Financial Services Regulation & Compliance - Banking July 2018
Financial Services Regulation & Compliance - Banking July 2018
CBI publishes overview of interest-only mortgage lending
The CBI has published an Overview of Interest-Only Mortgages in Ireland, addressing the main characteristics of non-occupier mortgage lending and explaining how it is regulated. The note emphasises that interest-only loans are more likely to be on low tracker interest rates and to have relatively higher loan-to-value ratios, with high shares of non-performing loans (NPLs). Since 2015, however, less than 2 percent of BTL loans were agreed on an interest-only repayment schedule.
CBI report criticises consumer-focused culture at Irish retail banks
The CBI has published the Behaviour and Culture Report which focuses on the culture at the five main Irish retail banks: AIB Group, Bank of Ireland Group, Permanent TSB, Ulster Bank Ireland and KBC Bank Ireland. The report finds that all five still have progress to make in implementing a more consumer-focused culture. Each bank will be required to make a detailed action plan and submit it to the CBI. The CBI has also recommended new legislation to ensure a common set of conduct standards for staff and improving accountability within the banks.
Government considers proposal for local public banking
The Government published its analysis of a proposal for developing a local public banking system in Ireland. Local public banking refers to state ownership of financial institutions. The Government considered the idea as implemented by the Sparkassen model in Germany. The Government concluded that there is currently an inadequate demand for and supply of credit to support adopting a similar model in Ireland. However, the report encouraged the proposal's backers, Irish Rural Link and SBFIC, to engage with the CBI and private banking entities in furthering the proposal.
CBI to increase banks' capital requirements with countercyclical capital buffer
The CBI has triggered a countercyclical capital buffer and increased banks' capital requirements. From 5 July 2019, Irish banks must hold an additional capital buffer equivalent to one percent of their Irish risk-weighted exposures. The rate is reviewed every three months. Announcement of the increase was accompanied by a FAQ and an Economic Letter and Financial Stability Note explaining the rationale for using a countercyclical capital buffer.
Minister for Finance and Public Expenditure and Reform welcomes the establishment of the Irish Banking Culture Board
Minister for Finance, Public Expenditure and Reform Pascal Donohoe has welcomed a proposal for a new entity to be known as the Irish Banking Culture Board. The Board is set to be an independently-led entity established by the five Irish retail banks. The initiative will focus on behaviour, ethics and culture, but will do so through standards rather than strict rules. It is proposed that the running costs will be borne by the banks themselves. The review and design phase has now been completed.
CBI updates Rules and Guidance applicable to Supervisory Disclosures
The Rules and Guidance have been published pursuant to the Capital Requirements Regulation (EU) No. 575/2013 and Directive 2013/36/EU. They deal with the following issues:
Specialised lending exposures
Credit risk mitigation
Specific disclosure requirements
Waivers for the application of prudential requirements
Qualifying holdings in a credit institution; and
Regulatory and financial reporting
CBI's new Director of Credit Institutions Supervision announced
Mary-Elizabeth McMunn has been announced as the Central Bank’s Director of Credit Institutions Supervision. The Director of Credit Institutions Supervision is responsible for Banking Supervision and the Registry of Credit Institutions. The Director is a member of the Senior Leadership Team of the Central Bank.
Announcing the appointment, Deputy Governor Ed Sibley said “I am delighted to announce Mary-Elizabeth as the Central Bank’s new Director of Credit Institutions Supervision. Her leadership, technical knowledge and commitment to public service make her an ideal choice as Director. I look forward to working with Mary-Elizabeth in this leadership position”.
EBA publishes update to ITS for 2019 benchmarking
The EBA has released an update to its Implementing Technical Standards (ITS) on benchmarking of internal approaches for 2019. A new set of simpler portfolios will be used for benchmarking and the portfolios for credit risk benchmarking have been updated.
ECB seeks feedback on draft Regulation on threshold for assessing materiality of credit obligations past due
The European Central Bank (ECB) has invited feedback on a draft Regulation proposed under Article 178(2)(d) of Regulation 575/2013. The Regulation sets out the threshold against which credit institutions are to assess the materiality of a credit obligation past due. Feedback will be accepted until 17 August 2018.
Commission withdraws proposed regulation on structural reform of credit institutions
The Commission's proposal for a Regulation on structural measures improving the resilience of EU credit institutions has been withdrawn. In its 2018 Work Programme, the Commission noted that the financial stability rationale of the proposal had since been addressed by other regulatory measures, such as the supervisory and resolution aspects of the Banking Union.
ECB Supervisory Board Member Pentti Hakkarainen discusses onsite missions and regulation
In an interview with Bloomberg, Pentti Hakkarainen, member of the ECB's Supervisory Board, confirmed that he is keen to increase co-operation with national supervisory authorities in carrying out more onsite missions. He added that the ECB is unlikely to follow the trend seen in other countries of lightening banks' regulatory burdens.
