Financial Services Regulatory Update – January 2024 Round Up

CBI Regulations on Certification Requirements

In accordance with changes to the Central Bank of Ireland’s (“CBI’s”) Fitness and Probity (“F&P”) regime, introduced by the Central Bank (Individual Accountability Framework) Act 2023 (the “IAF Act”), the Governor of the CBI has signed Regulations (S.I. No. 2 of 2024) (here) containing enhanced certification requirements.

The annual certification obligation, which is an aspect of the modified F&P regime, prohibits regulated firms from allowing a person to perform a controlled function (“CF“) or a pre-approval controlled function (“PCF”), unless a certificate of compliance with F&P standards is in force.

From 1 January 2025, and annually thereafter, a firm must submit to the CBI confirmation of compliance with certification requirements. A certificate of compliance is valid for 12 months.

To reflect recent regulatory changes, the CBI has also made available updated consolidated lists in respect of: (i) CFs (here); and (ii) PCFs (here).

For a detailed overview of the IAF and its implementation, see our IAF hub (here).

Proposed FDI Screening Regulation

On 24 January 2024, the European Commission published a proposal (here) for a new Regulation on the screening of foreign investments in the EU (the “proposed FDI Screening Regulation”), which would repeal and replace the existing FDI Screening Regulation.

Key aims of the European Commission’s proposal include:

• ensuring that all EU Member States have a foreign investment screening mechanism in place, by updating rules on the harmonisation of national screening mechanisms and assessment criteria;
• identifying minimum sectoral scope where EU Member States must screen foreign investments; and
• extending EU screening to investments by EU investors that are ultimately controlled by individuals or businesses from non-EU jurisdictions.

A transitional period of 15 months is proposed to apply, following entry into force of the prospective FDI Screening Regulation. After this transitional period, the new FDI screening regime would apply and the existing FDI Screening Regulation would be repealed.

The EU FDI screening regime is currently provided for under Regulation (EU) 2019/452, which is transposed into Irish law by the Screening of Third Country Transactions Act 2023 (pending commencement). For more information on the Irish FDI regime, see our briefing here.

For more information on proposed EU level changes, see our briefing here.

Consultation on Draft ITS regarding ESAP Functionalities

On 8 January 2024, the European Supervisory Authorities (“ESAs”) published a consultation paper (here) containing draft implementing technical standards (“ITS”) regarding the tasks of collection bodies and the functionalities of the European Single Access Point (“ESAP”). The draft ITS seek to enable future users of the ESAP to be able to effectively harness financial and sustainability information, which is to be made available on an EU-wide and centralised basis via the ESAP.

The legislative package relating to the establishment of the ESAP has already been published in the Official Journal of the EU. The ESAP is expected to become operational in July 2026 and will start publishing information no later than July 2027.

This consultation by the ESAs runs until 8 March 2024. Following the consultation, the ESAs will consider feedback received and submit finalised draft ITS to the European Commission by 10 September 2024.

ECB Climate and Nature Plan 2024-25

On 30 January 2024, the European Central Bank (“ECB”) published (here) its climate and nature plan for 2024 and 2025, identifying three focus areas that will guide supervisory activities:

1. the implications of the green transition;
2. the physical impact of climate change; and
3. the risk that nature loss and degradation pose to the economy.

The ECB has agreed the following measures:

• The ECB will intensify its work on the effects of transition funding, green investment needs, transition plans, and how the green transition affects aspects of our economy such as labour, productivity and growth; the results will inform the ECB’s macro modelling framework. The ECB will explore the case for further changes to its monetary policy instruments and portfolios in view of the green transition.
• The ECB will deepen its analysis of the impact of extreme weather events on inflation and the financial system, and how this can be integrated into climate scenarios and macroeconomic projections. It will assess the impact of adaptation to climate change on the economy and financial sector, including related investment needs and the insurance protection gap.
• As regards nature loss and degradation, the ECB will analyse the close link with climate change, and the associated economic and financial implications.
• With regard to its own operations, the ECB will launch its eighth environmental management programme to support achieving 2030 carbon reduction targets. Together with the entire Eurosystem, the ECB’s work will include eco-design principles for the future euro banknote series and incorporate environmental footprint considerations into the design of the digital euro, which is in its preparation phase.

Draft EBA Guidelines on Managing ESG-related Risks

On 18 January 2024, the European Banking Authority (“EBA”) launched a public consultation (here) on draft guidelines, published in accordance with Article 87a(5) of the Capital Requirements Directive  (“CRD IV”), on the management of ESG-related risks.

