Financial Services Regulation and Compliance - Banking June 2019
DOMESTIC
Speech by Gráinne McEvoy, Director of Consumer Protection on Driving Banks to Deliver Effective Culture
On 4 June 2019, Director of Consumer Protection Grainne McEvoy delivered a speech at the New York Fed Culture Conference on reforming culture in the financial services industry and sharing insights from the CBI review of behaviour and culture in Irish retail banks. In her speech, the Director discussed the efforts of the CBI to drive banks to deliver more effective cultures in an effort to rebuild trust and protect consumers. The Director spoke about the Tracker Mortgage Investigation, Behaviour and Culture Reviews, the Role of Regulators and Central Bank Reform Proposals (among other topics).
Response by outgoing Governor of the CBI Philip R. Lane to Minister Paschal Donohue on the review of the Irish government's Bank Remuneration Policy
On 4 June 2019, the CBI published Governor of the CBI Philip R. Lane's response to Minister Paschal Donohoe in relation to the Minister's request for observations on the review of the Irish Government's Bank Remuneration Policy with regards to the remuneration practices of AIB, Bank of Ireland and Permanent TSB. Governor Lane stated that the cap of €500,000 on senior banker pay may limit the recruitment pool with regards to senior banking positions, although also acknowledged that pay is not the only motivating factor for senior leadership roles within banks. Governor Lane also stated: "there is a risk of losing staff in critical functions or with specialist skills in areas of IT, risk, compliance, and related functions to firms that are not subject to remuneration restrictions".
An overview of Irish mortgage lending in 2018
On 7 June 2019, the CBI published data and commentary in relation to new lending under macro-prudential mortgage measures in 2018. The findings included (among other things) that:
- 39,495 loans were originated by seven different lending institutions with a value of €8.9bn in 2018
- the average figures for loan to value and loan to income for first time buyers and second and subsequent buyers remained relatively unchanged in comparison to previous years
- LTV and LTI allowances were allocated to borrowers in all quarters of 2018
CBI bans sale of binary options and restricts sale of CFDs
On 12 June 2019, the CBI announced that it intends to ban the sale of binary options and restrict the sale of CFDs to retail investors. This marks the first time that the CBI has utilised the powers it was granted under product intervention in 2018, which allows the CBI to restrict the sale of certain products. Director General of the CBI, Derville Rowland stated: "the Central Bank is banning the sale of binary options to retail investors as we consider them a fundamentally flawed product, which have no place in the investment plans of retail investors."
EUROPEAN
ESMA publishes opinion on the product intervention measures relating to contracts for differences proposed by the Central Bank of Ireland
On 13 June 2019, ESMA published an opinion on the product intervention measures relating to CFDs proposed by the CBI stating that the national measures are justified and proportionate.
European Central Bank (ECB) announces details of new targeted longer-term refinancing operations (TLTRO III)
On 7 June 2019, the ECB introduced the quarterly TLTRO III operations, which aim to preserve favourable bank lending conditions and to support the accommodative stance of monetary policy, as follows:
- the TLTRO III interest rate will be set at ten basis points above the average MRO rate over the life of each operation
- for counterparties exceeding their lending benchmark a lower interest rate will apply, which can be as low as the average deposit facility rate plus ten basis points
SRB updates policy on minimum requirement for own funds and eligible liabilities (MREL)
On 7 June 2019, SRB published an update to its MREL policy to reflect the new Capital Requirements Regulation. The update aims to inform institutions the total loss absorbing capacity requirements for globally systemically important institutions and the Capital Requirements Regulation II (CRRII) permissions regime.
EBA publishes updated Single Rulebook Q&A
On 14 June 2019, the EBA published responses to queries on the second Payment Services Directive (PSD2), which related to:
- the identification of payment service providers (PSPs) in national registers
- a scenario where a PSP who is acting in its capacity as an account servicing payment service provider and offers to users, accounts that are accessible online, being deemed as having been assigned the role of "account servicing"
- differentiating "payment initiation" as a process in Article 17 of the EU Commission Delegated Regulation (EU) 2018/389, from payment initiation services
European Systemic Risk Board (ESRB) publishes working paper on banks legacy problems
On 17 June 2019, ESRB published a working paper entitled "Optimally solving banks' legacy problems" relating to non-performing loans (NPLs). The working paper makes a number of findings for the design of policy interventions to deal with banks legacy problems, which include:
- both the minimal fraction of NPLs that each bank should be required to dispose of or fully write-off, and the transfers that its owners may have to receive in exchange are increasing in each banks initial fraction of NPLs
- when banks have a substantial fraction of their funding in the form of uninsured long-term debt, the partial restructuring of this debt using bail-in provisions is an intervention tool that valuably complements compulsory NPL disposals and public transfers
- potential shortcomings associated with the existence of limitations to the involvement of public funds in the solution of legacy problems
Eurogroup publishes report on considerations on the further strengthening of the Banking Union
On 18 June 2019, the Eurogroup published the report of its High-Level Working Group on the further strengthening of the Banking Union, including a common deposit insurance system.
