Financial Services Regulation and Compliance - Banking and Payments February 2024
Domestic
Responses to public consultation on the future of the bank levy
On 15 February 2024, the Department of Finance (the Department) published the responses to the public consultation on the future of the bank levy (the levy) (the consultation), which was carried out as part of an examination to ensure that the levy remained appropriate and fit for purpose during 2023.
The levy is a revenue raising measure which allows for a contribution to be received from the banking sector towards Ireland’s economic recovery and was originally designed to run for three years from Budget 2014. It has subsequently been extended, most recently in Budget 2024.
18 submissions were received to the consultation. The responses to the consultation have informed the Department’s analysis and a revised form of the levy is being put in place for 2024. This will continue to apply to those credit institutions that received financial assistance from the State during the financial crisis, and which are still operating in the State. The revenue target is circa €200m and will be apportioned based on the level of customer deposits held by each liable institution.
Central Bank of Ireland publishes paper on its approach to write-down and conversion and use of the bail-in tool
On 29 February 2024, the Central Bank of Ireland (CBI) published a paper setting out its approach to the write-down and conversion of capital instruments and eligible liabilities (WDC power) and the use of the bail-in tool (the exchange mechanic), under the Bank Recovery and Resolution Directive (BRRD) and Single Resolution Mechanism Regulation (SRMR) which applies to credit institutions and certain investment firms.
The paper outlines the steps necessary to implement the WDC power and bail-in tool and aims to increase the predictability and credibility of its approach in respect of the necessary operational steps. The paper is applicable to both significant institutions and less significant institutions authorised in Ireland and covered by the BRRD and SRMR framework, and whose resolution processes are managed by the Single Resolution Board and the CBI, as the designated national resolution authority.
The paper aims to comply with the European Banking Authority’s (EBA) final report on the Guidelines to Resolution Authorities on the Publication of the Write-down and Conversion and Bail-in Exchange Mechanic, published in February 2023.
“Perspectives and priorities – payments and e-money” – Remarks by Elizabeth McMunn, Director of Banking, Payments and Credit Union Supervision
On 29 February 2024, Mary Elizabeth McMunn, Director of Banking Payments and Credit Union Supervision delivered a speech titled ‘Perspective and priorities – payments and e-money’ to a Payments and Electronic Money Institutions event, hosted by the CBI.
In these remarks, McMunn highlighted the importance of the payment and electronic money sector within Ireland and Europe and noted the material levels of growth apparent by the number of firms operating in the sector and their activity levels. As this landscape and the wider ecosystem evolves there is a need to evolve with it from a regulatory and supervisory perspective. The CBI’s supervisory objectives were also emphasised, which aim to ensure stability, resilience and trustworthiness in the sector.
McMunn discussed the following important points, which if executed well, align with the CBI’s overarching supervisory objective:
- substance and substantive presence
- strong governance and risk management foundations
- resilience for boards and executives
- deliberate thought and detailed planning around entry and exit
- diversity in governance
McMunn concluded by urging firms to take proactive measures to enhance regulatory maturity and risk management capabilities in line with their balance sheets and for boards and executives to be well versed in the local regulatory environment.
European
Council adopts the Instant Payments Regulation
On 26 February 2024, the Council of the European Union adopted the Instant Payments Regulation (IPR), which will make instant payments fully available in euro to individuals and businesses in the European Economic Area (EEA). The proposal was adopted by the European Parliament on 7 February 2024.
The IPR will amend the Single Euro Payments Area Regulation (Regulation ((EU) 260/2012), the Cross-Border Payments Regulation (Regulation ((EU) 2021/1230), the Payment Services Directive 2 (EU) 2015/2366) and the Settlement Finality Directive (Directive 98/26/EC).
Banks and other payment service providers, which provide standard credit transfers in euro, will be required to offer the service of sending and receiving instant payments in euro to all individuals and businesses holding a bank account in the EEA. Instant payments will allow for the transfer of funds within ten seconds at any time of the day, including outside business hours, within the same EEA member state or to another EEA member state.
The Regulation will be signed and enter into force 20 days after being published in the Official Journal of the European Union. Payment service providers located in the euro area will have nine months to be ready to receive instant credit transfers in euro and 18 months to send them.
Introductory remarks on IBAN discrimination by Commissioner McGuinness at the fourth meeting of the European Forum for Innovation in Payments
On 12 February 2024, the Commissioner for financial services, financial stability and the Capital Markets Union, Mairead McGuinness, delivered a speech at the fourth meeting of the European Forum for Innovation in Payments on IBAN discrimination.
McGuinness commented on the still ongoing practice of companies and public administrations refusing to make or receive euro payments involving non-domestic accounts as unacceptable and illegal, nine years after the deadline for the implementation of the Single Euro Payments Area (SEPA).
McGuiness noted that this was a problem for both individuals and businesses. Individuals should be able to enjoy their right to use a bank account in any member state to pay bills in another member state and companies, including fintechs, are not fully able to implement their business models.
In the combat against IBAN discrimination, McGuiness discussed the progress made through enforcement actions, such as infringement proceedings, and the use of communications strategies to raise awareness amongst citizens and companies. McGuiness also encouraged member states, where IBAN discrimination remains prevalent, to take more ambitious actions to eradicate the practice.
McGuinness noted that the explanation for the persistence of IBAN discrimination resulting from legacy IT systems was not an excuse and called on her colleagues to view this as a topic of equal significance to the roaming charge issue for citizens.
