Financial Services Regulation and Compliance - Cross Sectoral and Other February 2024

Domestic

Central Bank of Ireland publishes its 2024 Regulatory and Supervisory Outlook

On 29 February 2024, the Central Bank of Ireland (CBI) published its Regulatory and Supervisory Outlook 2024 (RSO). The RSO includes the CBI’s consideration of the global environment within which the financial sector is operating, along with the overarching risk landscape facing the financial system, grouped into risks driven by the macroeconomic and geopolitical environment, the way regulated entities operate and respond to today’s changing world and by longer term structural forces at play.

These risks have shaped the CBI’s financial regulation and supervision priorities for 2024 which include the following six overarching supervisory priorities:

  • proactive risk management and consumer centric leadership of firms
  • firms are resilient to the challenging macro environment
  • firms address operating framework deficiencies
  • firms manage change effectively
  • climate change and net zero transition are addressed
  • the CBI enhances how it regulates and supervises

These priorities apply across all sectors and to the different aspects of the CBI’s financial regulation responsibilities.

Central Bank of Ireland publishes guidance on the materiality threshold for PCF-16 (branch manager of an outgoing branch)

Further to the Central Bank Reform Act 2010 (Sections 20 and 22) (Amendment) Regulations 2023, the CBI has published an information note to provide additional information regarding the recent introduction of a materiality threshold to the pre-approval-controlled function (PCF) role of branch manager of a branch established outside the state (PCF-16).

The PCF-16 role was amended by the introduction of a materiality threshold, whereby a branch manager of a branch established outside of Ireland will be a PCF-16 role only in circumstances where the business arising from the branch amounts to 5% or more of the assets or revenues or gross written premium of the regulated financial service provider.

The CBI has provided additional information regarding the change to PCF-16 addressing:

  • the reasons for the amendment
  • whether the branch manager role will apply to all firms
  • how the definition will apply in practice
  • timing issues that might arise as a result of the threshold and when a firm should submit a PCF application and how subsequent movements relative to the threshold should be addressed
  • considerations for individuals currently designated as PCF-16

Irish Financial Services Appeals Tribunal judgment in relation to the refusal of a PCF application

On 14 February 2024, the Irish Financial Services Appeals Tribunal (IFSAT) published its judgement in relation to a decision by the CBI to refuse an individual’s application to a senior PCF role in financial services under the CBI’s fitness and probity (F&P) regime. 

In determining that the CBI had failed to adhere to fair procedures, IFSAT identified the following deficiencies in the CBI’s F&P assessment and decision-making process:

  • there was a lack of clarity and transparency in the assessment interview, as the CBI did not inform the applicant of all of the matters to be addressed
  • the CBI failed to provide the applicant with notes of the assessment interview until a much later date
  • the applicant was not provided with a reasonable opportunity to comment on or rebut the allegations made against him following the assessment interview, or to correct any inaccuracies or omissions in the interview minutes which were subsequently provided
  • the CBI failed to consider the applicant’s submissions and evidence in response to the minded to refuse letter, which purported to demonstrate the applicant’s F&P
  • the CBI failed to give adequate reasons for its decision, which did not explain how the CBI had applied the F&P standards or weighed the evidence

IFSAT emphasised the importance of fair procedures and the right to a fair hearing in the context of F&P assessments by the CBI. The CBI must provide clear and fair notice of the issues to be addressed in interviews and must engage substantively with the submissions made by applicants.

Opening Statement by Governor Gabriel Makhlouf at the Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach

On 14 February 2024, in his opening statement to the Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach, Governor of the CBI, Gabriel Makhlouf provided an overview of the economic outlook for the euro area and set out some of the CBI’s regulatory priorities for 2024.

Makhlouf noted that recent projections showed economic activity and inflation for the euro area had weakened in the second half of 2023, with the short-term outlook for the euro area economy pointing to stagnation in the face of tighter financing conditions throughout 2024. The Governor commented that with disinflation well underway, the euro area headline harmonised index of consumer prices inflation would reach the target of 2%. Domestically, Makhlouf noted that the Irish economic activity had slowed in 2023, but that the economy was still expected to experience growth through 2024, albeit at a slower pace.

The Governor stated that the CBI’s overarching regulatory objective remained as ensuring a stable, resilient and trustworthy financial sector, operating sustainably in the best interests of the public and consumers. Makhlouf also highlighted work on the revised and modernised consumer protection code, addressing systemic risks from the non-bank sector, and implementing the Individual Accountability Framework and new Credit Unions (Amendment) Act as particular milestones in the work programme for 2024.

Makhlouf concluded by stating that the CBI would continue to focus on maintaining monetary and financial stability and ensuring the financial system work for consumers and the wider economy in 2024.

European

Council publishes the text of political agreement on AMLD6, the AML Regulation, and the AMLA Regulation

On 16 February 2024, the final compromise texts of the political agreement on the Anti-Money Laundering Regulation (AML Regulation), the Anti-Money Laundering Authority Regulation (AMLA Regulation) and the sixth Anti-Money Laundering Directive (AMLD6) were published. The publication follows the announcement that political agreement between the Council and the Parliament was achieved on 18 January 2024.

Rules applying to the private sector will be transferred to the AML Regulation, which will exhaustively harmonise rules throughout the EU. AMLD6 will deal with the organisation of institutional AML/CFT systems at national level in the member states.