The EBA’s draft guidelines set out requirements for credit institutions relating to the identification, measurement, management and monitoring of ESG risks, including by adopting plans aimed at addressing the risks arising from the transition towards an EU climate-neutral economy.

The EBA’s consultation runs until 18 April 2024.

Alignment of European Banking Sector with EU Climate Objectives

On 23 January 2024, the ECB published a report (here), entitled “Risks from misalignment of banks’ financing with the EU climate objectives”, assessing the alignment of the European banking sector with EU climate ambitions and quantifying the most pronounced ESG-related transition risks in the credit portfolio of the banking sector.

EFRAG consults on Draft Implementation Guidance regarding the ESRS; Entry into Application of the ESRS

Over the course of January 2024, the European Financial Reporting Advisory Group (“EFRAG”) consulted (here) on its first three draft implementation guidance documents relating to the European Sustainability Reporting Standards (“ESRS”).

The ESRS are to be used by all EU companies subject to the requirements of the Corporate Sustainability Reporting Directive (“CSRD”). Delegated Regulation (EU) 2023/2772 (here), containing the first set of ESRS, was recently published in the EU’s Official Journal. That Delegated Regulation came into application on 1 January 2024, and applies in respect of financial years beginning on or after 1 January 2024.

EFRAG’s consultations on the draft implementation guidance ran until 2 February 2024.

For more information on the ESRS, see our briefing here.

EFRAG consults on Exposure Draft ESRS for SMEs

On 22 January 2024, EFRAG launched a public consultation (here) on the exposure draft ESRS for listed SMEs, in accordance with their obligations under CSRD, as well as the exposure draft voluntary reporting standards for non-listed SMEs.

EFRAG’s consultations run until 21 May 2024.

Publication of General Scheme of Access to Cash Bill 2024

On 23 January 2024, the Minister for Finance published the General Scheme of the Access to Cash Bill 2024 (here), following approval by Government.

The Bill requires compliance with regional criteria that set the minimum numbers of ATMs per 100,000 people, and the proportion within 10km of an ATM and a cash service point. Responsibility for compliance rests with designated entities; those are in the first instance the three main retail banks.

The Bill will also regulate ATMs, with the objective of improving operational standards and ensuring good customer service.

In drafting the General Scheme of the Bill, the Department of Finance engaged with the CBI and key players in the cash system, to establish what the appropriate levels of access to cash are to ensure that any further evolution of the cash infrastructure will be managed in a fair, orderly and transparent manner for stakeholders.

CBI Client Asset Requirements

As of 1 January 2024, revised CBI Client Asset Requirements (“CAR”), contained in the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2023, became applicable to credit institutions.

Further CBI guidance is available here.

Consultation on EBA’s 2025 Benchmarking Exercise

On 18 January 2024, the EBA published a consultation paper (here) amending Implementing Regulation (EU) 2016/2070 on the benchmarking of credit risk, market risk and IFRS9 models, for the EBA’s 2025 benchmarking exercise. The most significant change is in regard to the market risk framework; the EBA is proposing brand new templates for the collection of the internal model approach (“IMA”) risk measures under the fundamental review of the trading book (“FRTB”). Minor changes regarding credit risk are being proposed.

The EBA’s consultation runs until 27 March 2024.

ECB Cyber Resilience Stress Tests

On 3 January 2024, the ECB announced (here) that it will, over the course of 2024, conduct a stress testing exercise as regards the ability of 109 directly supervised banks to recover from a hypothetical cyber-attack.

RTS on the Calculation of the Stress Scenario Risk Measure under CRR

On 29 January 2024, Delegated Regulation (EU) 2024/397 (here) was published in the Official Journal of the EU. The Delegated Regulation contains regulatory technical standards (“RTS”) on the calculation of the stress scenario risk measure pursuant to Article 325bk(3) of the Capital Requirements Regulation (“CRR”), as amended by the CRR II.

The Delegated Regulation enters into force on 18 February 2024.

Draft Technical Standards on Functioning of Supervisory Colleges

On 9 January 2024, the EBA published a final report (here) containing draft RTS and draft ITS on the functioning of supervisory colleges under CRD IV.

The final draft standards are to be submitted to the European Commission for endorsement.

Revised EBA Reporting Requirements for Market Risk

On 11 January 2024, the EBA published (here) draft ITS as regards reporting requirements for market risk. As the implementation of the FRTB in the EU approaches, the EBA’s final draft ITS set out the frame and details for expanding the FRTB reporting framework, in accordance with changes introduced by CRR II.

