Financial Services Regulation & Compliance - Cross Sectoral Nov 2017

DOMESTIC:

Central Bank publishes CP116 Consultation on the Intermediary Inducements - Enhanced Consumer Protection Measures

CP116 proposes new rules on how financial intermediaries can be paid in order to enhance protection for consumers when they seek advice from these intermediaries. The paper contains proposals prohibiting certain types of commission and other inducements  especially those which give rise to conflicts of interest, it imposes obligations on financial intermediaries to tell consumers how they are paid and introduces restrictions on financial intermediaries describing themselves as ‘independent’. The proposals have been drafted in light of a review conducted by the Central Bank on other jurisdictions and emerging trends across the European Union. The consultation is open for submissions until 22 March 2018.

Central Bank of Ireland publishes Markets Update Issue 9

The markets update refers to the publication of the Central Bank Feedback Statement on CP 111, the Industry letter on contingency planning post Brexit for investment funds, the Twenty-seventh Edition of AIFMD Q&A and the Twenty-first Edition of UCITS Q&A. The update also references the revised regulatory technical and implementing standards with regard to EMIR trade reporting. On 1 November 2017, Commission Delegated Regulation (EU) 2017/104 and Commission Implementing Regulation (EU) 2017/105 came into force setting out revised standards regarding the minimum details, and the format and frequency, of trade reporting requirements under EMIR. It also notes relevant speeches given by Central Bank senior personnel focusing on Brexit and the changing regulatory environment.

Central Bank publishes Addendum to the Consumer Protection Code 2012

This addendum has been published in light of the transposition of the Payments Accounts Directive, which required that consequential amendments be made. As a result of this transposition, the 'Clarification of Scope' section of Chapter 3 – General requirements of the 2012 code has been amended. Chapter 4 – Provision of information section has also been amended due to the application of the PRIIPs Regulation from 1 January 2018.

Central Bank publishes statement of commitment to Foreign Exchange Global Code of Conduct

The Central Bank has committed to adhering to the principles of the Code when acting as foreign exchange market participants and ensuring that their internal practices and processes are aligned with the principles of the Code. To ultimately achieve the objective of the Code, the Central Bank along with all other Central Banks in the European system also encourage all foreign exchange market participants to adhere to it.

The Central Bank and sustainability - Governor Philip R. Lane

Governor Lane spoke about the Central Bank’s perspective on sustainability from two angles. Firstly, he focused on the efforts being undertaken by the Central Bank on sustainability in terms of governance and diversity and inclusion. He then turned to the interaction between the financial system and sustainability from the perspective of financial regulation and financial stability policies whereby he emphasised how the Central Bank's financial stability mandate contributes to long-term sustainability. Governor Lane concluded by highlighting the implications sustainable environmental policies has on the financial system, stressing that maintaining financial stability is a necessary pre-condition to achieving long-term sustainable policies.

Is it legal? A question of culture - Deputy Governor Ed Sibley

Mr. Sibley gave a speech about leadership and culture change in financial services. He referred to the breakdown of trust and confidence the public have in the banking sector noting that the behaviours and underlying cultures within financial services firms are wholly inappropriate. Mr.Sidley highlighted the Central Bank's expectation that boards, individuals on the boards and executives should be held accountable for initial decisions and the ongoing decisions over an extended period.  The expectation on the Central Bank is that in order for a change in culture to be achieved firms should be taking action through the board, he provided the example of the establishment of an ethics subcommittee which would oversee recruitment policy, hiring decisions, implementation of remuneration policies etc. and reviewing the boards effectiveness.

Central Bank publish Issue 2 Anti-Money Laundering bulletin

The AML bulletin provides guidance on suspicious transaction reporting and contains the Central Banks findings and expectations on the identification, escalation, reporting and record keeping of Suspicious Transaction Reports.  The bulletin also refers to the following topics:

• the Financial Action Task Force (FATF) Mutual Evaluation Report (MER) of Ireland published in September 2017
• the Risk Factor Guidelines published by the Joint Committee of the European Supervisory Authorities
• the Fund Transfer Regulation and associated guidelines
• the National and Supranational Risk Assessments
• identifying suspicious transactions

Some Regulatory Priorities for 2018 - Gerry Cross, Director of Policy and Risk

Mr. Cross's speech focused on the most significant topics on the Central Bank's radar for 2018. Brexit will be a strong focus as the main concern is that regulated firms in Ireland have plans in place which are ready for the potential implications to their business models and revenue streams. A smooth MiFID II implementation will be a high priority and this will be achieved through targeted visits, full risk assessments and thematic reviews. IFRS9 and IT & Cyber risk will continue to be on their radar while outsourcing and Fintech will be focused on heavily. The Central Bank also intends to have an enhanced focus on conduct, behaviour and culture in 2018.

