Financial Services Regulation and Compliance - Banking Jul 2021
Financial Services Regulation and Compliance - Banking Jul 2021
"Higher debt can limit room for manoeuvre" – Deputy Governor of the CBI, Sharon Donnery
On 2 July 2021 Deputy Governor of the Central Bank of Ireland (CBI), Sharon Donnery spoke as part of a panel discussion at the Rencontres Économiques d'Aix-en-Provence. During her speech Ms. Donnery spoke about the levels of public debt in the post-pandemic environment. Ms. Donnery highlighted that the increase in government debt in order to support government health, households and economy was justified. Ms. Donnery also outlined that …"Ireland is among the most vulnerable economies to both cyclical and structural changes in the global economy…" Resilience was emphasised as being significant for our economy in order to react to any shocks to the economy in future.
Ms. Donnery noted that additional revenue by raising measures or cuts in spending in the medium term may be needed by the Government in order to address the following:
spending pressures related to an ageing population
the need to invest in critical infrastructure such as housing
meeting climate change targets
the potential fall-off in corporate tax revenue
"More action is needed by lenders to resolve long-term mortgage arrears, to support distressed borrowers and improve the functioning of the mortgage market for all" – Deputy Governor of the CBI, Ed Sibley
On 13 July 2021, Deputy Governor of the CBI, Prudential Regulation, Ed Sibley gave a speech at a briefing at the Banking and Payments Federation Ireland. Mr. Sibley focused on the CBI's work in relation to distressed debt and long term mortgage arrears. It was noted that long-term mortgage arrears is a key policy priority for the CBI. Mr. Sibley outlined the CBI's expectation that lenders and borrowers engage to develop and implement solutions according to each individual borrower's circumstances.
Mr. Sibley noted that in regards to long-term mortgage distress, the CBI's supervisory focus will be monitoring senior management of lenders to ensure that they are:
reviewing the waterfall of restructuring options that they have in place
reviewing and improving their contact management strategies
reviewing and improving their approach to dealing with personal insolvency practitioners
keeping their mortgage arrears strategies under review and making sure that the underpinning plans are delivering effectively
Mr. Sibley also noted that based on the feedback received from the public consultation to review the standard financial statement (SFS), the CBI will publish a reviewed SFS. The revised SFS will become effective from 1 January 2022.
CBI publishes checklist for authorisations of credit institutions and third country branches
The CBI has published two checklists for the completion and submission of authorisation applications for:
credit institutions under s.9 of the Central Bank Act 1971
third country branches under s.9A of the Central Bank Act 1971
EBA launches a consultation on limited network requirements under the Payment Services Directive (PSD2)
The European Banking Authority (EBA) launched a public consultation on draft guidelines providing clarity on the application of the limited network exclusion requirements, which certain payment instruments might benefit from, as laid down in PSD2. Such payment instruments include store cards, fuel cards, public transport cards, and meal vouchers.
Given the significant inconsistencies the EBA has identified in how this exclusion is applied across the EU, the proposed guidelines aim to clarify specific aspects of its application, including:
how a network of service providers or a range of goods and services should be assessed in order to qualify as 'limited'
the use of payment instruments within limited networks
the provision of excluded services by regulated financial institutions and the submission of notification to competent authorities.
The consultation runs until 15 October 2021.
EBA consults on technical standards on risk retention requirements under the Securitisation Regulation
The EBA has launched a consultation on draft technical standards (RTS), which specify the requirements for originators, sponsors, original lenders and servicer related to risk retention, in line with the Securitisation Regulation. The objective of the RTS is to reduce the risk of moral hazard and aligning interests by providing clarity on the requirements in relation to risk retention. This consultation runs until 30 September 2021.
EBA publishes a revised decision confirming quality of unsolicited credit assessments
On 1 July 2021 the EBA published a revised decision which confirms the quality of unsolicited credit assessments assigned by certain external credit assessment institutions (ECAIs) for calculating institutions' capital requirements. This decision is part of the Single Rulebook in banking and has the objective of ensuring there is harmonisation across the EU in relation to using unsolicited credit ratings when determining institutions' own fund requirements.
