Financial Services Regulation and Compliance - General Cross Sectoral November 2022
Consumer Credit (Amendment) Act 2022 (Commencement) Order 2022 [S.I. No. 575 of 2022]
The Consumer Credit (Amendment) Act 2022 commenced on 18 November 2022 along with regulations under the Act, which set the maximum interest rate at which a high cost credit loan can be provided.
An initial interest rate cap of 1% per week will take the most expensive products off the market and will require the bulk of products to be revised downwards. The maximum interest will be set at 48%. At the same time, the initial rates will allow moneylenders to revise their business model and reduce their margin to enable them to operate within the legislative cap. The Act also contains a range of practical measures to modernise and streamline the sector.
Frequently asked questions for high cost credit providers (updated 14 November 2022)
The CBI updated its list of FAQs for high cost credit providers on 14 November 2022, which include helpful guidance on how one can become a high cost credit provider; the interest rate cap on high cost credit; collecting on high cost credit agreements; how long the license will last for; the requirement for prior approval from the CBI; and themed consumer inspections.
Governor Makhlouf launches the second Central Bank of Ireland’s Financial Stability Review (FSR) of 2022
On 24 November 2022, the CBI published its second FSR of 2022. The FSR outlines the CBI's assessment of key risks facing the financial system, the resilience of the economy and financial system to adverse shocks, and policy actions to safeguard stability. In his opening remarks, Governor Gabriel Makhlouf said the review shows the current environment is one of substantial uncertainty and we must remain vigilant.
The FSR indicates:
- In Ireland, the economy is facing increased downside risks given the impact of the global energy and inflation shock, with growing numbers of businesses expected to run losses. However, the central expectation for the economy and labour market remains for growth and a strong labour market into 2023, although subject to increased global risks.
- Households, businesses and banks are benefitting from a decade of prudent lending and the build-up in resilience that preceded this shock, providing capacity to absorb adverse outcomes.
- Consistent with previous guidance, the countercyclical capital buffer (CCyB) rate will increase from 0.5% to 1%. Given the central expectation for the economy, the fact that higher interest rates are expected to be positive for banks’ profitability, and the importance of building resilience in advance of a potential materialisation of risks, the CBI is continuing the gradual rebuilding of the CCyB. This marks a further step towards the 1.5% target rate for the CCyB in periods when cyclical risks are neither elevated nor subdued.
- Following a period of consultation, the CBI is introducing macroprudential measures for Irish property funds investing in Irish property. The measures aim to safeguard the resilience of this growing form of financial intermediation so that property funds are better able to absorb – rather than amplify – adverse shocks. To address risks from leverage, a sixty per cent leverage limit is being introduced, and guidance on liquidity timeframes are announced to further address risks from liquidity mismatch.
CBI requires firms to address potential risks for consumers from a changing economic landscape
The CBI sent a "Dear CEO letter" to all regulated financial service providers, dated 17 November 2022, which details the specific actions, as set out in the Consumer Protection Outlook Report, that firms are required to address to manage potential risks arising from the changing economic landscape for consumers.
Firms are reminded of the specific actions to address potential risks including:
- Actively identify and address risks to consumers that may potentially emerge from changes in the landscape within which the firm and/or its consumers are operating.
- Have sufficient operational resilience to manage change without creating risks to consumers.
- Proactively assess the risk and consumer impact a commercial decision may pose to new and existing customers, and develop comprehensive action plans to mitigate these risks whilst ensure that customers understand what changes mean for them.
- Have the customer service capacity and structures in place to meet expected service levels to provide a timely and customer focused service through all channels.
- Consider the impact of their decisions on vulnerable customers and provide the assistance necessary. This should include specific and effective processes and communication plans to support vulnerable customers.
- Only design and bring to market products with features, charges and risks that meet the needs of consumers identified for the product.
The Dear CEO letter sets out a number of specific steps firms should take to meet expectations in the areas of:
- affordability and sustainability
- provision of relevant, clear and timely information
- effective operational capacity
- sales and product governance
Firms are required to review and consider the letter and report, including the items set out in the appendix to the letter. The letter should be considered by each firm's board and incorporated into each firm's work programme.
Final Report - guidelines on policies and procedures in relation to compliance management and the role and responsibilities of the AML/CFT Compliance Officer under Article 8 and Chapter VI of Directive (EU) 2015/849 (AMLD4) (EBA/GL/2022/05)
On 22 November 2022, the EBA published its final guidelines in relation to compliance management and the role of the AML/ CFT compliance officer under AMLD4:
- The guidelines explain that at the heart of AMLD4 is the requirement that credit or financial institutions appoint an AML/CFT compliance officer at the management level. It also provides that credit or financial institutions that have a management body identify the member of the management body who is ultimately responsible for the implementation of the law, regulations and administrative provisions necessary to comply with AML/CFT requirements.
