Financial Services Regulation and Compliance - General Cross Sectoral Apr 2021
Virtual asset service providers (VASPs) in Ireland are now required to comply with anti-money laundering and countering the financing of terrorism (AML/CFT) obligations
On 23 April 2021 the European Union's Fifth Anti-Money Laundering Directive (5AMLD) was transposed into Irish law, by way of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021.
VASPs are firms that provide the following services in relation to virtual assets:
- exchange between one or more forms of virtual asset
- exchange between virtual assets and fiat currencies
- transfer of virtual assets, for example, transacting virtual assets on behalf of another person
- custodian wallet provider
- participation in, and provision of, financial services in relation to an issuer's offer or sale of a virtual asset or both
VASPs currently operating in Ireland must apply to the CBI for registration within three months. It will be a criminal offence to operate as a VASP in Ireland without registration. VASPs must register with the CBI for AML/CFT purposes only.
In order for a VASP's application for AML/CFT registration to be approved by the CBI, the firm must satisfy the CBI that:
- the firm's AML/CFT policies and procedures are effective in combatting the money laundering and terrorist financing risks associated with its business model
- the firm's management and beneficial owners are fit and proper
"If borders are not a barrier to criminals, they must not be a barrier to effective global criminal investigations either" – Derville Rowland, CBI Director General, Financial Conduct
Derville Rowland, Director General, Financial Conduct of the CBI gave a speech at the International Fraud Prevention Conference on 21 April 2021. In her speech, Ms Rowland discussed the role of the CBI in the fight against money laundering (ML) and terrorist financing (TF).
Ms Rowland stated that effective AML/CFT regimes are essential in order to protect the integrity of the global financial system and to limit the ability of criminals to gain access to 'legitimised' criminal proceeds. Ms Rowland also welcomed the European Commission Anti-Money Laundering Action Plan by stating that the action plan takes steps towards a more coordinated and cross-border focus on the fight against ML/TF. In particular, Ms Rowland praised the introduction of a single supervisor for AML/CFT, which will lead to a more consistent application of the rules and narrow the opportunities that criminals can exploit.
CBI consultation on cross industry guidance on operational resilience
The CBI is seeking views on the proposed cross industry guidance on operational resilience. The CBI noted that it is important to continue to address existing vulnerabilities and weaknesses and to mitigate risks in the financial system in order for it to be able to cope with future shocks and crises. The objective of the consultation paper is to improve operational resilience and recognise the interdependencies and interconnections within the financial system that result from the complex and dynamic environment in which firms operate.
The consultation seeks to understand the experiences and views of stakeholders in advance of finalising the guidance. The closing date for submissions is 9 July 2021.
CBI Consumer Protection Outlook 2021
On 29 March 2021, the CBI published its Consumer Protection Outlook 2021. This sets out its consumer and investor protection priorities and the risks that pose the greatest potential harm for consumers and investors. The CBI outlined the following priorities for 2021:
- deliver intrusive risk-based supervision where the CBI will intensify its targeted assessment of those firms and sectors that pose the greatest potential harm to consumers and investors
- enhance and strengthen the consumer protection framework
- drive firms to take responsibility for embedding consumer-focused cultures
- influence and shape key policies
- ensure borrowers in financial distress are treated fairly
- enhance its gatekeeping process
The key cross-sectoral risks identified for 2021 are:
- the absence of a consumer focused culture
- consumer protection during the COVID-19 pandemic
- ineffective disclosure
- unfair practices and behavioural vulnerability
- risks from technology
- mis-selling and inadequate suitability assessment
Governor of the CBI, Gabriel Makhlouf, updates blog with post on the latest economic outlook
Gabriel Makhlouf, Governor of the CBI, has updated his blog with a post about the latest economic outlook. Mr. Makhlouf outlined the points discussed at a recent meeting of the ECB's Governing Council. It was decided at the meeting to reconfirm their very accommodative monetary policy stance, keeping the key ECB interest rates unchanged, continuing with the net asset purchase programme and providing enough liquidity through refinancing operations. Governor Makhlouf stated that the near-term outlook is still nebulous due to the uncertainty surrounding the pandemic.
However, Governor Makhlouf was optimistic for a strong rebound in economic activity for 2021 due to the progress with vaccinations and the relaxation of restrictions. The IMF's latest forecasts confirm that there is also a positive outlook for the euro. Survey data has shown that services, construction and manufacturing are entering in an "expansionary zone". This is the first time this has happened since before the pandemic.
EU financial regulators warn of an expected deterioration of asset quality
The three European Supervisory Authorities (the EBA, ESMA, and the European Insurance and Occupational Pensions Authority, the ESAs) have published their first joint risk assessment report of 2021. The report shows how the COVID-19 pandemic continues to impact short-term recovery prospects; highlights vulnerabilities in the financial markets; and warns of the possibility of further market corrections. After analysing these risks and uncertainties, the ESAs have advised the national competent authorities, financial institutions and market participants to take the following policy actions:
- Financial institutions and supervisors should be prepared for an expected deterioration of asset quality. Provisioning models should be adjusted in reaction to the impact of the economic shock of the pandemic.
- Supervisors, policy makers and financial institutions should continue to develop further actions to accommodate a "low-for-long" interest environment and its risks.
- Ensure sound lending practices and adequate pricing of risks in place. It was also noted that financial institutions should continue to focus on following conservative policies on dividends and share buy-backs.
- Investment funds should look to further progress their preparedness in the face of possible increases in redemptions and valuation shocks. It was firstly noted that there should be more specifications for liquidity profiles and reporting. Secondly, there should be an increase of the availability and use of liquidity management tools, which should be used in line with the Alternative Investment Fund Managers Directive (AIFMD) review and the harmonisation between the UCTIS and AIFMD frameworks. These frameworks, the consistent use of these tools and a consistent reporting framework will all provide greater protection to investors.
ESAs publish report on the application of guidelines on complaints-handling
The joint committee of the ESAs published a report on the application of their guidelines on complaints-handling for the insurance, securities and banking sectors. The results of this report were based on feedback received from questionnaires provided to 44 national competent authorities (NCAs) from 29 countries.
The guidelines were deemed to be a success as 35 out of 44 NCAs are complying with them. The primary aim of the guidelines was achieved, as a consistent approach to complaints-handling across banking, insurance and securities sectors was reached.
It was established that the majority of the NCAs have:
- carried out supervisory actions in respect of firms' compliance with the guidelines by routine inspections of firms, requesting periodical reporting from firms and thematic reviews
- taken steps to spot good and poor practices by firms
- identified that firms operating in the insurance sector are using the best practices on complaints-handling issued by EIOPA
- noted that there have been no major issues in the implementation of the guidelines. This is the most significant reason as to why the majority of the NCAs did not make any suggestions to improve the guidelines
- expressed the view that the guidelines have resulted in better outcomes for consumers
The ESAs concluded that there is no need to revise the guidelines at this time, particularly considering the prioritisation choices arising in the context of the COVID-19 pandemic.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.
Date published: 7 May 2021