Financial Services Regulation and Compliance - Cross Sectoral and Other July 2023
Financial Services Regulation and Compliance - Cross Sectoral and Other July 2023
Department of Enterprise, Trade and Employment provides update on transposition of CSRD
On 4 July 2023, the Department of Enterprise, Trade and Employment (DETE) provided an update on the transposition of the Corporate Sustainability Reporting Directive (CSRD). It is proposed that:
Credit Unions and friendly societies will be exempt from CSRD requirements, as will not-for-profit companies
the State will exercise its option to allow the exclusion of commercially sensitive information from sustainability reporting by companies and groups in certain limited circumstances
in-scope firms will be permitted to appoint an approved person other than the statutory auditor of the financial statements to undertake the assurance of the sustainability reporting
should the EU fail to adopt an EU wide assurance standard for sustainability reporting, Ireland would have the power to adopt a national assurance standard for sustainability reporting
a consultation on whether to exercise the State’s discretion on independent assurance service providers should be held in 2024
the directors’ report containing sustainability reporting or a third country parent company sustainability report (where applicable) be published in filings with the Companies Registration Office
The deadline for transposition of the CSRD is 16 June 2024.
CBI issues dear CEO Letter to high-cost credit providers regarding AML / CFT obligations
The CBI has issued a dear CEO letter to high-cost credit providers (HCCPs) highlighting widespread ignorance and non-compliance with obligations under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the 2010 Act) in the industry.
The CBI observed:
AML / CFT governance in the sector is lacking. Some HCCPs did not have a documented AML / CFT framework in place, while others employed generic frameworks not tailored to the specific risks faced by the business. The CBI reminds sole trader HCCPs that they too must observe governance rules, an obligation they may discharge by producing documentary evidence of consideration and management of AML / CFT obligations.
Business risk assessments were often not put in place or were not sufficiently detailed to mitigate the identified ML / TF risks. TF threats received very little consideration.
Some HCCPs lacked detailed policies and procedures on differentiating high and low risk customers, meaning that they could not demonstrate how they applied a risk-based approach to CDD.
Some HCCPs failed to demonstrate an understanding of what would constitute a suspicious transaction in the context of their business.
A number of deficiencies were observed in relation to risk evaluation questionnaires, including failure to submit the questionnaire, late filings and / or inaccurate responses.
The CBI reminds HCCPs that breach of their obligations under the 2010 Act may result in significant criminal or civil penalties, as well as CBI enforcement action up to and including licence revocation.
CBI publishes letter on the market abuse thematic review of MAR requirements of trading venues to prevent, detect and report suspected market abuse
On 26 July 2023, the CBI published a letter (the letter) on its 2022 thematic inspection of examining the effectiveness of trading venue operators (trading venues) in market surveillance and compliance with Article 16(1) of the Market Abuse Regulation (MAR).
The letter outlines a number of failings around the effectiveness of market surveillance arrangements, including a significant lack of board awareness and accountability, weak quality assurance procedures, insufficient resourcing (including at local level) and poor alert closure and calibration governance. The CBI notes that the number of suspicious transaction and order reports (STORs) received from trading venues has decreased from 2018 to 2022, despite the quantity of transactions rising and the overall number of STORs increasing.
As a result of these findings, the CBI requires that trading venues immediately commence a review of their trade surveillance arrangements, including such areas as governance and oversight, delegation arrangements, management information and escalation procedures. The CBI reminds trading venues of its legal and enforcement powers.
CBI publishes engagement update on Consumer Protection Code review
The Central Bank of Ireland (CBI) has published an engagement update on the discussion paper for its review of the Consumer Protection Code (the Code). Key themes emerging at this early stage include the risks and challenges of digitalisation, as well as counterproductive disclosure requirements resulting in overwhelming volumes of information.
The CBI signalled that it will publish a consultation paper setting out the revised Code in December 2023. The full Code will be introduced in 2024, with the expectation that further enhancements will be implemented to reflect ongoing policy developments, such as the retail investment strategy and the review of PSD2.
CBI updates Central Bank Levy rates
On 7 July 2023, the CBI passed SI No 351 of 2023, raising to €953 the amount payable under the Central Bank levy by regulated investment limited partnerships; common contractual funds; Irish collective asset management vehicles; unit trusts; and credit unions.
Large parts of IAF Act to commence on 29 December 2023
On 7 July 2023, notice of the making of SI no 349 of 2023 was published in Iris Oifigiúil. This SI provides for the commencement of sections 3, 4, 5, 6 and 10 of the Central Bank (Individual Accountability Framework) Act 2023 on 29 December 2023. It will allow for the introduction of the conduct standards, the fitness and probity “certification requirement”, and the extension of the fitness and probity regime to holding companies. This is ahead of the previously anticipated commencement date of 31 December 2023.
CBI Speech on enhancements to the administrative sanctions procedure
On 5 July 2023, CBI Director of Enforcement and Money Laundering, Seána Cunningham, delivered a speech to the Law Society on the enhancements to the administrative sanctions procedure (ASP) under the Individual Accountability Framework Act 2023 (theIAF Act). The speech aligns with the CBI’s publications of Consultation Paper 154 on the ASP enhancements under the IAF in late June 2023.
At the outset, Ms Cunningham noted that enforcement powers are guided by ‘… principles of proportionality and fairness… [and] are needed to support the objectives of financial regulation’.
