Financial Services Regulation & Compliance - Cross Sectoral July 2018

DOMESTIC

New Corruption Act commenced

The Criminal Justice (Corruption Offences) Act 2018 commences on 30 July 2018. The Act brings Irish law into line with the UK position under the 2010 Bribery Act by creating the offence of corporate corruption. The new offence can be committed by bodies corporate where officers or agents acting on behalf of the company engage in corrupt practices. It will be a defence for bodies corporate to establish that they took all reasonable steps to prevent the corrupt acts. The Bill also creates international reach by allowing for one to be tried in Ireland for corruption committed outside the State.

CBI updates guidance on fitness and probity standards

The CBI has released its Guidance on Fitness and Probity Standards 2018, clarifying the standards expected of individuals who perform controlled functions. The Guidance sets out the process for approving individuals subject to Fitness and Probity requirements and the level of due diligence to be undertaken by financial service providers to assess an individual's fitness and probity.

CBI updates its FAQs for the Fitness and Probity of Credit Unions

The CBI has published the FAQs in order to address commonly asked questions which have been raised in relation to the operation of the Fitness and Probity regime for credit unions under Part 3 of the Central Bank Reform Act 2010 (the Act).

FSPO launches strategic plan for 2018-2021

The Financial Services and Pensions Ombudsman (FSPO) has launched a Strategic Plan, entitled 'Enhancing the Customer Experience'. The plan for the coming three years aims to respond to an increasing number of complaints. Part of the response includes establishing a Customer Operations and Information Management Directorate, which will be dedicated to improving customer experience and shortening response times to complaints.

CBI updates Frequently Asked Questions about Payment Services Directive 2 (PSD2)

The FAQ relates to PSD2 which was transposed into Irish law via the European Union (Payment Services) Regulations 2018 S.I. No.6 of 2018 (Payment Services Regulations 2018).

CBI publishes Markets Update Issue 11 2018

The CBI published issue 11 of its Markets Update 2018. The Markets Update includes Central Bank enhancements to the regulated disclosures submission process. It also includes a number of ESMA publications.

EUROPEAN

ESMA explains status of clearing obligation for PSAs

ESMA issued a statement concerning the exemption from the requirement to clear OTC derivative contracts afforded to pension scheme arrangements (PSAs) under EMIR. While the exemption is set to expire on 17 August 2018, the Commission has proposed to extend it as part of a proposed amendment to EMIR. The ESMA therefore expects national authorities not to prioritise supervisory actions towards PSAs which are expected to be shortly re-exempted from the clearing obligation.

EBA report outlines prudential risks and opportunities posed by FinTech

The EBA has released a report that assesses the risks and opportunities associated with FinTech through an analysis of a number of use cases. Use cases range from robo-advisers for investment advice, to big data and machine learning for credit scoring, to outsourcing core banking or payment systems to the public cloud. The report concludes that there has generally been no significant implementation of sophisticated technology across the financial sector, potentially due to financial institutions' security concerns.

EBA and ESMA publish joint Guidelines on suitability assessments of key function holders and management body members

The EBA and the ESMA have published joint Guidelines clarifying how credit institutions, investment firms, financial holding companies and mixed financial holding companies should assess the suitability of members of their management body and key function holders. The Guidelines cover general principles such as proportionality, as well as specific factors that must be considered, such as time commitments, knowledge, skills and experience and independence.

Introductory Statement by Mario Draghi, President of the ECB, at the ECON committee of the European Parliament, Brussels, 9 July 2018

Mr Draghi spoke about how since the last meeting of the Committee on Economic and Monetary Affairs, (ECON) the ECB’s Governing Council had taken important decisions on the recalibration of their monetary policy stance after September this year. He then outlined these decisions and explained the assessment of the current economic environment on which they were based.

He then took the opportunity, following the recent euro area summit to discuss the future of the Economic and Monetary Union (EMU), pointing to priorities for the near term from an ECB perspective.

