Financial Services Regulatory Update – February 2024 Round Up

CBI to commission Review of F&P Regime following IFSAT Decision

On 14 February 2024, the Central Bank of Ireland (“CBI”) issued a public statement (here) announcing that it has decided to commission an independent review of its fitness and probity (“F&P”) regime, following a Decision (here) by the Irish Financial Services Appeals Tribunal (“IFSAT”) which identified “fundamental procedural flaws” in relation to the CBI’s handling of specific applications to perform pre-approval controlled functions (“PCFs”).

According to the IFSAT Decision, which concerned applications for PCF positions brought by an investment fund, the procedures adopted by the CBI at various stages of the approval process failed to comply with requirements of natural and constitutional justice, including the necessity for fair notice, the duty to give reasons, and observance of the principle of audi alterem partem. In the light of its findings, IFSAT has remitted the particular matter to the CBI for reconsideration.

In its public statement, the CBI confirms that it will reassess those particular PCF applications, and that it will commission a wider review of the approval process under the F&P regime.

CBI Information Note regarding Amendment to PCF-16

On 14 February 2024, the CBI issued an information note (here) regarding an amendment to the F&P regime, introduced by S.I. No. 663 of 2023 (here), in relation to PCF-16 concerning branch managers of branches established outside the State. Further to its consultation (CP153) (here) on the Individual Accountability Framework (the “IAF”) and the resulting feedback statement (here), S.I. No. 663 of 2023 introduces a materiality threshold; PCF-16 now applies to managers of branches established outside the State only where the business arising from the branch amounts to 5% or more of, as applicable, the assets or revenues or gross written premium of the regulated financial service provider.

For more information on the IAF, see our IAF hub (here).

ECON Report on Data Sharing Proposal

On 2 February 2024, the European Parliament’s Economic and Monetary Affairs Committee (“ECON”) published a report (here) on the proposal for an EU Regulation amending the ESRB Regulation, the EBA Regulation, the EIOPA Regulation, the ESMA Regulation, and the InvestEU Regulation, as regards certain reporting requirements in the fields of financial services and investment support.

The new rules aim to streamline reporting obligations and to reduce the administrative burden on EU financial market participants, pursuant to the European Commission’s initiative (see here) to rationalise EU reporting requirements without undermining related policy objectives.

Delay in Adoption of Sector-Specific ESRS

On 7 February 2024, the Council of the EU and the European Parliament announced (here) that they have reached a provisional agreement delaying, by two years, the date of adoption of the sector-specific European Sustainability Reporting Standards (“ESRS”), for use by companies subject to the Corporate Sustainability Reporting Directive (“CSRD”), from 30 June 2024 to 30 June 2026.

According to the EU, the delay will allow in-scope entities to focus on ensuring compliance with the first set of general ESRS, which came into application in January 2024, in respect of financial years beginning on or after 1 January 2024 (see our briefing here).

Political Agreement on Proposed Regulation on ESG Ratings Providers

On 5 February 2024, the Council of the EU and the European Parliament reached a provisional political agreement on a proposal for an EU Regulation on ESG ratings activities (final compromise text here).

The new rules aim to strengthen reliability and comparability in the ESG ratings market, by improving the transparency and integrity of the operations of ESG ratings providers. Under the proposed rules, ESG ratings providers would need to be authorised and supervised by ESMA, and would be required to comply with certain transparency requirements.

Commencement of Certain Provisions of the Credit Union (Amendment) Act 2023

The Minister for Finance has signed S.I. No. 57 of 2024 (here) commencing certain provisions of the Credit Union (Amendment) Act 2023, from 22 February 2024 and 8 April 2024, respectively.  The Act amends the Credit Union Act 1997 to provide for an expansion of credit union services in Ireland, implementing the outcomes the Department of Finance’s review of the policy framework for credit unions (see here). Among related matters, the Act:

• provides for the establishment of corporate credit unions in Ireland;
• amends the requirements and qualifications for membership of a credit union;
• alters the scope of permitted investments by credit unions;
• provides for the setting of maximum interest rates, by the Minister for Finance, on loans offered by credit unions;
• allows a credit union to refer its members to another credit union, and to participate in the loans of other credit unions; and
• provides for changes to the governance arrangements of credit unions.

