Financial Services Regulation and Compliance - General Cross Sectoral Jan 2021
Financial Services Regulation and Compliance - General Cross Sectoral Jan 2021
Statement on the end of Brexit transition period
The Central Bank of Ireland (CBI) has issued a statement in relation to the end of the Brexit transition period, noting that with effect from midnight on 31 December 2020 future trade in goods and services with the UK (including Northern Ireland) will be provided in accordance with the EU-UK Trade and Cooperation Agreement. The effect of the end of the transition period is that UK authorised firms will no longer be able to provide financial services to Irish customers on a cross-border basis (passporting). The statement advises customers who have not already been contracted by their UK-based financial services provider to confirm with them whether they have obtained the authorisations necessary to ensure they can continue to provide services to Irish customers.
In the context of insurance, the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020 has been enacted. A key feature of the Act is the introduction of a temporary run-off regime of 15 years for insurance firms which meet the conditions specified in the Act. The result of this regime is that the policies of customers holding a policy with a UK service provide will remain valid for this period.
In its statement, the CBI also highlighted that as a result of European regulatory requirements, in order to avoid payment requests being rejected, from 1 January 2021, Irish creditors with direct debits in place for UK customers may need to provide their bank with additional information. The CBI emphasised its engagement with payment service providers, UK supervisory authorities and industry representative bodies and noted that compliance with the mandatory requirements for additional information with be monitored on an ongoing basis.
Deputy Governor Ed Sibley noted the extensive work done by the CBI in conjunction with the financial services industry, the Department of Finance, and British and European authorities in relation to preparing for the potential impact of Brexit and ensuring a smooth transition. Mr Sibley pointed out that although action has been taken to mitigate the impact of Brexit on the financial services industry, there may initially be some residual disruption to financial services. He noted however that the CBI will monitor and address any such issues on a timely basis.
'The Year Ahead' – speech by Governor Gabriel Makhlouf
As part of the Central Bank's outreach programme, the Governor of the CBI Mr Gabriel Makhlouf spoke virtually to staff and students of the University of Limerick as well as representatives of local businesses on 25 January. Topics discussed included the outlook for the Irish economy for the coming year, the CBI's priorities for 2021, and the Central Bank's engagement with key stakeholders in the economy. Mr Makhlouf noted that the Central Bank's focus in 2021 will be on enhancing its understanding of the impacts of the COVID-19 pandemic and taking any steps necessary to support the recovery of the financial system.
Consumer protection remains a priority and the CBI plans to develop and enhance the regulatory framework and its supervisory approach by reviewing the Consumer Protection Code, taking steps to address the practice of price differentiation in the Irish insurance market and ensuring firms implement a customer-focused approach when resolving business interruption issues arising from COVID-19. The Governor also noted that further engagement with stakeholders and users of financial services is envisaged through the CBI's Civil Society Roundtable and Consumer Advisory Group.
Blog of the Governor of the CBI: 2020 - A year to remember and a year to forget
Mr Gabriel Makhlouf, Governor of the CBI has published a blog post reflecting on 2020 and the impact of the global pandemic on the economy. In his blog post Mr Makhlouf noted the severe economic effects of the COVID-19 crisis and emphasised the CBI's commitment to doing everything in its power to protect consumers, households and businesses.
Mr Makhlouf referred to difficulties that have arisen in relation to interpreting the economic statistics due to the unique nature of the crisis. He noted that these have been addressed by the Central Statistics Office publishing an alternative COVID-19 adjusted unemployment measure to estimate the share of the labour force that was not working due to unemployment or who was out of work due to COVID-19 and receiving the Pandemic Unemployment Payment. While these figures give a more realistic sense of how the economy has deteriorated since March last year, they do not capture the whole picture, when including individuals employed by firms availing of the Temporary Wage Subsidy Scheme.
Mr Makhlouf noted that a key trend in 2020 was a sharp reduction in spending particularly in light of reduced opportunities to spend money physically. This information suggests that cash usage may remain low and that the increased digitalisation associated with the onset of COVID-19 will remain with us in the future. Increased savings was another key trend in 2020 – the savings ratio (the percentage of gross disposable income saved by households) rose significantly in 2020, to levels well above historical estimates of the savings ratio (35.4% in the second quarter of the year). Mr Makhlouf also noted that income tax returns were also down in 2020 but had held up well in light of the severity of the economic shock. Mr Makhlouf stated that the resilience of public finance in addition to the widespread roll-out of vaccinations should contribute to economic recovery in 2021.