- Through these guidelines, the EBA aims to create a common understanding, by competent authorities and credit or financial institutions, of credit or financial institutions’ AML/CFT governance arrangements.
- These guidelines set clear expectations of the role, tasks and responsibilities of the AML/CFT compliance officer and the management body. They specify that credit or financial institutions should appoint one member of their management body who will ultimately be responsible for the implementation of the AML/CFT obligations, and clarify the tasks and functions of that person. They also describe the roles and responsibilities of the AML/CFT compliance officer, when this person is appointed by the management body pursuant to the proportionality criteria. When the credit or financial institution is part of a group, the guidelines prescribe that a group AML/CFT compliance officer should be appointed and clarify this person’s tasks and responsibilities.
The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be six months after the publication of the translations. The guidelines will apply from 1 December 2022.
Final report on Guidelines on the criteria for the exemption of investment firms from liquidity requirements in accordance with Article 43(4) of Regulation (EU) 2019/2033 (IFR) (EBA/GL/2022/10)
The guidelines, published by the EBA on 22 November 2022, specify the set of investment services and activities provided by an investment firm that will be eligible for the exemption from liquidity requirements under the IFR.
The guidelines also specify that competent authorities should have due consideration for ancillary services provided by an investment firm as well as for on and off-balance-sheet positions, whereas such services or positions may give rise to liquidity risk. Therefore, investment firms providing services such as granting credit, loans or engaging in securities lending transactions, or having certain off-balance- sheet positions, should be precluded from being exempted especially when holding such positions at a significant scale.
Small and non‐interconnected investment firms do not hold clients' assets, thus liquidity requirements for such firms do not intend to cover risks of potential losses of clients' assets. Nonetheless, the liquidity requirements set out in the IFR ensure that an investment firm maintains a sufficient level of liquid assets for its potential orderly wind-down. Therefore, the guidelines specify that the exemption should be based on the assessment of liquidity needs also taking into account an orderly wind-down of the investment firm.
Digital Operational Resilience Act (973/22) (DORA) has been adopted by the European Council
On 28 November 2022, in light of increasing risks of cyber attacks, the European Council (EC) adopted DORA with the goal of ensuring the financial sector in Europe is able to stay resilient through a severe operational disruption.
DORA sets uniform requirements for the security of network and information systems of companies and organisations operating in the financial sector as well as critical third parties which provide ICT (information communication technologies)-related services to them, such as cloud platforms or data analytics services. DORA creates a regulatory framework on digital operational resilience whereby all firms need to make sure they can withstand, respond to and recover from all types of ICT-related disruptions and threats. These requirements are homogenous across all EU member states. The core aim is to prevent and mitigate cyber threats.
European Council gives final green light to corporate sustainability reporting directive (985/22) (CSRD)
On 28 November 2022, the European Council (EC) gave its final approval to the CSRD. The CSRD amends the 2014 non-financial reporting directive (NFRD) and strengthens the existing rules on non-financial reporting, which are no longer tailored to the EU's transition to a sustainable economy. The CSRD introduces more detailed reporting requirements and ensures that large companies are required to report on sustainability matters such as environmental rights, social rights, human rights and governance factors.
The application of the regulation will take place in four stages:
- reporting in 2025 on the financial year 2024 for companies already subject to the NFRD
- reporting in 2026 on the financial year 2025 for companies that are not currently subject to the NFRD
- reporting in 2027 on the financial year 2026 for listed SMEs except micro undertakings, small and non-complex credit institutions and captive insurance undertakings
- reporting in 2029 on the financial year 2028 for third-country undertakings
EBA publishes guidelines on remote customer onboarding
On 22 November 2022, the EBA published its final guidelines on the use of remote customer onboarding solutions. These guidelines set out the steps credit and financial institutions should take to ensure safe and effective remote customer onboarding practices in line with applicable anti-money laundering and countering the financing of terrorism (AML/CFT) legislation and the EU’s data protection framework. The guidelines apply to all credit and financial institutions that are within the scope of the Anti-money Laundering Directive (AMLD).
These guidelines establish common EU standards on the development and implementation of sound, risk-sensitive initial customer due diligence policies and processes in the remote customer onboarding context. They set out the steps financial institutions should take when choosing remote customer onboarding tools and when assessing the adequacy and reliability of such tools, in order to comply effectively with their AML/CFT obligations. The guidelines are technologically neutral and do not prioritise the use of one tool over another.
EBA, EIOPA and ESMA (the ESAs) launch joint call for evidence on greenwashing
On 16 November 2022, the three European Supervisory Authorities (the ESAs) published a call for evidence on greenwashing to gather input from stakeholders on how to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices.
Respondents are invited to submit their responses by 10 January 2023.
Sanctions imposed in response to the crisis in the Ukraine
Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.
Date published: 13 December 2022