Financial Services Regulatory Update – September 2021 Round Up

Fitness and Probity

On 22 September 2021, the Central Bank of Ireland (the “Central Bank”) issued a notice of intention to amend the list of pre-approval controlled functions (“PCFs”) (here).

The proposed amendments to the list of PCFs are:

• expanding PCF-16 to include branch managers in non-EEA countries;
• introducing a stand-alone PCF in respect of Independent Non-Executive Directors;
• introducing a stand-alone PCF in respect of the Head of Anti-Money Laundering and Counter Terrorist Financing; and
• removing PCF-31 Head of Investment.

The Central Bank’s proposals are further detailed in our briefing (here).

Short-selling Regulation

On 24 September 2021, ESMA opened a consultation in relation to the review of certain aspects of the Short Selling Regulation (here).

ESMA notes that competent authorities adopted a number of crisis measures, including long-term and short-term bans, during the COVID-19 crisis. ESMA has analysed the impact of these measures and proposes targeted amendments to the Short Selling Regulation to facilitate its operation in any future emergency circumstances.

On 27 September 2021, the European Commission published a Delegated Regulation to amend the Short Selling Regulation (here). The Delegated Regulation is intended to enhance transparency for competent authorities on significant net short positions in shares by adjusting the relevant threshold for notifying competent authorities of significant net short positions in shares.

EMIR -Enforcement Action

On 21 September 2012, ESMA fined trade repository UnaVista Limited (“UnaVista”) €238,500 for eight breaches of the EMIR.  The breaches related to failures in ensuring the integrity of data and providing direct and immediate access to regulators. 

UnaVista is a trade repository headquartered in the UK and ceased to be registered with ESMA after 31 December 2020. However, ESMA determined it was competent to take supervisory actions, including imposing fines on UnaVista, as the appointment of an investigating officer by ESMA took place before the end of the transition period set out in the EU-UK Withdrawal Agreement.

ESMA’s public notice can be found here.

Central Securities Depositories

On 23 September 2021, ESMA wrote to Ms Mairead McGuinness (Commissioner for Financial Services, Financial Stability and Capital Markets Union) in respect of the mandatory buy-in regime referenced in the Commission’s review of the CSDR (here).

ESMA confirms that it supports a delay to the implementation of the mandatory buy-in regime and emphasises that it is crucial that sufficient time is given to thoroughly consider the regime in the context of settlement discipline.

Industry Levies

The Central Bank issued a number of regulations relating to levies applicable to regulated entities in September 2021:

• The Credit Institutions Resolution Fund Levy (Amendment) Regulations 2021 [S.I. No. 481 of 2021] (here);
• The Central Bank Act 1942 (Section 32D) Regulations 2021 [S.I. No. 487 of 2021] (here); and
• The Credit Union Fund (Stabilisation) Levy Regulations 2021 [S.I. No 480 of 2021] (here).

Enforcement action

On 10 September 2021, the ECB imposed administrative penalties of €420,000 on Allied Irish Banks plc and €195,000 on its subsidiary EBS DAC for miscalculation of their risk-weighted assets for intragroup equity exposures.

The breaches occurred between 2014 and 2016 and related to intragroup equity exposures only.

The ECB’s press release can be viewed here.

New SIs

The European Union (Capital Requirements) (Amendment) (No. 2) Regulations 2021 (here) and The European Union (Capital Requirements) (Amendment) (No. 3) Regulations 2021 (here) were published on 24 September 2021.

The regulations give further effect to the Capital Requirements Regulation (as most recently amended by Regulation 2020/873 of the European Parliament and of the Council of 24 June 2020 amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic)). The regulations provide for amendments to the Asset Covered Securities Act 2001.

The Regulations will take effect on 8 July 2022.

National resolution framework for (re)insurers

On 1 September 2021, the Department of Finance opened a public consultation on the development of a national resolution framework for (re)insurers (here).

The Department of Finance (in collaboration with the Central Bank) states that there is merit in considering the viability of a national resolution framework for facilitating the orderly resolution of failing or failed insurers. The purpose of the consultation is to obtain submissions applicable to the development and scope of this framework.

Submissions on the consultation must be submitted to the Department of Finance before 30 November 2021.

It should be noted that the consultation issued prior to the European Commission’s review of Solvency II which contains a proposal for a new insurance recovery and resolution directive (outlined in further detail below).

