Financial Services Regulation & Compliance - Cross Sectoral November 2018
Financial Services Regulation & Compliance - Cross Sectoral November 2018
Central Bank of Ireland (CBI) publishes speech in relation to Culture and Consumer Protection – the role of Compliance
Gráinne McEvoy, Director of Consumer Protection delivered a speech to the Association of Compliance Officers Ireland 2018 conference. The speech focussed on the role of culture reform in leading to better customer outcomes, the role of compliance in delivering that reform and finally the implications of digitalisation for consumers, all of which rank high on the CBI's regulatory agenda. Gráinne outlined that in the aftermath of the financial crisis, the regulation of conduct and consumer protection was reformed. It was noted that firms should seek to prevent misconduct through the entire lifecycle of their interaction with customers, from the initial design of products, to distribution and complaints handling, and appropriate redress and compensation. These reforms are supported by additional rules and requirements and the intensive supervision of firms. The Financial Conduct Authority has argued that there is “strong evidence that organizational culture and social norms affect the likelihood of rule breaking.’’ Gráinne also advised that the CBI will be undertaking a more frequent targeted use of the Consumer Protection Risk assessment tool.
Governor Philip R. Lane delivers speech titled "Economic success depends on a thriving enterprise sector"
Governor Philip R. Lane delivered a speech at the Dublin Chamber of Commerce discussing the importance of the enterprise sector to economic performance and outlining that the Irish economy is currently experiencing a phase of expansion. Governor Lane also outlined the new CBI strategic plan that sets out thematic priorities for the next three years. It was noted that the behaviour of firms has a wider impact in terms of making progress in meeting the country’s social, environmental and regional objectives. While noting that the economy is currently in an expansion phase, he warned that the Irish economy is intrinsically volatile. There can be sudden and sizeable adverse shift in fundamentals, especially for small and highly open economies including changes in international conditions, disorderly Brexit scenarios, shifts in international trade or domestic policy errors that add to pro-cyclical dynamics in the economy. Governor Lane concluded by outlining that the new CBI strategic plan will be launched to include strengthening resilience, Brexit and strengthening consumer protection.
CBI sets out strategic priorities for the years 2019 to 2021
The CBI published its Strategic Plan for 2019-2021, setting out its key priorities for the next three years. The plan builds on the current strategy. The strategy sets out the five themes that the CBI will focus on for the next three years. These are strengthening resilience, Brexit, strengthening consumer protection, influencing and enhancing organisation capability. Governor Philip R. Lane noted that the there are two immediate significant challenges that call for particular strategic focus, Brexit and the CBI's new approach to conduct regulation. It was noted that Brexit has short-term and long-term implications for the structure of the Irish economy and the trading system. Brexit has also meant a significant expansion in the set of firms looking to use Ireland as a base to serve the EU27 financial system and it is forcing a rethink of the appropriate framework for regulating trade in financial services between the EU27 and other locations, including the UK.
Derville Rowland, Director General delivers speech titled "Leadership, Accountability and Culture in Financial Services"
Derville Rowland, Director General, Financial Conduct of the CBI delivered a speech discussing the CBI’s proposals to enhance accountability in the financial services sector and to deliver a more effective consumer focused culture at regulated financial institutions. Derville discussed the role of culture in misconduct and noted that people are likely to follow the culture within an organisation if there is significant peer pressure to do so which emphasises the need for organisations to get their culture right. It was noted that the CBI expects leaders to set the right tone from the top, to ensure it is echoed from the bottom up and is visible throughout the organisation. The CBI's Consumer Protection Risk Assessment model (CPRA) specifically requires that leaders can show how their actions and communications are encouraging a culture of consumer protection throughout the firm. The CBI requires clear oversight, responsibility and accountability for culture and behaviours related to consumer protection.
