knowledge | 12 January 2022 |

Financial Services Regulatory Update – December 2021 Round Up

 

General Updates

CBI Cross-Industry Guidance on Operational Resilience

On 1 December 2021, the CBI published its ‘Cross-Industry Guidance on Operational Resilience’ (the ‘Guidance’) (here) and related feedback statement (here). The Guidance applies to all regulated financial service providers (as defined in Section 2 of the Central Bank Act 1942) and is issued in the context of the challenges faced by firms from various disruptive events including cyber incidents and the COVID-19 pandemic.

The CBI states that the objective of the Guidance is to communicate to industry how to prepare for, respond to, recover and learn from an operational disruption that affects the delivery of critical or important business services. The Guidance sets out three ‘pillars’ which regulated firms must comply with and includes, amongst others, provisions in respect of governance, impact tolerances and business continuity management. The CBI confirms that the Guidance is intentionally not prescriptive or at a granular level of detail to allow for a pragmatic application.

Regulated firms should be in a position to demonstrate that they have applied the Guidance within an ‘appropriate timeframe’. The CBI states that an ‘appropriate timeframe’ will depend on a range of factors including the nature, scale and complexity of a firm’s business and the firm’s overall impact on customers and the wider economy. The CBI also states it expects firms to be in a position to evidence actions/plans to apply the Guidance at the latest within two years of its being issued.

CBI Cross-Industry Guidance on Outsourcing

On 16 December 2021, the CBI published its ‘Cross-Industry Guidance on Outsourcing’ (the “Guidance”) (here) and related feedback statement (here). The CBI states that the Guidance applies to any regulated firm which utilises outsourcing as part of their business model. The Guidance is issued in the context of the CBI view that management of outsourcing risk is key from a prudential and conduct perspective.

The Guidance includes provisions relating to:

  • assessment of criticality or importance of activity/service to be outsourced;
  • management of unique risks of intragroup outsourcing;
  • delegation and outsourcing (and confirms the CBI does not consider delegation and outsourcing to be different concepts);
  • board and senior management responsibility;
  • outsourcing strategy and policy;
  • sensitive data risk;
  • due diligence;
  • general requirements for outsourcing contracts and service level agreements; and
  • maintenance of outsourcing registers and notification of outsourcing arrangements to the CBI.

The Guidance came into effect on 17 December 2021. In respect of notification requirements, the CBI plans to publish notification templates appropriate to each sector on the CBI website in Q1 2022 (with the exception of the template for banks, which will be published by the SSM and is expected during 2022). The CBI will also publish a spreadsheet template for the outsourcing register which will be available for firms to download from the CBI website during Q1 2022.

The CBI states that it is intended that all firms whose PRISM Impact Rating is Medium Low or above (or its equivalent) will submit their outsourcing register via a new online return on an annual basis. The timing of the first submission is planned for Q2 2022. The CBI confirms that firms will be advised within a reasonable notice period in advance of making a submission in 2022. The CBI advises that Low Impact firms may also be asked to submit their outsourcing register on a case by case basis by their supervisor.  

Crowdfunding Regulations

SI 702 of 2021, The European Union (Crowdfunding) Regulations 2021, was signed by the Minister for Finance on 13 December 2021 (here). The Regulations designate the CBI as the competent authority in the State responsible for carrying out the functions of a competent authority referred to in the Crowdfunding Regulation (Regulation (EU) 2020/1503) and include provisions:

  • detailing responsibility in respect of the key investment information sheet (at content and platform level);
  • outlining civil liability for the key investment information sheet (at content and platform level);
  • confirming the CBI may apply administrative penalties for breaches of the Regulations/the Crowdfunding Regulation;
  • outlining rights of appeal; and
  • amending other areas of financial services legislation (primarily relating to the definition of ‘prospectus regulation’ to include reference to the Crowdfunding Regulation).

CBI ‘Dear CEO’ Letter to Payment and E-Money Firms

On 9 December 2021, the CBI published a ‘Dear CEO’ letter setting out its supervisory expectations for payment and e-money firms (here).

In the letter, the CBI sets out supervisory expectations in respect of:

  • governance and risk management;
  • conduct and culture;
  • safeguarding;
  • business model and financial resilience;
  • operational resilience;
  • financial crime; and
  • resolution and wind-up.

The CBI also states that payment and e-money firms must complete a comprehensive assessment of a firm’s compliance with:

  • safeguarding obligations under Regulation 17 of The European Union (Payment Services) Regulations 2018 and Regulation 29-31 of The European Communities (Electronic Money) Regulations 2011; and
  • the conditions of a firm’s authorisation.

