Financial Services Regulation and Compliance - Banking and Payments December 2023
Domestic
Department of Finance launches National Payments Strategy
On 12 December 2023, the Department of Finance launched a public consultation on its National Payments Strategy (NPS) for Ireland. The launch of the public consultation follows a November 2022 recommendation from the Retail Banking Review report to develop an NPS with the terms of reference for the NPS published in June 2023.
Given there has been no updates to this policy area since the development of the National Payment Plan in 2013, the NPS is aimed at setting out a roadmap for the future evolution of the entire payments system which has undergone a period of significant change and innovation in the last decade.
The NPS intends to take account of developments in digital payments, cash usage and how future changes should be made to the legislative criteria relating to access to cash. The questions included in the consultation are quite varied and include, among others, questions on fraud, cash access, cash acceptance, crypto-assets, instant payments, open banking and data collection.
Credit Servicers Directive - public consultation - decisions on discretions - December 2023
The Minister for Finance, Michael McGrath TD, has signed the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 to give effect to EU Directive 2021/2167 on Credit Servicers and Credit Purchasers.
The Directive provides for a new EU wide authorisation and regulatory framework for credit servicers to be overseen by national competent authorities and it allows such authorised entities to passport credit servicing activities across the EU. The Directive applies to bank originated loans which are transferred after 29 December 2023. Credit agreements which fall outside the scope of the Directive and these regulations will continue to be governed by the existing national framework in relation to credit servicing firms.
The Directive also makes certain amendments to the Consumer Credit Directive (2008) and the Mortgage Credit Directive (2014).
European
European Council and Parliament reach provisional agreement on the implementation of Basel III reforms
On 6 December 2023, a provisional agreement was reached between the European Council and the Parliament in respect of the implementation of Basel III reforms through amendments to the Capital Requirements Regulation and the Capital Requirements Directive. Negotiators reached agreement on several items which included, among others, the following:
- how to implement the so called “output floor”
- improvements to the areas of credit risk, market risk and operational risk
- to incorporate additional proportionality in the rules, in particular for small and non-complex institutions
- to implement a harmonised 'fit and proper' framework for assessing the suitability of members of the institutions' management bodies and key function holders
- rules to safeguard supervisory independence
- to limit the time in office for the members of the governance bodies
- the transitional prudential regime for crypto assets and on amendments to enhance banks' management of ESG risks
Under the provisional agreement, negotiators also decided to harmonise minimum requirements applicable to branches of third-country banks and the supervision of their activities in the EU. The agreement has been agreed 'ad referendum' and is therefore provisional and will need to be confirmed by both the Council and the Parliament before it can be formally adopted.
EBA publishes consultation paper on draft regulatory technical standards specifying the requirements for policies and procedures on conflicts on interest for issuers of ARTs under MiCA
On 7 December 2023, the European Banking Authority (EBA) published a consultation paper on draft regulatory technical standards (RTS) specifying the requirements for policies and procedures on conflicts of interest for issuers of asset-referenced tokens (ARTs) under the Markets in Crypto-Assets Regulation (MiCA). These draft RTS are designed to enhance conflict of interest management by ART issuers and promote uniformity in requirements across the European Union.
The release of this consultation paper constitutes part of the third batch of MiCA policy products. The consultation paper deadline is 7 March 2024 and the EBA will conduct a virtual public hearing on 11 January 2024. It is anticipated that the final RTS will be available when MiCA enters into force.
EBA publishes annual risk assessment of the European Banking System
On 12 December 2023, the EBA published it's 2023 annual risk assessment of the European Banking system. In a press release, the EBA noted that the following were the key takeaways from its risk assessment:
- capitalisation remains high with an average common equity tier 1 ratio at its highest reported point at 16%
- underlying profitability has supported banks’ pay-outs
- elevated interest rate levels have so far supported widening interest margins, however, the EBA have warned that this might have reached its turning point
- asset quality remains robust, yet pockets of risks remain stemming from subdued economic growth and elevate interest rate levels
- liquidity remains high but has begun normalising from its pandemic highest levels
- market funding costs have increased in line with interest rates, while deposits rates have remained comparatively low but there is potential that these might rise going forward
Basel Committee consults on targeted adjustments to its standard on interest rate risk in the banking book
On 12 December 2023, the Basel Committee on Banking Supervision (Basel Committee) published a consultation on targeted adjustments to its 2016 standard on interest rate risk in the banking book. The proposed adjustments aim to give effect to a commitment to periodically update the calibration of the interest rate shock factors used in the standard.
The deadline for comments on the proposed adjustments is 28 March 2024.
ECB publishes results of its SREP for 2023
On 19 December 2023, the ECB published the results of its supervisory review and evaluation process (SREP) for 2023. In a press release, the ECB stated that the results of the SREP show that:
- banks have solid capital and liquidity positions and increased profitability
- internal governance, risk management and capital planning remain key areas for supervisory action in light of deteriorating risk outlook
- the overall average SREP score broadly unchanged; Pillar 2 requirements for CET1 capital set at 1.2% on average, compared with 1.1% in 2023
- the overall CET1 capital requirements and guidance increased from 10.7% to 11.1%, reflecting impact of macroprudential policies
- the supervisory priorities of the ECB have adjusted to focus on building resilience to short-term risk outlook, strengthening governance and climate and environmental risk management, and making further progress in digital transformation and operational resilience
ECB sets SSM supervisory priorities for 2024-2026
On 19 December 2023, the ECB published its updated Single Supervisory Mechanism (SSM) supervisory priorities for the years 2024-2026. This update arises from a comprehensive evaluation of bank's key risks and vulnerabilities. The ECB has announced three broad supervisory priorities for the next three years which comprise:
- Priority 1 – strengthen resilience to immediate macro-financial and geopolitical shocks.