CBI published an Economic Letter by Lorenz Emter and Valerie Herzberg discussing the rationale for GDP linked bonds for the euro area
The CBI published an economic letter by Lorenz Emter and Valerie Herzberg which considers how performance related government bonds, such as GDP-linked bonds, can play a role in enhancing the architecture of the Economic and Monetary Union, improving risk management in the absence of more fiscal integration. The key findings discussed in the letter are that with payments linked to economic outcomes, GDP-linked government bonds could assist Member States to share risks. In economic downturns, the issuer would pay less and the holder of the security would receive less, while in periods of economic upswing, the opposite would occur. These instruments have additional benefits for highly open economies, such as Ireland. In countries where government revenues are highly volatile such methods of sharing risk with non-residents could prove useful. However, in order for countries to avail of this opportunity of risk sharing, the additional cost of issuing this government debt needs to be contained. Were larger Member States to lead the vanguard in introducing these new instruments, they would reduce novelty and liquidity premia.
Gerry Cross, Director of Policy and Risk delivers speech titled "Hubs and spokes: remarks on innovation and outsourcing"
The CBI published a speech delivered by Gerry Cross at the CBI's Innovation Hub event pertaining to the CBI's approach to engagement on innovation and the increasing significance of outsourcing. The Innovation Hub enables entities engaged in innovation to contact the CBI with questions on navigating the Irish regulatory landscape and provides the opportunity to become more knowledgeable on relevant technological developments and innovations. It was noted that outsourcing activities are a significant, increasing feature of the financial services landscape. It can add real value to how firms run their business and to the functioning of the financial sector in support of the economy. The CBI has undertaken a project to consider the outsourcing landscape across the broad range of financial sectors in Ireland including Asset Management, Banking, Insurance and Payment Institutions and to review their supervisory experience in this regard. The resulting report, setting out the CBI’s main findings and further issues arising in the context of this review, is due to be published in the coming weeks.
CBI publishes speech delivered by Patrick Casey titled "Governance and the Credit Union"
Patrick Casey, Registrar of Credit Unions delivered a speech at the National Supervisors Forum (NSF) AGM. Patrick discussed the importance of each credit union defining its strategic orientation for the future, grounded on a well-developed risk appetite. Also discussed was the importance of understanding both credit union strategic enablers and prudential supports and the financial conditions of Credit Unions from 2013 to 2018. Patrick noted that the sector has yet to materially transform the credit union business model from its traditional savings and loans offering. Patrick further commented that while there has been some improvement in governance standards across the sector, the position is not uniform. There is a need for continuous focus in this key area.
This Act gives effect to the Fourth Money Laundering Directive ( Directive (EU) 2015/849 (4AMLD) and proposes a range of amendments to existing anti-money laundering (AML) legislation set out in the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 and 2013. The Act was signed into law by the President on the 14th November 2018.
Minister Paschal Donohoe initiates public consultation to improve corporate anti-tax avoidance measures
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, launched a public consultation on the hybrid mismatch and interest limitation measures to be introduced as part of the implementation of the Anti-Tax Avoidance Directives (ATAD and ATAD2). The ATADs are legally binding instruments which Member States have agreed at EU level to introduce key OECD BEPS actions in a consistent manner. Tax policy issues detailed in this public consultation will form part of the Minister’s considerations of the transposition of the ATADs into national law. A list of questions on the anti-hybrid and interest limitation provisions of the ATADs is provided for guidance. The public and interested stakeholders are invited to give their views on these implementation issues during the consultation period which ends 18 January 2019.
Trust or Company Service Provider Authorisation (Appeal Tribunal) (Establishment) Orders 2018 published
Trust or Company Service Provider Authorisation (Appeal Tribunal) (Establishment) Order 2018, Statutory Instrument Nos. 474 and 475 of 2018 was published. The instruments provide for the establishment of an Appeal Tribunal pursuant to section 101(1) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (No. 6 of 2010) for the period commencing on 19 day of November 2018 and ending on 18 day of November 2023 to adjudicate on appeals under section 100 of that Act. The Appeal Tribunal considers appeals of decisions made by the Minister (delegated to the Anti-Money Laundering Compliance Unit (AMLCU)) in relation to applications for, and renewals of, authorisation of Trust or Company Service Providers, as well as appeals to Directions issued under section 98 of the 2010 Act.