Policy Statement - Withdrawal of Impairment Provisioning and Disclosure Guidelines

The Central Bank has announced that it will withdraw the Impairment Provisioning and Disclosure Guidelines. The reason for this being that IFRS 9 'Financial Instruments' is introducing  an Expected Credit Loss Model (ECL) approach to accounting for provisions, which will replace the IAS 39 ‘Financial Instruments: Recognition and Measurement’ and the Incurred Loss Model. Firms should be aware of the following documents in their preparation for and implementation of IFRS 9: (1) The SSM report ‘SSM Thematic Review on IFRS 9 - Assessment of institutions’ preparedness for the implementation of IFRS 9’ (2) The EBA Guidelines on Credit Institutions’ Credit Risk Management Practices and accounting for Expected Credit Losses (3) The ECB Guidance to Banks (significant institutions) on Non-Performing Loans.

The Evolving Regulatory Architecture: A Supervisory Perspective – Gerry Cross, Director of Policy and Risk

This speech addresses the changing architecture within the Central Bank, developments in relation to Banking Union with a few comments about the risk reduction measures proposals, the effects of Brexit and ensuring that regulated firms with direct or indirect exposures to the UK economy plan accordingly and the current reform proposals which have been tabled by the ESAs including the legislative proposal for revision of the structure and mandate of the European Supervisory Authorities and the ESRB.

Central Bank publishes CRD IV XBRL File Upload – User Guidelines

The Central Bank published version 1.2 of CRD IV XBRL File Upload – User Guidelines for users who will be uploading XBRL files to the Central Bank via the Online Reporting Platform (ONR). The document encompasses the process of individual file uploads, together with the finalising and sign-off of both Individual and grouped returns.

The Importance of Diversity - Deputy Governor Ed Sibley

Deputy Ed Sibley, in notes prepared as part of the ECB Inspiring Leaders Series, discussed the importance of diversity from both an internal organisational perspective and an external supervisory perspective. He shared his thoughts on the current situation, challenges and the actions taken by the Central Bank to improve diversity and inclusion internally and how the Central Bank has started to drive for improvements in diversity across regulated firms.

EUROPEAN:

European Central Bank Discussion Paper on collateral: implications for financial stability and monetary policy

The paper examines the role of collateral in the financial system, with special emphasis on the implications for financial stability and the conduct of monetary policy. The paper also reviews what drives the demand and supply for real and financial collateral assets and examines financial stability issues and the case for regulating the use of collateral. The role and design of market infrastructures such as central clearing counterparties is discussed. The paper also examines the interaction of standard and non-standard monetary policy and the functioning of private collateralised markets.

European and Securities Market Authority updates questions and answers on the Benchmarks Regulation (BMR)

ESMA has updated its Q&A on BMR. The Q&A's include two new answers regarding the following topics:

• application of the Regulation outside the EU
• third country benchmarks

European Central Bank published paper on tracing European structured finance counterparty networks

The paper traces and describes the network between issuers and service providers of asset-backed securities (ABSs) and covered bonds (CBs) using a new database covering the majority of public ABSs and CBs outstanding between August 2008 and March 2017. The findings show that ABS and CB issuers are highly reliant on affiliated counterparties (“close links”) to provide key services, especially when programmes are larger and/or are retained by the issuer for use as collateral with the Eurosystem. When only “non-close links” across banking groups are considered, instances of reliance on just a few service providers have gradually decreased in number, with a more balanced system developing over time. The findings help demonstrate the importance of the Eurosystem’s risk management framework for ABSs and CBs, and support the orientation of recent regulatory efforts at the European level.

European and Securities Market Authority alerts investors to the high risks of initial coin offerings (ICOs)

ESMA is alerting investors to the high risks of so-called ICOs, including the total loss of their investment. ESMA has observed a rapid growth in ICOs and has noted a concern that investors may not realise the risks when investing. As they are highly speculative investments, ICOs may, depending on how they are structured, fall outside the regulated space. ESMA has warned that where the ICO is unregulated, investors will have no protection.

European and Securities Market Authorities issues consultation paper consults on calculation of derivative positions

ESMA has published a consultation paper on guidelines on position calculation under EMIR. The purpose of the guidelines is to ensure that TRs calculate positions in derivatives in a harmonised and consistent manner in accordance with Article 80(4) of EMIR. The guidelines will provide specific information on the aggregation of certain data fields and how those should be calculated by TRs prior to the provision of the data to relevant authorities. The aim of the guidelines is to ensure consistency of position calculation across TRs, with regards to the time of calculations, the scope of the data to be used in calculations and the calculation methodologies. In addition the guidelines will ensure a consistent methodology is used to calculate collateral relating to positions. The Consultation runs until the 15 January 2018.

