Financial Services Regulation and Compliance Bulletin - Banking April 2019

DOMESTIC

The CBI publishes financial stability note in relation to real-estate concentration in the Irish banking system

This CBI financial stability note examines the real-estate exposures of the Irish banking system in a European and historic context. The key findings of the note conclude that:

  • Ireland is more concentrated in real-estate than its European peers
  • despite a substantial reduction in Irish lending balances, the concentration of the Irish banking sector in real-estate has remained stable
  • the Irish banking sector has a greater capacity to absorb shocks since the crisis due to various factors such as stable funding sources, greater supervision, higher liquidity and capital ratios and the introduction of macro-prudential rules

EUROPEAN

Amending Regulation as regards minimum loss coverage for non-performing exposures

The Regulation amended the Capital Requirements Regulation and introduced a common minimum loss coverage level for newly originating loans that become non-performing. This legislation was enacted as a result of the financial crisis and the accumulation of non-performing loans on banks' balance sheets. In tackling this issue, the Regulation aims to ensure that banks have sufficient resources set aside when their exposures become non-performing. The classification of the non-performing loans as secured or unsecured will dictate what coverage requirements apply.

Proposal for a Regulation on sovereign bond-backed securities (SBBS)

The EU Commission launched a risk-reduction proposal to introduce new rules which would remove unwarranted regulatory obstacles to the market-led development of SBBS. This proposal sets out the eligibility criteria which would need to be satisfied by SBBS, in order for such securities to benefit from the envisaged regulatory treatment. SBBS would be issued by private institutions as claims on a portfolio of euro-area government bonds and would not implicate a mutualisation of losses and risks among euro area Member States. The proposal aims to assist investors, i.e. insurance companies, investment funds or banks) to diversify their sovereign portfolios, resulting in the greater integration of financial markets.

EU Commission Report on the application and review of the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR)

This report gave an overview of the current 'state of play' in the application and completion of the resolution framework.  It comprised the BRRD and the SRMR and identified the various items in need of further assessment. The EU Commission acknowledged the various issues embedded in the framework. However, they also recognised that, as crucial parts of this framework are still in the process of being amended, it would be premature to design and adopt legislative proposals at this stage.

The European Banking Authority (EBA) publishes an opinion on the nature of passport notifications for agents and distributors of e-money

This opinion addresses questions received from national competent authorities (NCAs) and other market participants regarding the criteria to be applied in determining when the use of a distributor or agent triggers an 'establishment' requirement. It also clarifies the consequences 'establishment' has on the obligations applicable to payment institutions and electronic money institutions on the allocation and balancing of responsibilities between host NCAs and home NCAs. Although the opinion is addressed to NCAs, its supervisory expectation means it is also relevant for PIs and EMIs who provide cross-border services within the EU.

EBA publishes responses and clarifications on Application Programming Interfaces (APIs) under PSD2

These clarifications relate to the EBAs responses to the third set of issues raised by the working group on the APIs under PSD2 in anticipation of the application date of the Regulatory Technical Standard. The clarifications responded to issues raised on the:

  • portability of wide usage data
  • use of agents and outsourcees by Third Party Providers (TPPs)
  • interpretation of ‘design to the satisfaction of TPPs’ and ‘widely used’

Updates to Single Rulebook Questions and Answers (Q&A) in relation to the Capital Requirements Directive (CRD) and the second Payment Services Directive (PSD2)

The EBA updated its Q&A tool on the CRD and PSD2 at the end of April to ensure consistent and effective application of these new regulatory frameworks across the single market of the EU. The new questions relate to strong customer authentication and account servicing payment service providers.

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

Date published: 13 May 2019