Financial Services Regulation & Compliance - Cross Sectoral Jan 2018
Financial Services Regulation & Compliance - Cross Sectoral Jan 2018
Central Bank (Amendment) Bill 2018
The Central Bank (Amendment) Bill 2018 was introduced on 24 January. The purpose of the Bill is to extend the application of Part IIIC of the Central Bank Act 1942 in order to:
Provide powers to the Central Bank of Ireland to conduct inquiries into the suspected provision of false or misleading information to it and to impose sanctions for the provision of false or misleading information to it.
Create an offence of providing false or misleading information to the Central Bank of Ireland.
Provide for related amendments to the Central Bank Act 1942. This new offence would be a 'relevant offence' under the Criminal Justice Act 2011 and would therefore be subject to the offence of withholding information under section 19 of that Act.
Companies (Statutory Audits) Bill 2017 reaches second stage in Dáil Eireann
The Companies (Statutory Audits) Bill 2017 commenced the second stage of the legislative process when it was introduced in Dáil Eireann by Minister for Business, Enterprise and Innovation, Heather Humphreys. The Audits Bill will further transpose the current EU statutory audit package, consisting of an Audit Directive and an Audit Regulation (both of which were adopted in 2014), into Irish law.
The Audits Bill will also consolidate into the Companies 2014 existing legislation (principally the existing 2016 Audit Regulations) to provide a coherent legal framework for statutory auditors and audited entities on the requirements for a statutory audit.
The Central Bank of Ireland publishes submissions on the reform of Ireland’s white collar crime laws
The Central Bank of Ireland has published its response to a 2016 Law Reform Commission issues paper which had called for submissions on the reform of Ireland's laws regarding white collar crime. The Central Bank's recommendations are largely consistent with recent changes in the UK and include:
a new criminal offence for senior management of financial institutions whose reckless decisions cause the institution's failure
creating a dedicated division within an existing criminal agency to investigate white collar crime
strengthening the accountability of senior personnel in financial companies by introducing reforms modelled on the UK regime
broadening the remit of the fitness and probity regime to include investigations into individuals who performed controlled functions in the past
extension of the period for which individuals can be suspended from senior positions in regulated firms as part of the fitness and probity regime
embedding certain non-sector specific core common standards within a legislative framework
Financial regulation, technological innovation and change - Gerry Cross, Director of Policy and Risk
Gerry Cross, Director of Policy and Risk of the Central Bank, delivered a speech to the Association of Compliance Officers in Ireland Event: Are you Fit for FinTech?. The speech focused on FinTech. Mr Cross spoke about the signifcant legislative developments to date in 2018, including the implementation of MiFID II and MiFIR and also PSD2 which came into force through the Payment Services Regulations 2018 in Ireland.
Mr Cross also discussed some of the Central Bank's work to date in the area of Fintech and innovation. During 2017 the Central Bank has worked in seeking to develop a clearer picture of FinTech activity in Ireland with a view to better understanding the implications for regulatory policy and supervisory activity. In particular a cross-sectoral working group within the Central Bank has been working to develop a picture of current FinTech activity in the Irish context. FinTech is a priority for the European Commission, as well as the European Supervisory Authorities (ESAs) and Mr Cross stated that the Central Bank will continue to be an active participant in the work of all of the ESAs in this area.
Markets Update Issue 2 2018
The Central Bank issued its second market update of 2018. The update includes reference to various ESMA publications in relation to MiFID II/ MiFIR, including register of derivatives to be traded on-venue under MiFIR, updated transparency calculations for MiFID II/MiFIR, first MiFID II position management controls for commodity derivatives.
Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) (Amendment) Regulations 2018
The Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) (Amendment) Regulations 2018 were enacted to amend The Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 (the Principal Regulations). The amendments primarily include inserting additional definitions into the Principal Regulations.
Regulation 3 of the Principal Regulations was also amended to provide that when assessing if a borrower is a micro and small enterprise, a medium-sized enterprise or a micro, small and medium-sized enterprise, a regulated entity should not have regard to:
the number of persons employed by a partner enterprise or
the annual turnover and balance sheet of a partner enterprise where the borrower does not have access to the financial resources of the partner enterprise and the investment in or from the partner enterprise is less than €1,250,000
The regulation of crowdfunding in Ireland: an update
The Department of Finance recently published a feedback paper on the regulation of crowdfunding in Ireland as part of the IFS2020 Action Plan, which is the Government’s five-year strategy for driving the growth and development of the International Financial Services sector in Ireland. Crowdfunding is an innovative, technology-based form of finance that can be a valuable source of funding for SMEs, either as a complement, or as an alternative, to traditional bank finance.