CBI publishes Guidance on the PSD2 Operational and Security Risk Assessment Return
The CBI has published Guidance on Directive 2015/2366/EU on payment services (PSD2) which was transposed into Irish law, with effect from 13 January 2018, by the European Union (Payment Services) Regulations 2018 (S.I. No. 6 of 2018, (Payment Services Regulations 2018). The Payment Services Regulations 2018 place a number of reporting requirements on payment service providers (PSPs). The guidance includes information on completing the overview and PSP details tab, guidance on completing the assessment tab and guidance on completing the Top 5 risks tab.
Consumer Protection (Regulation of Credit Servicing Firms) Bill 2018 passed by Dáil Éireann
The Consumer Protection (Regulation of Credit Servicing Firms) Bill 2018 was passed by Dáil Éireann and is now making its way through the Seanad. The Bill entitled an Act to amend the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 to allow for the regulation of loan owners and sale of loans and to provide for related matters.
CBI published Guidance for the Completion of the Schedule 2 Anti Money Laundering Registration Form
The CBI has published a guidance note for the Completion of the Schedule 2 Anti Money Laundering Registration Form. By virtue of s108A of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 a statutory requirement was introduced which requires certain firms to register with the CBI for anti-money laundering purposes. Financial leasing, factoring, safe custody and other services are effected.The guidance advises on the exemptions to registration, details how to register and further general guidance on completing the registration form.
CBI publishes revised versions of Prospectus Handbook and Transparency Rules
The CBI published the latest version of the Prospectus Handbook which is relevant for issuers of transferable securities which are subject to Directive 2003/71/EC (Prospectus Directive) and certain law firms, stockbrokers and investment banks who act as service providers to those issuers. The Prospectus Handbook is the CBI's guide to the process it applies for the review, approval and publication of a prospectus that is required to be published in connection with an offer of securities to the public in Ireland, or an admission of securities to trading on the Main Securities Market of the Irish Stock Exchange plc. CBI also published a revised version of its Transparency Guidance and issued Transparency Rules under Section 1383 of the Companies Act 2014. The Transparency Rules set out procedural and administrative requirements and guidance in respect of the Transparency (Directive 2004/109/EC) Regulations 2007 as amended.
CBI appoint a new Director of Prudential Analysis and Inspections
CBI announced that Adrian Varley has been appointed as Director of Prudential Analysis and Inspections, effective 1 February 2019. The creation of the new Prudential Analysis and Inspections Directorate is part of a wider restructure of the prudential regulation area of the CBI. The restructure recognises the evolution of prudential supervision over the last decade and changes in the nature and scale of the Irish financial services system. It sets the CBI up to deliver successfully through the life of its recently launched 2019-2021 strategic plan and beyond.
Heads of Bill for the Central Bank (Amendment) Bill to be approved in 2019
The heads of the Central Bank (Amendment) Bill, which will amend the Central Bank Acts to provide for various issues of enforcement and accountability, are to be brought forward for approval in Q1 2019. Minister Pascal O'Donohoe, in commenting on the bill noted that proposals to enhance individual accountability by way of Conduct Standards for all regulated financial services providers and the individuals working within and enhancements to the current Fitness and Probity Regime, are being considered as part of the work of the Government's forthcoming Central Bank (Amendment) Bill.
Commission Delegated Regulations (EU) supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council
The Commission published ten new Delegated Regulations supplementing the Regulation 2016/1011 (The Benchmark Regulation). The Regulations entered into force on 25 November 2018 and will apply from 25 January 2019.
