Tracker, Financial Services Regulation & Compliance - Banking

DOMESTIC

Central Bank publishes statement on examination of tracker mortgage-related issues

The Central Bank has embarked on a broader examination of tracker mortgage-related issues covering, among other things, transparency of communications with and contractual rights of tracker mortgage borrowers. The Central Bank is currently engaging closely with a number of lenders on points of concern relating to their ability to demonstrate that they have acted in the best interests of their tracker mortgage customers, with a number of lenders currently undertaking their own internal reviews. The Central Bank has also been engaging with consumer groups as well as the Financial Services Ombudsman to help inform its work. The Central Bank has been developing an appropriate methodology for a broader examination of tracker-related issues in order to ensure that all issues will have been addressed by such a review. The Central Bank has written to all lenders notifying them of its intention to conduct such a review.

Minister for Finance publishes the Finance (Miscellaneous Provisions) Bill 2015

The Minister for Finance published the Finance (Miscellaneous Provisions) Bill 2015. The Bill has a fourfold purpose

  • to enable the ratification of the Intergovernmental Agreement (IGA) to the Single Resolution Mechanism (SRM). This is necessary in order to operationalise the SRM.
  • to make amendments to the Financial Services (Deposit Guarantee Scheme) Act 2009 - in order to put in place a transitional funding arrangement for the new DGS contributory scheme which is currently being transposed.
  • to put in place Insurance (Continuation of Regulation) legislation in order to ensure the continuation of insurance regulation for companies outside the scope of  Solvency II which is due to come into force at the start of 2016.
  • to make a technical amendment to the National Treasury Management Agency (Amendment) Act 2014 in order to remove any potential ambiguity with regard to whether a “directed investment” made by the National Pension Reserve Fund Commission and subsequently transferred to the Irish Strategic Investment Fund pursuant to the NTMA Amendment Act 2014 remains a “directed investment” for the purposes of that Act.

The legislative schedule is designed to have the Bill enacted by mid-November as there is a requirement to have the IGA ratified by the end of November.

EU & INTERNATIONAL

EBA publishes Consultation Paper for Guidelines on the provision of information in summary or collective form for the purposes of BRRD

The EBA has launched a consultation on draft Guidelines on how confidential information collected under the Bank Recovery and Resolution Directive (BRRD) should be disclosed in summary or collective form without identifying individual institutions or relevant entities. The aim of the Guidelines is to promote symmetric information and convergence of supervisory and resolution practices regarding the disclosure of confidential information.

In particular, the draft Guidelines specify that the disclosure of confidential information in summary or collective form should be made available in anonymised form, either by means of a brief statement or on an aggregate basis. The draft Guidelines also introduce three principles that should be considered when disclosing such information:

  • As a general rule, confidential information should relate to a minimum number of three institutions or entities. 
  • No references should be made to specific characteristics, distinctive features, names or numerical, qualitative and other distinctive data which would allow the identification of the individual institutions or entities;
  • Disclosure of confidential information should be avoided under specific circumstances, which would pose a risk that the individual institutions or entities could be identifiable.

The consultation runs until 27 January 2016. A public hearing will take place at the EBA premises on 13 January 2016 from 10:00am to 12:00pm.

Regulation on transparency of securities financing transactions and of reuse: Frequently Asked Questions

The proposal on the Securities Financing Transactions (SFT) Regulation, which was adopted in January 2014 alongside the proposal for the structural reform of the EU banking sector, aims to improve the transparency of the securities financing markets. The Regulation will be formally adopted by the EU Council of Ministers in the near future. The Regulation will then be published in the Official Journal of the EU.

The Regulation enhances transparency in three ways:

  • First, it introduces the reporting of all SFTs, except those concluded with central banks, to central databases known as trade repositories. Depending on their category, firms should start reporting at different stages from 12 to 21 months after the entry into force of the relevant regulatory technical standards;
  • Second, investment funds will have to start disclosing information on the use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents from the entry into force of the Regulation, while the existing funds will have 18 months to amend them; and
  • Finally, the Regulation introduces some minimum transparency conditions that should be met on the reuse of collateral, such as disclosure of the risks and the need to grant prior consent. These will apply 6 months after the entry into force of the Regulation.

EBA publishes final templates and instructions for the Quantitative Impact Study on the definition of default

The EBA has published the final set of templates and instructions that institutions participating in the Quantitative Impact Study (QIS) on the definition of default should complete and submit to their respective Competent Authorities (CAs) by 10 December 2015 at the latest.

The information submitted will help the EBA estimate the impact of the requirements set out in its proposed draft Regulatory Technical Standards (RTS) and Guidelines aiming to harmonise the definition of default across the EU prudential framework.

Basel Committee publishes 9th progress report on adoption of the Basel regulatory framework

The report sets out the adoption status of Basel III regulations for each Basel Committee on Banking Supervision (BCBS) member jurisdiction as of end-September 2015. It updates the Committee’s previous progress reports, which have been published on a semi-annual basis since October 2011.

Basel Committee publishes supporting information for implementation of the countercyclical capital buffer

To promote consistent implementation of the Basel III countercyclical capital buffer, the Basel Committee on Banking Supervision has issued FAQs and other supporting information.