Letter from Danièle Nouy, Chair of the Supervisory Board, to Mr Viegas, MEP, on stress tests on 11 July 2018

Mr Nouy addressed the question as to why the ECB has asked for the support of private companies, and he noted that, to deal with time-critical and resource-intensive projects such as stress tests, ECB Banking Supervision sometimes resorts to external service providers.

He then explained how that when making use of such providers, the ECB carefully considers the risks involved and in particular any potential conflict of interest risks and makes sure that these are mitigated to the greatest extent possible by a number of provisions in the relevant contracts.

Brexit Steering Group issues statement on the UK government's White Paper

The European Parliament's Brexit Steering Group (BSG) has issued a statement on the Chequers Statement of 6 July 2018 and the White Paper released by the UK Government. The BSG have welcomed the proposal as a step towards establishing the future EU-UK relationship once Brexit occurs. The BSG also agreed with the Parliament's position that no Withdrawal Agreement will be entered into without a provision preventing a hard border between Northern Ireland and Ireland. Further assessment will continue of the White Paper and negotiations on the future relationship will recommence next week.

Commission commences a public consultation on its "better regulation" approach

The Commission has opened a public consultation to assess its better regulation tools in practice. The main consideration of the consultation is the May 2015 better regulation package and what interested parties think of changes introduced or updated by it such as the Regulatory Scrutiny Board and the REFIT Platform.

Proposal for a Regulation of the European Parliament and of the Council upgrading the ESA framework

The proposal aims to strengthen the powers, governance and funding framework of the European Supervisory Authorities so as to ensure adequate and efficient financial market supervision. This proposal is one of many initiatives taken to fundamentally overhaul and significantly improve financial supervision and regulation.

The ECB issued an opinion on the Proposal. The ECB welcomed the proposed regulation's aim of improving prudential supervision across the EU. The ECB encourages integration at Union level. However, it does advocate for certain updates to the Proposal which can be found on the ECB website.

Commission urges preparedness for Brexit

The Commission has issued a communication to the European Parliament, the European Council, the ECB, the Council, the European Economic and Social committee, the Committee of the Regions and the European Investment Bank. The Communication aims to call the Leaders of the 27 remaining EU Member States to intensify preparedness and has encouraged interested parties to take action now in order to be ready for the withdrawal.

The Commission also published a factsheet which includes seven things businesses in the European Union need to know to be ready for Brexit. Michel Barnier has issued a press statement following the July 2018 General Affairs Council.

European Parliament publishes a study on Competition issues in the Area of FinTech

The report confirms that FinTech is dramatically changing the ways in which financial services providers deal with customers. The study suggests FinTech be divided into seven main categories: banking; payments, transfers and forex; digital currencies; wealth and asset management; personal finance; InsurTech and enabling technologies and infrastructures. The report details anticompetitive behaviours and how to manage them in this sector.  

Commission publishes three new Delegated Regulations supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council

The Commission published three new Delegated Regulations under the Regulation 2016/1011 (The Benchmark Regulation) on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds:

  • a Delegated Regulation supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards for the form and content of the application for recognition with the competent authority of the Member State of reference and of the presentation of information in the notification to ESMA aims to provide guidelines on the necessary information to be given by benchmark administrators to competent authorities when applying for recognition when they are located in a third country
  • a Delegated Regulation supplementing Regulation 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards for the procedures and characteristics of the oversight function aims to detail the procedures relating to the oversight function and the characteristics of the oversight function; and
  • a Delegated Regulation supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards specifying further the contents of, and cases where updates are required to, the benchmark statement to be published by the administrator of a benchmark aims to detail the contents of a benchmark statement and the circumstances where an update of such statement is required

Commission to evaluate consumer credit agreements Directive

The European Commission (the Commission) will evaluate the effectiveness, efficiency, coherence and relevance of Directive 2008/ 48, intended to be completed by Q4 2019. The evaluation follows reports of creditors failing to adhere to the Directive's advertising and pre-contractual information requirements. The evaluation will consider the suitability of the Directive in an increasingly digitised consumer credit market, focusing on the following aspects of the Directive:

  • design and distribution phases of credit products
  • cross-selling of credits with other financial products
  •  creditworthiness assessment
  • credit registers
  • information disclosure
  • rights of withdrawal; and
  • right of early repayment

EBA publishes final Guidelines on fraud reporting under PSD2

The EBA published Guidelines on fraud reporting under the PSD2. The guidelines aim to improve security of retail payments in the EU. The guidelines were drafted in accordance with Article 96(6) of Directive (EU) 2015/2366.