ESAs publish final draft ITS on reporting templates for intra-group transactions and risk concentration under FICOD
The European Supervisory Authorities (ESAs – European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA)) have submitted the final Report to the European Commission on the draft Implementing Technical Standards (ITS) under the Financial Conglomerates Directive (FICOD) on reporting templates for intra-group transactions and risk concentration. The objective of the draft ITS is to further increase comparability amongst conglomerates of different EU Member States in order to improve supervisory consistency. The harmonisation of the templates seeks to align the reporting under FICOD to enhance on group specific risks, namely contagion risk. The draft ITS provide one single set of templates as well as common definitions and instructions for completing the templates. It is proposed that the ITS will enter into force on 1 January 2022.
ESAs consult to amend technical standards on the mapping of ECAIs’ credit assessments
The Joint Committee of the ESAs has launched a public consultation to amend the Implementing Regulations on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk. Amendments are required in order to assign mappings for two newly established ECAIs and to reflect the outcomes of a monitoring exercise on the adequacy of existing mappings, including changes to the Credit Quality Steps allocation for two ECAIs and the introduction of new credit rating scales for nine ECAIs. The Implementing Regulations are part of the EU Single Rulebook for banking and insurance aimed at creating a safe and sound regulatory framework consistently applicable across the European Union (EU). The deadline for the submission of comments to the consultation runs is 5 March 2021.
European Commission presents new strategy to foster the openness, strength and resilience of Europe's economic and financial system
The European Commission has presented a new strategy to boost the openness, strength and resilience of the EU's economic and financial system for the future. The objective of the strategy is to better enable Europe to play a key role in global economic governance whilst also protecting the EU from unfair and abusive practices. The strategy is in keeping with President von der Leyen's goal of a geopolitical Commission and follows the Commission's May 2020 Communication 'Europe's moment: Repair and Prepare for the Next Generation.' The following three pillars form the basis of the proposed approach:
promoting a stronger international role of the euro by reaching out to third-country partners to promote its use, supporting the development of euro‑denominated instruments and benchmarks and fostering its status as an international reference currency in the energy and commodities sectors, including for nascent energy carriers such as hydrogen
further developing EU financial market infrastructures and improving their resilience, including towards the extraterritorial application of sanctions by third countries
further promoting the uniform implementation and enforcement of the EU's own sanctions
The strategy acknowledges that a resilient economic and monetary union is the key to a stable currency and takes into account the unprecedented recovery plan ‘Next Generation EU' that the EU adopted to tackle the COVID-19 pandemic and to help Europe's economies recover and embrace the green and digital transformations. The European Commission has also prepared a list of accompanying Q&As.
Speech by Eurogroup President, Minister Paschal Donohoe, to ECON Committee
President of the Eurogroup, Minister Paschal Donohoe, gave a speech to the ECON Committee of the European Parliament on 25 January 2021. In his speech, Mr Donohoe addressed the Eurogroup's efforts to limit the damage caused to employment and income as a result of the COVID-19 pandemic whilst also bringing about sustainable and socially just economic recovery.
Mr Donohoe noted that the pandemic provoked an unprecedented economic contraction in 2020 and that the resurgence of infections and the return to strict restrictions are likely to weigh on economic activity in 2021. As a result, continued economic support will be required to preserve income and employment, particularly in the most affected sectors. Mr Donohoe stated however, that the economic outlook has improved in light of the roll-out of vaccines, the trade deal with the UK, reduced geopolitical tensions, and the prospect of Recovery and Resilience Facility funds reaching the Member States in the second half of the year.
In relation to fiscal policies, Mr Donohoe stated that a common understanding between Finance Ministers will be required in order to prepare for draft budgetary plans for 2022.The Eurogroup intends to engage with the Commission and the ECB and take their assessment of the economic situation into account when preparing new economic forecasts later in the year. Mr Donohoe highlighted the macroeconomic imbalances which have been exacerbated by COVID-19 and noted that there is a risk that income and productivity growth will remain weak for an extended period of time.
In relation to economic recovery and resilience, Mr Donohoe emphasised the importance of making good use of the common EU policy instruments, particularly the Recovery and Resilience Plans, which Member States will submit and implement in order to access RRF funds. Mr Donohoe also noted that the institutional framework of the Economic and Monetary Union will need to be strengthened in order to facilitate recovery in the euro area. The Eurogroup also intends to complete the banking union in the coming months. Mr Donohoe also discussed the topic of a digital euro and noted that the Eurogroup is closely following developments in digital finance and considering how these could impact the euro area economies. Mr Donohoe concluded his speech by emphasising the Eurogroup's commitment to working towards a strong, inclusive, and lasting recovery.