ECB revises guide to internal models
On 19 February 2024, the European Central Bank (ECB) published a revised guide to internal models, covering credit risk, market risk and counterparty credit risk, and clarifying the ECB’s understanding of the rules.
The guide is intended as a document for the internal use of the different supervisory teams, with the aim of ensuring a common and consistent approach to matters related to internal models. The guide should not be construed as going beyond the current existing applicable EU law including, among others, adopted regulatory technical standards (RTS), and national law.
The new version discusses climate-related risks, and details the requirements for common definitions of default, counterparty credit risk, default risk in the trading book and how to return to standardised approach.
Single Resolution Board launches ‘SRM Vision 2028’, focusing on crisis readiness
On 13 February 2024, the Single Resolution Board (SRB) announced the launch of its Single Resolution Mechanism (SRM) Vision 2028.
The strategy marks a shift for the SRM, as it begins a new phase of work that takes into account the evolving risk landscape. The SRB and national resolution authorities are moving from the key elements of resolution planning and preparation to include a new focus on operationalism, resolution testing and crisis readiness.
The strategy covers the three key areas of core business, governance and human resources and has nine strategic objectives with twenty actions to be implemented between now and the end of 2028. The SRM Vision 2028 will guide the SRB and SRM direction for the next five years and will be implemented via the development of a multi-annual plan and the annual work programmes.
Single Resolution Fund: no expected contribution in 2024 as target level reached
On 15 February 2024, the SRB confirmed that the financial means available in the Single Resolution Fund (SRF) at 31 December 2023 had reached the target level of at least 1% of covered deposits held in the Member States participating in the SRM. The amount was €78bn and includes the substantial positive economic return obtained on cash accounts and investments during 2023.
The result of this is that no regular annual contributions will be collected in 2024 from the institutions falling within scope of the SRF, and contributions would only be collected in the event of specific circumstances or resolution actions involving the use of the SRF.
The target level verification exercise will be performed each year to confirm that the available financial means at the SRF are at least 1% of the amount of covered deposits of all credit institutions authorised in the participating member states. The SRB will restart the regular collection of contributions if the results should prescribe so.
EBA releases a technical package for its 3.4 reporting framework
On 6 February 2024, the EBA published a technical package for version 3.4 of its reporting framework.
This package provides the standard specifications that include the validation rules, the data point model (DPM) and the XBRL taxonomies to support the amendments to the reporting and disclosure technical standards on minimum requirement for own funds and eligible liabilities and total loss absorbing capacity, as well as some minor corrections to the technical package on the interest rate risk in the banking book.
The DPM query tool has also been updated to reflect the current release.
EBA consults on Pillar 3 disclosures and supervisory reporting requirements for operational risk
On 20 February 2024, the EBA announced that it was launching a public consultation on two draft ITS amending Pillar 3 disclosures and supervisory reporting requirements for operational risk. The consultations complement two existing consultation papers published on Pillar 3 and supervisory reporting, which covered the disclosure and reporting requirements for output floor, credit risk, credit valuation adjustment, market risk and leverage ratio.
These amending ITS implement the new Capital Requirements Regulation reporting and disclosure requirements which are linked to the introduction of the revised framework for the calculation of own funds requirements for operational risk.
The consultation runs until 30 April 2024.
Changes to the Payment Services Regulation adopted
On 14 February 2024, the European Parliament’s Committee on Economic and Monetary Affairs voted to adopt two reports on proposed legislation to modernise the current Payment Services Directive (PSD2), which will become PSD3, and establish a Payment Services Regulation (PSR). It aims to support a more open and competitive payment services sector in the EU, with strong defences against fraud and data breaches.
PSR should provide more harmonisation for payment and electronic money services in the EU. It applies to banks, post office giro institutions and payment institutions. The proposed amendments to PSD2 aim to provide a level playing field for all payment service providers, secure and efficient digital payments and better access to cash, particularly in remote areas with fewer ATMs or card payment facilities.
Both texts are expected to be voted on during the first plenary session in April 2024 to close the first reading without agreement with Council. Negotiations between Parliament and Council are then expected to start after the elections.
EPC consults on verification of payee scheme rulebook
On 20 February 2024, the European Payments Council (EPC) launched its public consultation on the verification of payee (VOP) scheme rulebook and the proposed EPC recommendations for the matching processes under the VOP scheme rulebook.
The proposals aim to fulfil the EU legislative requirements set out by the IPR. As such, it is limited to verifications of a payee related to a SEPA credit transfer or a SEPA instant credit transfer and future versions of the rulebook could cover other payment instruments as well.
The proposed recommendations for the matching processes under the VOP scheme give the EPC the possibility to adapt its recommendations for the matching outcomes under the VOP scheme by further taking into account relevant market feedback and input and provides the responding PSP with recommendations on how they may determine the outcome of the matching process.
The public consultation runs for a 90 calendar day period from 20 February to 19 May 2024.
EBA consults on draft technical standards on residual risk add on hedges under the Fundamental Review of the Trading Book
On 1 February 2024, the EBA launched a public consultation on its draft RTS on the conditions for determining whether an instrument attracting residual risk acts as a hedge. These RTS are part of the phase 1 deliverables of the EBA’s roadmap on the implementation of the EU banking package in the area of market risk.
The residual risk add-on (RRAO) is one of the pillars of the standardised approach under the new fundamental review of the trading book framework. The Capital Requirements Regulation introduces a new provision within the RRAO framework which will allow for the exemption from the RRAO charge for instruments bearing residual risks that are taken to hedge instruments bearing residual risks too.
The consultation runs until 3 May 2024.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation Advisory team.
Date published: 21 March 2024