Tracker, Financial Services Regulation & Compliance - Banking


Central Bank publishes FAQs on new regulations on residential mortgage lending

The Central Bank published FAQs on new regulations on residential mortgage lending addressing, amongst other things:

  • loan-to-income ratios;
  • loan-to-value ratios;
  • impact on first time buyers; and
  • scope of application of the regulations.

Central Bank publishes FAQs on Bank and Investment Firm Resolution Fund Levy

The Central Bank has published an FAQ document on the bank and investment firm resolution fund levy dealing with the following issues:

  • What is the Bank Recovery and Resolution Directive (BRRD)?
  • How has the BRRD been implemented in Ireland?
  • What is the Single Resolution Mechanism?
  • What is the Bank and Investment Firm Resolution Fund?
  • Is this the first time that institutions are contributing to a fund?
  • Why are banks and investment firms being levied now? and
  • Why is this additional levy needed?

Central Bank adopts European Union (Bank Recovery and Resolution) Resolution Fund Levy Regulations 2015

The European Union (Bank Recovery and Resolution) Resolution Fund Levy Regulations 2015 provide that every person who on 30 November 2015 is an institution within the meaning of Regulation 166 of the Bank Recovery and Resolution Regulations is required to pay a levy in respect of the levy period to the Central Bank for the account of the Central Bank and Investment Firm Resolution Fund. The Regulations also:

  • set the annual target level for contributions;
  • determine the aggregate liabilities of institutions authorised in the State for the relevant period;
  • provide for risk adjustment of contributions in respect of Union branches and Limited Activity Investment Firms;
  • prescribe the process for raising contributions in respect of Union branches and Limited Activity Investment Firms;
  • provide for the service of notice on all institutions;
  • detail the mechanism for calculating partial contributions in respect of newly supervised Union branches and Limited Activity Investment Firms; and
  • provide for a period of 21 days within which an institution is required to provide evidence concerning lump sum amounts by institutions.

Introduction of the counter cyclical buffer

The Central Bank announced the introduction of the countercyclical capital buffer (CCB) in relation to Irish exposures, pursuant to the European Union (Capital Requirements) Regulations 2014. The CCB will come into effect as of 1 January 2016 at a rate of 0 per cent for the State. In setting the rate at 0 per cent, the Central Bank had regard to the subdued levels of credit in the economy, house-price expectations, lack of supply driving increases in commercial property.

The Central Bank also identified the Bank of Ireland (BoI) and AIB as domestically systemically important for the purposes of the European Union (Capital Requirements) Regulations 2014. Due to their particular importance to the Irish financial sector and domestic economy, the Central Bank has decided that a buffer rate of 1.5 per cent (to be held in the form of CET1) will be applied to both institutions on a consolidated basis. This requirement will be phased in over the period 1 July 2019 to 1 July 2021. In setting the rates for the two systemically important banks, the Central Bank had regard to the size and importance of the two banks to the economy, the importance of the payments system and reputational indicators, the concentration of the market, and peer reviews in other EU countries.

The Central Bank has produced an FAQ on Countercyclical Capital Buffers and Other Systemically Important Institutions Buffers.


ECB decision on determining whether staff have a material impact on credit institutions risk profile

The framework for prudential supervision established by Directive 2013/36/EU requires that institutions identify all members of staff whose professional activities have a material impact on the institution's risk profile. Any criteria used for this purpose must ensure that the identification of relevant staff reflects the level of risk of different activities within the institution. The ECB is responsible for ensuring that the entities under its direct supervision apply the rules on the identification of relevant staff in a coherent manner that safeguards the soundness of any such identification. It has therefore adopted a Decision (Decision (EU) 2015/2218) providing for a procedure in relation to the application of the quantitative criteria set out in Article 4 of Delegated Regulation (EU) No 604/2014.

EBA reports on the publication of administrative penalties on an anonymous basis

The EBA has released a report reviewing the publication by competent authorities, on an anonymous basis, of administrative penalties imposed for breach of the national provisions implementing CRD or CRR. The report makes recommendations to enhance harmonisation in terms of disclosure and facilitate access to information. The report makes specific findings in respect of each Member State and the following general recommendations:

  • that the administrative penalties be published on a dedicated section of the website;
  • that (i) a translation of the relevant decision into a European Union official language commonly used for international supervisory cooperation or (ii) a summary of the decision in such a language be published.
  • that the legal grounds pursuant to which the decision to publish the penalty on an anonymous basis was made be mentioned, where appropriate.

