Financial Services Regulatory Update – August 2023 Round Up

CBI issues Statement following Central Credit Register Data Breach

On 21 August 2023, the Central Bank of Ireland (“CBI”) issued a public statement (here) having recently identified an archiving error that affected the retention period of certain borrower information held on the Central Credit Register (the “Register”).

As a consequence of the error, certain borrower information was retained on the Register for up to an additional three months, and erroneously included in credit reports.

According to the CBI, the error constituted a data breach under data protection legislation. In line with its data protection obligations, the CBI has notified the Data Protection Commission (“DPC”), and is engaging with the DPC on the matter.

According to the CBI, borrower data has not been compromised or accessed by unauthorised third parties as a result of the error.

CBI publishes Regulatory Service Standards Report

On 28 August 2023, the CBI published its service standards report (here) for H1 2023. The report sets out the performance of the CBI across all regulated sectors against the service standards to which it previously committed in respect of: (i) authorisation of funds and financial service providers; and (ii) processing of fitness and probity (“F&P”) applications.

Over the course of H1 2023:

• all applicable service standards were either met or exceeded;
• 1,559 applications were assessed as part of the F&P regime, with a new system for F&P applications successfully implemented in April;
• 1,234 prospectus submissions were reviewed; and
• 248 investment funds were authorised.

ECB and SRB sign MoU regarding Data Sharing

On 4 August 2023, the European Central Bank (“ECB”) and the Single Resolution Board (“SRB”) announced via press release that they have signed a Memorandum of Understanding (“MoU”) (here) on the exchange of certain types of confidential statistical information, in order to improve analysis related to bank resolution.

According to the press release, the MoU is an important milestone in the cooperation between the SRB and ECB. It replaces the existing ad-hoc statistical data exchange and provides for a general framework agreement for sharing confidential statistical data collected by the Eurosystem in its role as euro area monetary authority.

Access to such statistical data will support several key SRB tasks, including valuation and the public interest assessment.

Crowdfunding Regulation: Updated Q&As

On 3 August 2023, the European Securities and Markets Authority (“ESMA”) published an updated version of its Q&A document (here) on the Crowdfunding Regulation, containing new Q&As on: (i) general provisions; (ii) provisions of crowdfunding services and organisational and operational requirements; and (iii) the authorisation and supervision of crowdfunding service providers (“CSPs”).

EBA updates Methodology for identifying Global Systemically Important Institutions

On 21 August 2023, the European Banking Authority (“EBA”) announced via press release (here) that it has updated the 13 systemic importance indicators and underlying data for the 32 largest institutions in the EU whose leverage ratio exposure measure exceeds €200 billion. This disclosure includes updated data items specific to the recognition of the banking union and of institutions that are part of the Single Resolution Mechanism (“SRM”). Acting as a central data hub in the disclosure process, the EBA updates this data on a yearly basis and provides user-friendly tools to aggregate it across the EU.

On a related note, on 1 August 2023, the EBA launched a consultation (here) on draft guidelines amending its guidelines on the specification and disclosure of systemic importance indicators under the Capital Requirements Directive (“CRD V”). Due to the limited and technical nature of the proposed amendments, the EBA’s consultation ran for a short period, until 1 September 2023.

Results of EBA’s Mystery Shopping Exercise

On 8 August 2023, the EBA published a report (here) on its mystery shopping exercise in respect of personal loans and payment accounts.

According to the EBA, the exercise confirmed that mystery shopping is a tool that adds immense value to the supervision of national competent authorities (“NCAs”) and is complementary to other more conventional tools or approaches. It delivers first-hand information about, and insight into, the conduct of financial institutions towards consumers, either visiting a branch or using a digital channel.

The publication is the EBA’s fourth and final step in the fulfilment of its new mandate to coordinate mystery shopping activities of NCAs.

Capital Requirements Regulation: RTS published in Official Journal

On 1 August 2023, the following Delegated Regulations with regard to regulatory technical standards (“RTS”) supplementing the Capital Requirements Regulation (“CRR”) were published in the Official Journal:

• Commission Delegated Regulation (EU) 2023/1577 (here) with regard to RTS on the calculation of the own funds requirements for market risk for non-trading book positions subject to foreign exchange risk or commodity risk and the treatment of those positions for the purposes of the regulatory back-testing requirements and the profit and loss attribution requirement under the alternative internal model approach; and
• Commission Delegated Regulation (EU) 2023/1578 (here) with regard to RTS specifying the requirements for the internal methodology or external sources used under the internal default risk model for estimating default probabilities and losses given default.