The expansion of credit union services in Ireland is particularly significant in the context of the reduction in size of Ireland’s traditional retail banking sector, which has occurred due to prominent withdrawals from the Irish market.

Updated Central Credit Register Guidance

On 13 February 2024, the CBI issued CIP Circular 01/24, confirming that an updated version of the Central Credit Register (“CCR”) Handbook is expected to be published in March 2024. The updated version will outline, among other changes, reporting requirements relating to the submission of guarantor data to the CCR. Submission of guarantor data will apply on a prospective basis only, for qualifying credit applications made, or credit agreements entered into, on or after 1 February 2025.

Consultation on EU Banking Package Items

On 20 February 2024, the European Banking Authority (“EBA”) launched the following consultations on technical standards developed in accordance with EBA mandates under the Capital Requirements Regulation (“CRR”), in line with the timeline for implementation of the forthcoming EU banking package (see roadmap here):

• a public consultation (here) on draft technical standards amending Pillar 3 disclosures and supervisory reporting requirements for operational risk (consultation runs until 30 April 2024); and
• a public consultation (here) on draft technical standards that aim to clarify the composition of the new business indicator at the heart of the operational risk capital requirements calculation (consultation runs until 21 May 2024).

EBA consults on Draft RTS on Residual Risk Add-on Hedges under FRTB

On 1 February 2024, the EBA launched a consultation (here) on its draft regulatory technical standards (“RTS”) on the conditions for determining whether an instrument attracting residual risk acts as a hedge.

The CRR introduced a provision in the residual risk add-on (“RRAO”) framework providing for an exemption from the RRAO charge for instruments bearing residual risks that are also taken as hedge instruments bearing residual risks. The EBA’s draft RTS have been made for the purposes of specifying when an instrument qualifies as a hedge to avail of the exemption, and when it does not.

The EBA’s consultation runs until 3 May 2024.

Technical Information for Solvency II Calculations

On 7 February 2024, Implementing Regulation (EU) 2024/456 (here) was published in the Official Journal of the EU. The Implementing Regulation lays down technical information for the calculation, by insurance and reinsurance undertakings, of technical provisions and basic own funds, for reporting under the Solvency II Directive, with reference dates of 31 December 2023 to 30 March 2024.

Council of the EU adopts Texts amending MiFIR/MiFID II as regards Data Access and Transparency

On 20 February 2024, the Council of the EU adopted the following legislative texts:

• a Regulation (here) amending the Markets in Financial Instruments Regulation (“MiFIR”) as regards enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising the trading obligations and prohibiting receiving payment for order flow; and
• a Directive (here) amending the Markets in Financial Instruments Directive (“MiFID II”).

Changes to the MiFIR/MiFID II regime aim to reduce information asymmetries between market participants, and to improve orderly trading in commodity derivatives concerning energy and food. The new rules impose a general ban in the EU on the practice of receiving payments for forwarding client orders for execution (payment for order flows). EU Member States in which the practice already exists may allow investment firms within their jurisdictions to be exempt from the ban, provided that payment is only provided in respect of clients in that Member State. However, the practice must be phased out on an EU-wide basis by 30 June 2026.

Following adoption, the finalised texts await publication in the Official Journal of the EU, whereupon they will enter into force 20 days later. The Regulation amending MiFIR will apply immediately in all EU countries; Member States will have 18 months to transpose the provisions of the Directive amending MiFID II, once it has entered into force.

Deprioritisation of Supervisory Action on RTS 28 Reporting Obligation

On 13 February 2024, ESMA issued a public statement (here) providing clarity in relation to the obligation to publish reports on “best execution” in accordance with Articles 27(3) and 27(6) of MiFID II and Delegated Regulation (EU) 2017/576 (“RTS 28”).

