In line with increased regulatory activity, our monthly Tracker newsletter has become a much longer publication over recent years. We are conscious that this might result in Tracker becoming unwieldy and deviating from its purpose as a short synopsis of key developments, and as a result we have made some changes. Tracker will now cover only key Irish and European (non-jurisdiction specific) developments.
Central Bank of Ireland publishes new regulations for firms lending to SMEs
The Central Bank has published the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015. The new regulations require that credit institutions increase the transparency around their application processes for SME borrowers, provide specific reasons for declining credit and increase protection for guarantors in dealing with SMEs. The SME borrowers must be provided with the following information: (i) the specific reasons in writing, where credit is declined; (ii) arrears of 15 working days must be notified to borrowers and banks must make contact in order to identify the reasons for this situation arising; and (iii) a warning must be provided in advance to borrowers in danger of being classified as non-cooperative. In addition, the grounds upon which an SME borrower can appeal have been extended and lenders must set up an internal appeals panel to deal with appeals.
Regulated lenders (other than Credit Unions) must comply with these Regulations by 1 July 2016, and Credit Unions must comply by 1 January 2017.
Central Bank of Ireland develops a methodology for tracker mortgage-related issues
The Central Bank has issued a statement in relation to the development of a methodology for the broader examination of tracker mortgage-related issues. All lenders who offered tracker mortgages up to the end of 2015 must have a review framework and plan in place by the end of March 2016 as part of the Central Bank's examination.
Under the plans, banks must (i) identify any cases where the rights of mortgage holders were not fully honoured under their agreements and/or where lenders did not fully comply with the relevant disclosure and transparency requirements; (ii) appoint independent third parties to confirm the adequacy and appropriateness of their reviews; and (iii) submit certain relevant information to the Central Bank.
Oireachtas Banking Inquiry Report Published
On 27 January 2016, the Committee of Inquiry into the Banking Crisis published its report which made a range of findings and recommendations in relation to the factors and policies which impacted on or contributed to the recent banking crisis in Ireland. One of the most high profile findings was that the Financial Regulator had sufficient powers to more proactively intervene in relation to banking risks but did not do so.
In relation to banking, the inquiry found that banks became over-reliant on wholesale markets during the period leading up the financial crisis and that increased competition in the property lending market led to aggressive lending policies and risky asset value based lending models. It was, acknowledged that no one single event or decision led to the failure of banks in Ireland but that exposures from poor commercial property lending threatened the financial system.
The Inquiry recommended that the Competition and Consumer Protection Commission conduct a review of the impact of these lending policies by banks on consumers. The report also included a number of recommendations directed at banks, in relation to their structure, e.g., that all board members should undergo ongoing training, that banks should ensure that the risk function is an independent and senior position with direct access to the Board and that risk appetite should be clearly defined at board level.
The Report made further general recommendations, including requiring a mandatory rotation of audit firms, requiring financial institutions to obtain independent audits of regulatory returns and the introduction of a comprehensive commercial property price register.
New Central Bank of Ireland Governor sets out priorities for 2016
Philip Lane, the new Governor of the Central Bank, has said that the Central Bank will increase its transparency by publishing the minutes of the meetings of the Central Bank Commission. It appears that the minutes will be published about six weeks after each meeting, and will not include the publication of market sensitive financial operations activities or information relating to the supervision of regulated firms. The Governor said that the Central Bank will seek to address its mandate with proactive policies following the lessons learned from the financial crisis, including a vigilant approach to the deployment of macro-prudential policies. The Governor referred to the Central Bank's mortgage rules as a permanent feature and said that the rules could be tightened or loosened where there is significant evidence to warrant it. The first review of the mortgage rules will be published in November. The Governor also stated that the Central Bank intends to build on the progress it has made in recent years in becoming an efficient and effective Central Bank and financial regulator.
Newly appointed Central Bank of Ireland Governor gives Statement to Oireachtas Finance Committee
The newly appointed Central Bank Governor Philip Lane has presented the Oireachtas Committee on Finance, Public Expenditure and Reform with an overview of the Bank's current work programme. In his statement Governor Lane said that there had been considerable changes to the mandate and structure of the Central Bank following the financial crisis and that the Bank now has new priorities, as set out in their Strategic Plan 2016-2018 document.
Governor Lane said that the Central Bank intends to concentrate on financial stability, pointing out that small, highly-globalised economies are especially vulnerable to negative shocks and require the pro-active deployment of macro-prudential policies. The Governor also reported that the Central Bank has been actively engaged in asset purchases as part of its implementation of the ECB's expanded asset purchase programme (EAPP), which aims to help the ECB reach its inflation target.