The CBI expects to be provided with a “Board approved attestation” confirming the completion and conclusion of this assessment by 31 March 2022.

Further detail is set out in our briefing here.

Sustainability disclosures

On 10 December 2021, Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021  was published in the Official Journal of the EU (here). The Delegated Regulation supplements Article 8 of the Taxonomy Regulation which requires certain undertakings to disclose how and to what extent their activities are associated with environmentally sustainable economic activities.

The Delegated Regulation provides that from 1 January 2022 until 31 December 2023, financial undertakings shall disclose the information detailed in Article 10 therein, including the proportion in their total assets of exposures to taxonomy non-eligible and taxonomy-eligible economic activities. Credit institutions shall also disclose the proportion of their trading portfolio and on demand inter-bank loans in their total assets. Insurance and reinsurance undertakings shall also disclose the proportion of taxonomy-eligible and taxonomy non-eligible non-life insurance economic activities.

Key performance indicators of financial undertakings with accompanying information shall be disclosed from 1 January 2024 and certain other information requirements shall apply from 1 January 2026.

On 20 December 2021, the European Commission and EU Platform on Sustainable Finance published guidance in respect of disclosures to be made pursuant to Article 8 of the Taxonomy Regulation. The guidance includes FAQs (here) on how financial and non-financial undertakings should report taxonomy-eligible economic activities and assets, a supplementary guidance on voluntary disclosure under Article 8 (here) and a mapping of selected industry classification systems (here).

Capital Requirements/Credit Institutions

ECB updates fit and proper regime

On 8 December 2021, the European Central Bank (“ECB”) published a revised version of the guide to fit and proper assessments (here) and the updated fit and proper questionnaire (here).

The ECB states that the updated guide includes enhancements aimed at raising the bar, increasing transparency and improving the quality and efficiency of fit and proper assessments and processes. The updates include:

  • the introduction of supervisory expectations on climate-related and environmental risks (knowledge of and experience in this area will be deemed relevant);
  • detail on the ECB’s approach to diversity; and
  • additional information on how board members will be reassessed if new material facts emerge after their appointment.

CBI consults on Mortgage Measures Framework

On 16 December 2021, the CBI issued Consultation Paper 146 ‘Mortgage Measures Framework Review’ (here) together with summary reports from listening and engagement events (here) and from the related engagement survey (here).

The Consultation Paper raises specific questions in respect of measures introduced by the CBI in 2015 which placed limits on the proportion of new residential mortgage lending that could take place at high loan-to-value and loan-to-income ratios. The objectives of those measures were to increase the resilience of lenders and borrowers to negative economic and financial shocks and to reduce the risk of a ‘feedback loop’ where house prices and mortgage credit increase and reinforce each other.

The deadline for submission of feedback is Wednesday 16 March 2022.

Insurance / Insurance Distribution

Motor Insurance – Amending Directive

On 2 December 2021, Directive (EU) 2021/2118 of the European Parliament and of the Council of 24 November 2021 amending Directive 2009/103/EC relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability, was published in the Official Journal of the EU (here).

Directive (EU) 2021/2118 includes provisions revising the definition of “vehicle” and requiring member states to set up or authorise a body to compensate injured parties resident in their territory at least up to the limits of the insurance obligation when their insurer is subject to bankruptcy or winding up proceedings.

The measures set out in Directive (EU) 2021/2118 shall enter into force on 23 December 2023.

CBI Insurance Newsletter

On 15 December 2021, the CBI published December’s insurance newsletter (here) which covered topics including learnings from the CBI’s 2021 thematic review of own risk and solvency assessments, an update on sustainable finance initiatives relevant to the insurance sector and updates on the EIOPA internal model comparative study, the Private Motor National Claims Information Database Report and the Solvency II review.

Investment Firms / MiFID

Investment Firms Directive  (RTS)

On 7 December 2021, three Delegated Regulations supplementing the Investment Firms Directive were published in the Official Journal of the EU:

  • Commission Delegation Regulation (EU) 2021/2153 (here) of 6 August 2021 with regard to regulatory technical standards (“RTS”) specifying the criteria for subjecting certain investment firms to the requirements of the Capital Requirements Regulation. It enters into force and applies from 27 December 2021.
  • Commission Delegation Regulation (EU) 2021/2154 (here) of 13 August 2021 with regard to RTS specifying appropriate criteria to identify categories of staff whose professional activities have a material impact on the risk profile of an investment firm or of the assets that it manages. It enters into force and applies from 12 December 2021; and
  • Commission Delegation Regulation (EU) 2021/2155 (here) of 13 August 2021 with regard to RTS specifying the classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration. It enters into force and applies from 12 December 2021.