ESMA’s public statement has been issued in the context of the changes to the MiFID II framework as regards market data access and transparency (see above). Once in application across the EU, the revised MiFID framework will no longer require investment firms to report detailed information on execution venues and execution quality, through RTS 28 reports. Member States, however, will have 18 months to transpose the Directive amending MiFID II into national law, once it has entered into force. Thus, investment firms will remain obliged to report under Articles 27(3) and 27(6) of MiFID II, via RTS 28 reports, in 2024 and until the date of transposition of the amending Directive in EU Member States.

From 13 February 2024, ESMA expects NCAs not to prioritise supervisory actions towards investment firms relating to the periodic RTS 28 reporting obligation, pending the transposition into national legislation in all EU Member States of the Directive amending MiFID II. That said, ESMA’s statement stresses the importance of the best execution requirements under both the current and the revised MiFID framework. Investment firms remain obliged to adhere strictly to best execution requirements; NCAs, beyond the contents of ESMA’s statement, will continue to supervise compliance.

Adoption of AIFMD II

On 26 February 2024, the Council of the EU announced (here) that it has adopted the proposal known as “AIFMD II” (adopted text here) that amends the Alternative Investment Fund Managers Directive  (“AIFMD”) and the UCITS Directive  as regards delegation arrangements, liquidity risk management, supervisory reporting and the provision of depositary and custody services. The European Parliament adopted the proposal on 7 February 2024 (see here). One of the most significant enhancements under AIFMD II is the introduction of a pan-European loan origination regime for alternative investment funds (“AIFs”).

The Directive introduces targeted amendments to AIFMD and consequential amendments to the UCITS Directive. Following its formal approval by the EU co-legislators, AIFMD II will be published in the Official Journal of the EU and enter into force 20 days later. It is expected that EU Member States will transpose AIFMD II in the main from 2026, with the majority of provisions required to be transposed by 24 months after the date of entry into force.

EU adopts 13th Package of Sanctions against Russia

On 23 February 2024, the Council of the EU announced (here) that it has adopted a 13th package of sanctions against Russia, in view of Russia’s ongoing war of aggression in Ukraine. This set of EU sanctions focuses on further limiting Russia's access to military technologies, and on listing additional companies and individuals involved in actions undermining or threatening the territorial integrity, sovereignty, and independence of Ukraine.

The relevant legal acts concerning both economic and individual sanctions have now been published in the Official Journal of the EU, and include the following:

• Council Regulation (EU) 2024/745 (here);
• Council Decision (CFSP) 2024/746 (here);
• Council Decision (CFSP) 2024/747 (here); and
• Council Implementing Regulation (EU) 2024/753 (here).

Provisional Political Agreement on EMIR 3

On 7 February 2024, the Council of the EU and the European Parliament reached a provisional political agreement (see Council press release here and Parliament press release here) on the proposed Regulation (final compromise text here) and the proposed Directive (final compromise text here) amending the European Market Infrastructure Regulation (“EMIR”) as regards measures to mitigate excessive exposures to third-country central counterparties (“TC-CCPs”) and to improve the efficiency of EU clearing markets (reform proposals together known as "EMIR 3").

The reforms’ stated aims are to make the EU clearing landscape more attractive and resilient, to support the EU’s open strategic autonomy, and to preserve EU financial stability.

Notably, the provisional agreement contains an active account requirement (“AAR”). The AAR will require certain financial and non-financial counterparties to have an account at an EU CCP, which includes operational elements such as the ability to handle the counterparty’s transactions at short notice, and certain activity elements.

The AAR, which has been the subject of industry criticism (see here), entails a number of requirements, including requirements for in-scope counterparties above a certain threshold to clear trades in the most relevant sub-categories of derivatives of substantial systemic importance, defined in terms of class of derivative, size and maturity.

The European Parliament’s press release (linked above) notes that in-scope counterparties should “regularly clear through [an EU CCP] at least five trades in each of the most relevant subcategories per class of derivative contract, defined by ESMA”. This reflects a change to the Council’s previously proposed requirement to clear only one trade in each such subcategory.