On the micro-prudential side, Governor Lane told the Committee that the Central Bank will be proactive in protecting consumers by pushing for a more consumer-focused culture within larger credit firms, In this context, on-site consumer risk assessments will be carried out. The Governor stated that the firm-specific engagement with low-impact firms (including of intermediaries and debt management firms) will also increase. Finally, the Committee were informed that the consumer protection code requirements will be strengthened – mentioning variable rate mortgage holders in particular – and an examination will be carried out to assess the impact on consumer outcomes of commission payments to insurance intermediaries.
Single Resolution Mechanism ("SRM") comes into place
On 1 January 2016 the SRM, which implements the Bank Recovery and Resolution Directive in the euro area, became fully operational, along with the powers of the Single Resolution Board ("SRB"). The EU Commission intends that the SRM will provide for the timely and effective resolution of cross-border and domestic banks participating in the banking union where necessary. The SRM is to be funded over a period of 8 years with contributions from the banking industry. It is intended that the SRB will decide whether to place a bank into resolution and will then oversee the resolution of that bank by the National Resolution Authority tasked with executing the resolution scheme.
The revised Payment Services Directive, as adopted, has been published
The revised Payment Services Directive ("PSD2") has been published in the Official Journal of the EU and has entered into force as of 12 January 2016. The Directive is required to be transposed by EU Member States into national law by 13 January 2018. The aim of the Directive is to make electronic payments in Europe more secure for European shoppers through, for example, imposing stricter security requirements for the initiation and processing of electronic payments and the protection of consumers' financial data. One of the aims of the Directive is to help stimulate competition in the area of electronic payments, by providing the necessary legal certainty for new companies entering the market, and certainly for companies continuing in the market. This increased competition will benefit consumers by providing them with more choice between different types of payment services and service providers.
ECB publishes its banking supervision priorities for 2016
The ECB has identified five areas of priority for the coming year in its supervision of significant banks operating in the euro area. Top of the list, compiled based on an ECB assessment of the key risks currently facing banks, is business model and profitability risk, with capital adequacy; credit risk; liquidity and risk governance and data quality being the other areas of focus for 2016. These areas of priority will be subject to additional supervisory initiatives.
ECB issues Communications to significant institutions on supervisory expectations and information collection
In January 2016 the ECB issued communications to "significant institutions" in relation to its supervisory expectations regarding internal assessment processes for capital and liquidity adequacy. The ECB commented that some of the information submitted by significant institutions last year to the SSM did not meet its expectations. This Communication aims to clarify the ECB's supervisory expectations for the year ahead in advance. The Communication also sets out expectations in relation to the process of harmonised information collection.
EBA publishes revised final draft Technical Standards and Guidelines on the further specification of the indicators of global systemic importance and their disclosure
The EBA has published revised final draft Technical Standards and Guidelines on the further specification of the indicators of global systemic importance of institutions and their disclosure. The EBA Guidelines will incorporate the new template devised by the Basel Committee on Banking Supervision (to be updated annually) for the identification of global systemically important banks. The list of institutions drawn up by the Basel Committee is identical to the EU list. The Guidelines state that large institutions which are not Global Systemically Important Institutions ("G-SII") but have an overall exposure of more than €200 billion and are potentially systemically relevant will be subject to the same disclosure requirements as G-SIIs.
EBA consults on remuneration policies and practices related to the sale and provision of retail banking products and services.
The EBA is currently consulting on proposed Guidelines on remuneration policies and practices related to the sale and provision of retail banking products and services. The Guidelines will aim to reduce the miss-selling of financial products and services, which, according to the EBA, can be driven by poor policies and practices in those areas. The proposed Guidelines would apply to financial services employees who provide deposits, payment accounts, payment services and credit products to customers. The Guidelines, as proposed, extend to staff of credit institutions, creditors, credit intermediaries, electronic money institutions and payment institutions.
If adopted, the management bodies employing these individuals will be responsible for the design and monitoring of remuneration policies. Obligations will include taking the rights and interests of consumers into account in designing and monitoring policies, preventing conflicts of interest and applying specific criteria when determining variable remuneration levels. Employers must retain all documentation for auditing purposes.
Responses to the Consultation are expected by 22 March 2016.
EBA Consultation on draft Guidelines on stress testing
The EBA is currently seeking views on the Guidelines that ought to be followed by institutions in setting up and conducting stress testing programmes. The proposed Guidelines are addressed to both institutions and competent authorities and will seek to provide guidance for institutions to follow when designing and conducting stress testing programmes. Comments on the public consultation must be submitted by 18 March 2016.
Bank of England recognises shorter transitional periods in respect of the capital conservation buffer and the countercyclical capital buffer
The Bank of England has notified the ESRB that it will recognise all Member States’ shorter transitional periods from 2016 (subject to the provisions under CRDIV which allow for discretionary recognition over 2.5%).