Financial Services Regulation and Compliance - Banking May 2021
CBI updates forms for payment institutions
The CBI has updated the following forms for payment institutions:
- Notification Form for the Exchange of Information in relation to Branch Passport Applications by Payment Institutions and E-Money Institutions.
- Notification Form for the Exchange of Information in relation to Start of Branch/Agent/Distributor Passport Activities by Payment Institutions and E-Money Institutions.
- Notification Form for the Exchange of Information in relation to Freedom to Provide Services Applications by Payment Institutions and E-Money Institutions with no Agent or Distributor.
Opening statement by Gráinne McEvoy, CBI Director of Consumer Protection, to the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and the Taoiseach
On 12 May 2021, Grainne McEvoy, CBI Director of Consumer Protection, spoke to the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and the Taoiseach in relation to the existing consumer protection framework in Ireland as well as the Consumer Credit (Amendment) Bill 2018. It was outlined that the Licensed Moneylenders Regulations 2020, which came into effect on 21 January 2021, require money lenders to adhere to the following:
- include high cost warnings in every advertisement for moneylending loans with an annual percentage rate (APR) over 23%
- moneylenders cannot make an unsolicited offer to apply for credit to consumers who have recently made a full repayment of a moneylending loan
- if a loan is needed for basic needs, moneylenders must inform the consumer that a moneylending loan may not be in their best interest and they must provide contact information for the Money Advice and Budgeting Service
The Consumer Credit (Amendment) Bill 2018 proposes to place a cap of 36% on the APR charged by moneylenders, which could present specific challenges. Ms McEvoy noted that one of the challenges will be finding the balance between the availability of credit for consumers who can't access regulated credit and the provision of short-term unsecured loans, which can be at a high cost.
Minister for Finance launches Irish Banking Culture Board staff culture survey and bank sentiment check
On 17 May 2021, the Irish Banking Culture Board launched a staff culture survey and a customer bank sentiment check. The Minister for Finance, Pascal Donohue spoke at the event and highlighted the findings of the surveys which indicate that two thirds of staff are positive about the culture of their organisation. Issues that need further engagement include the role of the Executive Committee, long hours and the way banks carry out their internal business.
The external customer survey indicates that trust in banks is low, with concerns highlighted about digitalisation, loss of branches and treatment of vulnerable customers. The Minister indicated his intention, subject to the agreement of the Attorney General, to publish the heads of the SEAR legislation before the conclusion of the Dáil session.
EBA publishes climate risk assessment for banks
On 21 May 2021, the EBA published the findings of its first EU-wide pilot exercise on climate risk, the main objective of which is to map banks’ exposures to climate risk and provide an insight into the green estimation efforts banks have carried out so far. The findings of the pilot show that more disclosure on transition strategies and greenhouse gas emissions would be needed to allow banks and supervisors to assess climate risk more accurately.
Banks’ disclosures will be reinforced following the EBA draft technical standards on Pillar 3 disclosures on climate-change and ESG related risks, including the definition of the green asset ratio, currently under consultation, which will allow stakeholders to assess bank’s ESG related risks and sustainability strategy and to promote market discipline.
The EBA states that it will continue to work actively on measuring and assessing climate related risks in the banking sector and the findings here are described as a key starting point in view of building up consistent and comparable climate risk assessment tools, which will help banks quantify the amount of exposures that might need to be managed.
EBA publishes report on mystery shopping activities of national authorities
On 3 May 2021 the EBA published a report on the mystery shopping activities of National Competent Authorities (NCAs). This report is the EBA's initial step in complying with the new coordination mandate on mystery shopping activities of NCAs. Mystery shopping activities are in respect of products which are within the scope of action of the EBA's consumer protection mandate: consumer credit, mortgage credit, deposits, payments services, electronic money, and payment accounts. The most common approaches used by NCAs is measured by reviewing three characteristics of mystery shopping activities such as their objective, subject matter and product scope.
Mystery shopping allows the NCAs to get a better insight into the conduct of financial institutions. Consumer protection is enhanced as financial institutions are encouraged to take corrective actions and to make a greater effort to better comply with the requirements.
EBA launches discussion paper on NPL data templates
On 4 May 2021 the EBA launched a discussion paper on non-performing loans (NPLs). The objective of this discussion paper is to facilitate the review of the standardised NPL data templates. Views are sought from all NPL market participants and stakeholders on the buyer and seller side on a number of aspects of the NPL data templates such as the design, data fields to be included and their availability and criticality. The EBA, by undertaking this revision, aims to make the voluntary data templates simpler, more proportionate, and more effective and to make them available to all market participants by the end of 2021.
EBA updates data on deposit guarantee schemes across the EEA
The EBA has published data from 2020 in relation to two key areas in the Deposit Guarantee Schemes Directive. The main findings from the data were as follows:
- during 2020 in the EU, Iceland, Lichtenstein and Norway, nearly all deposit guarantee schemes have increased their available financial means for reimbursing depositors in case of bank failures by more than 12%
- covered deposits in the EEA grew by 8.6%
- the increases in covered deposits during 2020 have increased the likelihood of higher contributions from the industry in the next few years to meet the target level of 0.8% of available financial means to covered deposits
The data is published each year in order to increase the transparency and public accountability of deposit guarantee schemes across the European Economic Area.