The Department of Finance noted that crowdfunding is not a regulated activity and therefore there are no formal consumer protections available for those using crowdfunding platforms to provide funds. A number of risks were outlined in the feedback paper including the lack of understanding of the level of risk for consumers and unfair contract terms. Some of the feedback which was received was that crowdfunding should be regulated in Ireland but that it should be proportionate.
After the Department of Finance held its public consultation, the European Commission proposed a pan-European regulatory regime for crowdfunding in its 2018 work programme. The European Commission is due to bring a proposal for an EU framework on crowd and peer-to-peer finance for discussion in March 2018. The Department of Finance has also noted that, if and when EU laws are introduced and transposed into Irish law, this may also allow for the possibility of Irish crowdfunding platforms passporting their services to other EU member states.
European Communities (Article 11) (Directive 97/9/EC) (Third Country Branches) Regulations 2017
The regulations, which came into operation on 3 January 2018, amend the Investor Compensation Act 1998. The amendments include additional definitions and inserting a section on the protection provided to third country branches.
European Union (Payment Services) Regulations 2018
The European Union (Payment Services) Regulations 2018 came into operation on 13 January 2018. The Regulations give effect to Directive (EU) 2015/2366 (PSD2) in Irish law.
While the majority of the provisions of PSD2 came into operation on 13 January 2018, a small number of provisions on strong customer authentication and common and secure open standards of communication will come into operation 18 months from the date the regulatory technical standards on strong customer authentication and common and secure open standards of communication enter into force.
Applications for Authorisation under European Union (Payment Services) Regulations 2018
The Central Bank have updated the application forms for firms seeking authorisation as a Payment Institution, an Electronic Money Institution, a Small Electronic Money Institution, and an Account Information Service Provider. The forms have been updated in line with the transposing of PSD2 into Irish law. The Central Bank has also published a guidance note on completing applications for authorisation under the European Union (Payment Services) Regulations 2018.
Guidance Note for the Payment Institution Supplementary Return
The Central Bank issued a guidance note for the Payment Institution Supplementary Return which is applicable to all payment institutions authorised to provide payment services under the European Communities (Payment Services) Regulations 2018 (the Payment Services Regulations). The guidance note provides direction on completing the supplementary return and specifies the relevant validations that are contained in the fields within the return. The supplementary return must be submitted to the Central Bank via the online reporting system (ONR) within 20 working days of the end of the reporting period.
Guidance Note for Payment Institution Accounts Return (FINREP)
The Central Bank issued a guidance note for payment institutions authorised to provide payment services under the European Communities (Payment Services) Regulations 2018. All Irish payment institutions are required to submit their management accounts and audited year-end financial statements to the Central Bank via the online reporting system.
Brexit is driving an expansion in both the size and complexity of the internationally-orientated section of the Irish financial services industry"- Governor Philip R. Lane
Governor of the Central Bank of Ireland, Philip R. Lane discussed the ongoing impact of Brexit at the European Financial Forum. In his speech Governor Lane shared the Central Bank's views that the long term effect of Brexit will be negative despite how the Irish economy continues to expand at a robust level due the buoyancy of domestic demand and global economic conditions. He told the forum how the Central Bank has been working to ensure that Irish-resident financial firms with UK exposures are making adequate preparations for Brexit. He also discussed the report of the ESRB High-Level Task Force on Safe Assets which examines the feasibility of a new asset class: sovereign bond backed securities (SBBS).
Regulatory Service Standards Performance Report H2 2017 Published
The Central Bank published its regulatory service standards performance report for H2 2017. The report sets out the Central Bank’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.
SI 608 of 2017 European Union (Information accompanying transfers of funds) Regulations 2017
The European Union (Information accompanying transfers of funds) Regulations 2017 give full effect to Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 (the Funds Transfer Regulations). The Regulations designate the Central Bank as compentent authority for the purposes of the Funds Transfer Regulations and establish certain offences and administrative sanction procedures in relation to breaches of the Regulations.
European Union (Indices used as Benchmarks in Financial Instruments and Financial Contracts or to Measure the Performance of Investment Funds) Regulations 2017
The European Union (Indices used as Benchmarks in Financial Instruments and Financial Contracts or to Measure the Performance of Investment Funds) Regulations 2017 which were published on 23 January 2018, came into operation on 1 January 2018. The Regulations give full effect to Regulation (EU) No. 2016/1011 of the European Parliament and of the Council of 8 June 2016.
Commission publishes guidance on upcoming new data protection rules
The Commission has published guidance to facilitate a direct and smooth application of the new data protection rules across the EU from 25 May 2018. Despite being directly applicable, GDPR will still require significant adjustments in some aspects, such as amending existing laws by EU governments or setting up European Data Protection Board by data protection authorities.
