Financial Services Regulation and Compliance - Banking Feb 2021

DOMESTIC

CBI Consultation on New Methodology to Calculate Funding Levies payable by Payment Institutions and E-Money Institutions

The Central Bank of Ireland (CBI) has launched a consultation paper (CP137) seeking the views of interested parties in relation to a revised methodology for calculating the Industry Funding Levy payable by payment institutions and e-money institutions. The revised methodology would take the evolving market landscape into account as well as the revisions to the CBI’s PRISM risk models and a funding strategy which aims to achieve a predictable, transparent and proportionate approach to the calculation of levies. The proposal set out in CP137 is that from 2020 onwards, firms will be charged a levy made up of both a flat fee and a variable element.  The charging structure will be reflective of the prudential, conduct and AML/CTF risks attributable by the CBI to each firm. The flat fee will be assessed annually and the variable element will be determined on the basis of either the total value of annual transactions or a combination of the total value of annual transactions and average value of user funds held. The closing date for submissions is 16 April 2021.

CBI updates prudential regulatory flexibility measures available for credit institutions

The CBI has issued an update in relation to the prudential regulatory flexibility measures available for credit institutions under its remit. While the CBI applied supervisory flexibility in relation to the deadlines for remedial actions/measures in March 2020 in order to allow entities to take the necessary steps to cope with substantial changes in operational demands, the CBI has outlined that it now expects credit institutions to meet specific RMP submission dates. In relation to Pillar 3 disclosures, credit institutions are required to assess the need for additional disclosures in order to accurately convey their risk profiles in light of the COIVD-19 pandemic.

EUROPEAN

EBA provides additional clarity on the implementation of selected COVID-19 policies

The European Banking Authority (EBA) has published additional clarifications on the application of the prudential framework in response to issues arising as a consequence of the COVID-19 pandemic, specifically on the implementation of the EBA guidelines on moratoria and the EBA guidelines on COVID-19 reporting and disclosure.

Additional technical clarifications on the application of the guidelines on moratoria have been included in the report. The EBA has provided further guidance on the functioning of the nine-month cap (the limit on the period of time for which payments on a certain loan can be suspended, postponed or reduced as a result of the application and reapplication of general payment moratoria). The clarifications address how the guidelines on moratoria should be applied when assessing forbearance classification and how to determine whether there is a diminished financial obligation in relation to moratoria applied to loans exceeding the nine-month cap.

The updated report also provides clarity as to the reporting and disclosure requirements arising in the context of loans and advances subject to expired moratoria. In particular, the report provides that upon the expiration of a moratorium, loans and advances subject to this expired measure must be reported, whether or not they are subject to another measure.

Eurosystem agrees on common stance for climate change-related sustainable investments in non-monetary policy portfolios

The Eurosystem central banks - the 19 national central banks of the euro area countries and the European Central Bank (ECB) - have defined a common stance for applying sustainable and responsible investment principles in the euro-denominated non-monetary policy portfolios that they each manage under their own responsibility. The agreement has been reached following extensive work within the Eurosystem and incorporates the analysis and recommendations of the Network for Greening the Financial System. It is envisaged that this common stance will facilitate Eurosystem members in contributing to the transition to a low-carbon economy and to EU climate goals. The aim of the common stance is to enhance awareness and understanding of climate risks while promoting climate-related disclosures.

The CBI has fully endorsed the common stance, which is in line with the CBI's existing climate change priorities, and has begun work to implement this approach in collaboration with its Eurosystem colleagues. 

Clarification Paper on the SEPA Request-to-Pay scheme rulebook

The EPC has published a clarification paper on the Single Euro Payments Area (SEPA) Request-to-Pay (SRTP) scheme rulebook. The aim of the document is to offer guidance and recommendations (where possible) to the future SRTP scheme participants on matters which were not as such described in version 1.0 of the SRTP scheme rulebook, which was published on 30 November 2020. The EPC notes that the paper is a living document which will be updated when issues or questions which require further clarification arise.

EBA consults on guidance to assess breaches of the large exposure limits

The EBA has launched a consultation on the criteria that competent authorities should use to assess a breach of the large exposure limits. The consultation paper sets out the criteria to determine the period of time and the measures for institutions to return to compliance with those limits. The consultation runs until 17 May 2021 and the guidelines will apply from 1 March 2022.