The revised reporting requirements, excluding the reporting on reclassifications, are expected to apply, for the first time, for reporting as of the reference date of 31 March 2025.

EBA consults on Draft Amending RTS on Prudent Valuation under CRR

On 16 January 2024, the EBA published a consultation paper (here) on targeted amendments to the RTS on prudent valuation under Article 105(14) of the CRR.

The proposed amendments aim to promote a more harmonised application, to reduce the observed variability of additional value adjustments (“AVAs”) under the core approach, and to set the rules for the application of the prudent valuation framework in extraordinary circumstances.

The EBA’s consultation runs until 16 April 2024.

Final Texts reflecting EU Political Agreement on Solvency II Reforms and the IRRD Proposal

On 25 January 2024, the Council of the EU published notes detailing:

• the final compromise text for the proposed Directive amending the Solvency II Directive as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision (here); and
• the final compromise text for the proposed Insurance Recovery and Resolution Directive (“IRRD”) establishing a framework for the recovery and resolution of insurance and reinsurance undertakings (here).

The texts reflect the EU political agreement that was reached on 14 December 2023 (see here).

According to the EU institutions, the amendments to Solvency II will free up capital which insurance firms have had to keep in reserve, allowing the sector to channel more funds towards long-term investments, particularly green and digital investment. Currently, the cost-of-capital rate, which determines reserve levels, is assumed to be equal to 6%. The agreement reached would bring the rate down to 4.75%.

As regards the IRRD, the proposed Directive would set up a recovery and resolution framework at the EU level, similar to that existing for banks, to help ensure that failing insurance undertakings can be recovered or wound down. EU Member States would be required to establish national insurance resolution authorities, either as structures within existing competent authorities or as new legal entities.

The deadline for EU Member States to implement the changes into national law is expected to be 1 January 2026.

EIOPA Report on the Application of the IDD

On 15 January 2024, the European Insurance and Occupational Pensions Authority (“EIOPA”) published its second report (here) on the application of the Insurance Distribution Directive (“IDD”), as required under Article 41(4) of the IDD.

The report’s main findings are as follows:

• the number of registered insurance intermediaries decreased over the last two years;
• quality of advice and selling methods have improved in some EU Member States, as a result of measures adopted by NCAs. However, mystery shopping exercises have revealed shortcomings in certain Member States; NCAs highlighted instances where the demands and needs of customers were not properly taken into account by insurance distributors in the sales process;
• evidence suggests there are challenges associated with new sustainability disclosure rules, for example, in relation to training available to insurance distributors; such training is required to ensure sufficient knowledge of the IDD’s framework in order to provide suitable advice to consumers;
• supervisory activities have revealed shortcomings in the application of the rules on remuneration and conflicts of interest. Some NCAs have accordingly adopted national measures further restricting the payment or receipt of commissions (e.g., commission caps or enhanced disclosure rules); and
• supervisory activities have revealed certain cross-selling practices, which according to EIOPA have the potential to harm consumers.

EIOPA has also published an interactive map (here) which includes country-by-country analysis with information on the insurance intermediaries’ market structure.

European Parliament adopts MiFID II/MiFIR Amendments

On 16 January 2024, the European Parliament adopted proposed legislative texts amending the Markets in Financial Instruments Directive (“MiFID II”) and the Markets in Financial Instruments Regulation (“MiFIR”).

The proposed amending Directive (final compromise text here, dated 1 February 2024) and the proposed amending Regulation (final compromise text here, dated 1 February 2024) seek to reduce information asymmetries between market participants, and to improve orderly trading in commodity derivatives concerning energy and food. Under the new rules, the practice of receiving payments for forwarding client orders for execution, or “payment for order flows”, would be banned across the EU.

The proposals await formal adoption by the Council of the EU, after which the finalised texts will be published in the Official Journal of the EU and enter into force 20 days later.

ESMA to launch CSA on MiFID II Pre-Trade Controls

On 11 January 2024, the European Securities and Markets Authority (“ESMA”) announced (here) a common supervisory action (“CSA”) with NCAs, with the objective of assessing the implementation of pre-trade controls, in accordance with MiFID II, by EU investment firms using algorithmic trading techniques.

ESMA and the NCAs will carry out the CSA over the course of 2024.