The guidance recalls the main innovations and opportunities opened up by GDPR, take stock of the work done to date at EU level and outline what the European Commission, national data protection authorities and national administrations should still do for bringing the preparation to a successful completion.
Opinion on the use of innovative solutions by credit and financial institutions in the customer due diligence process
The European Supervisory Authorities (ESA) delivered an opinion on the use of innovative solutions in the customer due diligence process. The opinion highlights the factors that the ESA believes competent authorities should consider when assessing the adequacy of firms' CDD measures where innovative solutions are used and the application of such measures by firms and assessing controls in place at firms that enable them to mitigate any risks associated with innovative solutions.
The opinion also aims to develop common regulatory understanding of the appropriate use of innovative solutions and encourage national competent authorities to support those solutions where these improve the effectiveness and efficiency of AML/CFT compliance. In particular, national competent authorities should consider:
oversight and control mechanisms
the quality and adequacy of CDD measures
the reliability of CDD measures
delivery channel risks
European and Securities Market Authority draws issuers’ attention to IAS requirements following introduction of new tax legislation in the US
Significant changes in US tax laws took effect on 1 January 2018, following the signing of the United States Tax Cuts and Jobs Act (the Act). ESMA has become aware of concerns expressed by EU issuers with respect to the accounting for the effects of the Act in their IFRS financial statements. In order to avoid inconsistent application of IFRS in the EU, ESMA reminds issuers of their obligations under IAS 12 Income Taxes.
Under IFRS there is no relief from these requirements, even to deal with circumstances in which complex legislation is substantively enacted shortly before the year-end. ESMA acknowledges that a complete understanding of the implications of the Act may take some time. However, it expects EU issuers to be able to make a reasonable estimate of the impact of the material aspects of the Act on their current and deferred taxes in their 2017 annual financial statements.
Commission publishes report on the collective redress possibilities in Member States
The Commission has published a report looking at the progress made by Member States on the implementation of collective redress measures following the Commission’s 2013 Recommendation. The report shows that the availability of collective redress mechanisms as well as the implementation of safeguards against the potential abuse of such mechanisms is still not consistent across the EU. The Commission will propose a "New Deal for Consumers" in spring as announced in the Commission's work programme for 2018, to further strengthen ways of enforcement and redress for consumers.
Public consultation on EU funds in the areas of security and investment, research & innovation, SMEs and single market
The EC has opened a public consultation on EU funds in the areas of security and investment, research & innovation, SMEs and single market. The consultation is aimed at all citizens, organisations and stakeholders with an interest and/or involvement in issues related to security and investment, research and innovation, SMEs and single market are welcome to respond to the consultation.
The Commission intends to make proposals for the next generation of financial programmes for the post-2020 Multiannual Financial Framework, which is the EU's long–term budget. This consultation is an integral part of the process and its objective is to collect the views of all interested parties on how to make the most of every euro of the EU budget. There are other consultations running in parallel to these including in the areas of cohesion; migration and asylum; strategic infrastructure; values and mobility.
Payment services: consumers to benefit from cheaper, safer and more innovative electronic payments
The EC published a press release in relation to the revised Payment Services Directive (PSD2), which became applicable from 13 January 2018. PSD2 aims to modernise Europe's payment services to the benefit of both consumers and businesses, so as to keep pace with this rapidly evolving market.
Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union said. "This legislation is another step towards a digital single market in the EU.''. He also noted the benefit to consumers with the banning of surcharges for consumer debit and credit card payments which could save more than €550 million per year for EU consumers. PSD2 also provides better protection for consumers when they make payments.
The EC has published frequently asked questions regarding the Payment Services Directive. The FAQs considers general questions, including what is the Payment Services Directive, the differences between PSD1 and PSD2 and the key benefits. It also looks at specific questions such as the scope of the Directive, enhanced rules on authorisation and supervision of payment institutions and rules for new types of payment service providers.
Practical Guide - national rules on notifications of major holdings under the Transparency Directive
ESMA published a practical guide which summarises the main rules and practices applicable across the EEA in relation to notifications of major holdings under national law in accordance with the Transparency Directive. Part I of the Practical Guide sets out a summary of the main rules and practices while Part II presents key data such as information on notification thresholds, the triggering event, the deadline for learning of the triggering event, the deadline for making a notification as well as permitted channels and format for the filing of such and the deadline for publishing a notification.