The guidelines provide that any breach of the large exposure limits of Article 395(1) of the Capital Requirements Regulation (CRR) should always be considered as an exceptional case. The guidelines, which set out the criteria to assess such breaches, have been developed by the EBA to assist competent authorities in their assessment and harmonise the approach across the Single Market. When carrying out such an assessment, competent authorities are required to consider at least the following three criteria: whether the breach was a rare event; whether the institution could foresee the event when it had applied a proper and effective risk management; and whether it was caused by reasons beyond the institution’s control. If the breach does not fulfil those criteria, the competent authority should require the institution to restore compliance with the large exposure limit within three months.

EBA publishes final guidelines on the conditions for the alternative treatment of “tri-party repurchase agreements” for large exposure purposes

The EBA has published final guidelines specifying the conditions for the application of the alternative treatment of institutions’ exposures related to ‘tri-party repurchase agreements’ for large exposure purposes. The alternative treatment allows institutions to replace the total amount of their exposures to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent, with the full amount of the limits that the institution has instructed the tri-party agent to apply to those exposures. If such a replacement is performed, institutions will be required under the CRR to comply with the following three conditions:

• the institution must verify that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits instructed by the institution
• the competent authority has not expressed to the institution any material concerns
• the sum of the limit instructed by the institution to the tri-party agent, and any other exposures of the institution to the collateral issuer does not exceed the limit set out in Article 395(1) of the CRR

The final guidelines also set out the requirements in relation to the conditions and frequency for determining, monitoring and revising the limits specified by the institution. The guidelines will apply from 28 June 2021.

ECB publishes consolidated banking data for end-September 2020

The ECB has published the consolidated banking data with reference to end-September 2020, a dataset of the EU banking system compiled on a group consolidated basis. The end-September 2020 data is made up of data from 320 banking groups and 2,630 stand-alone credit institutions operating in the EU (including foreign subsidiaries and branches), and covers almost 100% of the EU banking sector balance sheet. Among the findings were:

• total assets of EU-headquartered credit institutions (excluding the United Kingdom) increased by 5.36%, from €28.2tn in September 2019 to €29.7tn in September 2020
• EU non-performing loans ratio (excluding the United Kingdom) dropped by 0.16% year on year to 2.75% in September 2020

EBA publishes final draft technical standards on disclosure of indicators of global systemic importance by G-SIIs

The EBA has published its final draft Implementing Technical Standards (ITS) on the disclosure of indicators of global systemically important institutions (G-SIIs). The purpose of the standards is to ensure consistency of information and to help to identify which banks are GSIIs and specify the formats and instructions in accordance with which G-SIIs disclose the information required under the CRR. The ITS amend the final draft ITS on institutions’ public disclosures, the objective of which is to define a single, comprehensive Pillar 3 framework under the CRR that should integrate all the relevant Pillar 3 disclosure requirements. It is hoped that the ITS will assist institutions’ implementation and provide additional clarity for users of such information, as set out in the EBA Pillar 3 roadmap.

EBA calls on national authorities to take supervisory actions to remove obstacles to account access under the Payment Services Directive

The EBA has published an opinion on supervisory actions national competent authorities (NCAs) should take to ensure banks remove any remaining obstacles that prevent third party providers from accessing payment accounts, which restrict EU consumers’ choice of payment services. It is envisaged that the opinion will assist in creating a level playing field across the EU and achieving consistent application and supervision of relevant requirements under the Payment Services Directive (PSD2) and the EBA Regulatory Technical Standards on strong customer authentication and common and secure communication (RTS on SCA&CSC).

In the opinion, the EBA outlined its expectations in relation to the action NCAs should take to ensure that remaining obstacles are removed from the interfaces of account servicing payment service providers (ASPSPs). National authorities are required to consider the progress made by ASPSPs in their respective jurisdictions and the relevant supervisory action should be taken by 30 April 2021 where it is identified that obstacles have not been removed. Where obstacles continue to exist following the deadline, the EBA has set out its expectation that NCAs will take effective supervisory measures to ensure compliance with the applicable law. Such supervisory measures may include revoking exemptions from the contingency mechanism already granted to ASPSPs and/or by imposing fines.

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

Date published: 9 March 2021