Financial Services Regulation and Compliance - General Cross Sectoral July 2020
A very uncertain economic outlook, scenarios point to a deep downturn in 2020– Central Bank of Ireland
The CBI issued a press release on 3 July 2020 drawing attention to its third Quarterly Bulletin of 2020. The bulletin focuses on the impact of COVID-19 as well as Brexit and potential disruption that may ensue. The bulletin points to April as being the low point of the trough in activity because of COVID-19. Economic activity is now on the rise, but remains below pre-COVID-19 levels. The baseline and severe scenarios envisaged in the bulletin, both assume Brexit will proceed to the point where the UK and EU trade under terms of an as yet unrealised free trade agreement. In the baseline, unemployment would recover by year end to around 7-9%. In the severe scenario, unemployment would remain around 17% and there would be a 14% decline in consumer spending.
Introductory statement by Governor Gabriel Makhlouf at the Special Oireachtas Committee on COVID-19
Governor Makhlouf appeared before the Oireachtas Committee on COVID-19 on 7 July 2020 to discuss the macroeconomic impact of COVID-19 on the economy. He also addressed the fiscal and monetary response. He noted that the outlook for the economy is uncertain, and that the cost of the pandemic, currently €9bn to the Irish Government, with an additional €7bn in additional indirect supports required. Governor Makhlouf expressed his belief that the package of responses has thus far mitigated the impact of COVID-19, but that the Government must pay careful attention to future policy considerations in respect of unemployment, government deficit and sustained economic resilience.
Central Bank response to European Commission Consultation on Renewed Sustainable Finance Strategy
The CBI published its response to the European Commission's consultation on sustainable finance strategy (see below) on 14 July 2020. The CBI notes that its mandates have become embedded in addressing matters related to sustainable finance measures and the mitigation of sustainability risks. The CBI response outlines four headings for consideration when implementing the EC strategy, namely:
- focusing on effective implementation
- protecting consumer and investor interests
- maintaining a risk based approach; and
- increased cooperation and convergence
SME Market Report 2020 - The Impact of COVID-19 on SMEs
The CBI published its report on the SME market for 2020 on 21 July 2020. The report focuses on the impact of COVID-19 on the SME sector. Key findings include:
- turnovers in some instances have fallen by up to 75%, but this varies by sector
- firms are adopting varied approaches to reducing costs
- 24% of firms ceased trading temporarily or permanently in April but this declined to 11% by 31 May
- the accommodation and food sectors reached near full utilisation of credit balances in May, and such sectors are more exposed to the shock of COVID-19
- SME lending has tightened with banks imposing higher standards – further tightening of standards is expected
- up to 42% of firms have changed or deferred payment methods in order to secure cash flows – this increases to 91% of firms in the accommodation and food sector
Regulatory Service Standards Performance Report H1 2020 Published
The CBI published its regulatory service standards performance report for H1 2020 on 30 July 2020. The report sets out the CBI’s performance against service standards that it has committed to for the authorisation of financial service providers and pre-approval control functions under the fitness and probity regime. The service standards were met or exceeded for 100% of the targets for which applications were received.
Public consultation - Consumer credit agreements - review of EU rules
On 30 June 2020, the European Commission opened consultations seeking views from stakeholders, including consumers and credit providers, on a wide-ranging series of consumer policy initiatives being implemented over the course of 2020 and 2021. The four initiatives are:
- a new consumer agenda
- empowering the consumer for the green transition
- review of the Directive on consumer credit agreements
- review of the directive on General Product Safety
The consultations run until 6 October 2020.
Notice to stakeholders: Withdrawal of the United Kingdom and EU rules in the field of Banking and Payment Services - July 2020
The European Commission published this notice on 7 July 2020, advising financial services providers in the fields of banking, payment services and e-money services and especially those providing or in receipt of cross border services to/from the UK to consider the impact of the end of the transition period and inform EU customers and regulators or public authorities. Such providers also need to consider if assets or other activities need to be transferred to the EU to protect EU banks, customers and funds. Some key points of the notice include:
- UK authorisations will no longer be valid in the EU and entities operating from the UK will become third country entities when establishing EU branches or agents.
- Already established branches of UK-based entities will become subject to the rules of the host Member State (MS) and the UK head office will be treated as being in a third country. The local EU branch will be subject to authorisation by the MS' national competent authority (NCA).
- Risk assessments of outsourcing or supervisory arrangements with may be required by NCAs if the arrangement has a link to the UK.
- Prudential treatment of exposures to third parties established in the UK will be changed, as the UK will be a third country, therefore treated less favourably.
- SEPA transfers will still be processed between the UK and EU, but UK authorised entities may not be obliged to follow payment user protection rules e.g. ban on surcharges.
- EU deposit protection rules will not apply to UK-based bank accounts, while EU branches of UK institutions will be subject to Member States' own deposit protection regimes.
European Commission consults on roadmap for sustainable finance establishing obligation for certain companies to publish non-financial information
On 28 July 2020, the European Commission published a draft roadmap relating to the creation of a classification system or taxonomy for environmentally sustainable economic activities, including investments. Banks, insurance providers and other large listed companies will be required to publish information about how they are aligning their activities with environmental sustainability by way of a delegated act, to be adopted in June 2021.
Consultations on this roadmap run until 8 September 2020.
EBA and ESMA consult to revise joint guidelines for assessing the suitability of members of the management body and key function holders
On 31 July 2020, the EBA and ESMA launched a consultation on their revised joint guidelines. The consultation follows changes introduced by CRD V and the Investment Firms Directive. The new draft guidelines establish the importance of knowledge, experience and skill in the assessment of key function holders and management, as these people contribute to reducing the risks of money-laundering and terrorist financing.
The guidelines also outline that being a member of affiliated companies does not in and of itself indicate that a manager cannot act with independence of mind, and specifies that gender balance is important when composing management bodies.
The consultation is open until 31 October 2020.
For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.
Date published: 6 August 2020