Other important aspects of the provisional agreement include:

• a permanent exemption from regulatory margin requirements for non-centrally cleared single-stock equity options and equity index options (see our recent briefing on the current position in this regard here);
• an exemption from the clearing obligation for transactions resulting from post-trade risk reduction exercises;
• an exemption from the clearing obligation for FCs or NFCs that would otherwise be subject to that obligation where transacting with a third-country pension scheme that meets certain conditions;
• amendment of the NFC clearing threshold methodology so that it is determined by reference only to trades that are centrally cleared with an EU authorised or recognised CCP, with the hedging exemption continuing to be determined by reference to risk reduction effects at group level;
• retention of the NFC intragroup reporting obligation exemption and introduction of a requirement that the EU parent undertaking of any NFC+ relying on this exemption make certain weekly reports on the NFC+’s positions to the parent’s EMIR national competent authority;
• a 4 month implementation period for an NFC becoming subject to the EMIR margin requirement and daily mark-to-market requirement for the first time, to facilitate establishment of relevant arrangements;
• restriction of the range of counterparties to which initial margin model validation requirements will apply, with the EBA being tasked with operating as a central validator of industry-wide, pro-forma margin models (e.g. ISDA SIMM);
• replacement of equivalence pre-conditions to the availability of the intragroup transaction exemptions from clearing and bilateral margining requirements, where one party is established in a third country, with mechanisms for excluding certain third countries from the ambit of the exemptions;
• removal of equivalence as a pre-condition to the NFC- exemption from reporting OTC derivatives; and
• various steps to enhance the stability of EU CCPs and improving their attractiveness, including:
  • introduction of an accelerated procedure for the approval of additional CCP services or activities that do not significantly increase risks for the CCP;
  • introduction of a CCP right to accept, subject to concentration limits, fully uncollateralised bank guarantees to cover exposure to NFCs;
  • expansion of CCP and clearing member transparency requirements;
  • imposition of new reporting obligations on EU authorised CCPs;
  • imposition of restrictions on a CCP’s ability:
    • to accept an NFC as a clearing member and on an NFC’s ability to provide client clearing services;
    • save pursuant to regulated interoperability arrangements or the conduct of EMIR compliant investment policies, to be a direct or indirect clearing member or client of another CCP or to accept another CCP or clearing house as a direct or indirect clearing member of it (with a 2 year period from entry into force of EMIR 3 to phase out any non-compliant arrangements); and
• imposition of an obligation on CCPs to revise margin levels continuously, taking into account any potentially procyclical effects of such revisions, to ensure that they reflect market conditions and to consider to the extent possible the potential implications of intraday margin collections and payments on the liquidity position of their participants and on the resilience of the CCP.

EMIR 3 will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union, with most provisions expressed to apply from its entry into force, save for certain provisions amending the clearing thresholds, which are expressed to apply from entry into force of related regulatory technical standards.  EMIR 3 also anticipates that additional detail will be provided in respect of other matters in regulatory technical standards, implementing technical standards and regulatory guidelines.

For information on the original EMIR 3 proposal, see our earlier briefing here.

Joint Board of Appeal of the ESAs upholds ESMA Decision regarding UAE-based CCP

On 6 February 2024, the Joint Board of Appeal of the ESAs unanimously decided (see here) to dismiss the appeal brought by Dubai Commodities Clearing Corporation (“DCCC”), a UAE-based CCP, in respect of ESMA’s decision to withdraw recognition of DCCC as a Tier 1 TC-CCP. ESMA’s decision to withdraw recognition followed the inclusion of the UAE in the European Commission’s list of jurisdictions with strategic deficiencies in their national anti-money laundering and countering the financing of terrorism (“AML/CFT”) regimes.