ESMA consults on technical advice under the Prospectus Regulation

ESMA has called for views on the Consultation paper on draft technical advice on the minimum information content for prospectus exemption and on risks factors under the Prospectus Regulation. ESMA has been instructed by the Commission to draft technical advice stemming from the Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. ESMA will consider all responses received by 5 October 2018.

ESMA publishes final report on the draft regulatory technical standards under the Prospectus Regulation

Regulation (EU) 2017/1129 was published in the Official Journal of the European Union on 30 June 2017 and entered into force on 20 July 2017. This final report follows a Consultation Paper published on 15 December 2017. The Regulation requires ESMA to prepare technical standards to supplement the Regulation covering, for example, data for classification of prospectuses, advertisements disseminated to retail investors and key financial information for the prospectus summary. This report will be published on ESMA's website and will be delivered to the Commission.

ESMA consults on revising Credit Reporting Agencies' periodic reporting

ESMA has published a consultation paper concerning the revision of Guidelines on periodic reporting by credit reporting agencies to ESMA for supervisory purposes. Since 2015 when the Guidelines were first published, ESMA's supervisory processes have changed and updated so revised guidelines are required to maintain efficiency and effectiveness of that supervision. Comments from interested parties can be made until 26 September 2018.

ESMA clarifies endorsement regime for non-EU credit ratings

ESMA published supplementary guidance on the application of the endorsement regime for non-EU credit ratings under the Credit Rating Agencies Regulation. The guidance will enter force on 1 January 2019. The guidance aims to increase the protection of European investors using endorsed credit ratings for regulatory purposes.

ESMA publishes responses to consultation on securitisation repositories

ESMA has published the responses it received to its consultations concerning securitisation repositories. Responses were submitted to one consultation on EMSA's technical advice to the Commission on securitisation repositories under the Securitisation Regulation (Regulation 2017/ 2402). The other consultation concerned draft RTS on applications for registration as a securitisation depository under the same Regulation.

ESMA defines standards for implementation of Securitisation Regulation

ESMA has published technical standards under the Securitisation Regulation. The standards contain draft regulatory and implementing standards. The standards were submitted to the Commission for endorsement. The standards come as part of a new European regulatory framework for European securitisation markets.

EIB confirms strengthening of support for priority investment in Ireland

The European Investment Bank (EIB) will support crucial investment in Ireland over the coming months and years ahead including implementing new initiatives to support companies in light of Brexit. It is expected new financing totalling €1 billion will be made available. The plans also include helping Ireland harness renewable energy sources for example offshore wind projects.

EBA publishes final draft technical standards on risk retention for securitisation transactions

The EBA published its final draft RTS specifying the requirements for originators, sponsors and original lenders related to risk retention as laid down in the new EU securitisation framework (STS Regulation). These final draft RTS, which replace the current Commission Delegated Regulation on risk retention, aim to provide clarity on the requirements relating to risk retention, thus reducing the risk of moral hazard and aligning interests. Given the cross-sectoral nature of its application, the new STS Regulation contains transitional provisions regarding the application of the existing Delegated Regulation to those securitisations whose securities were issued before its application date.

EBA publishes final draft RTS on homogeneity standards for underlying exposures in securitisation

The EBA has published final draft RTS that set out the conditions for underlying exposures in securitisation to be deemed homogenous. Securitisation transactions must be considered homogenous in order to meet the simple, transparent and standardised (STS) requirements and to qualify for more risk-sensitive risk weights under the new EU securitisation framework. The RTS requires homogenous exposures to the underwritten according to similar underwriting agreements and serviced according to similar servicing procedures. A non-exhaustive list of the most common asset categories is set out in order to help assess homogeneity of exposures.

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

Date Published: 13 August 2018