While noting that much of the ASP would remain the same, Ms Cunningham provided an overview of a number of the proposed enhancements including:
revisit and consolidation of existing published guidance documents – the ASP Outline 2018, the Inquiry Guidelines 2014 and the ASP Sanctions Guidance 2019
placing the investigation stage of the ASP on express statutory footing
a number of procedural changes to the ASP inquiry process, including appointing the Minister of Finance to the Regulatory Decisions Panel
update of the ASP Sanctions Guidance 2019 to account for new sanctions under the IAF
publication of guidance on the CBI’s approach to the determination of monetary penalties
subjecting all penalties imposed via Undisputed Facts Settlements and Investigation Report to High Court confirmation
The Consultation will run until 14 September 2023.
European Commission adopts ESRS via delegated regulation
On 31 July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS), which will be used by all companies within scope of the Corporate Sustainability Reporting Directive (CSRD). The Commission has introduced a materiality assessment for most disclosures, including climate change related disclosures – though undertakings asserting immateriality must disclose a detailed explanation of this conclusion, including a forward-looking analysis of the conditions that could lead the undertaking to conclude that climate change is material in the future.
The delegated act will enter into force if, following a two-month scrutiny period that can be extended by a further two months, neither the Council nor the Parliament object.
European Commission proposes list of essential services pursuant to Critical Entities Resilience Directive
On 25 July 2023, the European Commission proposed a list of essential services in the eleven sectors covered by the Critical Entities Resilience Directive (CERD), which are crucial for the maintenance of vital societal functions, economic activities, public health and safety, or the environment. As expected, this list includes financial market infrastructure (operation of a trading venue and operation of clearing systems) and the banking sector (taking deposits and lending).
If neither the Parliament nor the Council make an objection, the delegated act will enter into force two months from the date of publication. Member States will have to identify the critical entities for the sectors set out in the CERD by 17 July 2026. They will use this list of essential services to carry out risk assessments and to identify the critical entities, which will then have to take measures to enhance their resilience.
EBA publishes draft technical standards on the implementation of the markets in crypto-assets regulation
On 12 July 2023, the European Banking Authority (EBA) released draft technical standards on the implementation of the markets in crypto-assets regulation (MiCA). These are:
RTS on the detailed content of information necessary to carry out the assessment of a proposed acquisition of qualifying holdings in issuers of asset-referenced tokens
RTS on information for application for authorisation to offer to the public and to seek admission to trading of asset-referenced tokens and ITS on standard forms, templates, and procedures for the information to be included in the application
RTS on complaints handling procedures for issuers of asset-referenced tokens
A public consultation on these draft standards has been launched and will run until 12 October 2023.
ESMA publishes consultation package seeking input on proposed rules for crypto-asset service providers
On 12 July 2023, the European Securities and Markets Authority (ESMA) published a consultation package seeking input on proposed rules for crypto-asset service providers (CASPs). Specific queries related to authorisation, identification, and management of conflicts of interests, and also how CASPs should address complaints. ESMA also hopes to gather insight on EU crypto-asset markets and the shape of their future development, which will be used to calibrate certain proposals to be inserted in the second and third consultation package.
The consultation will close on 20 September 2023.
EBA encourages timely preparatory steps towards the application of MiCA to asset-referenced and electronic money tokens
On 12 July 2023, the EBA published a statement to competent authorities and to certain crypto actors encouraging timely actions to prepare for the application of the regulation on markets in crypto-assets (MiCA). This will reduce the risk of potentially disruptive and sharp business model adjustments at a later stage, foster supervisory convergence, and facilitate the protection of consumers.
The statement is accompanied by a template that financial institutions (and other undertakings) intending to carry out, or carrying out, asset-referenced token (ART) / electronic money token (EMT) activities are encouraged to communicate, on a timely basis to the relevant competent authority.
The provisions of MiCA relating to ARTs and EMTs will be applicable from 30 June 2024.
EBA publishes opinion on the risk of money laundering and terrorist financing affecting the EU’s financial sector
On 13 July 2023, the EBA published its fourth opinion on the risks of money laundering and terrorist financing (ML / TF) affecting the European Union’s financial sector. In addition to the ML / TF risks identified in the 2021 publication, new risks include:
the risk of financial institutions being used to circumvent sanctions
a fragmented approach to restrictive measures creating pressure on institution's compliance resources
the need to provide financial services to refugees from Ukraine
More generally, the EBA notes that awareness of ML / TF risk is increasing across all sectors and that more competent authorities than ever before have carried out formal ML / TF risk assessments in line with EBA guidance. Transaction monitoring and the reporting of suspicious transactions are regarded as particularly weak, however.
Representative Actions Act passed
On 11 July 2023, the Representative Actions Act was passed. This legislation will allow groups of consumers who have suffered material loss or adverse consequence due to a breach of a range of EU consumer protection laws to come together in a type of class action, known as a representative action, to seek redress. Actions will be brought by qualified entities (QEs). These QEs have not yet been identified.
Representative actions can be launched under a number of headings relating to the provision of financial services, including the UCITS and MiFID regulations.
Sanctions imposed in repose to the crisis in Ukraine
The EU has imposed a range of sanctions on the Russian Federation since February 2023 in response to its military aggression against Ukraine. The most recent sanctions package (the Eleventh Package) was issued in June 2023, focussing on the enforcement and implementation of existing measures. On 20 July 2023, the Council decided to renew sanctions over Russia’s military aggression for a further six months, until 31 January 2024. The CBI is publishing details of new restrictive measures / sanctions, as well as any associated EU / UN guidance, on a dedicated webpage as the situation continues to evolve.
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