DCCC did not challenge ESMA’s decision to withdraw recognition as such; under EMIR, ESMA was required to withdraw recognition following the addition of the UAE to the list of jurisdictions with AML/CFT deficiencies. Rather, DCCC sought an extension of the adaptation period that had been provided for by ESMA. Under Article 25p of EMIR, in determining the date of entry into effect of decisions, ESMA “shall endeavour to minimise potential market disruption and provide for an appropriate adaptation period which shall not exceed two years”. DCCC sought an extension in the adaptation period of three months that had been provided for by ESMA, requesting that the period be extended to two years.

The Joint Board of Appeal of the ESAs could not find any evidence that the adaptation period provided for by ESMA was disproportionate. Although a longer adaptation period might have alleviated direct organisational and financial consequences for DCCC, according to the ESAs’ Joint Board of Appeal, it would also increase overall risk exposure in the market.

Accordingly, the Joint Board of Appeal of the ESAs dismissed the appeal and rendered ESMA’s prior decision fully operational.

Business Reorganisation Plans under CCPRRR

On 7 February 2024, Delegated Regulation (EU) 2024/450 (here) containing RTS on business reorganisation plans under the CCP Recovery and Resolution Regulation (“CCPRRR”) was published in the Official Journal of the EU. The Delegated Regulation entered into force on 27 February 2024.

In addition, on 9 February 2024, ESMA published guidelines (here) providing clarity on the key elements of the resolution plan that should be included in the summary referred to in Article 12(7) of the CCPRRR, and disclosed to CCPs by resolution authorities in accordance with Article 12(8) of the CCPRRR. ESMA’s guidelines apply to resolution authorities of CCPs from two months after publication.

ESMA publishes Guidelines under CCPRRR

On 2 February 2024, ESMA published the official translations, including English language versions, of the following guidelines:

• Guidelines on written arrangements and procedures for the functioning of resolution colleges (here); and
• Guidelines on the types and content of the provisions of cooperation arrangements under Article 79 of the CCPRRR (here).

Both sets of guidelines apply from 2 April 2024.

In addition, on 9 February 2024, ESMA published Guidelines (here) on the assessment of resolvability under Article 15(5) of the CCPRRR. Those guidelines apply to resolution authorities from 9 April 2024.

European Commission adopts Delegated Regulations supplementing MiCA

On 22 February 2024, the European Commission adopted the following Delegated Regulations supplementing the Markets in Crypto-Assets Regulation (“MiCA”):

• a Delegated Regulation specifying the fees charged by the EBA to issuers of significant asset-referenced tokens (“ARTs”) and issuers of significant e-money tokens (“EMTs”) (here);
• a Delegated Regulation specifying the procedural rules for the exercise of the power to impose fines or periodic penalty payments by the EBA on issuers of significant ARTs and issuers of significant EMTs (here);
• a Delegated Regulation specifying certain criteria for classifying ARTs and EMTs as “significant” (here); and
• a Delegated Regulation specifying the criteria and factors to be taken into account by ESMA, the EBA and competent authorities in relation to their intervention powers (here).

The Delegated Regulations will now be scrutinised by the European Parliament and the Council of the EU, in accordance with the standard EU legislative procedure.

European Commission adopts Delegated Regulations supplementing DORA

On 22 February 2024, the European Commission adopted the following Delegated Regulations supplementing the Digital Operational Resilience Act (“DORA”):

• Delegated Regulation specifying the criteria for the designation of ICT third-party service providers as critical for financial entities (here); and
• Delegated Regulation determining the amount of the oversight fees to be charged by the lead overseer to critical ICT third-party service providers and the way in which those fees are to be paid (here).

The Delegated Regulations will now be scrutinised by the European Parliament and the Council of the EU, in accordance with the standard EU legislative procedure.

Frankfurt to host EU Anti-Money Laundering Authority

On 22 February 2024, it was announced that Frankfurt has been selected as the seat of the EU’s Anti-Money Laundering Authority (the “AMLA”), following a joint vote by representatives of the European Parliament and the Council of the EU. Nine Member States, including Ireland, had submitted bids to host AMLA.

The location of the seat will be included in the AMLA Regulation (agreed text here) and formally adopted as part of the text. AMLA is expected to begin operations in Frankfurt in mid-2025.