EBA publishes final guidelines for the use of data inputs in the expected shortfall risk measure under the Internal Model Approach
On 13 July 2021 the EBA published its final guidelines to clarify the requirements that the data inputs used to determine the scenarios of future shock applied to modellable risk factors should meet. These guidelines set out requirements in relation to the accuracy, appropriateness, frequency for updating and completeness of the data inputs used by institutions for their modellable risk factors. These guidelines will apply from 1 January 2022.
EBA welcomes ECJ ruling supporting EBA guidelines on product oversight and governance
On 15 July 2021 the EBA welcomed the judgment of the European Court of Justice which supported the validity of the EBA's guidelines on product oversight and governance. First, the ruling supports the EBA's ability to reduce the prudential impact of misconduct for financial institutions and to protect consumers from banking products that are not fit for purpose. Secondly, the court confirmed that even though the EBA guidelines are not legally binding, supervisory authorities and financial institutions must make strong efforts to comply with the guidelines and that there is an expectation on national courts to take the EBA guidelines into account when resolving cases.
EBA launches consultation to amend its technical standards on currencies with constraints on the availability of liquid assets
On 16 July 2021 the EBA launched a consultation on amendments to its implementing technical standards (ITS) on currencies with constraints on the availability of liquid assets in relation to the liquidity coverage ratio. The proposed amendments will result in no currency being recognised as having constraints on the availability of liquid assets and proposes that the Norwegian krone is removed from the list of currencies with constraints. The Norwegian krone is the only currency on the list. This consultation will run until 16 October 2021.
EBA publishes methodological guide to mystery shopping
On 21 July 2021 the EBA published a methodological guide to mystery shopping (MS). The EBA took the findings and good practices identified in the EBA report on MS activities of national competent authorities (NCAs) when drafting this report. The objective of the report is to support NCAs when designing and implementing MS activities. The guide includes seven steps on how MS activities can be formed and implemented. This guide is not mandatory and aims to support NCAs that are in a position to implement MS activities.
ECB decides not to extend dividend recommendation beyond September 2021
On 23 July 2021 the European Central Bank (ECB) decided not to extend its recommendation beyond September 2021 that all banks should limit dividends. Supervisors are to return to pre-pandemic practices of assessing banks' capital and dividend plans. The ECB has taken this action as the latest macroeconomic projections have confirmed that the economic rebound points to reduced uncertainty. This is improving the reliability of banks' capital trajectories. However, the ECB wants banks to remain cautious and not underestimate credit risk when deciding on dividends. The current recommendation on dividends will be in place until 30 September 2021.
EBA launches consultation on technical standards to identify shadow banking entities
On 26 July 2021 the EBA launched a consultation on draft regulatory technical standards (RTS) which sets out the requirements for the identification of shadow banking entities for the purposes of reporting large exposures. This consultation runs until 26 October 2021. In the draft RTS, entities that offer banking services and perform banking activities but are not regulated and are not supervised in accordance with any of the acts which form the regulated framework are identified as shadow banking entities. Money market funds are also identified as shadow banking entities.
EBA publishes clarifications to sixth set of issues raised by industry working group on application programming interfaces under PSD2
On 30 July 2021 the EBA published clarifications in relation to the sixth set of issues that were raised by members of its working group on application programming interfaces under PSD2. These clarifications are in response to issues such as preventing social engineering fraud, authentication of electronic signatures and biometrics and authentication on mobile apps.
EBA publishes final guidelines on the monitoring of the threshold for establishing an intermediate EU parent undertaking
On 28 July 2021 the EBA published its final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate EU parent undertakings (IPU) as outlined in the Capital Requirements Directive. Specifically, the guidelines outline the process by which third country groups should monitor and calculate the total value of their assets in the EU to ensure the timely application of the IPU requirement. The guidelines state that the total value of assets in the EU of third country groups should be calculated as an average over the last four quarters and that the value should be monitored on a quarterly basis.