Tracker, Financial Services Regulation & Compliance - Cross Sectoral
Central Bank of Ireland publishes 2015 Annual Report and Annual Performance Statement for Financial Regulation
The Central Bank's Annual Report for 2015 has been published which shows that the Bank generated a profit of €2.24bn during 2015 and transferred €1.79bn of this profit to the exchequer. At the launch of the report, Governor Philip Lane said that while the economy is continuing to show strong growth with a favourable outlook for the future, risks remain in relation to the legacy of high sovereign and private-sector debts in Ireland and the negative economic and financial impact under the forthcoming ‘Brexit’ referendum. The 2015 Annual Performance Statement details the regulatory and supervisory activities undertaken by the Central Bank during the year, including the introduction of mortgage rules on loan-to-value and loan-to-income ratios, the tracker mortgage examination, the transfer of supervisory responsibility for larger banks to the Single Supervisory Mechanism and the introduction of Solvency II. The Code of Conduct on Mortgage Arrears was also extended in 2015 to include the credit servicing firms that administer mortgage loans held by non-bank entities, such as private equity firms. In relation to the mortgage rules, the first review will be published in November 2016 following written submissions from the public on possible changes. While the general framework for the rules will not change, a calibration of the current rules may be introduced - tightening or loosening the rules- provided a high evidence threshold for doing so is met.
Central Bank of Ireland announces Findings of Thematic Inspection on Debt Management Sector on Consumer Protection Code
The Central Bank has published the findings from its third thematic inspection of the debt management sector, which examined compliance in the sector with the Consumer Protection Code. The Central Bank identified deficiencies in the manner in which some of the 35 firms inspected (there are currently 55 authorised debt management firms) assess consumers’ circumstances prior to giving advice around the lack of use of the Standard Financial Statement document. Secondly, deficiencies arose where firms were unable to show that they had considered or communicated the actual or potential consequences for consumers of taking the advice given. Other deficiencies identified were: not providing information on debt management services prior to providing them; cases where debt management services were provided despite the fact that an agreement was not obtained in advance; failure to inform consumers of the reasons why a course of action proposed is the most suitable option based on the firm's assessment of his or her individual circumstances; deficiencies in the Statement of Advice issued to consumers or a failure to provide the consumer with sufficient time to consider the Statement of Advice; failures to obtain consent from the consumers to act on their behalf; and cases where there was a failure to provide updates to consumers on at least a monthly basis where negotiations with creditors are on-going.
The Central Bank has outlined its current supervisory strategy as inspecting entities shortly after authorisation, and challenging firms to demonstrate that they are embedding a positive consumer-focused culture in their firms. The Central Bank has written to all entities operating in the sector, requiring their compliance arrangements to be critically assessed in light of the findings.
Registrar of Credit Unions gives speech on challenges in the industry at Irish League of Credit Unions AGM
Anne Marie McKiernan, the Registrar of Credit Unions, has given a speech to the AGM of the Irish League of Credit Unions noting that the key challenges for the Credit Union sector are attracting and retaining active borrowers, and having strong leadership within entities. The Registrar also emphasised the benefits of sectoral restructuring and business model transformation for the sector. In relation to a possible extension to the permitted use of credit union funds, the Registrar referred to the Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 which allow for further classes of investment to be prescribed for. One example given was the possibility of the inclusion of social housing projects which could qualify under the characterisation of ‘projects of a public nature’.
European Supervisory Authorities publish Spring Report on Risks and Vulnerabilities in the EU Financial System
The Joint Committee of the European Supervisory Authorities has published its Spring 2016 Report on Risks and Vulnerabilities in the EU Financial System, highlighting the main cross-sectoral risks affecting the European financial system. The three main risks are historically low European yields and risks around the low profitability of some financial entities; the increase in interconnectedness of bank and non-bank entities; and the risk of potential contagion from China's receding market activity. The Joint Committee suggest these vulnerabilities be addressed through: (i) "forward-looking supervisory approaches to scrutinise business model sustainability"; (ii) "a proactive stance to address high stocks of non-performing loans at banks" in some regions; and (iii) supervisory monitoring of concentration risks, cross border exposures and regulatory arbitrage. National supervisors have been requested to include emerging market risk in sensitivity analyses or stress tests and to scrutinise optimistic assumptions of financial institutions with regard to emerging market exposure and returns from emerging market business.
European Securities and Markets Authority issues response to EU Commission Green Paper on retail financial services
ESMA has welcomed the EU Commission's Green Paper on retail financial services and provided comments in relation to a number of topics relevant to its work. In response to a section of the Green Paper which states that the current level of direct cross-border transactions in retail financial services is limited, ESMA has suggested adjustments to the financial services framework, such as regular cooperation between national competent authorities in relation to supervising cross-border services and requiring entities targeting consumers in other Member States to be prepared to interact with them, in their language, when problems arise. In addition, ESMA is of the view that inconsistencies among the UCITS/AIFMD and MiFID II frameworks should be assessed in relation to the direct marketing of units/shares in UCITS/AIFs and the distribution of those same units/shares via a MiFID service. The ESMA response urges the EU Commission to consider whether all non-structured UCITS can continue to be classified as non-complex instruments in light of its own objectives in relation to standardisation. ESMA has stated its interest in the EU Commission's plan to contribute to the assessment of both the case for a policy framework for personal pensions and the need for minimum quality standards or principles for covered bonds. In relation to the impact of digital technologies on the retail financial markets, ESMA is currently considering the changes that distributed ledgers could bring to the securities market operationally and the implications of its use on the current regulatory framework and investor protection, as well as on financial stability and "orderly market objectives". ESMA also confirmed the views it previously gave in response to the EU Commission's Green Paper on the Capital Markets Union. For example, ESMA suggests that along with the information on cost disclosure required under MiFID II and PRIIPs, online calculators or central databases should be set up to provide better information to consumers. ESMA is also of the view that the EU Commission should ensure national competent authorities have the requisite powers and mandate to ensure good redress and enforcement opportunities are available.
Final regulatory technical standards published on KIDs for PRIIPs
On 7 April 2016, the European Supervisory Authorities published its final draft regulatory technical standards on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (the Draft RTS). Amongst other matters, the Draft RTS provide (a) a three page template KID, (b) details on the obligation to review KIDs and (d) details on conditions for fulfilling the requirement to provide a KID in good time. The Draft RTS have been sent to the European Commission for endorsement and will enter into force on 31 December 2016, at the same time as the Regulation on KIDs for PRIIPs ((EU) 2014/1286)).
For further information please contact a member of the Financial Regulation team.
Date published: 04 May 2016