Financial Services Regulation and Compliance - Banking and Payments August 2023
Domestic
CCyB rate to remain unchanged
On 2 August 2023, the CBI announced that the CCyBrate on Irish exposures is to be maintained at the current rate of 1.5%. Announced in June 2023, this CCyB rate will be effective from June 2024, and 1.5% represents the rate that will be set when risks are neither elevated nor subdued. The CCyB rate will be reviewed by the CBI on an ongoing basis and altered where deemed necessary in light of macro-financial conditions.
CBI reiterates the need for industry to support mortgage holders affected cost of living and interest rates
On 31 August 2023, a meeting was held between the Minister for Finance, Michael McGrath and representatives from the banking and mortgage sector to discuss measures they can take to support mortgage holders affected by increased interest rates.
The meeting was attended by industry representatives, including the CBI, banks, non-banks and other stakeholders. The purpose of the meeting was to build on the work of the CBI to ensure that entities regulated by the CBI meet their expectations to act in their customer's best interest and provide supports to borrowers during this period of rising interest rates. Attendees at the meeting heard from the Money Advice and Budgeting Service (MABS) and Insolvency Ireland on the impact rising interest rates are having on their clients and noted the increased demand for their services.
Mr. McGrath has asked industry representatives to reflect on the meeting and to set out their responses as a matter of priority.
European
EBA consults on draft RTS to identify extraordinary circumstances to derogate from certain requirements in the area of market risk
On 3 August 2023, the EBA published draft RTS establishing a framework for identifying extraordinary circumstances when they arise. Under such extraordinary circumstances, institutions may continue using their internal models for a trading desk, even if that trading desk does not meet the back-testing requirements or fails the profit and loss attribution test, or they may disregard certain over-shootings observed during the back-testing.
The EBA has opened a public consultation on these draft RTS. This consultation will close on 3 November 2023.
EBA publishes amending technical standards on supervisory reporting to introduce new reporting on Interest Rate Risk in the Banking Book (IRRBB)
The EBA published its final draft Implementing Technical Standards (ITS) on harmonised reporting requirements for the assessment and monitoring of institutions’ IRRBB across the EU. These new requirements apply the concept of proportionality to small and non-complex institutions and ‘other’ institutions.
EBA publishes a consultation paper on its revised guidelines on the specification and disclosure of systemic importance indicators
On 1 August 2023, the EBA published a consultation paper on the amendments to its Guidelines EBA/GL/2020/14, on the specification and disclosure of systemic importance indicators.
The EBA methodology for identifying global systemically important institutions follows the approach of the Basel Committee on Banking Supervision (BCBS). In January 2023, BCBS published a new data template which included several revisions. Accordingly, the EBA Guidelines have now been updated to incorporate the updated data template issued by BCBS.
The revised Guidelines also clarify the cross-jurisdictional indications that are expected to be reported and disclosed, without being considered “memorandum” nor “ancillary” items or indicators for the European Union.
EBA publishes supervisory handbook on the validation of rating systems under the Internal Ratings Based Approach (IRB) approach
On 7 August 2023, the EBA published a supervisory handbook on the validation of rating systems under the IRB. The handbook provides an overview of the validation framework and describes the elements where the validation function is expected to form an opinion, without prescribing any specific methodology. It builds on the EBA regulatory technical standards and guidelines which are part of the IRB repair roadmap and provides a detailed description of the areas which the validation function is expected to assess.
Separately, it has been announced that the IRB repair requirements for loss given default (LGD) and credit conversion factor (CCF) models that cover portfolios no longer eligible for the revised advanced internal ratings based (AIRB) will be postponed until the revised Capital Requirements Regulation (CRR 3) enters into force.
RTS regarding the penalty mechanism for settlement fails relating to cleared transactions submitted by central counterparties (CCPs) for settlement have been published in the Official Journal
On 11 August 2023, the Commission Delegated Regulation 2023/1626 (the Delegated Regulation) was published in the Official Journal of the European Union. The Delegated Regulation amends the RTS as regards the penalty mechanism for settlement fails relating to cleared transactions submitted by CCPs for settlement.
The Delegated Regulation removes the separate process established in Article 19 of Delegated Regulation (EU) 2018/1229 on settlement discipline for the collection and distribution of the cash penalties in relation to settlement fails relating to cleared transactions to put the central securities depositories in charge of the entire process of collection and distribution of penalties according to Articles 16, 17 and 18 of Delegated Regulation 2018/1229.
The Delegated Regulation provides that in the case of imbalanced positions in respect of cleared transactions, the CCPs are allowed to allocate to their clearing members the remaining net amount of penalties, credit or debit. CCPs should establish an appropriate mechanism in their rules to that effect.
The Delegated Regulation will apply from 2 September 2023.
European Central Bank (ECB) publishes draft guide on financial conglomerate reporting of significant risk concentrations and intragroup transactions
On 21 August 2023, the ECB published draft guidance on reporting of significant risk concentrations and intragroup transactions by financial conglomerates, as required under Commission Implementing Regulation 2022/2454. The guidance will assist financial conglomerates in setting up the necessary internal reporting processes using the templates provided for in Regulation 2022/2454.
A public consultation on this draft guidance will run until 6 October 2023.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation Advisory team.
Date published: 21 September 2023