Financial Service Regulation and Compliance - Banking January 2019
Department of Finance publishes report on Capital Requirements and Macroprudential Policy
The Department of Finance published a report discussing Capital Requirements and Macroprudential Policy. The report discusses the reversions that have taken place in the area of banking regulation to promote financial stability since the financial crisis. The report notes that from the transposition of the Capital Requirements Directive in 2014 a number of macroprudential capital buffers have been introduced in Europe to mitigate systemic risk.
The report noted that the macroprudential capital requirements and toolkit are recent policy developments, their implementation is still evolving. The paper also noted that consideration as to how the various policy tools are working individually and cumulatively is ongoing. The CBI regularly publishes a variety of research on macroprudential policy in Ireland.
Central Bank of Ireland (CBI) publishes Regulatory Service Standards Performance Report H2 2018
The CBI has published the Regulatory Service Standards Performance Report for the second half of 2018. This report sets out the CBI's performance against standards and deadlines it has committed to for the authorisation of financial service providers and fitness and probity applications.
The CBI is responsible for the authorisation and supervision of financial services firms and approving those who want to work in the sector under the Fitness and Probity regime. The report noted that in H2 2018, there was an increase in the number of applications from almost every sector. Currently over half of the Brexit applications received have been fully processed.
European Banking Authority (EBA) publishes risk dashboard highlighting banks have improved their resilience but profitability remains weak
The EBA published its risk dashboard, which summarises the main risks and vulnerabilities in the EU banking sector using quantitative risk indicators. Together with the risk dashboard, the EBA published the results of its risk assessment questionnaire, which includes the opinions of banks and market analysts on the risk outlook collected in autumn 2018. In Q3 of 2018, the dashboard confirmed improvements in both asset quality and capital ratios, while profitability remains subdued.
The dashboard confirms that European banks' capital ratios remain high and the quality of the EU banks' loan portfolios improved further. Furthermore it was noted that the profitability in the EU banking sector needs to improve further. In order to improve profitability, banks should target increasing fees and commission income and decreasing operating expenses.
European Central Bank (ECB) publishes consolidated Guide to assessments of licence applications
The ECB has published a consolidated version of the guide to assessments of license applications. This text, which is not legally binding, combines the content of the first guide published in March 2018 and the public consultation which ended on 25 October 2018. The consolidated guide is intended as a practical tool to support those involved in the process of authorisation and to ensure a smooth and effective procedure and assessment.
When granting authorisations to banks, the ECB acts as a gatekeeper to ensure that only robust banks can enter the market. The consolidated guide promotes a level playing field throughout the euro area and reduces the risk that entities will circumvent banking regulation and supervision. The guide applies to all licence applications to become a credit institution within the meaning of the Capital Requirements Regulation (CRR).This includes initial authorisations for credit institutions, applications from FinTech companies and authorisations in the context of mergers or acquisitions and licence extensions.
ECB issues recommendation on dividend distribution policies
The ECB has issued its recommendation on dividend distribution policies. The recommendation notes that credit institutions should establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements and the outcomes of the supervisory review and evaluation process (SREP). With regard to credit institutions paying dividends in 2019 for the 2018 financial year, the ECB outlines the level of distribution it recommends for category 1, 2 and 3 institutions.
EBA publishes report on cost and performance of structured deposits
The EBA published a report on the costs and performance of structured deposits in the European Union. The report is a response to a request the EBA received from the EU Commission. This request was part of the implementation of its Capital Market Union Action Plan. It concludes that the market for structured deposits in the EU appears to be limited in size and that data on costs and performance is not widely available. The report also sets out the steps that the EBA will take to obtain more accurate and standardised data in the future in order to enhance the reliability and overall quality of its response.
ECB publishes single Code of Conduct for high-level officials
The ECB has published a single Code of Conduct for all ECB decision-makers and high-level officials which entered into force on 1 January 2019. The code is the latest measure undertaken by the ECB to further strengthen its governance and integrity frameworks. The ethical rules take into account the ECB’s specificities as a central bank, a banking supervisor and an EU institution.
The code improves the management of potential conflicts of interest by introducing specific rules for post-employment activities, private financial transactions and relations with interest groups. The report also foresees the publication of declarations of interests and includes measures for pursuing cases of non-compliance. The first Declarations of Interests are scheduled to be published in April 2019.
Sabine Lautenschläger delivers speech titled "A supervisory perspective on 2019 and beyond"
Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, delivered a speech at the Risk Management & Supervisory Conference in Dublin. Brexit was discussed in detail, specifically the uncertainty surrounding banks, markets and supervisors in a post Brexit world. It was noted that the ECB still lacks the powers to directly supervise the provision of cross-border banking services. National authorities have some powers in this area, but their reach is limited and it varies from country to country.
Technological change, in particular digitalisation, was also discussed as Sabine noted that it has the potential to fundamentally change the banking landscape. Against the backdrop of Brexit, the ECB have put forward ideas on how to improve the European supervisory framework, viewing technology as an opportunity to make supervision more efficient and effective.
ECB publishes Monetary Policy Decisions
The Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40%. The key ECB interest rates are expected to remain at their present levels through the summer of 2019 or for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
For further information please contact a member of the Financial Regulation team.
Date published: 12 February 2019