Entry into Application of ELTIF 2.0

On 10 January 2024, Regulation (EU) 2023/606, or “ELTIF 2.0”, came into application, following its entry into force in April 2023. The amending Regulation introduces changes to the regulatory framework for European long-term investment funds (“ELTIFs”). The ELTIF framework was first established in 2015 by Regulation (EU) 2015/760 (the “initial ELTIF Regulation”).

Notwithstanding ELTIF 2.0’s coming into application, there are grandfathering provisions in place, for a period of five years, in respect of ELTIFs authorised in accordance with, and complying with, the provisions of the initial ELTIF Regulation before 10 January 2024.

For more information on ELTIF 2.0, see our briefing here.

RTS under EMIR reflecting Benchmark Transitions

On 22 January 2024, Delegated Regulation (EU) 2024/363 (here) was published in the Official Journal of the EU. The Delegated Regulation amends RTS contained in Delegated Regulation (EU) 2015/2205 supplementing the European Market Infrastructure Regulation (“EMIR”), to reflect transitions to benchmarks referenced in certain OTC derivative contacts, namely the Tokyo Overnight Average Rate (“TONA”) and the Secured Overnight Financing Rate (“SOFR”), in the wake of the cessation of USD LIBOR.

The Delegated Regulation enters into force on 11 February 2024.

EBA extends ML/TF Risk Factor Guidelines to CASPs

On 16 January 2024, the EBA published guidelines (here) amending the existing guidelines on money laundering and terrorist financing risk factors (“ML/TF Risk Factor Guidelines”), to extend application of those guidelines to crypto-asset service providers (“CASPs”).

The revised guidelines:

• outline risk factors that are specific to crypto-assets and to CASPs;
• provide guidance on ML/TF risks for credit and financial institutions dealing with customers that are providing crypto-assets services, but who are not authorised or regulated in accordance with the EU’s Markets in Crypto-Assets (“MICA”) Regulation (once it is in application);
• provide sector-specific guidance for CASPs on the factors to be considered when assessing ML/TF risks; and
• provide guidance on mitigating measures CASPs should apply in circumstances entailing ML/TF risks.

ESMA consults on Draft Guidelines under MiCA

On 29 January 2024, ESMA launched two consultations on draft guidelines under MiCA in relation to:

1. the “reverse solicitation” exemption under MiCA (here); and
2. the conditions and criteria for the qualification of crypto-assets as “financial instruments” (in accordance with MiFID II) (here).

Both consultations run until 29 April 2024.

Draft Technical Standards under DORA

On 17 January 2024, the ESAs published the first set of final draft technical standards under the Digital Operational Resilience Act (“DORA”), aimed at enhancing the digital operational resilience of the EU financial sector by strengthening financial entities’ ICT and third-party risk management and incident reporting frameworks.

The final draft technical standards include:

• RTS on the ICT risk management framework and on the simplified ICT risk management framework (here);
• RTS on criteria for the classification of ICT-related incidents (here);
• RTS to specify the policy on ICT services supporting critical or important functions provided by ICT third-party service providers (“TPPs”) (here); and
• ITS to establish the templates for the register of information (here).

The final draft technical standards have been submitted to the European Commission, with the aim of adopting the standards over the coming months.

For more information on DORA, see our briefing here.

Political Agreement on EU AML Measures

On 18 January 2024, the Council of the EU and the European Parliament announced that they have reached a provisional political agreement on the proposed sixth EU Anti-Money Laundering Directive (“AMLD6”) (proposal here) and on a new EU Anti-Money Laundering Regulation (proposal here).

Those legislative texts form part of a package of EU measures published in July 2021 to strengthen EU rules on AML/CFT. The Council of the EU and the European Parliament already reached a provisional agreement on another part of the EU AML package, the proposed Regulation establishing a new EU Anti-Money Laundering Authority (the “AMLA”) (see here). Ireland has submitted a bid to host the new AMLA (see here).

The Regulation on information accompanying transfers of funds and certain crypto-assets (the “recast revised WTR”), which was part of the EU’s initial AML package, has been finalised and was published in the Official Journal of the EU on 9 June 2023, coinciding with the publication of the MiCA Regulation. The recast revised WTR applies from 30 December 2024, in line with the timeline for MiCA to come into application.

Following the provisional agreement on AMLD6 and on the proposed new AML Regulation, the texts will be finalised and presented to Member States’ representatives in the Committee of Permanent Representatives and the European Parliament for approval.  If approved, the Council and the Parliament will have to formally adopt the texts before they are published in the Official Journal of the EU and enter into force.

For more information on the EU’s AML package, see our briefing here.