The report outlined four policy areas of focus for the short and medium term, which include:
- the European deposit insurance scheme to ensure uniform protection for depositors
- the framework for bank supervision, resolution and insolvency
- impact assessments and regulatory treatment of sovereign exposures and financial stability implications
- enhancing European banking sector integration
EU Commission proposal for a directive on credit servicers, rredit purchasers and the recovery of collateral
On 19 June 2019, the EU Commission proposed measures aimed at creating an appropriate environment for banks to deal with NPLs on their balance sheets, and to reduce the risk of future NPLs accumulation. The proposal aims to (among other things):
- increase the efficiency of debt recovery procedures through the availability of a distinct common accelerated extrajudicial collateral enforcement procedure
- encourage the development of secondary markets for NPLs
EBA draft guidelines on loan origination and monitoring
On 20 June 2019, the EBA launched a consultation process on draft guidelines on loan origination and monitoring. The draft guidelines aim to ensure that financial institutions have robust and prudent standards for credit risk taking, management and monitoring, and that newly originated loans are of high credit quality. They also aim to ensure that the institutions' practices are aligned with consumer protection rules and AML requirements. The deadline for responding to the consultation is 30 September 2019.
EBA updates Single Rulebook Q&A in relation to Capital Requirements Regulation (CRR) and Bank Recovery and Resolution Directive (BRRD)
On 21 June 2019, the EBA updated its Single Rulebook Q&A relating to the inclusion of certain capital in the calculation of the Countercyclical Capital Buffer under Article 140 of the CRR.
On 28 June 2019, the EBA updated the Single rulebook Q&A relating to the BRRD. The question related to the rationale for setting a minimum MREL requirement for small banks whose resolution strategy is liquidation and have no plan to use the bail-in tool. The EBA confirmed that Member States are required to ensure that institutions meet their minimum requirements for MREL. Resolution authorities shall set MREL for all institutions unless they are explicitly exempted or benefit from a waiver.
EBA issues 2020 EU-wide stress test methodology for discussion
On 25 June 2019, the EBA published the EU 2020 stress test draft methodology, which includes templates and template guidance. The 2020 exercise will assess EU banks' resilience to adverse economic shocks and will inform the 2020 Supervisory Review and Evaluation Process.
ECB publishes consolidated banking data for end-December 2018
On 26 June 2019, the ECB published the consolidated banking data with reference to end-2018. Among the findings were:
- total assets of credit institutions headquartered in the EU increased year on year by 1.1%, from €32.3trn in December 2017 to €32.7 trn in December 2018
- the non-performing loans ratio dropped year on year by 0.9 percentage point to 3.2% in December 2018
SRB 2018 Annual Report launched
On 1 July 2019, the SRB published its 2018 Annual Report. Its 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 MREL policy and extensive communication with banks with the aim of having resolution plans for all banking groups under its remit by 2020
Elke König will present the report to the European Parliament's ECON Committee at a public hearing on 23 July 2019.
European Supervisory Authorities (ESA) re-launch consultation paper on draft implementing technical standards regarding the mapping of credit assessments of External Credit Assessment Institutions (ECAIs)
In October 2018, the ESA launched a public consultation to amend Implementing Regulation 2016/1800, which relates to the mapping of credit assessments of ECAIs for credit risk. There is now a need for re-consultation for amendments linked to Solvency II, due to errors in the original consultation. The ESA has re-opened the consultation period, and responses can be submitted until 10 July 2019.
Macro-prudential stress test of the euro area banking system
On 2 July 2019, the ECB published Occasional Paper No 226, which presented the methodology of a macro-prudential stress test of the euro banking sector. The paper examines the performance of the euro banking sector in 2018-2020, focusing on 91 of the largest euro area credit institutions. This process involved modelling banks' reactions to changing economic conditions, as well as examining the effects of adverse scenarios on economies and the financial system as a whole. The results confirm that the euro area banking system is resilient to simultaneous recessions in the euro area and global economies combined with large falls in asset prices.
EBA publishes Basel III implementation assessment
On 2 July, the EBA published its Basel III implementation assessment. The findings include a quantitative impact study based on data from 189 EU banks which show a full implementation of Basel III across the EU and that capital impact is predominantly driven by large global banks.
For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.
Date published: 10 July 2019