Delegated Regulation 2018/1637 supplementing Regulation (EU) 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;
Delegated Regulation 2018/1638 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards specifying further how to ensure that input data is appropriate and verifiable, and the internal oversight and verification procedures of a contributor that the administrator of a critical or significant benchmark has to ensure are in place where the input data is contributed from a front office function;
Delegated Regulation 2018/1639 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards specifying further the elements of the code of conduct to be developed by administrators of benchmarks that are based on input data from contributors;
Delegated Regulation 2018/1640 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards specifying further the governance and control requirements for supervised contributors;
Delegated Regulation 2018/1641 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards specifying further the information to be provided by administrators of critical or significant benchmarks on the methodology used to determine the benchmark, the internal review and approval of the methodology and on the procedures for making material changes in the methodology;
Delegated Regulation 2018/1642 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards specifying further the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements;
Delegated Regulation 2018/1643 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;
Delegated Regulation 2018/1644 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards determining the minimum content of cooperation arrangements with competent authorities of third countries whose legal framework and supervisory practices have been recognised as equivalent;
Delegated Regulation 2018/1645 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;
Delegated Regulation 2018/1646 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council with regard to regulatory technical standards for the information to be provided in an application for authorisation and in an application for registration
ESMA provides overview of NCAs' declared compliance status with Guidelines
ESMA has published an overview of the compliance status declared by national competent authorities (NCAs) as regards the application of ESMA guidelines in their respective jurisdictions. The Compliance with Guidelines, overview table made available is a compilation of individual guidelines compliance tables, already available on ESMA’s website, and provides an overview of the level of compliance declared by NCAs with ESMA guidelines. The guidelines listed in the table were adopted under Article 16 of Regulation 1095/2010 (ESMA Regulation). Article 16(3) requires NCAs to inform ESMA whether they comply, intend to comply or do not comply with guidelines issued by ESMA. In case an NCA does not comply or does not intend to comply with particular guidelines, it must inform ESMA about its reasons. The reasons for non-compliance as well as any other relevant information provided by NCAs are directly accessible in the Overview Table.
ESMA publishes updates to the Q&A's on Benchmarks Regulation (BMR)
ESMA published Q&A's pertaining to the BMR with the aim of promoting common, uniform and consistent supervisory approaches and practices in the day to day application of the BMR. The updated Q&A includes a discussion as to the use of benchmarks and whether the reference to an index in a bilateral agreement on the interest to be paid on exchanged collateral under various over the counter (OTC) derivatives amounts to the use of a benchmark. ESMA clarified that the calculation of interest to be paid on exchanged collateral is not equal to the determination of the amount payable under a financial instrument and therefore does not amount to use of a benchmark. ESMA advised that it will periodically review these Q&A's and update them where required.
Joint Committee of the three European Supervisory Authorities (ESAs) consults on guidelines on cooperation and information exchange for AML/CFT supervision purposes
The Joint Committee of the three ESAs launched a public consultation on draft Guidelines on the cooperation and exchange of information between competent authorities supervising credit and financial institutions for the purposes of AML/CFT supervision. ESAs have agreed to develop these Guidelines, which clarify the practical modalities of this process both domestically and on a cross-border basis. The Guidelines propose the creation of AML/CFT colleges of supervisors and set out the rules governing their establishment and operation. In particular, AML/CFT colleges should be set up whenever three or more competent authorities from different Member States are responsible for the AML/CFT supervision of the same credit or financial institution and its establishments, and the frequency and intensity of each AML/CFT college should be determined on a risk-sensitive basis. Where the conditions for setting up an AML/CFT college are not met, the Guidelines propose that supervisors will continue their cooperation and information exchange on a bilateral basis and formalise this process. Comments to the draft Guidelines can be sent to the EBA's and the deadline for the submission of comments is 08 February 2019.
EBA publishes update to the Single Rulebook Q&A in relation to Directive 2015/2366 (EU)
The EBA has published an update to the Single Rulebook Q&A in relation to Directive 2015/2366, Payment Services Directive 2 (PSD2). The question posed was whether Payment Service Providers (PSPs) could be allowed to choose between applying strong customer authentication (SCA) or not when a payment service user (PSU) accesses payment transactions data older than the previous 90 days without having access to sensitive payment data and for a period of 90 days after its last access using SCA. The EBA clarified that for payment transaction history older than 90 days, the exemption to the obligation to apply strong customer authentication under Article 10(1) of the Commission Delegated Regulation 2018/389 does not apply. For such information, payment service providers should always have to apply strong customer authentication.
