Financial Services Regulation and Compliance - Banking and Payments July 2023

Domestic

Department of Finance publishes results of consultation on the exercise of its discretion under the Credit Servicers Directive

The Department of Finance (the Department) has published its decision on the exercise of the discretions afforded to the State under the Credit Servicers Directive (the decision), following a public consultation launched in January of this year. The decision confirms that the Department is intending to establish a dual regime, in which the directive will apply to post-transposition non-performing loans (NPLs) originating from credit institutions, and the existing Irish regime will apply to performing loans, NPLs originating from a lender other than a credit institution, and any pre-transposition NPL.

Another point of interest is Q10, which queried whether Ireland’s existing national authorisation and regulatory regime is equivalent to, or stricter than, those established in the directive. The Department determined that the Irish regime was sufficiently strict, with the effect that entities carrying out credit servicing activities under the provisions of Part V of the Central Bank Act 1997 will automatically be recognised as authorised credit servicers.

The deadline for transposition of the directive is 29 December 2023.

CBI publishes MCAR guidance as CAR goes live

On 4 July 2023, the Central Bank of Ireland (CBI) issued updated guidance (the guidance) on the Monthly Client Assets Report (MCAR) to accompany the refreshed MCAR template. This guidance coincides with the client asset requirements (CAR) becoming binding on Irish investment firms from 1 July 2023, and precedes CAR becoming applicable to credit institutions carrying out MiFID activities from 1 January 2024.

The guidance is intended to be read in conjunction with the CAR and the investor money requirements (IMR). Its primary purpose is to assist investment firms and credit institutions subject to the CAR and fund service providers subject to the IMR in complying with CAR and the IMR.

CBI Director of Consumer Protection delivers remarks on authorised push payment fraud

On 12 July 2023, CBI Director of Consumer Protection, Colm Kincaid, delivered a speech to the Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach regarding authorised push payment fraud (APP). Referring to the CBI’s 2023 Consumer Protection Outlook Report, Mr Kincaid underlined the CBI’s expectation that regulated firms have effective systems in place to identify and prevent fraud and that they support consumers who fall victim to it. In the case of APP fraud, this includes taking steps to trace and recover money lost where possible. Firms are also expected to take responsibility to compensate consumers to the extent that a consumer’s loss has resulted from a failure of the firm’s own established systems and controls.

Mr Kincaid also signalled the CBI’s desire for a co-ordinated response to APP fraud across industry and public sector agencies. Payment service providers are encouraged to continue to work together to develop their own systems, perhaps including such measures as the introduction of coordinated IBAN checks.

European

European Commission adopts RTS on Risk Retention under STSR via Delegated Regulation

On 7 July 2023, the European Commission adopted regulatory technical standards (RTS) specifying in greater detail the risk retention requirements for originators, sponsors, original lenders, and servicers under the Simple, Transparent and Standardised (STS) Securitisation Regulation. The Commission Delegated Regulation is now subject to a scrutiny period of three months, during which time the Parliament and Council may formulate objections.

EBA launches public consultation on draft templates for collecting climate related data for Fit-for-55 climate risk scenario analysis

On 20 July 2023, the European Banking Authority (EBA) published draft templates for collecting climate-related and financial information on credit risk, market, and real estate risks from EU banks, accompanied by a template guidance including definitions and rules for compiling the templates.

A public consultation on these draft templates will run until 11 October 2023. Data collection will commence in November. The one-off Fit-for-55 climate risk scenario analysis expected to begin by the end of 2023. It will be carried out by the EBA, together with the other European Supervisory Authorities and with the support of the European Central Bank (ECB) and the European Systemic Risk Board (ESRB).

Supervisors of banks are making progress in the fight against financial crime, the EBA finds

On 11 July 2023, the EBA published the findings from its 2022 review of national competent authorities’ (NCAs) approaches to tackling money-laundering (ML) and terrorist financing (TF) risks in the banking sector. Overall, the EBA’s findings suggest that supervisors are making progress in the fight against money laundering and terrorist financing. Some NCAs in the EBA’s sample have made far-reaching changes in recent years, and their approach to anti-money laundering and counter terrorism financing (AML / CFT) supervision of banks is now broadly effective.

NCAs still find it difficult to assess ML / TF risk. Several NCAs in the 2022 sample did not use their ML / TF risk assessments to inform their supervisory strategy and inspection plans. A general lack of formalised processes and targeted training for AML / CFT and prudential supervisors meant that opportunities for intervening at an early stage, before risks crystallise, were sometimes missed.

