Financial Services Regulation and Compliance - Banking July 2019

DOMESTIC

Supervisory review process 2019

On 31 July 2019, the Central Bank of Ireland published information on the general criteria and methodologies which it uses in the supervisory review and evaluation process (SREP). This supervisory disclosure is required under the Capital Requirements Directive IV (CRD IV), and the CBI has provided information on the:

  • scope of application of the SREP
  • assessment of SREP Elements
  • review and evaluation of the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP)
  • overall SREP assessment and supervisory measures

CBI publishes final report of Tracker Mortgage Examination

On 16 July 2019, the CBI published the final report relating to the Tracker Mortgage Examination, the key finding showing that by the end of May 2019 lenders have paid out €683million in compensation and redress to customers affected by the Tracker Mortgage. The supervisory phase of the examination is complete and the CBI are in the process of taking enforcement actions against all main lenders. Director General of Financial Conduct Derville Rowland said: "The Examination revealed the unacceptable damage that misconduct can cause to consumers up to and including the loss of their homes and properties in some cases. Our message today – to all the firms we regulate – is very clear: Where firms fail to protect their customers’ best interests, our response will be robust and the consequences will be serious.”

CBI publishes Bank Lending Survey results for July

On 21 July 2019, the Central Bank published the results of its Bank Lending Survey. The survey found that:

  • loan demand from enterprises across all categories of lending remained unchanged in Q2
  • terms and conditions on loans to enterprises remained unchanged in Q2
  • the main drivers of increased demand were the improved housing market and the general demand for durable consumer goods, such as car loans
  • access to short term deposits has become easier, but access to long term deposits has deteriorated
  • there was no reported change in the impact of non-performing loans (NPLs) on bank activity in Q2

EUROPEAN

European Central Bank (ECB) publishes legal acts relating to targeted longer-term refinancing operations.

On 29 July 2019, the ECB published two legal acts relating to the third series of targeted longer-term refinancing operations (TLTRO III). The first ECB decision defines the conditions for participation in TLTRO III, while the second introduces a change to the notification period of voluntary early repayments for TLTRO II in order to facilitate the calculation of bid limits for TLTRO III.

EBA publishes communication to competent authorities about the relevance of money laundering/ terrorist financing concerns in the prudential submission process

On 25 July 2019, the European Banking Authority (EBA) published an Opinion on the link between money laundering/terrorist financing concerns and prudential objectives. The EBA wants prudential supervisors to make it clear to credit institutions that they work closely with anti-money laundering and counter terrorist financing (AML/CFT) supervisors to factor AML/CFT issues into the prudential supervisory process. Prudential supervisors need to be aware of money laundering and terrorist financing risks which may pose prudential risks to the institutions they supervise, in particular:

  • when considering whether to authorise an institution or when assessing proposed acquisitions and fitness and probity assessments
  • as part of their ongoing supervision of institutions
  • when taking administrative measures to address potential weaknesses from a prudential perspective

EBA publishes updates on CET1 capital instruments

On 22 July 2019, the EBA published an updated list of Common Equity Tier 1 (CET1) instruments of EU institutions. The EBA also published a CET1 Report, which discusses the underlying objectives of the monitoring as well as the consequences of including or excluding instruments from the list.

EBA amends ITS on supervisory reporting with regard to financial information

On 16 July 2019, the EBA published amendments to the Implementing Technical Standards (ITS) on supervisory reporting with regard to financial information. The amendments relate to the:

  • reporting requirements on non-performing exposures (NPEs) and forbearance to allow monitoring of reporting institutions' NPE strategies
  • the reporting requirements on profit and loss items
  • the implementation of the new International Financial Reporting Standard on leases

The first reporting reference date with regard to FINREP will be 30 June 2020.

EBA publishes updated ITS package for 2020 benchmarking exercise

On 16 July 2019, the EBA published an update to the ITS on the benchmarking of internal approaches. The update includes changes based on the comments received during the consultation launched on 18 December 2018. In particular, a number of changes reduce the reporting requirements, ensuring a more proportionate reporting burden.

EBA publishes Risk Dashboard

On 5 July 2019, the EBA published its Risk Dashboard which summarises the main risks and vulnerabilities in the EU/EEA banking sector, as well as the results of its Risk Assessment Questionnaire which discusses banks' and analysts' expectations for future trends and developments. The publications discuss:

  • European banks' CET1 ratios
  • the quality of EU/EEA banks' loan portfolios
  • banks' plans to further expand corporate lending and household loans
  • the profitability of EU/EEA banks

EBA publishes report on implementation of the guidelines on product oversight and governance arrangements

On 5 July 2019, the EBA published its first report examining the industry implementation of its consumer protection requirements in relation to oversight and governance arrangements. The report identifies a number of improvements in the industry as well as some continuing bad practices, caused by firms continuing to focus more on their own commercial interests than their customers' interests. The EBA plan to reflect on the findings in the report and address the issues raised in the coming months.

SRB publishes Paper on Public Interest Assessment

On 3 July 2019, the Single Resolution Board (SRB) published a paper outlining its approach when conducting a Public Interest Assessment (PIA). PIAs are an important part of the resolution framework, and examine whether the resolution of a bank that is failing or likely to fail would achieve one or more of the following:

  • maintain financial stability
  • protect covered depositors
  • safeguard public funds

The paper outlines the factors that the SRB takes into account and the process that it follows when conducting a PIA, with the aim of providing more transparency and certainty for banks and the markets.

ECB issues letter to credit institutions with regard to interest rate benchmark reforms and the use of risk-free rates

On 3 July 2019, the ECB sent a letter to the CEOs of those supervised firms categorised as significant credit institutions. The letter related to the ongoing benchmark reforms and the transition from the euro overnight index average (EONIA) to the new euro short-term rate (€STR). 

SRB 2018 Annual Report launched

On 1 July 2019, the SRB published its 2018 Annual Report. Their work during the year included:

  • more than 100 resolution plans for banks under the SRB's remit
  • agreement on the Risk Reduction Package by EU lawmakers
  • political agreement on the Common Backstop
  • publication of its Minimum Requirement for own funds and Eligible Liabilities policy and extensive communication with banks with the aim of having resolution plans for all banking groups under its remit by 2020

ESMA updates its Q&As regarding Regulation (EU) No. 575/2013 (CRR)

In July 2019, ESMA updated its Q&As regarding Regulation (EU) No. 575/2013 (CRR). The Q&As provide clarity to a number of topics, including:

  • the recovery rate of the foreclosure assets calculation
  • the treatment of failed significant risk transfers under Traditional Securitisation
  • own funds requirements and financial information
  • synthetic securitization of undrawn revolving credit facilities

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

Date published: 9 August 2019