Solvency II Review

On 22 September 2021, the European Commission adopted a review of (re)insurance rules under Solvency II (here). The Commission states that the review is intended to enable (re)insurance companies to scale up long-term investment in Europe's recovery from the COVID-19 pandemic and to strengthen the resilience of the (re)insurance sector to enable it to weather future crises and better protect policyholders.

The review consists of a legislative proposal to amend Solvency II, a communication on the review of Solvency II and a proposal for a new insurance recovery and resolution directive.

See our briefing with further detail here.

 PRIIPs

On 7 September 2021, the European Commission published a delegated regulation amending 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 packaged retail and insurance-based investment products (“PRIIPs”) (here)

The delegated regulation applies regulatory technical standards developed by the European supervisory authorities to key information documents (“KIDs”) which manufacturers of PRIIPs make available to retail investors.

The delegated regulation includes provisions in respect of (a) new methodologies underpinning the calculation of appropriate performance scenarios, (b) revised summary cost indicators and changes to the content and presentation of information on the costs of PRIIPs to help retail investors better understand the different types of cost structures and (c) modified rules for PRIIPs that offer a range of options for investment to ensure more clarity of the information on their cost implications.

EIOPA publishes approach to the transition from IBOR

On 30 September 2021, EIOPA published a note on its approach to the transition away from  Interbank Offered Rates (“IBOR”) (here).

EIOPA states that it will implement updated methodology for the calculation of the risk-free interest rates for British pound, Swiss franc and Japanese yen in January 2022.

CBI Insurance Newsletter

On 16 September 2021, the CBI published its September 2021 Insurance Newsletter (here). The newsletter includes, amongst other items, updates on recovery planning requirements, the motor insurance directive, the whistleblowing directive, insurance insights and sustainable insurance.

Investment Firms Directive/Investment Firms Regulation

The European Union (Investment Firms) Regulations 2021 (here) and The European Union (Investment Firms) (No. 2) Regulations 2021 (here) were signed on 21 September 2021.

These regulations complete a partial transposition of the Investment Firms Directive and the Investment Firms Regulation into Irish law.

The Department of Finance notes that while the regulations transpose the vast majority of the Investment Firms Directive into Irish law, Article 62(6) of the Investment Firms Directive (which requires Member States to impose an obligation on certain large systemic investment firms (Class 1 Firms) to re-authorise as credit institutions) remains to be transposed. The Department of Finance states that it will conclude work as soon as possible to establish in legislation a re-authorisation process for those investment firms required to re-authorise as credit institutions.

These regulations came into effect on 21 September 2021.

MIFID Best Execution

On 24 September 2021, ESMA opened a consultation in relation to its proposed changes to the MiFID II framework on best execution reports (here).

ESMA’s proposals include technical changes to the reporting obligations for execution venues and changes to reporting requirements for firms, focusing on those firms that transmit client orders or decisions to deal to third parties for execution.

The consultation will remain open until 23 December 2021.

Enforcement Action (Outsourcing/Delegation)

On 27 September 2021, the Central Bank reprimanded and fined Sarasin Funds Management (Ireland) Limited (the “Firm”) €385,000 in respect of four admitted breaches of investment funds regulations which occurred between 25 May 2017 and 2 March 2018.

The Central Bank determined the appropriate fine to be €550,000, which was reduced by 30% to €385,000 in accordance with the settlement discount scheme provided for in the Central Bank’s administrative sanctions procedure.

In deciding the appropriate sanction to impose, the Central Bank highlighted that it considered that the Firm fell well short of the standard required under legislation and the Central Bank’s expectations. In addition, the Central Bank noted that the Firm operated under the delegation model and the Central Bank’s investigation had revealed serious weaknesses in the Firm’s supervision and monitoring of its delegates.

The Central Bank’s public statement can be viewed here.

Revised AIFMD/ UCITS Q&A

On 10 September 2021, the Central Bank issued updates to its AIFMD Q&A and UCITS Q&A. These updates included a new ID 1147 (AIFMD Q&A) and ID1101 (UCITS Q&A) which relates to notification requirements for Alternative Investment Fund Managers and UCITS management companies where they operate or plan to operate as a third-party management company. Our briefing here provides further detail on these updates.

On 1 October 2021, the Central Bank further updated its AIFMD Q&A and UCITS Q&A.  