Sustainable Finance: high-level expert group delivers roadmap for greener and cleaner economy
The European Commission has welcomed the final report by its High-Level Expert Group on Sustainable Finance (HLEG), which sets out strategic recommendations for a financial system that supports sustainable investments. On the basis of recommendations set out in the report, the Commission will move towards finalising its strategy on sustainable finance. Delivering an EU strategy on sustainable finance is a priority action of the Commission's Capital Markets Union (CMU) Action Plan, and also one of the key steps towards implementing the historic Paris Agreement and the EU's Agenda for sustainable development.
Joint Guidelines under Articles 17 and 18(4) of Fourth Money Laundering Directive- the risk factors guidelines
The ESAs published final guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849 (4AMLD) on simplified and enhanced customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions.
The guidelines set out factors firms should consider when assessing the money laundering/ terrorist financing risk associated with a business relationship or occasional transaction. They also set out how firms can adjust the extent of their customer due diligence (CDD) measures in a way that is commensurate to the money laundering/ terrorist financing risk they have identified.
Competition: Commission welcomes new rules that benefit consumers by promoting more competition in processing of card payments
The European Commission has issued new requirements that ensure independence of payment card schemes and processing entities, to enhance competition in the card payment market. Retailers will be able to choose the best processor for their card transactions, while consumers benefit from reduced processing costs in their daily payments in shops, restaurants, on-line or via a growing range of card-based mobile payment applications.
The European Commission has published a number of delegated regulations supplementing Regulation (EU) 2016/1011 (the Benchmarks Regulation). Delegated Regulation (EU) 2018/65 specifies the technical elements of the definitions laid down in the Benchmarks Regulation. Delegated Regulation (EU) 2018/67 establishes the conditions to assess the impact resulting from the cessation of or change to existing benchmarks. Delegated Regulation (EU) 2018/66 specifies how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed.
Commission Delegated Regulation (EU) 2018/63
The European Commission adopted Delegated Regulation (EU) 2018/63 amending Delegated Regulation (EU) 2017/571 which supplements MiFID II. This delegated regulation specifies the scope of the consolidated tape for non-equity instruments in Delegated Regulation (EU) 2017/571.
Commission Delegated Regulation (EU) 2018/72
The European Commission adopted a Delegated Regulation (EU) 2018/72 which supplements Regulation (EU) 2015/751 on interchange fees for card-based payment transactions. This delegated regulation specifies the 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.
European and Securities Market Authority publishes results of the second EU-wide CCP stress test
ESMA has published the results of its second EU-wide stress test exercise regarding central counterparties (CCPs) established in the EU. The stress test, which builds on the first CCP stress test conducted in 2016, assesses the resilience and safety of the EU CCP industry and helps to identify possible vulnerabilities. The results of the second EU-wide stress test show that overall the system of EU CCPs is resilient to multiple clearing member (CM) defaults and extreme market shocks.
S.I. No. 629 of 2017 European Union (Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs)) Regulations 2017
The Regulations designate the Central Bank as the competent authority in the State responsible for carrying out the functions of a competent authority referred to in the Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 20141 on key information documents for packaged retail and insurance-based investment products (PRIIPS) (the PRIIPS Regulation).
The Regulations also provide for sanctions which may be imposed by the Central Bank for infringements under Article 24(1) of the PRIIPS Regulation, following an inquiry under and in accordance with the Central Bank Act 1942. Such sanctions (notwithstanding those which may be imposed under the 1942 Act) may include orders prohibiting or suspending the marketing of a PRIIP, a public warning, pecuniary sanctions of up to:
€10,000,000 in the case legal persons, or 10% of the total annual turnover of the legal person (or of the consolidated financial statements, in a consolidation group) or
up to twice the amount of the profits gained or losses avoided as a result of an infringement where that amount can be determined
The Central Bank may also require that the concerned retail investor be issued direct communication informing them of the sanction and where they may lodge a complaint or submit redress.
EMD2: EU Commission reports on implementation and impact
The EU Commission has published a report addressed to the EU Parliament and EU Council on the implementation and impact of the second E-Money Directive. The report covers the years 2009 to 2014 and was delayed due to the majority of Member States failing to implement EMD2 by the transposition date of April 2011.
The overall assessment of the EMD2 was positive. The objective of the EMD2 was to remove barriers to market entry and to facilitate the take up and pursuit of the business of electronic money issuance, by creating a level playing field for all players in the market which it seems, to a large extent, to have fulfilled.
Data Protection Bill 2018
The Government has published the Data Protection Bill 2018. The Bill incorporates Ireland's national implementing measures required under the GDPR and creates a new regulatory framework for the enforcement of data protection laws in Ireland. Some highlights of the Bill include the abolition of the requirement for data controllers and processors to register with the DPC and new investigative powers and procedures for the DPC.