Financial Services Regulation & Compliance - Banking Oct 2017

DOMESTIC:

Central Bank publishes Irish responses to the October 2017 Bank Lending Survey

The October 2017 Bank Lending Survey was carried out between 15 September and 2 October. The responses show that there has been no change in credit standards on loans to enterprises during the third quarter while the demand for credit from enterprises has increased during this period. There has been no change to credit standards on lending to households for house purchases and for consumer credit while loan demand has increased for both categories.  The Expanded Asset Purchase Programme has had no impact on credit standards or on lending terms and conditions. The negative interest rate on the deposit facility has decreased the net interest income of Irish banks. The negative deposit facility rate is expected to continue to have a negative impact over the next six months.

Central Bank publishes FAQ on Tracker Mortgage Examination

These frequently asked questions (FAQ) provide general information to consumers who are, or believe they may be, affected by the Tracker Mortgage Examination. FAQ covers questions concerning how consumers will know if they are impacted, the type of mortgages covered the Examination, the current status of the Examination, the right to redress and compensation package and whether the Central Bank will take action against lenders as part of the Examination.

Statement on the Tracker Mortgage Examination

Minister for Finance & Public Expenditure, Pascal Donohue, has released a statement on the Tracker Mortgage scandal condemning the behaviour of the Irish banks. He noted that the Central Bank is committed to ensuring all affected customers are identified and will use the full range of its regulatory powers to ensure they are compensated. He highlighted the significant cultural issues prevalent in banks today and accordingly he has mandated the Central Bank under section 6A of the Central Bank Act to prepare a report on these issues and the associated risks in the retail banks today.

Transforming banking for customers: a regulatory perspective - Deputy Governor Ed Sibley

Mr. Sidley has given a speech outlining the drivers of transformation for banking for customers. His speech particularly focused on the need for transformation, the interaction of prudential and conduct regulation and the Central Bank's vision for the banking sector, the drivers of change, regulatory change and complexity and culture. He identified the main drivers of change in the banking sector as being macro-financial, technology and regulation. He asked how firms are developing technology to improve banking for customers and how they are changing their business models to adapt to the changing environment. Mr. Sidley noted that enforcing a cultural change was the most prevalent factor and urged firms to act.

EUROPEAN:

European Central Bank publishes results of the September 2017 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD)

The results of SESFOD show that there has been minimal change in market liquidity and functioning, credit terms for secured funding and OTC derivatives. The results also show that there has been less favourable non-price credit terms in new or renegotiated OTC derivatives master agreements.

European Central Bank publishes results of the October 2017 Bank Lending Survey

The BLS showed an increase in demand for loans and eased lending conditions which has supported loan growth. Net demand has continued to grow across all loan categories. The results also show how the ECB’s asset purchase programme (APP) has assisted in easing credit terms and conditions and that the negative deposit facility rate has a positive impact on lending volumes but a negative impact on banks' net interest income.

Speech by Danièle Nouy, Chair of the Supervisory Board of the ECB, on the international dimension of banking regulation and supervision.

Ms. Nouy's speech focused on the need for harmonisation at a European level and stressed that it was time to create a third pillar of the banking union, a European deposit insurance scheme. She emphasised that although banks will be supervised and resolved at a European level, it is the national deposit insurance schemes that have to step in if a bank fails.

European Banking Authority publishes Executive Summary of the Annual Report 2016

The EBA has published its Executive Summary of its 2016 Annual Report. The Report focuses on the central role played by the EBA in the development and maintenance of the Single Rulebook for banking, the key deliverables of the EBA during 2016, the development of a resolution policy and promoting common approaches to the resolution of failing financial institutions, the convergence of supervisory practices and ensuring their consistent implementation across the EU, risk monitoring and the EBA’s work on consumer protection.