EBA reports on the convergence of supervisory practices in 2020
This report summarises the EBA's observations on the level of convergence of prudential supervisory practices in 2020 and the conclusions of the EBA College monitoring activity. The report finds that supervisors took into account the key points of the EBA 2020 Convergence plan in their supervisory work.
Progress has been made in the areas of business model analysis, the monitoring of key risk indicators and the link with the Supervisory Review and Evaluation Process (SREP). Going forward a priority area of the EBA's is to align the SREP Guidelines with the requirements of CRD V according to the EBA roadmap of the risk measures package. The EBA also wishes to improve the guidance based on observations from the ongoing monitoring and assessment of the convergence of supervisory practices.
EBA Banking Supervision to supervise securitisation requirements for banks
Following the recent clarifications in the amendments of the EU Securitisation Regulation, the ECB announced that it has made the decision to begin ensuring that the banks it directly supervises are complying with the requirements set out under Articles 6 to 8 of the regulation, which involves risk retention, transparency and re-securitisation. In the next few months, the ECB will explain how it intends to carry out these supervisory tasks.
EBA publishes report on Member States' reliance on external credit ratings
On 17 May 2021 the EBA published a report on the extent to which Member States' national law relies on external credit ratings. The report found the following:
- no mechanistic reliance on external credit ratings was identified
- the use of external credit ratings in the calculation of risk-weighted exposure amounts under the standardised approach and the External Ratings Based Approach of the securitisation is limited
- the EBA recommends removing the mandate provided for in Article 161(3) of the Capital Requirements Directive
- the enhanced due diligence introduced in the final Basel III framework should be implemented in the EU framework
EBA issues report on the application of the BRRD early intervention framework
On 27 May 2021 the EBA published a report on the application of early intervention measures (EIMs) under the Bank Recovery and Resolution Directive (BRRD). The report looks to find ways of improving crisis management tools that are available for competent authorities. The report has shown the EBA the need to eliminate the overlaps that exist between EIMS and other supervisory powers and to remove the formal sequencing of EIMS that are specified in Articles 27-29 of BRRD. The EBA has also acknowledged the support that has been received from competent authorities on the importance of amending Article 27(1) of the BRRD.
EBA consults on institutions' Pillar 3 disclosure of interest rate exposures
On 28 May 2021 the EBA launched a public consultation on draft implementing technical standards on Pillar 3 disclosure in relation to exposure to interest rate risk on positions not held in the trading book . This consultation is open until 30 August 2021.
ECB provides information on how to join the TARGET Instant Payment Settlement (TIPS)
The ECB has outlined that banks and payment service providers can join TIPS by joining as participants, by opening a dedicated cash account or as reachable parties, by entering into an agreement with a direct participant. The participation criteria is the same as it was for TARGET2 and the required documentation should be sent to the central bank of each participant's country.
ECB review sees elevated financial stability risks as a result of the uneven impact of the pandemic
The May 2021 Financial Stability Review of the ECB highlighted that the uneven impact of the pandemic means that financial stability risks are concentrated in specific sectors and countries. The report found that even though the market sentiment towards banks has improved, banks' profitability remains weak and there is potential for the credit risk to get worse.
It was noted that effective NPL solutions and the full use of capital buffers are required to support the recovery. It was also noted from the review that non-banks that have large exposures to corporates with weak fundamentals may be affected by disorderly corrections in financial market segments.
ECB publishes its opinion on the proposed regulation on MiCA
On 24 May 2021 the ECB published its opinion on the proposed regulation on Markets in Crypto-Assets (MiCA). The ECB welcomed the initiative to establish a harmonised framework at EU level for crypto-assets and related activities and services. It also welcomed the aim of the proposed regulation to address the various risk levels posed by each type of crypto asset.
As part of its assessment, the ECB has recommended various amendments to the proposed regulation. In particular it recommends changes to the responsibilities of the ECB, Eurosystem and the European System of Central Banks in relation to the conduct of monetary policy, the operation of payment systems, the prudential supervision of credit institutions and financial stability.
SRB provides guidance on liquidity and funding in resolution
The Single Board Resolution (SRB) has published new guidance on liquidity and funding in resolution. The objective of this guidance is to enhance banks' resolvability and preparedness for potential resolution. The SRB's 'Expectations for Banks' document outlines that banks are expected to:
- have methodologies in place to estimate ex-ante the liquidity needs for the implementation of the resolution strategy
- measure, report and forecast their liquidity positions and liquidity metrics throughout the resolution process
- identify and mobilise assets that could be used as collateral to obtain liquidity in resolution, anticipating any legal, regulatory and operational obstacles to their mobilisation under stressed conditions
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.
Date published: 4 June 2021