Investment Firms Regulation (ITS)

On 22 December 2021, Commission Implementing Regulation (EU) 2021/2284 (here) laying down implementing technical standards (“ITS”) on supervisory reporting and disclosure requirements for investment firms under the Investment Firms Regulation was published in the Official Journal of the EU and enters into force on 11 January 2022.

Investment Funds

AIFMD Q&A and UCITS Q&A

On 20 December 2021, the Central Bank of Ireland (the ‘CBI’) issued the 44th Edition of the AIFMD Q&A (here) and the 36th edition of the UCITS Q&A (here) (together, the “Q&As”).

The updated Q&As (which include new IDs 1151, 1152 and 1153 under the AIFMD Q&A and IDs 1105 and 1106 under the UCITS Q&A) clarify the CBI’s expectations in respect of:

  • arrangements involving a non-discretionary investment advisor (an “Advisor”) which provides services to a Qualifying Investor Alternative Investment Fund (“QIAIF”) whereby the Advisor receives a higher proportion of the fees than other service providers to the QIAIF. This update will be of particular interest to firms which intend launching an Investment Limited Partnership (“ILP”) in this jurisdiction. An ILP may be established as a QIAIF and often, in the case of certain private funds, will rely on the services provided by an Advisor; and
  • compliance with ESMA guidelines on performance fees in UCITS and certain types of alternative investment fund (“AIF”).

Further detail is set out in our briefing here.

Taxonomy Regulation – Technical Screening Criteria

On 9 December 2021, Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 was published in the Official Journal of the EU (here). The Delegated Regulation establishes the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to the climate change objectives set out in the Taxonomy Regulation and whether an economic activity causes no significant harm to any of the other environmental objectives contained therein.

Further detail is set out in our briefing here.

PRIIPS – Transitional Arrangements

On 20 December 2021, Regulation (EU) 2021/2259 (here) amending the PRIIPs Regulation as regards the extension of the transitional arrangement for management companies, investment companies and persons advising on, or selling, units of undertakings for collective investment in transferable securities (UCITS) and non-UCITS was published in the Official Journal of the EU. The Regulation extends the transitional arrangement (which exempts management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS from the obligation to draw up a key information document (“KID”)) from 31 December 2021 until 31 December 2022.

On 20 December 2021, Directive (EU) 2021/2261 (here) amending the UCITS Directive as regards the use of a KID by management companies of UCITS, was published in the Official Journal of the EU. The Directive confirms that a PRIIPS KID will satisfy the key investor information requirement set out in the UCITS Directive, ie, an investment company/management company should not be required to provide both a PRIIPS KID and a UCITS key information document to a retail investor. The Directive confirms that the measures contained therein shall apply from 1 January 2023.

PRIIPS RTS

On 20 December 2021, Commission Delegated Regulation (EU) 2021/2268 was published in the Official Journal of the EU (here). The Delegated Regulation amends the RTS laid down in Commission Delegated Regulation (EU) 2017/653 as regards the underpinning methodology and presentation of performance scenarios, the presentation of costs and the methodology for the calculation of summary cost indicators, the presentation and content of information on past performance and the presentation of costs by PRIIPS.

The Delegated Regulation shall apply from 1 July 2022 (other than Article 1, point 13 which applies from 1 January 2022).

Derivatives

Contractual Standards for Digital Asset Derivatives

On 14 December 2021, ISDA published its paper ‘Contractual Standards for Digital Asset Derivatives’ (here). The paper:

  • identifies technology and market-driven events that could disrupt the operation of a digital asset derivatives transaction and outlines a framework for dealing with these events;
  • examines how digital assets can be valued and what happens when a valuation cannot be obtained; and
  • analyses how digital assets might interact with existing ISDA documentation.

ISDA has also produced a supplement which sets out a granular, technical analysis of different ISDA product definitions and their potential applicability to digital asset derivatives (here).

Sustainability-Linked Derivatives

On 1 December 2021, ISDA issued its paper ‘Regulatory Considerations for Sustainability-Linked Derivatives’ (here).

ISDA’s paper sets out regulatory considerations for sustainability-linked derivatives (“SLDs”) from an EU, UK and US perspective and considers:

  • whether SLDs may be classified as swaps under US regulations and/or over-the-counter (OTC) derivatives under EU and/or UK regulations;
  • the impact of sustainability-linked cashflows on derivatives that would otherwise be excluded or exempt from certain requirements under those regulatory regimes; and
  • compliance issues for market participants to consider if SLDs are classified as swaps and/or OTC derivatives contracts.
Other

Selected Consultations, Discussion Papers, Speeches and Reports Published

EBA – Consultation on draft RTS on Credit Scoring and Loan Pricing Disclosure, Credit Risk Assessment and Risk Management Requirements for Crowdfunding Service Providers under Article 19(7) Regulation (EU) 2020/1503 (here). Deadline for comment is 8 March 2022.