ML/TF Risk Guidelines

On 16 January 2024, the EBA published revised ML/TF Risk Factor Guidelines (here), extending application of those guidelines to the crypto-assets sector.

See Fintech / Digital above

RTS reflecting Benchmark Transitions

On 22 January 2024, Delegated Regulation (EU) 2024/363 (here) was published in the Official Journal of the EU, containing RTS reflecting transitions to benchmarks referenced in certain OTC derivative contacts, namely TONA and SOFR, in the wake of the cessation of USD LIBOR.

See EMIR above

Publication of Amending ECB Guideline on €STR

On 30 January 2024, Guideline (EU) 2024/419 (here) of the ECB amending Guideline (EU) 2019/1265 on the euro short term rate (“€STR”) was published in the Official Journal of the EU. Amongst other matters, the Guideline amends the definition of “input statistical information”, to allow for a sufficient lag between the date of first reporting under Regulation (EU) 1333/2014 and the use of the respective statistical information as input statistical information for the calculation of the €STR rate.

The ECB Guideline takes effect on the day of its notification to the national central banks of EU Member States whose currency is the euro.

Draft ECON Report on Proposed Amendments to BMR

On 15 January 2024, the European Parliament's Economic and Monetary Affairs Committee (“ECON”) published a draft report (here) containing proposed amendments to the European Commission's proposal for a Regulation amending the Benchmarks Regulation (“BMR”) as regards the scope of the rules for benchmarks, the use in the EU of benchmarks administered by third-country benchmark administrators, and certain reporting requirements.

The proposed amending Regulation aims to reduce the regulatory burden on administrators of benchmarks that are not economically significant in the EU, by removing them from the scope of existing rules. The measures will ensure that only EU administrators of benchmarks that are significant, as well as EU climate benchmarks, remain within the scope of the BMR.

RTS supplementing the Crowdfunding Regulation

On 22 January 2024, Delegated Regulation (EU) 2024/358 (here) was published in the Official Journal of the EU. The Delegated Regulation supplements the Crowdfunding Regulation as regards RTS specifying requirements on credit scoring of crowdfunding projects, pricing of crowdfunding offers, and risk management policies and procedures.

The Delegated Regulation enters into force on 11 February 2024.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Basel Committee on Banking Supervision (“BCBS”), Committee on Payments and Market Infrastructures (“CPMI”) and the Board of the International Organization of Securities Commissions (“IOSCO”) – Transparency and Responsiveness of Initial Margin in Centrally Cleared Markets: Review and Policy Proposals (here) (consultation runs until 16 April 2024)

CBI – Fitness and Probity: In-Situ Submission Guidance (here)

CBI – PCF Annual Confirmation Guidance (here)

Competition and Consumer Protection Commission (“CCPC”) – Mergers and Acquisitions Report 2023 (here)

EBA – Industry Survey on the Classification of Exposures to ESG Risks (here) (survey runs until 29 March 2024)

EBA – Report on Specific Aspects of the Net Stable Funding Ratio (“NSFR”) Framework under Article 510 of CRR (here)

ECB – Euro Area Bank Lending Survey: January 2024 (here)

ECB – Guide on Financial Conglomerate Reporting of Significant Risk Concentrations and Intragroup Transactions (here)

ECB – Single Supervisory Mechanism (“SSM”) Manual: January 2024 (here)

ESMA – EU Alternative Investment Funds 2023 (here)

ESMA – Overview of Planned ESMA Consultation Papers 2024 (here)

ESMA – TRV Risk Analysis: Assessing Risks posed by Leveraged AIFs in the EU (here)

ESMA  – Report on the Provision of Cross-Border Services by Central Securities Depositories (“CSDs”) and the Handling of Applications under Article 23 of the Central Securities Depositories Regulation (“CSDR”) from 2020 to 2022 (here)

EU Platform on Sustainable Finance – A Compendium of Market Practices: How the EU’s Taxonomy and sustainable finance framework are helping financial and non-financial actors transition to net zero (here)

European Commission – Report on the Macroprudential Review for Credit Institutions, the Systemic Risks relating to Non-Bank Financial Intermediaries (“NBFI”) and their Interconnectedness with Credit Institutions (here)

European Insurance and Occupational Pensions Authority (“EIOPA”) – Consumer Trends Report 2023 (here)

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

ISDA – SwapsInfo Full Year 2023 and Q4 2023 Review (here)

Loan Market Association (“LMA”) – External Review Guidance for Green, Social, and Sustainability-Linked Loans (here)

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