EBA to collect ESG data from institutions on ad hoc basis in advance of formal supervisory framework under CRR3

On 18 July 2023, the EBA published a decision stating its intention to collect environmental, social, and governance (ESG) data from large, listed institutions based on their Pillar 3 quantitative disclosures on an ad-hoc basis. This data will enable competent authorities to monitor ESG risks and will support the EBA in fulfilling its ESG mandates. This collection will be discontinued once a formal supervisory reporting framework on ESG is put in place.

The first annual submission reference date is set as of 31 December 2023. NCAs will need to submit institutions’ data to the EBA by June 2024.

EBA publishes results of EU Stress Test

On 28 July 2023, the EBA published the results of its 2023 EU-wide stress test. This stress test allows supervisors to assess the resilience of EU banks over a three-year horizon under both a baseline and an adverse scenario. The 2023 adverse scenario combines a severe EU and global recession, increasing interest rates and higher credit spreads, and presumes the most severe GDP decline yet applied in a stress test.

The EBA found that EU banks remain sufficiently capitalised to continue to support the economy also in times of severe stress. The impact of this adverse scenario was found to be less severe than the results from the 2021 exercise, reflecting the changed interest rate environment. This shows that banks have built up sufficient capital to absorb such impacts, demonstrating increased resilience despite the current high levels of economic uncertainty.

EBA publishes final guidance on overall recovery capacity in recovery planning

On 19 July 2023, the EBA published its final guidelines on computing the overall recovery capacity (ORC) of an institution in recovery planning (the guidelines). The ORC provides a summary of the institution’s capacity to restore its financial position after a significant deterioration by implementing suitable recovery options. The guidelines are intended to harmonise observed practices on ORC determination and assessment, so as to improve the usability of recovery plans and make crisis preparedness more effective. The first section of the guidelines is pitched at institutions and outlines the relevant steps in establishing a reliable ORC framework. The second section, addressed to NCAs, outlines the core elements of an ORC assessment from a quantitative and qualitative perspective.

EBA publishes updated report on monitoring AT1, AT2, TLAC, and MREL instruments

On 21 July 2023, the EBA published an updated report on the monitoring of Additional Tier 1 (AT1), Tier 2 and total loss absorbing capacity (TLAC) and minimum requirement for own funds and eligible liabilities (MREL) instruments of EU institutions. The EBA notes convergence and standardisation in terms of drafting of the terms and conditions of the instruments and issuance programmes, and makes a number of new recommendations:

  • TLAC / MREL disqualification events clauses in own funds issuances are deemed acceptable
  • the use of risk-adjusted capital Tier 2 instruments (RAC Tier 2) is to be discouraged
  • alignment event clauses may be permitted under certain conditions
  • institutions should be able to demonstrate that interest rate reset mechanisms do not entail incentives to redeem
  • a certain degree of supervisory flexibility has been introduced on tap issuances from small issuers, particularly during episodes of market volatility

ECB launches public consultation on guide on effective risk data aggregation and risk reporting

On 24 July 2023, the EBA published a guide on effective risk data aggregation and risk reporting (RDARR). The guide is intended to specify and reinforce supervisory expectations in this field, taking into account the Basel Committee on Banking Supervision’s Principles for effective risk data aggregation and risk reporting (BCBS 239). The guide focusses on seven areas in particular:

  • the responsibility of a bank’s management body
  • the scope of application of the data governance framework
  • key roles and responsibilities for data governance
  • the implementation of a group-wide integrated data architecture
  • the effectiveness of data quality controls
  • the timeliness of internal risk reporting
  • implementation programs

The EBA has launched a public consultation on this guide, which will run until 6 October 2023.

Alterations to TIPS pricing structure announced

On 4 July 2023, the ECB announced that the pricing structure for the TARGET instant payment settlement (TIPS) platform will change on 1 January 2024.

  • The fee for each instant payment transaction will remain unchanged at €0.002, but that fee will be shared equally between the sending participant and the receiving participant in TIPS.
  • Monthly maintenance fees will be introduced for payment service providers (PSPs) and automated clearing houses (ACHs) that are connected to the platform.
  • PSPs will be charged €800 per month for each dedicated cash account (DCA) held on the platform, plus €20 per month for each bank identifier code (BIC) that is authorised to settle instant payments in the DCA.
  • One BIC will be included free of charge with each DCA, and the total number of chargeable BICs will be limited to 50.

ESG & Sustainability bulletin

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Date published: 16 August 2023