- Priority 2 – accelerate the effective remediation of shortcomings in governance and the management of climate-related and environmental risks.
- Priority 3 – further progress in digital transformation and building robust operational resilience of frameworks.
EBA publishes updated guidelines on the specification and disclosure of systemic importance indicators
On 20 December 2023, the EBA published a final report in respect of amendments to its guidelines on the specification and disclosure of systemic importance indicators. These indicators are applied by the largest European Union institutions whose leverage ratio exposure measure exceeds €200bn.
The amending guidelines include additional changes and clarifications in respect of the identification process of global systemically important institutions. The guidelines have been amended to introduce additional changes and clarifications in respect of the indicators that are relevant for the identification process of G-SIIs. The revised guidelines are available in a consolidated version and include in the annex the Basel reporting template as of end-2022.
The EBA has not yet specified a date from which the amendments will apply. The guidelines will not apply from earlier than two months after they are published on the EBA’s website in all EU official languages.
ESMA consults on possible changes to the securitisation disclosure templates
The European Securities and Markets Authority (ESMA), has launched a consultation on the revision of the disclosure regulatory technical standards (RTS) and implementing technical standards (ITS). These standards relate to the specific information and details of securitisation transactions that should be made available.
The objective of this consultation is to gather stakeholders’ views on four proposed options for the revision of the securitisation disclosure framework:
- putting the template review on hold until revision of the L1 text
- expanding the current framework with the introduction of few amendments to the currently used disclosure templates
- focusing on a targeted review for streamlining the information required and developing a new dedicated and simplified template for private securitisations only
- undertaking a thorough review of the current disclosure framework proposing a significant simplification of the templates
The EBA consults on guidelines on internal policies, procedures and controls to ensure the implementation of Union and national sanctions
On 21 December 2023, the EBA launched a public consultation on two sets of guidelines on internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures. Restrictive measures are binding on any person or entity under the jurisdiction of Member States. They comprise individual measures, i.e. targeted financial sanctions, and sectoral measures, i.e. financial and economic measures or embargoes. Through these guidelines, the EBA creates, for the first time, a common understanding among payment service providers, crypto-asset service providers and their supervisors of the steps they need to take to be able to comply with restrictive measures. The consultation runs until 25 March 2024.
European Payments Council: Publication of v3.2 of the SEPA Request-To-Pay (SRTP) scheme rulebook and related clarification paper
On 22 December 2023, the European Payments Council published new versions of the SEPA request-to-pay (SRTP) scheme rulebook as well as the rulebook-related clarification paper. Version 3.2 of the STRP scheme rulebook includes clarifications related to enrolment and activation processes, to be aligned with the related Implementation guidelines also published on 22 December 2023.
The new version of the STRP rulebook is effective immediately.
EBA publishes final report on response to the call for advice from the Commission on green loans and mortgage
On 15 December 2023, the EBA published its response to the European Commission’s November 2022 call for advice on green loans and mortgages. In its response, the EBA proposes the introduction of a voluntary EU label for green loans based on a common EU definition and the integration of the concept of green mortgage and its key sustainability features in the Mortgage Credit Directive.
In order to facilitate more active participation by banks in the green loans market, the Commission is advised to make available a voluntary EU definition and label for green loans based on the use of the loan proceeds.
EBA reaffirms its commitment to enhance climate-related and broader sustainability considerations in the EU banking sector
In advance of the 2023 United Nations Climate Change Conference (COP28), which took place from 30 November 2023 to 12 December 2023, the European Banking Authority (EBA) published its environmental statement in the context of COP28 and reaffirmed its commitment to enhance climate-related and broader sustainability considerations in the EU banking sector.
In the statement, the EBA emphasised that banks have a key role to play as catalysts for the sustainability transition and can contribute by providing the financing needed for achieving net-zero targets, by supporting their clients and counterparties in greening their activities and assets and by managing climate-related transition and physical risks.
In the statement the EBA also highlighted its effort to integrate sustainability aspects in many areas of its work, including risk management, disclosures, supervisory practices, climate stress testing and the Pillar 1 framework.
European Council and Parliament reach agreement on Daisy Chains proposal
On 6 December 2023, it was announced that the European Council and the European Parliament had reached a provisional political agreement on the daisy chains proposal, which is a targeted amendment of the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation to include targeted proportionality.
The provisional political agreement will now need to be confirmed by member states’ representatives in the Committee of permanent representatives and by the Committee on Economic and Monetary Affairs, followed by a plenary and council vote. The proposal will then be published in the Official Journal and apply six months later.
EBA publishes peer review on supervision of creditors’ treatment of mortgage borrowers in arrears under MCD
On 11 December 2023, the EBA published a peer review report on the supervision by national competent authorities (NCAs) of creditors' treatment of mortgage borrowers in arrears. A decision was made to carry out the peer review, in light of the high interest rate environment and current economic conditions.
The review examined the effectiveness of, and degree of convergence reached in, the supervision of the requirements set out in Article 28 of the Mortgage Credit Directive (MCD) on arrears and foreclosure and covered the EBA guidelines on arrears and foreclosures and the EBA opinion on good practices for mortgage creditworthiness assessments and arrears and foreclosure.
The report sets out that overall conduct supervision is effective and NCAs have adapted their supervision to reflect the changed economic environment and risks to mortgage borrowers.
The EBA set out follow-up measures which are applicable to all competent authorities and not just the seven included, which the EBA intends to review in two years’ time. The report also sets out some follow-up measures, which might benefit all competent authorities.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation Advisory team.
Date published: 17 January 2024