Both Delegated Regulations entered into force on 21 August 2023.

Updates from the EBA regarding IRB Models

On 4 August 2023, the EBA published a report (here) summarising the main conclusions of its consultation on the use of machine learning in the context of internal ratings-based (“IRB”) models. The EBA report additionally discusses the interaction between prudential requirements on IRB models and two other legal frameworks that have an impact on internal credit risk models that use machine learning techniques, namely GDPR and the proposed AI Act.

Additionally, on 7 August 2023, the EBA announced (here) that it has updated its roadmap for the implementation of internal ratings based (“IRB”) model requirements to limit compliance costs for institutions.

Furthermore, the EBA has also published its final supervisory handbook (here) for the validation of IRB rating systems to clarify the role of the validation function as part of corporate governance.

EBA Progress Report on Resolution Examination Programme

On 3 August 2023, the EBA published a report (here) which monitors the progress made by resolution authorities in embedding the key topics identified in the EBA’s 2022 European Resolution Examination Programme (“EREP”) into their respective priorities and resolution colleges over the course of 2022.

The report observes that, overall, resolution authorities incorporated the work priorities set by the EBA, with MREL monitoring being a key focus. EREP priorities set for 2024 mainly confirmed the areas of focus set for 2023, whilst updating specific elements and extension of the operationalisation of the bail-in tool to cover the operationalisation of the resolution strategy more generally.

EBA to run IRRBB Data Collection Exercise

The EBA has published a Decision (here), dated 3 August 2023, which outlines plans to run an ad-hoc data collection exercise in respect of credit institutions’ data pertaining to interest rate risk in the banking book (“IRRBB”).

According to the EBA, the data collection exercise will provide competent authorities and the EBA with timely and necessary data and tools to monitor risks arising from interest rate changes and the implementation of the IRRBB scrutiny plan.

FICOD: Draft Guide on the Reporting of Risk Concentrations and Intragroup Transactions

On 21 August 2023, the ECB published draft guidance (here) on the reporting required of financial conglomerates in respect of risk concentrations and intragroup transactions, pursuant to implementing technical standards (“ITS”) published under the Financial Conglomerates Directive (“FICOD”).

A consultation (here) on the EBA’s draft guidance will run until 6 October 2023.

Draft RTS regarding the Relaxation of Internal Model Requirements

On 3 August 2023, the EBA published a consultation paper (here) containing draft RTS on the extraordinary circumstances in which competent authorities may soften or waive the application of certain requirements for the use of internal models for market risk. Specifically, the draft RTS set out that only a situation of cross-border financial market stress, or a regime shift, can qualify as a situation of extraordinary circumstances, and only subject to the additional condition that this stress or regime shift impacts the validity of the results of the back-testing or the PLAT.

Comments can be made on the EBA’s draft RTS until 3 November 2023.

CBI Report on Data Ethics in Insurance

On 2 August 2023, the CBI published a report (here) on data ethics within insurance, outlining the key findings of research undertaken to develop understanding about the nature and extent of the use of big data and related technologies across the insurance value chain.

The CBI’s research shows that most firms are, to some extent, either already using big data and related technologies within their businesses and across the insurance value chain, or they expected to do so within three years.

The CBI recognises that increased digitalisation can bring considerable benefits to stakeholders across the insurance value chain, including to firms, consumers and society more generally. However, it also wishes to draw attention to emerging risks, including:

• the inappropriate use of data and technology, which could give rise to unfair treatment of, and ultimately negative outcomes for, consumers; and
• the inappropriate integration, oversight and management of digitalisation within the operational and organisational structure of firms.

While firms continue to innovate and digitalise their processes, the CBI expects that they continue to adopt a consumer-focused approach, which includes careful consideration of the ethical use of data. This includes consideration of the potential risks for bias or unfair treatment of consumers, including potential exclusion of certain consumers, or the misuse of data. Firms are expected to ensure they apply proper and adequate governance around the use of technologies in activities, in a manner that complies with prudential requirements.

Solvency II: Implementing Regulation published in Official Journal

On 31 August 2023, Commission Implementing Regulation (EU) 2023/1672 (here) was published in the Official Journal of the European Union.

The Implementing Regulation lays down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 30 June 2023 until 29 September 2023, in accordance with the Solvency II Directive on the taking-up and pursuit of the business of insurance and reinsurance.

IFD: RTS on Liquidity Risk Measurement published in Official Journal

On 23 August 2023, Delegated Regulation (here) containing RTS for the specific liquidity measurement of investment firms under Article 42 of the Investment Firms Directive (“IFD”) was published in the Official Journal.