The provisional political agreement is subject to approval by the Council and the Parliament before going through the formal adoption procedure.

Frankfurt to host the EU’s new anti-money laundering authority (AMLA)

On 22 February 2024, the Council of the European Union and the European Parliament announced their agreement on Frankfurt as the future seat of the European Anti-Money Laundering Authority (AMLA).

AMLA will begin operations mid-2025 and have over 400 staff members. The new authority is the centrepiece of the reform of the EU’s anti-money laundering framework. It will have direct and indirect supervisory powers over obliged entities and the power to impose sanctions and measures.

The location of the seat will be included in the AMLA regulation and formally adopted as part of the text.

ESAs recommend steps to enhance the monitoring of BigTechs’ financial services activities

On 1 February 2024, the European Supervisory Authorities (ESAs) published a report setting out the results of a stocktake of BigTech direct financial services provision in the EU.

In 2023, the ESAs, through the European Forum for Innovation Facilitators (EFIF), conducted a review of BigTech subsidiaries providing financial services in the European Union in 2023. The review found that these subsidiaries primarily operate in payments, e-money, and insurance with limited involvement in banking and no observed presence in securities services. The report highlights the inherent opportunities, risks, and regulatory and supervisory challenges.

To enhance monitoring, the ESAs propose establishing a data mapping tool within EFIF for supervisors to track BigTech companies’ relevance to the EU financial sector. The ESAs plan to promote information exchange among EFIF members and other relevant authorities involved in monitoring BigTech activities. The ESAs will continue to strengthen the monitoring of the relevance of BigTech in the EU financial services sector, including via the establishment of a new monitoring matrix.

Commission adopts Regulation on oversight fees levied on critical ICT third-party service providers

On 22 February 2024, the European Commission adopted a Commission Delegated Regulation with regard to determining the amount of the oversight fees to be charged by the lead overseer to critical ICT third-party service providers (CTPPs) and the way in which those fees are to be paid, in line with its mandate under the Regulation on digital operational resilience for the financial sector (DORA).

The Commission Delegated Regulation specifies:

  • the estimated expenditure for the fees
  • the applicable turnover that is to be used to calculate the fees to be charged to CTPPs
  • the calculation method to be used by the ESAs for the calculation of the annual fees to be charged to CTPPs and the specific fees’ thresholds
  • the oversight fees in relation to the first published list of designated CTPPs, the first year of designation and the fee for the ‘opt-in’ requests
  • the arrangements for paying the fees
  • the means of communication between the Lead Overseers and the CTPPs

The Commission Delegated Regulation has not yet been published in the Official Journal of the EU. It will enter into force on the 20th day following its publication. 

Commission publishes report on implementing its strategy on supervisory data in EU financial services

On 28 February 2024, the European Commission published a report on implementing its strategy on supervisory data in EU financial services. The Commission had set out the ambition of the strategy to modernise the EU supervisory reporting, while minimising the aggregate reporting burden for all relevant parties.

The report sets out that progress has been made in line with the Commission’s commitments and several important milestones have been reached in implementation within sectors as well as horizontal building blocks. The strategy has also provided focus for multiple projects, including by the ESAs. However, significant work is still needed, and implementation is expected to take several more years.

The next steps in the strategy implementation include the adoption of the Commission’s legislative proposals delivering reports outlining further measures to advance on integration in the sectors under the ESA mandates and the technical work in all financial services sectors to realise the practical impact of the measures taken to date.

European Commission adopts draft Delegated Regulations on asset-referenced tokens and e-money tokens

On 22 February 2024, the European Commission adopted the texts of four draft Commission Delegated Regulations (the delegated acts) on asset-referenced tokens (ARTs) and e-money tokens (EMTs) which supplement the Regulation on Markets in Crypto-Assets (MiCA).

The delegated acts are the first of a series to complement and complete the EU regulatory frameworks on cybersecurity matters for the financial sector and crypto-assets.

The delegated acts

  • specify the procedural rules for the exercise of the power to impose fines or periodic penalty payments by the EBA on issuers of significant ARTs and issuers of significant EMTs
  • specify certain criteria for classifying ARTs and EMTs as significant
  • specify the criteria and factors to be taken into account by ESMA, the EBA and NCAs in relation to their intervention powers
  • specify the fees charged by the EBA to issuers of significant ARTs and issuers of significant EMTs

The delegated acts will now be scrutinised by the European Parliament and European Commission, where they will have three months to raise objections. This can also be extended by a further three months. The delegated acts will begin to apply after the period lapses and if no objections have been raised. 

RTS on the EBA’s central AML/CTF database published

On 16 February 2024, RTS on the European Banking Authority’s central AML/CTF database (EuReCa) were published.

EuReCa will contain information on material weaknesses in individual EU financial sector operators that make them vulnerable to money laundering or terrorist financing (ML/TF). National Competent Authorities must report material ML/TF weaknesses that they have identified to EuReCa, as well as the measures they have taken to address those material weaknesses.

The RTS specify:

  • when ML/TF weaknesses are material
  • the information NCAs have to report to EuReCa and how it must be reported
  • how the EBA will analyse this information and make it available to NCAs
  • the rules that will apply to ensure confidentiality and the protection of personal data held in EuReCa

The RTS were published in Commission Delegated Regulation (EU) 2024/595, which enters into force on 7 March 2024.

For more information on these topics please contact any member of A&L Goodbody's Financial Regulation Advisory team.

Date published: 21 March 2024