The AMLA Regulation is part of a wider suite of EU measures designed to combat money laundering and terrorist financing. Proposed EU measures include a sixth Anti-Money Laundering Directive (“AMLD6”) (final compromise text here); and a new Anti-Money Laundering Regulation (final compromise text here). The Council of the EU and the European Parliament reached a provisional political agreement on those items on 18 January 2024 (see here).

RTS relating to EU AML/CFT Database

On 16 February 2024, Delegated Regulation (EU) 2024/595 (here) was published in the Official Journal of the EU. The Delegated Regulation contains RTS relating to the establishment of EuReCa, the EU’s central database for AML/CFT purposes, which was launched on 31 January 2022. The RTS specify detail regarding the materiality of weaknesses, the collection of information, and the analysis and dissemination of that information.

Adoption of EU Regulation on Instant Payments

On 26 February 2024, the Council of the EU announced via press release (here) that it has adopted a Regulation on instant payments (adopted text here), which amends the Single Euro Payments Area (“SEPA”) Regulation and the Cross-Border Payments Regulation, to add specific provisions facilitating instant credit transfers in euro.

The Regulation aims to increase the uptake of instant credit transfers in euro, by making transfers affordable, universally available, reliable, and by removing friction in processing. Key provisions include:

• an obligation for EU payment service providers (“PSPs”), already offering credit transfers in euro, to offer an “instant” version;
• an obligation for PSPs to ensure that the price charged for instant payments in euro does not exceed the price charged for traditional, non-instant credit transfers in euro;
• an obligation for PSPs to verify the match between the bank account number (IBAN) and the name of the beneficiary provided by the payer, to alert payers of possible mistakes or fraud before the payment is made; and
• a procedure whereby PSPs would verify, at least daily, their clients against EU sanctions lists (as opposed to screening all transactions on an individual basis).

Following formal adoption by the Council of the EU, and its earlier adoption by the European Parliament on 7 February 2024 (see here), the Regulation awaits publication in the Official Journal of the EU. The new rules will come into force after a transitional period. The transition period will be shorter in duration in the euro area, as compared to a longer transition period for EU Member States whose currency is not the euro.

RTS on the Homogeneity of Underlying Exposures in STS Securitisations

On 15 February 2024, Delegated Regulation (EU) 2024/584 (here) was published in the Official Journal of the EU. The Delegated Regulation amends RTS supplementing the Securitisation Regulation as regards the homogeneity of the underlying exposures in simple, transparent and standardised (“STS”) securitisations.

The Delegated Regulation enters into force on the twentieth day following that of its publication.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Basel Committee on Banking Supervision (“BCBS”), BIS Committee on Payments and Market Infrastructures (“CPMI”) and the International Organization of Securities Commissions (“IOSCO”) – Streamlining Variation Margin in Centrally Cleared Markets: Examples of Effective Practices (here)

CBI – “Innovation and Trust – Regulating in the interests of us all” (Remarks by CBI Deputy Governor Sharon Donnery) (here)

CBI – Regulatory and Supervisory Outlook: February 2024 (here)

Department of Enterprise, Trade and Employment – Inward Investment Screening: Draft Guidance for Stakeholders and Investors (here)

Department of Finance – Responses to Public Consultation on Future of the Bank Levy (here)

EBA – Peer Review Follow-Up Report on Prudential Assessment of the Acquisition of Qualifying Holdings (here)

ECB – Revised ECB Guide to Internal Models (here); FAQs available here

ESAs – Report on 2023 Stocktaking of BigTech Direct Financial Services Provision in the EU (here)

ESMA – Final Report on Fees Charged to Tier 1 TC-CCPs under EMIR (here)

ESMA – Spotlight on Markets: January 2024 (here)

European Commission – 2024 Annual Single Market and Competitiveness Report (here)

International Capital Markets Association (“ICMA”) – Transition Finance in the Debt Capital Market (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review: February 2024 (here)

Single Resolution Board (“SRB”) – SRM Vision 2024 (here)

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