particular in respect of the active account requirement), see our recently-published briefing here.

ESAs prepare for DORA Application

On 11 April 2024, the European Supervisory Authorities (the “ESAs”) announced that in May they will launch a voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities. Under the Digital Operation Resilience Act (“DORA”), and starting from DORA’s date of application of 17 January 2025, financial entities will have to maintain registers of information regarding their use of ICT third-party providers. In the ESAs’ dry run exercise, relevant information will be collected from financial entities through competent authorities; the exercise will assist preparations for the implementation and reporting of registers of information under DORA. A factsheet on the ESAs’ exercise is available here.

European Parliament adopts Final Texts of AML Proposals

On 24 April 2024, the European Parliament adopted (see here) the final texts in respect of a package of laws designed to strengthen the EU’s anti-money laundering and countering the financing of terrorism (“AML/CFT”) capabilities. The European Parliament has adopted the final texts of: (i) the AML Regulation (here); (ii) the Anti-Money Laundering Authority (“AMLA”) Regulation (here); and (iii) the Sixth Money Laundering Directive (“MLD6”) (here).

The texts await formal adoption by the Council of the EU, after which they will be published in the Official Journal of the EU. The European Parliament has published a factsheet and FAQs regarding the new regime, which are available here.

Guidelines for Designated Persons Under Supervision of AMLCU

The Anti-Money Laundering Compliance Unit (the “AMLCU”) of the Department of Justice has published (here) AML/CFT guidelines for designated persons supervised by the AMLCU. The purpose of the guidelines is to assist such designated persons in understanding and meeting their obligations under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, as amended, and under related statutory instruments.

Central Bank Expectations for PIs, EMIs and AISPs

On 9 April 2024, the CBI published updated expectations (here) for firms seeking authorisation as a payment institution (“PI”) or an electronic money institution (“EMI”), or registration as an account information service provider (“AISP”).

The guidance builds on the CBI’s experience of authorising and supervising firms in the payments sector, and on previous communications and guidance to industry. The guidance aims to provide the clarity requested by applicant firms and industry bodies over the course of previous CBI engagements.

For more information, see our recent briefing here.

European Parliament adopts Position on PSR and PSD3 Proposals

On 23 April 2024, the European Parliament announced via press release (here) that MEPs have voted to adopt the Parliament’s position in respect of: (i) the proposed Regulation on payment services in the EU’s internal market (the “PSR proposal”) (here); and (ii) the proposed Directive on payment services in the EU’s internal market (the “PSD3 proposal”) (here).

MEPs aim to ensure more harmonised payment and electronic money services in the EU. The proposed rules would apply to all payment service providers (“PSPs”), including to banks and payment institutions.

The European Parliament has now closed the first reading on the PSR and PSD3 proposals. According to the press release, work will be followed up by the Parliament in its new configuration after the European elections in June.

EBA Opinion on Payment Fraud

On 29 April 2024, the EBA issued a draft Opinion (here) on new types of payment fraud and possible mitigants. The aim of the EBA’s Opinion is to help further strengthen the forthcoming legislative framework under the PSD3 and PSR proposals, particularly in the context of emerging types of fraud.

European Parliament adopts Position on Regulation amending BMR

On 25 April 2024, the European Parliament adopted its first reading position in respect of the proposed Regulation amending the Benchmarks Regulation (the “BMR”) as regards the scope of the rules for benchmarks, the use in the EU of benchmarks provided by an administrator located in a third country, and certain reporting requirements.

The adopted legislative resolution is available here.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Basel Committee on Banking Supervision (“BCBS”) – Core Principles for Effective Banking Supervision (Revised Version) (April 2024) (here)

BCBS – Draft Guidelines for Counterparty Credit Risk Management (Consultative Document) (here) (consultation runs until 28 August 2024)

CBI – A Revised Consumer Protection Code: A Foundation for Further Success (Remarks by Gerry Cross, Director of Financial Regulation – Policy and Risk) (here)

CBI – Feedback Statement to CP157: Macroprudential Measures for GBP LDI Funds (here)

Climate Risk and Sustainable Finance Forum (established by the CBI) – Report on Best Practices in Climate-related Risk Management within Financial Services in Ireland (here)

Department of Enterprise, Trade and Employment – Public Consultation on Member State Option to Introduce Independent Assurance Services Provider pursuant to Article 34(4) of the Accounting Directive (as inserted by the CSRD) (here) (consultation runs until 19 July 2024)

Department of Finance – Draft Stability Programme Update: April 2024 (here)

Department of Finance – Public Consultation on National Payments Strategy: Summary of Submissions (here)

EBA – Final Guidelines on the Application of the Group Capital Test for Investment Firm Groups in accordance with Article 8 of the Investment Firms Regulation (here)

EBA – Final Guidelines on the Resubmission of Historical Data under the EBA Reporting Framework (here)

ECB – Annual Report 2023 (here)

ECB – Supervisory Banking Statistics for Significant Institutions (Q4 2023) (here)

EIOPA – Consultation on 2023/24 (Re)Assessment of the Natural Catastrophe Standard Formula (here) (consultation runs until 20 June 2024)

EIOPA – Report on the Digitalisation of the European Insurance Sector (here)

ESAs – Joint Committee Update on Risks and Vulnerabilities in the EU Financial System: Spring 2024 (here)

ESMA – EU Securities Financing Transactions Markets 2024 (here)

ESMA – Follow-Up Report to Global Central Counterparty Fire Drill 2023: Main Outcomes (here)

ESMA – Follow-Up Report to the Peer Review into Supervisory Actions aiming at Enhancing the Quality of Data Reported under EMIR (here)

ESMA – Report on Quality and Use of Data 2023 (here)

ESMA – TRV Risk Analysis: Crypto Assets: Market Structures and EU Relevance (here)

International Capital Markets Association (“ICMA”) – ICMA Quarterly Report: Q2 2024 (here)

International Organization of Securities Commissions (“IOSCO”) – Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review (incorporating link to updated ISDA OTC Derivatives Compliance Calendar): April 2024 (here)

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

Breach of EU sanctions to constitute an “EU crime” (here)

CS3D: Close to the finish line but at what cost? (here)

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EMIR 3: Update on implementation (here)

European mandating of building energy performance: EPBD recast adopted (here)

How Detailed Should Your Data Processing Agreements Be? (here)

International Comparative Legal Guide - Restructuring & Insolvency 2024 (here)

Ireland as a Location for Electronic Money Institutions 2024 (here)

Irish Merger Control 2023 – Key Takeaways (here)

Potential personal exposure of company directors for wilfully disobeying a court order (here)

Preparing for the European Accessibility Act (here)

The Representative Actions Act 2023 is commenced; next step is the designation of Qualified Entities to bring the actions (here)

Supreme Court finds judicial guidelines for personal injuries are lawful (here)

Updated briefing following publication of the Automatic Enrolment Retirement Savings System Bill 2024 (here)

Update of recognition and enforcement of UK judgments: Hague Judgments Convention signature brings clarity (here)