Banking Reform: EU reaches agreement on first key measures

In response to the Commissions call for completion of the Banking Union by 2018, the European Parliament, the Council and the Commission have agreed on elements of the review of the Bank Recovery and Resolution Directive (BRRD) and of the Capital Requirements Regulation (CRR) and Directive (CRD) proposed in November 2016. The agreement will accelerate certain elements of the Banking Reform Package. Further progress on the European Deposit Insurance Scheme is to be made and a package of measures for reducing non-performing loans is also being completed.

European Banking Authority updates Single Rulebook Q&A

The EBA has published questions and answers in the Single Rulebook Q&A on the following topics:

• In relation to the BRRD: guarantees - eligibility for MREL (Article 45).
• In relation to the Deposit Guarantee Scheme Directive: rights of depositors (Eligibility, coverage level, repayable amount, repayment, claim against DGS, depositor information) (Article 8) and funding provisions (financing means, use of funds, borrowing, calculation of contributions) (Article 13).
• In relation to CRD: systemic risk buffers and whether they can be additive (Article 134).
• In relation to CRR: large exposures (Article 4), own funds (Article 26 and 36), minority interests (Article 81), treatment of an institution's guarantees for investments into CIUs (Article 132 and 152), capital requirements deduction for credit risk on exposures to SMEs (Article 501) and credit risk (Annex 1).

Commission publishes Delegated Regulation supplementing Regulation (EU) 2015/751 (the Interchange Fee Regulation)

The Delegated Regulation supplements the Interchange Fee Regulation for card-based payment transactions with regard to regulatory technical standards establishing the requirements to be complied with by payment card schemes and processing entities to ensure the application of independence requirements in terms of accounting, organisation and decision-making process.

Speech by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB

Ms. Lautenschläger's speech focused on the current state of play in the European banking sector. She believes that although overall progress has been made, there are still banks that need to adapt more quickly to the changing environment. She stressed the need for all banks to work on transforming their digital technology services more quickly, diversify their sources of income to adapt to low interest rates and to improve their strategies for addressing non-performing loans. She also noted that, in light of Brexit, banks need to prepare themselves for other forms of market access.

European Central Bank finds interest rate risk is well managed in most European banks

The ECB conducted a supervisory exercise where it adopted hypothetical interest rate changes to assess how this would affect banks throughout the Union. The results showed that most banks are equipped to cope with changes in interest rates and that higher interest rates would lead to higher net interest income in the next three years for a majority of banks, but lower economic value of equity.

European Banking Authority publishes Consultation Paper on Draft Implementing Standards on the provision of information for the purpose of resolution plans under BRRD

The EBA has launched a consultation to amend the Implementing Technical Standards (ITS) on the information which institutions must provide to resolution authorities for the purpose of drawing up and implementing resolution plans. The aim of the review is to update the framework based on the most up to date experience available in the areas of resolution planning and supervisory reporting. The revised ITS is based on three key objectives being 1) clarifying the scope of the reporting framework in line with the BRRD 2) clarifying the minimum procedural and technical reporting requirements 3) updating the templates based on the latest experience available. The consultation runs until 11 December 2017.

Commission Opinion of 3 October 2017 on the Recommendation of the European Central Bank for a Decision of the European Parliament and of the Council amending Article 22 of the Statute of the European System of Central Banks and of the European Central Bank

The Commission has published an Opinion welcoming the recommendation made by the ECB to amend Article 22 of the ESCB and ECB Statute in order to allow the ECB to regulate ‘clearing systems for financial instruments’ for monetary policy purposes. The Commission agrees with the ECB on the importance of central counterparties (CCPs) and that due to the systemic importance of CCPs there is a risk they could affect clearing systems which will have a knock-on effect on maintaining price stability.