ESMA publishes update to the Q&A on the Market Abuse Regulation (MAR)
ESMA has published an update to the Q&A on the Market Abuse Regulation. The question posed was whether the prohibition in Article 19(11) MAR includes transactions of the issuer relating to its own financial instruments even if it is the Person Discharging Managerial Responsibilities (PDMRs) taking the decision or bringing a previous decision into practice. ESMA clarified that the prohibition in Article 19(11) prohibits PDMRs within an issuer, and not the issuer itself, to conduct any transactions on its own account or for the account of a third party, directly or indirectly, relating to the share or debt instruments of the issuer during a closed period of 30 days before the announcement of a financial report. ESMA noted that any transaction carried out by the issuer during a closed period should be carefully treated as the issuer remains subject to the prohibition of insider dealing contained in Article 14 MAR.
Publication in the Official Journal of the EU of Directive 2018/1673 of 23 October 2018 on combating money laundering
The European Parliament and Council of the European Union published the text of the sixth Anti Money Laundering Directive of the European (MLD6) which adds to the criminal law aspects of the fifth Directive. All member states are expected to introduce legislation to bring their national law into compliance with the Directive by 3 December 2020. Some of the key features of the Directive include a unified list of 22 predicate offences, increases in minimum penalties for certain sanctions as well as fines or temporary bans. The Directive also extends criminal liability to corporates where money laundering is committed for their benefit by an individual in a leading position where a lack of supervision led to the offence and provides for the confiscation of the proceeds and instruments used in the commission of money laundering offences.
ESMA publishes updates to Q&A's on Short Selling Regulation (SSR)
ESMA updated its Q&A on the SSR. This Q&A clarifies that the identification of the relevant competent authority, following the entry into application of MiFID II/MiFIR, is no longer made under Commission Regulation No 1287/2006 but under Commission Delegated Regulation (EU) 2017/590 for the reporting of transactions to competent authorities. The purpose of this Q&A is to promote common supervisory approaches and practices in the application of SSR. ESMA will periodically review this Q&A and update when required.
Commission Implementing Regulation 2018/1624 pursuant to Directive 2014/59 of the European Parliament and of the Council, and repealing Commission Implementing Regulation 2016/1066
The Commission published an Implementing Regulation laying down implementing technical standards with regard to procedures and standard forms and templates for the provision of information for the purposes of resolution plans for credit institutions and investment firms pursuant to Directive 2014/59/EU of the European Parliament and of the Council, and repealing Commission Implementing Regulation (EU) 2016/1066.
ESMA publishes reports on National Competent Authorities' use of sanctions and administrative measures under MAR
ESMA published its first annual report concerning administrative and criminal sanctions as well as other administrative measures issued by National Competent Authorities (NCAs) under the Market Abuse Regulation (MAR).The infringements under MAR to which the sanctions and administrative measures refer to include insider dealing and unlawful disclosure of inside information (Article 14 MAR) and market manipulation (Article 15 MAR). MAR includes administrative sanctions for infringing the Regulation, which depending on the gravity of the infringement, can amount up to €5,000,000 Euros. The report is issued pursuant to Article 33 of MAR and contains aggregated information on administrative and criminal sanctions and other administrative measures imposed in the EU on the basis of MAR from 3 July 2016 (date on which MAR became applicable) to 31 December 2017.