Under the IFD, competent authorities can impose additional Pillar 2 requirements on an individual investment firm where it is exposed to material liquidity risk, or elements of liquidity risk. The RTS contained in this Delegated Regulation specifies how that risk, or those elements of risk, are to be measured.

The Delegated Regulation will enter into force on 12 September 2023.

ESMA Guidelines on Product Governance Requirements

On 3 August 2023, ESMA published the English language translation of its guidelines (here) on product governance requirements under the Markets in Financial Instruments Directive (“MiFID II”).

The guidelines apply from 3 October 2023.

ESMA publishes Technical Data under MiFID II

On 1 August 2023, ESMA published (here) its quarterly liquidity assessment of bonds, the data for the quarterly systematic internaliser calculations for equity, equity-like instruments, bonds and for other non-equity instruments and the consolidated tape provider (“CTP”) under MiFID II and the Markets in Financial Instruments Regulation (“MiFIR”).

Irish Funds responds to ESMA’s Consultation on ELTIF 2.0

The Irish Funds Industry Association (“Irish Funds”) has published its response (here) to ESMA’s consultation (here, now closed) in respect of draft RTS to be developed under the revised ELTIF Regulation (“ELTIF 2.0”).

The revised ELTIF Regulation entered into force on 9 April 2023 and will apply across the EU from 10 January 2024. It is expected that the final RTS will apply from the same date as the revised Regulation.

For more information on ELTIF 2.0, please see our briefings (here and here).

Extension of Restrictive Measures to guard against Circumvention

On 3 August 2023, the European Commission announced (here) that it has imposed certain restrictive measures against Belarus for, inter alia, its continuous involvement in Russia’s illegal war of aggression against Ukraine. The adopted measures include the following:

• export ban on goods and technology suited for use in aviation and the space industry, including aircraft engines and drones;
• prohibition of sale, supply, transfer or export of firearms, their parts and essential components and ammunition;
• further export restrictions on goods used by Russia for its war of aggression against Ukraine, including semiconductor devices, electronic integrated circuits, manufacturing and testing equipment, photographic cameras and optical components; and
• extended export ban on dual-use goods and technology.

Belarus also remains subject to restrictions in the financial sector, and in trade, energy and transport, among other restrictions.

CCP Recovery and Resolution Regulation: RTS published in Official Journal

On 9 August 2023, the following Delegated Regulations, containing RTS supplementing the Central Counterparty (“CCP”) Recovery and Resolution Regulation (“CCPRRR”), were published in the Official Journal:

• Commission Delegated Regulation (EU) 2023/1615 (here) containing RTS specifying the conditions under which compensation, cash equivalent of such compensation, or any proceeds that are due pursuant to Article 63(1) CCPRRR are to be passed on to clients and indirect clients and the conditions under which passing on is to be considered proportionate; and
• Commission Delegated Regulation (EU) 2023/1616 (here) containing RTS specifying the circumstances in which a person is deemed to be independent from the resolution authority and from the CCP, the methodology for assessing the value of assets and liabilities of a CCP, the separation of the valuations, the methodology for calculating the buffer for additional losses to be included in provisional valuations, and the methodology for carrying out the valuation for the application of the ‘no creditor worse off’ principle.

Both Delegated Regulations entered into force on 29 August 2023.

Meeting of ECB Market Contact Group on New Technologies for Wholesale Settlement

The ECB has published the outcome (here) of a meeting of its contact group on new technologies for wholesome settlement (“NTW-CG”), held on 18 July 2023. The NTW-CG has been set up to support the Eurosystem in running experiments and trials for market participants to explore solutions for settling wholesale financial transactions recorded on distributed ledger technology (“DLT”) platforms in central bank money.

During the meeting, the ECB presented on the scope, roadmap and key milestones for trials and experiments that will take place over 2024. NTW-CG members discussed operational aspects such as underlying technologies and settlement processes.

The agenda (here) and slides (here) presented during the meeting have also been published. The next meeting of the NTW-CG will take place on 7 September 2023.

Delegated Regulation adding Cameroon and Vietnam to List of High-Risk Third Countries

On 18 August 2023, the European Commission adopted draft Delegated Regulation (here) amending its list of high-risk third countries with strategic anti-money laundering and counter-terrorist financing (“AML/CFT”) deficiencies, to include Cameroon and Vietnam.

The inclusion of Cameroon and Vietnam follows a plenary meeting of the Financial Action Task Force (“FATF”), in which Cameroon, Croatia and Vietnam were identified as jurisdictions which required increased monitoring for AML/CFT purposes.