European and Securities Market Authority issues final report on the update of the guidelines on the application of the endorsement regime under Article 4(3) of the Credit Rating Agencies Regulation

The updated guidelines aim to provide additional clarity on the obligations of EU CRAs and third-country CRAs which engage in endorsement, the notion of ‘objective reasons’ and ESMA’s supervisory powers with regard to endorsed credit ratings. In the final report, ESMA considers the responses received to the consultation paper during Q2 of 2017 and reflects discussions with stakeholders at an open hearing held on the top on 17 May 2017.

European and Securities Market Authority has published its final report on technical advice on CRA regulatory equivalence

The final report details a number of changes and clarifications to the existing guidelines focusing on the obligations of the endorsing CRA, the conduct of the third-country CRA, and the third-country legal and supervisory framework. It also clarifies ESMA’s supervisory powers over endorsed credit ratings and the notion of objective reasons.

European and Securities Market Authority updates questions and answers on CSDR implementation

ESMA has published today an update of its Q&As regarding the implementation of CSDR. The CSDR Q&As provide common answers to question regarding practical issues on the implementation of the new CSDR regime. This update provides detailed answers regarding certain aspects of: 

• relevant authorities
• conduct of business rules
• protection of securities
• prudential requirements

Questions and answers - implementation of the Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR)

The updated Q&A includes new or updated answers regarding the reporting to trade repositories. The purpose of this document is to promote common supervisory approaches and practices in the application of EMIR. It provides responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of EMIR.

European and Securities Market Authority issues clarification on the rotation periods of CRA's analysts

ESMA has published an update to its Q&A on the application of the CRA Regulation, adding a new section on organisational requirements. The new section addresses the rotation periods applicable to analysts and persons involved in the approval of ratings. The Q&A provides clarity by:

• outlining the applicable rotation periods for different types of staff, lead analysts, analysts and persons approving credit ratings
• clarifying the circumstances in which exemptions from these rotation periods apply
• clarifying how the rotation periods of these types of staff should be calculated  
• providing clarity as to what ESMA understands to be a person approving credit ratings

European and Securities Market Authority updates questions & answers on Market Abuse Regulation (MAR)

ESMA has updated its Q&A document regarding the implementation of MAR. The Q&A includes two new answers on managers' transactions, addressing in particular trading during ''closed periods'' by persons discharging managerial responsibilities (PDMRs).

Public consultation on institutional investors and asset managers' duties regarding sustainability

ESMA published a public consultation on institutional investors and asset managers' duties regarding sustainability. The aim of the public consultation is to collect the views and opinions of interested parties on this issue in order to inform the impact assessment process. ESMA welcomes all citizens and organisations to contribute to the consultation. The consultation will help the Commission gather and analyse the necessary evidence to determine possible action to improve the assessment and integration of sustainability factors in the relevant investment entities' decision-making process.

European Commission approves Irish support scheme for SMEs in difficulty

The Commission has approved a €10 million Irish aid scheme to facilitate the restructuring of SMEs in Ireland as being in line with EU State aid rules. Enterprise Ireland will be entitled to offer restructuring support to SMEs in financial difficulty particularly where job losses are at stake. The aim of the scheme is to provide SMEs with access finance from credit markets, where they have a viable chance of surivival. The scheme will run until 2020.

European Central Bank, European Securities and Markets Authority and Belgian Financial Services and Markets Authority seek participants for Euro Risk-Free Rates Working Group

The ECB, ESMA and FSMA are looking for applications from financial sector representatives and non-banking institutions or associations. The working group will be tasked with the identification and adoption of risk-free overnight rates to serve as a basis for an alternative to the current benchmarks used in a variety of financial instruments and contracts in the euro area. The application system closes 12 January 2018.

European Central Bank publishes first public consultation on developing a euro unsecured overnight interest rate

The ECB has issued this consultation on the back of its announcement in September of this year, that it would be developing a euro unsecured overnight interest rate based on data available in the Eurosystem. The consultation seeks feedback from market participants on the high-level features of a new unsecured overnight interest rate. It also aims to collect the views of stakeholders regarding the main features and the timing of the publication of the new rate. The consultation runs until 12 January 2018.

European Council adopts securitisation rules

The objective of these rules is to aid the development of a securitisation market in Europe. Following the European Parliament’s approval on 26 October 2017, the Council adopted the rules for simple, transparent and standardised securitisations (STS) on 20 November 2017. The rules tie in with the EU's plan to develop a fully functioning capital markets union by the end of 2019. The two regulations on STS and the capital requirements for positions in a securitisation were adopted at a meeting of the General Affairs Council, without discussion.

Joint Committee of the ESAs publish 2018 work programme

The ESA's 2018 work programme will prioritise the analysis of cross-sectoral risks, consumer protection, anti-money laundering, financial conglomerates and accounting and auditing. There will be a specific focus on micro-prudential analysis of cross-sectoral developments, assessment of risks and vulnerabilities for financial stability, consumer protection issues relating to retail investment products, supervisory cooperation for anti-money laundering supervision, co-ordination of financial conglomerate matters and accounting and auditing issues.

Date published: 11 December 2017