European Parliament publishes new rules to boost crowdfunding platforms and protect investors
The European Parliament publishes new rules to boost crowdfunding platforms and protect investors. These new rules propose extending the regulatory scope to include crowdfunding offers up to €8,000,000 and stricter rules on protecting investors. Economic and Monetary Affairs Committee voted on its position on common rules on the creation and functioning of European crowdfunding service providers for business. The adopted text aims to help crowdfunding services to function smoothly in the internal market and to foster cross-border business funding in the EU, by providing for a single set of rules on the provision of crowdfunding services. Crowdfunding is increasingly becoming an alternative form of finance for start-ups, as well as for small and medium enterprises (SMEs) at an early stage of company growth. The Committee is now ready to enter into negotiations with the European Commission and the Council.
EBA publishes final draft Regulatory Technical Standards (RTS) on the specification of the nature severity and duration of an economic downturn
EBA published final draft RTS on specification of the nature severity and duration of an economic downturn in accordance with Articles 181(3)(a) and 182(4)(a) of Regulation (EU) No 575/2013. These RTS complete the EBA's regulatory review of the internal ratings-based (IRB) approach, with the objective of restoring market participants' trust in internal models by reducing the unjustified variability in resulting risk weighted exposure amounts. The final draft RTS set out the notion of economic downturn to be taken into account when estimating the LGD and the conversion factors (CF). Under the advanced IRB approach, institutions determine their own funds requirements for credit risk taking into account their own loss given default (LGD) and CF estimates. According to Article 181(1)(b) of the Capital Requirements Regulation (CRR), institutions shall estimate LGDs that are appropriate for an economic downturn and according to Article 182(1)(b) institutions shall estimate conversion factors that are appropriate for an economic downturn. Therefore, the EBA is mandated in Articles 181(3)(a) and 182(4)(a) to develop these draft RTS specifying the nature, severity and duration of an economic downturn to be taken into account when estimating the LGD and CF. These draft RTS will apply from 1 January 2021.
EBA publishes update to Single Rulebook Q&A pertaining to the Deferral of variable remuneration in instruments
The EBA has updated its Q&A on the Single Rulebook in relation to a credit institutions obligation to hold the instruments (as shares, for example) during the deferral period of variable remuneration in instruments. The EBA confirmed that in accordance with Article 94(1)(l) and (m) of Directive 2013/36/EU (CRD), institutions should pay the variable remuneration partly upfront and partly deferred and in an appropriate balance between equity, equity-linked and other eligible instruments and cash. It was noted that variable remuneration payable under deferral arrangements, either instruments or cash, is subject to vesting, which according to paragraph 10 of the EBA Guidelines on sound remuneration policies means the effect by which the staff member becomes the legal owner of the variable remuneration awarded, independent of the instrument which is used for the payment or if the payment is subject to additional retention periods or clawback arrangements. The CRD does not require institutions to hold the instruments (or cash) during the deferral period.
ESMA issues latest Risk Dashboard covering risks in EU's securities markets for Q3 2018
ESMA has issued the latest iteration of its Risk Dashboard covering risks in the EU’s securities markets for Q3 2018. ESMA’s overall risk assessment remains unchanged from Q2 2018 at high levels. Equity markets increased slightly over the course of the 3rd quarter of 2018, however market nervousness and sensitivity are rising, as evidenced by the global equity market sell-off at the beginning of October. The budget plans of Italy have led to sovereign bond market volatility remaining at a high level, and generally high market valuations coupled with market uncertainty contribute to very high market risk. Going forward, ESMA sees concerns over a potential no-deal Brexit increasingly weighing on economic and market expectations. Risks to business operations from Brexit as well as from cyber threats continue to be a major concern, leading operational risk to remain elevated with a negative outlook.
EBA publishes overview of competent authorities' implementation and transposition of the CRD IV package
The EBA has updated the information disclosed by EU Competent Authorities according to its Implementing Technical Standards (ITS) on supervisory disclosure, which was published in the EU Official Journal on 4 June 2014. This information provides an overview of the implementation and transposition of the Capital Requirements Directive (CRD IV) and Capital Requirements Regulation (CRR) across the EU. It also provides a detailed picture of the use of options and national discretions by each Competent Authority as well as information on the general criteria and methodologies used for the purpose of the supervisory review and evaluation process (SREP).