The draft Delegated Regulation will be submitted to the Council of the EU and to the European Parliament for scrutiny. If neither objects, it will enter in force on the twentieth day following it being published in the Official Journal.

EBA Report on Functioning of Supervisory Colleges

On 10 August 2023, the EBA published a report (here) on the functioning of AML/CFT colleges under the Fourth Money Laundering Directive (“MLD4”).

The report provides an overview of AML/CFT colleges which were established, or which continued operating, in 2022, and summarises EBA staff’s observations. It provides an assessment of the progress made by lead supervisors in implementing the six key action points identified with the aim of ensuring the effective functioning of AML/CFT colleges. Furthermore, it highlights best practices observed by EBA staff, and lists steps that competent authorities have been recommended to take.

EDPS opines on EU Digital Finance Package

On 22 August 2023, the European Data Protection Supervisor (“EDPS”) published an Opinion (here) concerning the following European Commission proposals:

• the proposal for a Regulation on payment services (“PSR”) (here) and for a revised Directive on payment services (“PSD3”) (here) in the EU’s internal market; and
• the proposal for a EU Regulation on a financial data access framework (here).

MiCA: Department of Finance consults on National Discretions

On 9 August 2023, the Department of Finance launched a consultation (here) on national discretions contained in the Markets in Crypto-Assets (“MiCA”) Regulation in respect of the follow measures:

• the public disclosure of inside information under Article 88(3);
• administrative penalties under Article 111;
• the transition period under Article 143 for crypto-asset service providers (“CASPs”) providing services in accordance with national law prior to MiCA’s applicability (VASPs registered with the CBI by 29 December 2024); and
• the simplified procedure under Article 143(6) for authorisation applications by existing CASPs.

The Department is accepting responses to its consultation until the closing date of 15 September 2023. For more information on the Department’s consultation, please see our recently-published briefing (here).

Selected Consultations, Discussion Papers, Speeches and Reports Published

CBI – Fitness and Probity Interview Guide (updated 9 August 2023) (link)

CBI – “Navigating the risks of geo-economic fragmentation” – Remarks by Vasileios Madouros, Deputy Governor, Monetary and Financial Stability (here)

Committee on Payments and Market Infrastructures (“CPMI”) and Board of the International Organization of Securities Commissions (“IOSCO”) – Report on Current Central Counterparty Practices to address Non-Default Losses (here)

Competition and Consumer Protection Commission (“CCPC”) – Annual Report 2022 (here)

ECB – “Come hell or high water: addressing the risks of climate and environment-related litigation for the banking sector” – Speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the ECB’s Supervisory Board (here)

ESMA – Report on Trends, Risks and Vulnerabilities, No. 2, 2023 (here)

ESMA – Summary of Meeting of Working Group on Euro Risk-Free Rates (here)

European Insurance and Occupational Pensions Authority (“EIOPA”) – “Insured Risks in Uncertain Times” – Remarks by Petra Hielkema, Chair of the EIOPA (here)

Financial Services and Pensions Ombudsman (“FSPO”) – Annual Report 2022 (here)

International Capital Market Association (“ICMA”) – Response to ESMA’s Consultation on Draft RTS under the revised ELTIF Regulation (here)

International Swaps and Derivatives Association (“ISDA”) – A Blueprint for Climate Risk Management (here)

ISDA – Future Perspectives on Generative AI (here)

ISDA – ISDA in Review: August 2023 (here)

Network for Greening the Financial System (“NGFS”) – Climate-related Litigation: Recent Trends and Developments (here)

NGFS – Report on Micro-Prudential Supervision of Climate-related Litigation Risks (here)

You may also be interested in:

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

• The Assisted Decision-Making (Capacity) Act: Considerations for Pension Schemes (here)
• Coming Soon: Ireland’s New Deposit Return Scheme (here)
• European Commission adopts adequacy decision for the new EU-US Data Privacy Framework (here)
• European Commission adopts the European Corporate Sustainability Reporting Standards (here)
• Ireland getting “ELTIF-ready” (here)
• Ireland: Trends and Developments in FinTech Growth (here)
• MiCA: Consultation Opened on National Discretions (here)
• New Employer Enhanced Reporting Requirements – Reportable Benefits (here)
• Protected disclosures: lessons from recent case law (here)
• Should Ireland liberalise its rules on Third-Party Litigation funding? The Law Reform Commission Consults (here)
• Taking Stock – New Agri Food Regulator (here)
• UK Law Commission publishes Final Report on Digital Assets (here)