The AIFMD Q&A updates included:

• a new ID 1148 which addresses the implementation of ESMA guidelines on marketing communications under the regulation on cross-border distribution of funds (the “ESMA Marketing Guidelines”); and
• new IDs 1149 and 1150 relating to investment by qualifying investor alternative investment funds and retail investor alternative investment funds in UK investment funds.

The UCITS Q&A updates contained new IDs 1102 and 1003 relating to the implementation of the ESMA Marketing Guidelines.

The 42nd edition of the AIFMD Q&A is available here and the 34th edition of the UCITS Q&A is available here.

Clearing services for OTCs

On 8 September 2021, Commission Delegated Regulation (EU) 2021/1456 was published in the Official Journal of the European Union (here). The Delegated Regulation supplements Regulation (EU) No 648/2012 of the European Parliament and of the Council by specifying the conditions under which the commercial terms for clearing services for OTC derivatives are to be considered to be fair, reasonable, non-discriminatory and transparent.

The Delegated Regulation applies to clearing houses and clients which provide clearing services in the EU. The Annex to the Delegated Regulation sets out the requirements which commercial terms of clearing services must meet to be considered fair, reasonable, non-discriminatory and transparent.

The Delegated Regulation entered into force on 9 September 2021 and will apply from 9 March 2022.

Guidelines on KPIs for sustainability-linked derivatives

On 7 September 2021, ISDA published its paper “Sustainability-linked derivatives: KPI guidelines” (here).

The paper notes that key performance indicators (“KPIs”) are critical to the effectiveness and integrity of the sustainability-linked derivatives (“SLDs”) to which they relate. The paper details KPI guidelines for SLDs with the objective of (a) educating the market, (b) contributing to best practice, (c) promoting safety and soundness in the market and (d) enhancing liquidity.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Central Bank - Central Bank publishes report assessing impact of credit union investment framework changes (here)

ESMA/EBA/EIOPA – Joint Committee report on risks and vulnerabilities in the EU financial system (here)

EBA – Funding Plans Report September 2021 (here)

EBA - Final Guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits of Article 395(1) of Regulation (EU) No 575/2013 and the time and measures to return to compliance pursuant to Article 396(3) of Regulation (EU) No 575/2013 (here)

EBA - Final Report on the Revised Guidelines on stress tests of deposit guarantee schemes under Directive 2014/49/EU repealing and replacing Guidelines EBA/GL/2016/04 (here)

EBA – Report on the use of digital platforms in the EU banking and payments sector (here)

EBA - 2021 EU-wide transparency exercise (here)

ECB – ‘European banks – how have they coped with the crisis and what lies ahead?’ Kerstin af Jochnick, Member of the Supervisory Board of the ECB (here)

ECB – Christine Lagarde, President of the ECB, interview with TIME (here)

ECB – ‘The final leap: implementing the Basel III reforms in Europe’ Elizabeth McCaul, Member of the Supervisory Board of the ECB (here)

EPC - Public consultation on the change requests for the 2023 SEPA payment scheme rulebooks (here)

ESMA - Report on Trends, Risks and Vulnerabilities (here)

ESMA - MiFID II and MiFIR review report on algorithmic trading (here).

ESMA – Practical Guide on national rules on notifications of major holdings under the Transparency Directive (here)

ESMA - Final report - Guidelines on methodology, oversight function and record keeping under the Benchmarks Regulation (here)

ESMA - Final Report - Guidelines on Settlement Fails Reporting under Article 7 of CSDR (here)

ESMA – 2022 Annual work programme (here)

ESMA - Opinion of the European Securities and Markets Authority of 22 September 2021 on improving access to and use of credit ratings in the European Union in accordance with Regulation (EC) No 1060/2009 (here)

IOSCO – The use of artificial intelligence and machine learning by market intermediaries and asset managers (here)

ISDA - Accounting Analysis for ESG-related Transactions and the Impact on Derivatives (here)

ISDA – Paper on the role of derivatives in carbon markets (here)

ISDA – Letter  announcing cessation of support for the 2006 ISDA Definitions and adoption of the 2021 ISDA Interest Rate Derivatives Definitions (here)

ISDA – Updated list of third-country markets considered as equivalent to a regulated market in the Union for the purposes of the definition of OTC derivatives (here)

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