ECB announces further steps in supervisory approach to stock of NPLs
The ECB announced on 12 July 2018 further steps in its supervisory approach for addressing the stock of NPLs in the euro area. The approach follows the work that has already been undertaken in this area, namely the banks’ NPL reduction strategies, and the addendum for provisioning for new NPLs.
It was explained how this creates a consistent framework to address the stock of NPLs as part of the supervisory dialogue through bank-specific supervisory expectations aimed at achieving adequate provisioning of legacy NPLs thereby contributing to the resilience of the euro area banking system as a whole.
Letter from Danièle Nouy, Chair of the Supervisory Board, to Wolfgang Schäuble, President of the German Bundestag, on the crisis preparedness of banks
Mr Nouy referred to the EBA's 2017 EU-wide transparency exercise. He explained how this exercise provides data on a bank-by-bank basis for 132 banks across 25 countries of the European Union and the European Economic Area, including Italy. The data are exclusively based on supervisory reports and are published at the highest level of consolidation for the reference dates of 31 December 2016 and 30 June 2017.
ECB issues a working paper on the benefits and costs of liquidity regulation
The ECB issued a discussion paper investigating the costs and benefits of liquidity regulation. After the global financial crisis, the regulation of banks has changed immensely. This paper examines the new regime of bank liquidity regulation and whether it is beneficial for financial stability.
Commission publishes Delegated Regulation (EU) amending Delegated Regulation (EU) 2015/61 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions
The Commission has published this Delegated Regulation in an attempt to ensure Commission Delegation (EU) 2015/61 is better aligned with international standards and improve efficiency of liquidity management of credit institutions. Proposed amendments include waiving the requirements for a minimum issue size applying to liquid asset held by a subsidiary undertaking in a third country.
EBA publishes updated Risk Dashboard
The EBA Risk Dashboard has been updated. The Dashboard details the main risks and vulnerabilities in the EU banking sector. Key updates include improvements in the management of NPLs, the retention of high European bank's capital ratios and the improvement of the overall quality of European banks' loans' portfolio.
EBA publishes guidance aimed at enhancing the Pillar 2 framework
The EBA published its final Guidelines in accordance with the Pillar 2 Roadmap. The Guidelines ensure the enhancement of the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting the Pillar 2 capital guidance. The updated guidelines won't change the overall Supervisory Review and Evaluation Process (SREP) framework.
EBA publishes final report on guidelines on institutions' stress testing
The EBA guidelines on institutions' stress testing were published to ensure convergence of institutions' stress testing practices across the EU. The national institutions must comply with these guidelines when designing a stress testing framework/programme. The guidelines will replace the Committee of European Banking Supervisors (CEBS) Guidelines on stress testing. The guidelines will apply in 2019.
EBA publishes final report on Guidelines on the management of interest rate risk arising from non-trading book activities
The original guidelines were published on 22 May 2015. The EBA has published an updated set of Guidelines in this area. Under Article 84 of the Capital Requirements Directive (CRD), competent authorities must ensure that institutions have systems to manage the risks arising from non-trading book activities. Competent authorities and institutions are expected to apply these guidelines from 30 June 2019.
EBA publishes reports on impact of Financial Technology (FinTech) for credit institutions
The EBA has published two reports: a report on the impact of FinTech on incumbent credit institutions' business models and a second report on the prudential risks and opportunities arising for institutions from FinTech. The reports aim to ensure competent authorities and institutions are aware of potential risks and benefits from FinTech applications.
EBA publishes assessment of European Secured Notes
The EBA, following a call for advice from the Commission, has published a report on the European Secured Notes, a proposed new form of financial instrument. The EBA makes some recommendations which will feed into the Commission's considerations of the completion of the Capital Markets Union project.
EBA publishes revised list of Common Equity Tier 1 (CET1) instruments of EU institutions
The EBA has updated the list of CET1 instruments with 13 new forms of instruments. The CET1 Report contains background information on the monitoring required to establish the CET1 list. The Report hopes to give guidance on the content and objectives of the CET1 list. The Report will be continued to be updated.
EBA updates on monitoring of Additional Tier 1 (AT1) instruments
Articles 51 to 55 of the CRR establish the eligibility criteria for AT1 instruments. The EBA has published its third Report on the monitoring of AT1 instruments. The new Report is based on 23 new AT1 issuances from EU institutions between May 2015 and December 2017. Future issuances, in the EBA's opinion, will obtain a higher level of standardisation.
ECBpublishes results of the July 2018 euro area bank lending survey
The survey confirms that the tightening effect of NPLs on credit standards is diminishing as compared to 2014. Loan growth in the Eurozone was supported by improved demand across all loan categories and in the second quarter of 2018, banks' terms and conditions on new loans eased across all loan categories.