Opinion of the European Banking Authority on issues related to the departure of the United Kingdom from the European Union  

The EBA has issued an Opinion on issues related to Brexit where it seeks to provide guidance on supervisory expectations and to address the regulatory and supervisory arbitrage risks that arise in the context of Brexit. The Opinion primarily focuses on credit institutions but it is also relevant to investment firms and other financial service providers. The Opinion aims to provide practical recommendations to these firms to prepare for Brexit with the main recommendations focusing on the period prior to the UK departing. It primarily addresses authorisation and supervision of investment firms, internal models, resolution and deposit guarantee schemes and MiFID/MiFIR equivalence.

European Banking Authority consults on requirements for home-host cooperation under Directive 2015/2366 (PSD2)

The EBA has launched a consultation on draft regulatory technical standards (RTS) specifying the framework for cooperation and the exchange of information between competent authorities under PSD2. The RTS will include the scope and treatment of information to be exchanged and they shall outline the periodical reporting requirements, divided into two sets of information, which host competent authorities can request from payment institutions operating in their territories via agents or branches. These provisions shall also apply mutatis mutandis to electronic money institutions. The consultation closes on 5 January 2018.

European Banking Authority launches consultation to strengthen the Pillar 2 framework

The EBA has launched a consultation to review three guidelines whose objectives are to improve institutions' risk management and supervisory convergence in the supervisory review and examination process (SREP). The review will target stress testing, particularly its use in setting Pillar 2 capital guidance, as well as interest rate risk in the banking book.  It is expected that the guidelines will be implemented by 1 January 2019 for the 2019 cycle of SREP.  The consultations on all three guidelines will run until 31 January 2018.

European Banking Authority announces final timeline for the 2018 EU-wide stress test

The EBA have agreed to the following timeline for the 2018 stress test: launch date of the stress test at the beginning of January 2018, first submission of results to the EBA will be in early June, second submissions in mid-July, final submissions in late October and the publication of results by 2 November 2018. The EBA anticipates circulating the final templates and further guidance to banks by the endo of 2017.

European Central Bank publishes paper discussing the impact of digital innovation on the processing of electronic payments and contracting

As part of its Legal Working Paper Series, the ECB has published a paper providing an overview of the legal risks concerning digital innovation, the processing of electronic payments and contracting. The paper highlights how FinTech will affect the processing and settlement of retail payments, through virtual currencies, distributed ledgers and 'smart contracts'. The paper seeks to identify some of the legal issues to which the foregoing three types of financial innovation would appear likely to give rise, and their practical implications for payments and their recipients, mainly in an EU context.

European Central Bank reports on the decisions of the Governing Council of the European Central Bank, on 7 September 2017

It was decided by the Governing Council to keep the key ECB interest rates unchanged. Rates are expected to remain at present or lower levels for an extended period of time, and well past the horizon of their net asset purchases. Regarding non-standard monetary policy measures, it was confirmed that the ECBs net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017.  From January 2018 the net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

European Central Bank publishes report on financial structures

The Report on financial structures (RFS) covers the banking sector (monetary financial institutions), insurance corporations and pension funds and other financial intermediaries. The RFS shows ongoing consolidation in the banking sector and an overall decline in the number of credit institutions in the euro area banking sector.

European Banking Authority issues final report on Guidelines on supervisions of significant branches

The EBA has issued these guidelines in order to clarify how the consolidating supervisor in conjunction with the home and host competent authorities should work together to prudentially supervise significant branches who require intensified supervision, also known as a 'significant-plus' branch. A significant plus branch is one that performs essential functions that is assessed either as important for the institution or the group or as important for the financial stability of the host Member State.

European Banking Authority issues final report on recommendation on the coverage of entities in a group recovery plan

The EBA has issued this report to address the gap in group recovery plans whereby the plans do not always contain adequate information at the level of the group entities. This report seeks to ensure that the level of coverage of each legal entity and branch in a group recovery plan is acceptable in order to avoid a piece meal approach to gathering information on groups, by setting out a common framework for obtaining the required level of information on all group entities in the group recovery plan.

For further information please contact a member of the Financial Regulation team.

Date Published: 8 November 2017