The information published includes a list of all prevailing and pre-announced buffers, as well as developments related to domestic rule-making. The information is presented for both Basel Committee member jurisdictions, as well as select non-member jurisdictions. The countercyclical capital buffer requirement, when activated by member jurisdictions, will be phased in from 1 January 2016.

Basel Committee report on regulatory consistency of risk-weighted assets for counterparty credit risk

On 1 October the Basel Committee published a report on the regulatory consistency of risk-weighted assets (RWAs) for counterparty credit risk.

The report presents the findings from a hypothetical test portfolio exercise to examine variability in banks' modelling of derivatives, and specifically in exposure modelling. The report focuses on the internal models method and the advanced credit valuation adjustments (CVA) risk capital charge for over-the-counter (OTC) derivative trades.

The report presents the key findings and lists a number of observed good practices. The report also highlights areas where banks and supervisors may seek to harmonise practices to reduce variability in outcomes. Additionally, based on the results of this study, the Basel Committee is considering whether it is necessary to narrow down certain modelling choices for banks and/or harmonise supervisory practices to enhance consistency in outcomes.

EBA looks at asset encumbrance in EU banks

On 30 September, the EBA published its first analysis of asset encumbrance among EU banking institutions. This preliminary analysis will provide important elements for EU supervisors to assess the sustainability of banks funding structures. It shows there is no indication of a general increase in the level of asset encumbrance over recent years across EU banking institutions. The report will be published on a yearly basis in the future, as data quality improves with the full establishment of reporting requirements for asset encumbrance, a key component of risk management policies and decision making processes in the EU banking sector.

Basel Committee publishes frequently asked questions on Basel III monitoring

On 29 September the Basel Committee published frequently asked questions on Basel III monitoring. The document provides answers to technical and interpretive questions raised by supervisors and banks during the Committee’s Basel III monitoring.

Joint associations’ response to BCBS consultation on IRRBB

On September 11, ISDA responded jointly with the other associations (Institute of International Finance (IIF), International Banking Federation (IBFed) and Global Financial Markets Association (GFMA)) to the Basel Committee on Banking Supervision (BCBS) consultation on interest rate risk in the banking book (IRRBB). The response reiterates these goals can be pursued within a Pillar 2 and Pillar 3 frameworks. Given the nature of IRRBB, the industry does not believe that a Pillar 1 approach is appropriate.

Joint associations’ response to BCBS consultation on the CVA review

On October 1, ISDA responded jointly with other associations (Global Financial Markets Association (GFMA) and the Institute of International Finance (IIF)) to the Basel Committee on Banking Supervision consultation on the review of the credit valuation adjustment (CVA) framework. In the response, the industry i) welcomes the BCBS decision to revisit the current CVA framework and to incorporate CVA into the revised market risk framework (i.e., within the Fundamental Review of the Trading Book); and ii) believes that the proposed framework is a step in the right direction towards achieving the BCBS goals of risk sensitivity and simplicity, subject to certain modifications. The response then provides a number of recommendations that, if considered together, will facilitate the swift and smooth finalisation of the CVA framework review.

EBA consults on its benchmark rate under the Mortgage Credit Directive

The EBA has published a Consultation Paper on its proposed benchmark rate under the Mortgage Credit Directive (MCD), which requires creditors to create two illustrative examples in the European Standardised Information Sheet (ESIS) for variable rate mortgages on the basis of a benchmark rate specified by the EBA. To that end, the EBA has developed a formula to calculate the rate and would now like to hear the views from consumer and industry stakeholders on the approach it is proposing. The consultation runs until 20 November 2015.

EBA publishes consultation paper on draft guidelines on communication between competent authorities, statutory auditor(s) and audit firms(s)

Article 12(2) of Regulation (EU) No 537/2014 on specific requirements regarding statutory audit of public-interest entities (PIEs) includes the requirement that an effective dialogue shall be established between the competent authorities supervising credit institutions, on the one hand, and the statutory auditor(s) and the audit firm(s) carrying out the statutory audit of those institutions, on the other hand.

The draft guidelines include seven principles and detailed guidance relating to the main elements of effective communication: the scope of information shared, the form of communication, the participants in communication, the frequency and timing of communication and the communication between competent authorities and auditors collectively. The consultation runs until 21 January 2016. A public hearing will take place at the EBA premises on 5 January 2016 from 10:00 to 12:00.

EBA updates list of Common Equity Tier 1 (CET1) capital instruments

The EBA has published an updated list of capital instruments that Competent Supervisory Authorities (CAs) across the EU have classified as Common Equity Tier 1 (CET1). New CET1 instruments have been assessed and evaluated as compliant with the Capital Requirements Regulation (CRR). The list is updated on a regular basis. In this second update, two new CET1 instruments have been assessed and evaluated as compliant with the CRR.

ISDA / GFMA / IIF publish industry FRTB QIS analysis

ISDA, GFMA and IIF ran a project to analyse the data submitted by 28 banks as part of the fourth Fundamental Review of the Trading Book (FRTB) quantitative impact study (QIS). The results show banks using the standardised approach will have to hold 4.2 times the total market risk capital banks hold today. This level is too high, if the policy objective remains to have the Standardised Approach as an alternative to modelled capital. The proposed standardised floors rules may further exacerbate changes in bank trading behaviours and market liquidity fragmentation that result from the non-risk-sensitive components of the framework.

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

Date published: 09 November 2015