Financial Services Regulation and Compliance - Banking Feb 2022
Financial Services Regulation and Compliance - Banking Feb 2022
New AML regulations to establish central database of bank accounts and safe-deposit boxes
On 3 February 2022, the European Union (Anti-Money Laundering: Central Mechanism for Information on Safe-Deposit Boxes and Bank and Payment Accounts) Regulations 2022 (the regulations) were signed by the Minister for Finance and came into force on that date.
The regulations authorise the Central Bank of Ireland (CBI) to establish and maintain a central register of information on safe-deposit boxes and bank and payment accounts, as required under Article 32a of the Fourth Anti-Money Laundering Directive (4AMLD), as amended by the Fifth Anti-Money Laundering Directive.
4AMLD required Member States to put in place "centralised automated mechanisms, such as central registries or central electronic data retrieval systems, which allow the identification, in a timely manner, of any natural or legal persons holding or controlling payment accounts and bank accounts identified by IBAN ... and safe-deposit boxes held by a credit institution within their territory."
The regulations apply to credit institutions, including branches, which are established in the State, whether their head office is situated within the EU or in a third country.
The CBI has indicated that it is in the process of finalising technical requirements for the Central Database and will make them available to all eligible credit institutions as soon as possible.
CBI requires improvements to retail bank's customer support phone lines
A review by the CBI of call waiting times on the customer support phone lines in the main retail banks has highlighted areas for improvement.
The CBI have engaged directly with the retail banks to implement robust action plans to ensure the level of customer service provided on support phone lines is sufficient to manage both normal call volumes and to deal with surge events. The banks have provided details of measures they are taking to address the issues highlighted by the CBI's review, including increased capacity and staffing levels.
The CBI expects firms to report to it on the implementation of these measures over the course of the year.
ECB will not extend capital and leverage relief for banks
On 10 February 2022, the ECB published a press release announcing that it sees no need to allow banks to operate below the level of capital defined by their Pillar 2 guidance beyond December 2022. Further, it will not extend the ability of banks to exclude central bank exposures from their leverage ratios beyond March 2022.
In response to the COVID-19 pandemic, in March 2020 the ECB allowed banks to operate below the level of capital defined by the Pillar 2 Guidance and the capital conservation buffer. In July 2020, the ECB committed to maintaining this full buffer flexibility until at least the end of 2022.
In September 2020, the ECB allowed banks to exclude certain central bank exposures from the denominators of their leverage ratios owing the macroeconomic circumstances of the pandemic. In June 2021, the ECB extended that measure until March this year.
The ECB noted that, although there is still some uncertainty regarding the impact of the pandemic, banks have ample headroom above their capital requirements and above the leverage ratio requirement. As such, the allowances made in response to the COVID-19 pandemic will not be extended further.
The EBA publishes final guidelines on the limited network exclusion under the Payment Services Directive
The EBA has published its final guidelines (the guidelines) on the limited network exclusion (LNE) under the Payment Services Directive (PSD2).
The EBA had become aware of inconsistencies in the implementation and application of the LNE between Member States since the publication of PSD2, which impedes the single market for payment services and creates regulatory arbitrage. The purpose of these guidelines is to clarify, and bring convergence to, a number of aspects in relation to the application of the LNE. These include the use of payment instruments within a limited network, the criteria and indicators to qualify a limited network of service providers or a limited range of goods and services as such and the notification requirements. In order to address potential concerns on circumvention of the requirements of PSD2 and to increase transparency for consumers who may not be aware that they do not benefit from the protection PSD2 the guidelines also provide clarity on the provision of excluded services by regulated firms.
The guidelines will apply as of 1 June 2022 with an additional three-month transitional period for issuers that already benefit from the exclusion to submit a new notification to their national competent authority.
Frank Elderson's keynote speech at the ECB's industry outreach event
On 18 February 2022, Frank Elderson, member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board of the ECB, delivered the keynote speech at the ECB's industry outreach event on the thematic review on climate-related and environmental risks.
His speech, entitled 'towards an immersive supervisory approach to the management of climate-related and environmental risks in the banking sector', focused on the current state of climate-related and environmental (C&E) risk management practices in the banking sector, and the ECB's upcoming thematic review of these risks.
Mr Elderson noted that, despite banks acknowledging the materiality of C&E risks, there is little progress being made towards actively managing these risks. Progress in this regard is a key focus for the ECB. Banks should adopt a strategic approach to managing C&E risks, using the full array of the risk management instruments at their disposal.
The 2022 SREP cycle will be marked by several key initiatives, which represent the next level of maturity for the ECB's supervision of C&E risks. The first of these initiatives is the climate risk stress test, launched in January 2022. This is primarily a learning exercise, to see how ECB supervised banks are exposed to C&E risks. The second initiative is a comprehensive review of banks’ practices related to strategy, governance and risk management – the thematic review on C&E risks. The main goal of this is to assess the evolution of the soundness, effectiveness and comprehensiveness of banks’ C&E risk management practices, as well as their ability to steer their C&E risk strategies and risk profiles.
Following up on the thematic review, all banks under ECB direct supervision will receive comprehensive feedback setting out any shortcomings identified. Combined with the observations from the climate stress test, this will also be qualitatively integrated in the SREP scores, which may have an indirect impact on minimum capital requirements.
EBA updates methodology for assessing third country equivalence of regulatory and supervisory frameworks
On 21 February 2022, the EBA published its updated questionnaires, which are used for the assessment of regulatory and supervisory frameworks of third countries, to reflect certain provisions recently introduced by the revised prudential regulation in the EU.
Following a request by the European Commission, the EBA assessed the supervisory and regulatory requirements of third country jurisdictions. The methodology used for this type of assessment is based on two questionnaires:
1st step questionnaire, which provides an initial screening, focusing on the most relevant requirements and principles and identifying similar laws in place.
2nd step questionnaire, which allows for a granular and more detailed investigation of third country frameworks by identifying and mapping similar rules and provisions to the CRR and analysing the divergences.
Following the most recent updates of the CRD V and of the Capital Requirement Regulation (CRR2), which entered into force in June 2021, the EBA has updated the questionnaires to reflect the provisions introduced by the new EU framework. The new questionnaires replace the previous questionnaires in their entirety.
The EBA publishes its annual assessment of banks' internal approaches for the calculation of capital requirements
On 22 February 2022, the European Banking Authority (EBA) published its reports on the annual market and credit risk benchmarking exercises. These exercises are aimed at monitoring the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements. These annual benchmarking exercises contribute to the work the EBA is conducting to improve the regulatory framework, increase convergence of supervisory practices and, as a result, restore confidence in internal models. For credit risk internal models, the EBA has followed its roadmap for the implementation of the regulatory review of internal models.
For credit risk, the variability of RWA remained rather stable, despite the pandemic and banks’ efforts to re-develop or re-calibrate their models to comply with the policies set out in the EBA internal rating-based (IRB) roadmap. A particular focus has been put on analysing the impact of the pandemic and the compensating public measures on the IRB models.
Regarding market risk, for the majority of participating banks, the results confirm low dispersion in the initial market valuation (IMVs) and increased dispersion in the VaR submissions.
Sanctions imposed in response to the crisis in the Ukraine
Over the course of February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.