EBA - Report assessing the Application of the Guidelines on the Remuneration of Sales Staff (here).

EBA – Consultation on draft RTS on the Specific Liquidity Measurement for Investment Firms under Article 42(6) of Directive (EU) 2019/2034 (here). Deadline for comment is 10 March 2022.

EBA - Draft Guidelines on Liquidity Requirements Exemption for Investment Firms under Article 43(4) of Regulation (EU) 2019/2033 (here). Deadline for comment is 10 March 2022.

EBA - Final Report on draft RTS with regard to specifying the Calculation of Specific Credit Risk Adjustments under the Capital Requirements Regulation (here).

EBA - Final Report on Guidelines on the Characteristics of a Risk‐Based Approach to Anti‐Money Laundering and Terrorist Financing Supervision, and the Steps to be taken when Conducting Supervision on a Risk‐Sensitive Basis under Article 48(10) of Directive (EU) 2015/849 (amending the Joint Guidelines ESAs 2016 72) (here).

EBA - Final Guidelines on Cooperation and Information Exchange between Prudential Supervisors, AML/CFT Supervisors and Financial Intelligence Units under Directive 2013/36/EU (here).

EBA - Final Report on Guidelines on the Delineation and Reporting of Available Financial Means of Deposit Guarantee Schemes (here).

EBA - Final Report on Draft RTS on the Reclassification of Investment Firms as Credit Institutions in accordance with Article 8a (6)(b) of Directive 2013/36/EU (here).

EBA – Final Report on Draft ITS on Supervisory Reporting Requirements, amending Commission Implementing Regulation (EU) 2021/451 regarding COREP, Asset Encumbrance, ALMM and G-SII reporting (here).

EBA - Consultation on draft ITS amending Implementing Regulation (EU) 2016/1801 on the Mapping of ECAIs’ Credit Assessments for Securitisation in accordance with Regulation (EU) No 575/2013 (here). Deadline for comments is 31 January 2022.

EBA - Consultation on draft ITS which amend Commission Implementing Regulation (EU) 2016/2070 in relation to Benchmarking of Internal Models (here). Deadline for comments is 18 February 2022.

EBA - Final Report on draft RTS under Article 9a (1) and (3) of Regulation (EU) No 1093/2010 setting up an AML/CFT Central Database and specifying the Materiality of Weaknesses, the Type of Information Collected, the Practical Implementation of the Information Collection and the Analysis and Dissemination of the Information contained therein (here).

EBA - Final Report on draft RTS on the Provision of Information for the Effective Monitoring of the Credit Institution Thresholds under Article 55(5) of Regulation (EU) 2019/2033 (here).

EBA - Consultation on draft RTS specifying and, where relevant, calibrating the Performance-Related Triggers pursuant to Article 26c(5) of Regulation (EU) 2017/2402 as amended by Regulation (EU) 2021/557 (here). Deadline for comments is 28 February 2022

EIOPA - Consultation on the Application Guidance on Climate Change Risk Scenarios in ORSA (here). Deadline for submissions is Thursday 10 February 2022.

EIOPA - Revised Guidelines on use of Legal Entity Identifiers (here).

EIOPA – Retail Risk Indicators: Methodology Update (here).

EIOPA - Sustainable Finance Activities for 2022-24 (here).

EIOPA - Digital Transformation Strategy - Promoting Sound Progress for the Benefit of the European Union Economy, its Citizens and Businesses (here).

EIOPA - Second Annual Report on Administrative Sanctions and Other Measures imposed under the Insurance Distribution Directive (IDD) (2020) (here).

EIOPA - 2021 Insurance Stress Test (here).

ESMA – Supervisory approach on the implementation of the CSDR buy-in provisions (here).

ESRB - Report of the Analytical Task Force on the overlap between capital buffers and minimum requirements (here).

ISDA - Fallbacks Supplement and Protocol for non-LIBOR Contracts (here).

ISDA - Updated OTC Derivatives Compliance Calendar (here).

SRB - Solvent Wind-Down of Trading Books, Guidance for Banks 2022 (here).

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  • A Rescue Process for Small and Micro Companies: Sounds Good in Theory but will it Work in Practice? (here)
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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.

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