Financial Services Regulation and Compliance - General Cross Sectoral Jul 2021
Financial Services Regulation and Compliance - General Cross Sectoral Jul 2021
Department of Finance publishes General Scheme of Bill to implement SEAR and the Individual Accountability Framework
On 27 July 2021 the Department of Finance published the General Scheme of Bill which will implement the Individual Accountability Framework. The main objective of this Bill is to improve accountability in the financial sector. There are four main aspects to the proposed Heads of Bill which include the Senior Executive Accountability Regime (SEAR), the introduction of conduct standards, enhancements to the Fitness and Probity regime and the breaking of the "Participation Link".
SEAR's objective is to prevent misbehaviour and mismanagement by senior management. SEAR will be rolled out on a phased basis and will first apply to banks, insurance companies, and other sectors that have a high degree of interaction with retail consumers. In the future more sectors will fall within the scope of SEAR.
Conduct standards will be adopted across all regulated financial service providers (RFSP) and as more junior staff will be in the scope of the common conduct standards there is a number of safeguards included to ensure that staff are aware of their responsibilities.
The breaking of the "Participation Link" is in relation to the legislation that requires the CBI to first prove a contravention of financial services legislation against an RFSP before it can take an action against an individual.
ECB and ESRB publish joint report on climate risk across the EU financial sector
The ECB and the European Systemic Risk Board (ESRB) have published a joint report which examines a range of climate change drivers and their impact on financial firms in the EU. The report analyses potential financial losses arising from various timelines, climate policies and technologies. The report also maps financial exposures to different climate change drivers which highlights three key risks:
exposures to physical climate hazards are concentrated at regional levels
exposures to emission-intensive firms are concentrated both across and within different economic sectors
exposures to climate risk drivers are concentrated in specific European financial intermediaries
FATF publishes report on money laundering from environmental crime
The Financial Action Task Force (FATF) has published a report on money laundering from environmental crime. The objective of this report is to increase awareness of the significance and nature of criminal gains and laundering techniques for environmental crimes. The report, is based on case studies and best practices provided by over 40 countries, specifically outlines the important role that trade-based fraud and misuse of shell and front companies have to launder gains from illegal logging, illegal mining, and waste trafficking. Criminals are making it difficult to discover suspicious financial flows later in the value chain as they are mixing illegal and legal goods early in the resource supply chains in order to hide their illicit source.
The report identifies the following key priorities:
Members of the FATF Global Network should assess whether criminals may be misusing their financial and non-financial sector to conceal and launder gains from environmental crimes.
Members should strengthen their operational capacity in order to detect and pursue financial investigations into environmental crimes.
FATF standards should be fully implemented by countries as an effective tool to combat money laundering from environmental crime.
New EU Fraud Prosecutor
The newly formed European Public Prosecutor's Office (EPPO) opened its doors in Luxembourg on 1 June 2021. The body aims to tackle economic and financial crime involving EU funds. The EPPO consists of 22 prosecutors working in 15 permanent chambers with the ability to call on an additional 140 prosecutors from across the EU for help with linguistic, procedural and technological challenges that may arise.
It is expected to deal with roughly 3,000 cases per year, with ordinary citizens being able to report suspected financial wrongdoing. Ms. Laura Kovesi was appointed as the first European Chief Prosecutor. Ms. Kovesi's term lasts seven years and is non-renewable.
European Commission overhauls anti-money laundering and countering the financing of terrorism rules
On 20 July 2021 the European Commission presented a package of legislative proposals to enhance the EU's anti-money laundering and countering terrorism financing (AML/CFT) rules. The objective of this package is to strengthen the detection of suspicious transactions and activities, and to block loopholes that criminals take advantage of to launder illegal proceeds or finance terrorist activities through the financial system. These proposals strengthen the existing EU framework as they acknowledge the emerging challenges in relation to technological innovation, such as virtual currencies; more integrated financial flows in the Single Market; and the global nature of terrorist organisations.
The following are the four legislative proposals included in the package:
A Regulation establishing a new EU AML/CFT Authority (AMLA). AMLA will enhance AML/CFT supervision in the EU as well as strengthen the cooperation among Financial Intelligence Units (FIUs). AMLA will establish a single integrated system of AML/CFT supervision across the EU; supervise any of the riskiest financial institutions that operate in the Member States; and monitor and coordinate national supervisors responsible for other financial entities. The European Commission are looking for the AMLA to be operating by 2024.
A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of customer due diligence and beneficial ownership. The new Single EU Rulebook for AML/CFT will provide more detailed rules on customer due diligence, beneficial ownership and the powers of supervisors and FIUs. A system will be created by connecting the national registers of bank accounts which will allow for faster access for FIUs to information on bank accounts and safe deposit boxes. Law enforcement authorities will also be granted access to this system.
A sixth Directive on AML/CFT ("AMLD6"), replacing the existing Directive 2015/849/EU.
A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU). The proposed reform will extend the EU's AML/CFT rules to the whole crypto sector which will ensure all service providers conduct due diligence on their customers. These proposals will allow for full traceability of crypto-asset transfers and will allow for the prevention of their possible use for money laundering or terrorism financing. Furthermore, providing anonymous crypto-asset wallets will be prohibited.
In addition, the European Commission is proposing an EU-wide limit of €10,000 on large cash payments. The objective of this specific proposal is to make it more difficult for criminals to launder money.
EBA publishes updated guidelines on suitability assessments, internal governance and sound remuneration policies
The EBA has published new guidelines on fitness and probity, internal governance and remuneration. The revised guidelines take into account changes introduced by the Capital Requirements Directive and the Investment Firms Directive. The updated guidelines will each apply from 31 December 2021.
Joint ESMA and EBA guidelines on assessment of the suitability of members of the management body and key function holders. The headline changes relate to having a board member assigned to oversee money laundering and terrorist financing risks. There are separate provisions aimed at ensuring gender diversity at senior levels in financial institution.
EBA guidelines on internal governance. These updated guidelines provide for enhanced rules on managing conflicts of interest, related party lending, anti-money laundering and countering the financing of terrorism governance, gender diversity and anti-discrimination policies for staff.
EBA guidelines on sound remuneration policies. The main change is the requirement for remuneration policies to be gender neutral. The guidelines also address supervisory practices and clarify aspects of retention bonuses and severance packages. There is additional guidance on waivers and how to apply remuneration policies on a consolidated basis.
ECB presents action plan to include climate change considerations in its monetary policy strategy
The Governing Council of the ECB's action plan has included a roadmap to further incorporate climate change considerations into its policy framework. This follows the strategy review of 2020-21, where climate change and environmental sustainability considerations were highlighted as being significant. Price stability is affected by transitioning to a more sustainable economy by the impact on inflation, output, employment, interest rates, investment and productivity.
The ECB recognises that climate change and the carbon transition affect the value and risk profile of the assets which are held on the Eurosystem's balance sheet, which could lead to an accumulation of climate-related financial risks. The relevant measures and activities will be coordinated by the ECB climate change centre. These activities will focus on the following areas:
macroeconomic modelling and assessment of implications for monetary policy transmission
statistical data for climate change risk analyses
disclosures as a requirement for eligibility as collateral and asset purchases