ENISA reports on cloud services in the EU banking sector

The European Network and Information Security Agency (ENISA) has issued a report including a number of recommendations for the secure adoption of cloud computing in the banking sector at the EU level. The report recommends:

  • that Financial Institutions (FIs) engage with Cloud Service Providers (CSPs) and National Financial Supervisory Authorities (NFSAs), to assist NFSAs to define national good practices and (de-facto) standards in the areas of cloud governance and risk management and to define good practices and de-facto standards for incident information sharing;
  • that NFSAs work together at the global and European levels to define a set of common good practices for cloud security and privacy;
  • that FIs develop a cloud computing strategy in order to define their approach to cloud computing;
  • that CSPs continue their efforts to provide sufficient transparency and help their customers and supervisory authorities understand the level of assurance that their cloud offerings provide;
  • that the European Commission, other relevant European Agencies (e.g., EBA, ENISA) as well as industry bodies work together to create information campaigns for the financial industry.

FSB publishes fourth EDTF report on bank risk disclosures

The FSB has published two reports and a statement from the Enhanced Disclosure Task Force (EDTF). The 2015 Progress Report on Implementation of the EDTF Principles and Recommendations covers 40 global or domestic systemically important banks. The FSB also published an EDTF report on the Impact of Expected Credit Loss Approaches on Bank Risk Disclosures which addresses issues with the implementation of new accounting standards on expected credit loss (ECL). Furthermore, the EDTF provided a statement on the treatment of emergency liquidity provision under the EDTF disclosure recommendations.

EBA publishes comparative report on the approach taken on recovery plan scenarios

The EBA has conducted a thematic comparative analysis on recovery plans across the EU. The focus of the analysis has been on recovery plans’ scenario sections, since this area is crucial in order to assess the effectiveness of a recovery plan.

The ultimate objective of including scenarios in a recovery plan is not to predict which particular sequence of events could prompt financial distress. Rather, it should enable one to assess whether:

  • the recovery options identified by the institution are robust enough to cope with a wide range of severe shocks;
  • recovery indicators and trigger levels are appropriate and timely for these options to be executed.

The analysis shows that some institutions are already in line with the requirements of the BRRD and EBA regulatory products while others remain at a less advanced stage.

The report also makes some findings with regard to areas for improvement including (a) the relevance of scenarios was not always clear, (b) the description of the scenario and the impacts were not always sufficiently explained, (c) the depiction of events and impacts was often observed to be point-in-time and static, rather than in the form of a sequence of events, and (d) the implied link between a plan’s scenarios and its indicators and options was sometimes vague.

European Commission publishes Green Paper on Retail Finance

Retail financial services markets are not yet as integrated as they could be in the EU. In that context, the Commission is asking consumers what barriers prevent them from purchasing the best services available in the EU and it is asking providers what prevents them from selling across borders. Depending on the outcome, the Commission will look into the potential actions it could take at EU level to overcome those barriers.

The consultation is intended to be as broad as possible. The consultation will last for three months. Depending on the contributions received, an Action Plan might be proposed around summer 2016, potentially including legislative and non-legislative initiatives such as guidelines.

EBA consults on draft Guidelines on ICAAP and ILAAP information collected for SREP purposes

The EBA has launched a public consultation on draft Guidelines on the collection of information related to the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP).

The draft Guidelines provide:

  • general information about ICAAP and ILAAP frameworks, business model and strategy, as well as governance arrangements;
  • both ICAAP- and ILAAP-specific methodological, policy and operational information; and
  • management conclusions on ICAAP and ILAAP and quality assurance information.

The Guidelines are expected to apply from 30 June 2016.

Responses by 11 March 2016.

EBA publishes guidelines on limits on exposures to shadow banking entities

The EBA has a mandate to develop guidelines to set appropriate aggregate limits or tighter individual limits on exposures to shadow banking entities which carry out banking activities outside a regulated framework.

Shadow banking entities are generally not subject to the same standards of prudential regulation as regulated entities, do not provide protection to investors’ against these entities’ failures, and do not have access to central banks’ liquidity facilities. Institutions’ exposures to such entities undertaking bank-like activity may lead to regulatory arbitrage concerns. These entities, which are potentially more vulnerable to runs and/or liquidity problems, tend to be highly correlated and interconnected with the banking sector, which leads to financial stability concerns.

To minimise the risks posed to institutions arising from their exposures to shadow banking entities, the guidelines lay down requirements for institutions to set limits, as part of their internal processes, on their individual exposures to shadow banking entities. The guidelines define the terms ‘shadow banking entities’, ‘banking activities’ and ‘regulated framework’.

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

Date published: 04 Janaury 2016