Financial Services Regulation and Compliance - Banking Dec 2019

DOMESTIC

Evaluation of Concept of Community Banking in Ireland Report (prepared by Indecon International Economic Consultants) was published by the Department of Finance.

This is an independent evaluation of how community banking may be furthered in Ireland. It sets out existing financial services provision among various population concentrations in Ireland, for both consumers and businesses. The report analyses:

  • whether there is market ‘failure’ in the local provision of financial services
  • the range of existing state supports designed to address market failure
  • policy recommendations for consideration

Outcome of Central Bank of Ireland decisions to strengthen resilience of Irish financial system and households

The Central Bank of Ireland (CBI) has published the second Financial Stability Review (FSR) of 2019. The FSR outlines key risks facing the financial system and the CBI assessment of the resilience of the economy and financial system to adverse shocks. The FSR indicates that:

  • As a small and open economy, Ireland remains vulnerable to shocks arising abroad. The possibility of a disorderly Brexit, changes to global tax policy, the risk of escalating trade wars and a sudden change to global financial conditions are all ongoing risks to financial stability in Ireland.
  • While the further fall in global interest rates mitigates near-term debt sustainability concerns, this can build vulnerabilities in the medium term.
  • Domestically, an economy close to capacity and continued lending growth points to a gradual build-up of cyclical systemic risk.
  • Overall, the banking system is now better able to absorb – rather than amplify – shocks, but profitability challenges have become more acute.

EUROPEAN

Joint statement by the EU Council and Commission on "stablecoins"

The EU Council and Commission have adopted a statement in relation to "stablecoins". It states that while "stablecoins" may present opportunities in terms of cheap and fast payments, especially cross-border payments, these arrangements pose multifaceted challenges and risks. These relate to consumer protection, privacy, taxation, cyber security and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty, and that there is therefore a need to ensure legal clarity about the status of "stablecoin" arrangements. The Council and the Commission state that no global "stablecoin" arrangement should begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.

EBA confirms progress in banks’ balance-sheet repair but points to a bleak outlook for their profitability

The European Banking Authority (EBA) has published its annual report on risks and vulnerabilities in the EU banking sector. The report is accompanied by the publication of the 2019 EU-wide transparency exercise, which provides detailed information for 131 banks across the EU. Overall, EU banks’ solvency ratios remained stable, while the NPL ratio further contracted. The report stated that amidst low profitability, a proactive management of operating expenses is essential.

ECB publishes revised supervisory fee framework

The European Central Bank (ECB) has published its amended regulation on supervisory fees, which is the outcome of two public consultations. It has also updated the related decision on the data used to calculate annual fees. The revised framework will apply from the 2020 fee period onwards. The changes mainly relate to the individual fees charged to banks supervised by the ECB and their collection. The main changes are:

  • less significant banks with total assets of €1 billion or less to benefit from lower fees
  • administrative burden for most banks reduced

Single Resolution Board extends prior permissions procedure

The Single Resolution Board (SRB) has confirmed its procedure to assess applications to reduce eligible liabilities instruments under Article 78a of the Capital Requirements Regulation will remain in place until the relevant European Banking Authority’s Regulatory Technical Standards come into force. To continue performing market-making and other secondary market activities as of 1 January 2020, banks must obtain a prior permission. To cover the period until the standards come into force, the SRB confirms and extends the conditions published on 25 June 2019 in the CRR addendum to the SRB’s MREL policy:

  • the aggregate trading volume in these activities does not exceed 1% TREA on a consolidated basis at the level of the resolution group
  • any MREL shortfall, or increase thereof, resulting from these market-making activities is compensated with eligible liabilities instruments on a quarterly basis

EBA calls on banks to consider long-term horizons in their strategies and business activities

The European Banking Authority (EBA) has published its report on undue short-term pressures from the financial sector on corporations, which presents its analysis on the extent to which short-termism is present in the banking sector. The EBA especially recommends to the European Commission and the EU legislators:

  • to maintain a robust regulatory prudential framework as a pre-condition for long-term investments, while continuing monitoring potential unintended consequences of financial regulations on the supply of sustainable investment financing
  • to foster the adoption of longer-term perspectives by institutions through more explicit legal provisions on sustainability in the Capital Requirements Directive (CRD)
  • to continue enhancing disclosures of long-term risks and opportunities, by both corporations and banks, by setting principles and requirements that can ensure comparability and reliability of disclosure e.g. through amendments to the Non-Financial Reporting Directive
  • to improve information flows, data access and support the role of the banking sector in raising awareness on sustainability challenges and environmental, social and governance (ESG) risks

EBA publishes final draft standards on key aspects related to the implementation of the standardised approach for counterparty credit risk

The European Banking Authority (EBA) has published its final draft Regulatory Technical Standards (RTS) on the Standardised Approach for Counterparty Credit Risk (SA-CCR). The final draft RTS set out the method for identifying the material risk drivers of derivative transactions on the basis of which the mapping to one or more of the risk categories is to be done.

EBA consults to revise standards to identify staff with a material impact on the institution’s risk profile

The European Banking Authority (EBA) has launched a public consultation on its draft RTS on the criteria to identify all categories of staff whose professional activities have a material impact on the institutions’ risk profile (“risk takers”). The aim of these standards is to define and harmonise the criteria for the identification of such staff and to ensure a consistent approach across the EU. The suggested identification process is based on a combination of qualitative and quantitative criteria. The consultation runs until 19 February 2020.

For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.

Date published: 13 January 2020