Central Bank (Variable Rate Mortgages) Bill 2016 published
Fianna Fáil has this month tabled a Private Members’ Bill on mortgage interest rates. The Bill is designed to give the Central Bank new powers which would allow it to monitor and amend mortgage interest rates.
Under the Bill’s provisions, the Central Bank is required to review the market in domestic residential mortgages on at least a quarterly basis and to form a conclusion as to whether a ‘market failure’ exists. Where it is of the opinion that such a situation exists in the market, the Central Bank may direct specific lenders, or lenders generally, not to charge a variable interest rate for mortgage loans above a specified rate.
For the purpose of the legislation, “market failure” is defined as a situation in which market conditions are such that a lender is charging a variable interest rate higher than the Central Bank considers “can be reasonably and objectively justified”. In forming its conclusion, the Central Bank must have regard to a number of specified factors including the ease with which borrowers can switch their mortgages between lenders, the relationship and proportionality between the rates being charged by a lender and its costs of funds, the risk profiles of individual lenders in respect of variable interest rates and the lender’s reasonable profit expectation in the existing market conditions.
The Bill has not yet reached the second stage in the legislative process currently there is no specific timetable for expected enactment.
The Bill can be read here.
AIB v Casey & Anor
The High Court delivered its judgment in the case of Allied Irish Bank PLC v Casey & anor  IEHC 193 on 15 March 2016, in which the plaintiff sought summary judgment against the second named defendant in the sum of approximately €1.5 million. This indebtedness is alleged to have arisen on foot of six loan agreements entered into by the defendants between June 2005 and November 2011.
The second named defendant was the former wife of the first named defendant (who did not enter an appearance). She resisted judgment on the ground that in the course of Family Law proceedings she became aware that there was a significant amount of documentation upon which her signature was forged. Evidence was also presented from an independent forensic handwriting expert that the signature of the second named defendant appearing on two of the loan agreements, were not genuine signatures.
As a result of the discovery of simulated signatures on legal documentation, the second named defendant contended that it was necessary to have a comprehensive examination of all the original documentation relied upon by the plaintiff, and submitted that the nature of summary proceedings did not allow such an examination to take place.
The Court accepted the admission of evidence from a handwriting expert who found a number of documents to contain signatures which were not, in his opinion, the defendant’s (i.e. they had been forged), whilst others were the defendant’s. The Court was therefore satisfied that in relation to the agreements where the signature of the second named defendant had been held by the handwriting expert as being genuine, the plaintiff was entitled to judgment on foot of these agreements. However for the agreements where the expert found that the defendant’s signatures may have been forged, Barr J found that the plaintiff had raised an arguable defence and therefore remitted the proceedings in relation to these agreements to plenary hearing.
Whilst the defendant also alleged that the plaintiff had engaged in negligent misrepresentation, and that there was a duty on the plaintiff to advise her to get independent legal advice, that Court rejected these arguments, since no authority was cited in support of these positions, and the defendant was not a vulnerable person, nor had she been acting under undue influence.
The judgment can be read in full here.
Central Bank update on the examination of tracker mortgages
The Central Bank has published an update for consumers on the progress of its examination of tracker mortgages.
The update states that the Central Bank is currently in the process of reviewing the plans and frameworks which lenders were required to put in place in accordance with specified principles by the end of March 2016. It is estimated that due to the scale and complexity of the review, the work will not be concluded until 2017.
In the meantime, lenders are required to review and identify any customers who may have been impacted by a failure either to honour a contractual entitlement or to comply with regulatory requirements regarding disclosure and transparency of information. This process will be overseen by independent third party assurers appointed by the Central Bank to ensure the review is conducted in accordance with the Central Bank’s requirements.
The update also provides that the Central Bank expects lenders to communicate with all impacted customers in a timely and clear way and to put in place the necessary staff and systems to deal with customers’ queries in an accurate and timely manner.
Where a lender identifies that an incorrect rate of interest has been charged on a customer’s account, it must immediately cease charging the incorrect rate and notify the customer of the error. Once a full review of the relevant account has been completed, the lender must then issue a letter to the customer explaining the nature of the error, the correct rate applicable to the account and information on the redress and compensation process.
The full update can be read here. A further update will be published at the end of July.
Latest Central Bank Consumer Protection Bulletin published
The Central Bank has released its third Consumer Protection Bulletin. This latest bulletin examines data gathered in 2014 and 2015 in relation to the operation of the Code of Conduct on Mortgage Arrears and the progress made by borrowers engaged in the Code’s Mortgage Arrears Resolution Process (“MARP”).
The key trends identified in the data are as follows:
- Over the two year reporting period, almost 164,000 borrowers completed the MARP, with the percentage of such borrowers being offered alternative payment arrangements falling from 89% in the first half of 2014 to 87% by the end of 2015.
- The proportion of appeals regarding the offer of an alternative payment arrangement or a lender’s decision not to offer any alternative which were upheld in favour of the borrower fell from 33% in the first half of 2014 to 23% in the second half of 2015.
- The proportion of appeals against a classification of not co-operating which were upheld in favour of the borrower rose from 31% in the first half of 2014 to 39% in the second half of 2015.
The full report can be read here.
Basel Committee launches consultation on prudential treatment of problem assets
The Basel Committee on Banking Supervision has launched a consultation aimed at ensuring consistent international standards for categorising problem loans.
The Committee has developed new standard definitions for two important terms used in measuring asset quality (“non-performing exposures” and “forbearance”). It is hoped that the introduction of harmonised definitions for these key terms will promote consistency in supervisory reporting and disclosures by banks.
The Committee is seeking comments from the public on all aspects of the proposals set out in the Consultation paper by Friday 15 July 2016. The consultation paper can be read here.
EBA Guidelines on stress tests for deposit guarantee schemes
The European Banking Authority has published its final guideline on stress tests for deposit guarantee schemes (“DGS”). The Deposit Guarantee Directive (2014/49/EU) introduced a number of innovations aimed at improving the resilience of DGSs, including a requirement to perform stress tests every three years, with the first test required to take place by 3 July 2017.
The guidelines are aimed at ensuring that there is a sufficient level of quality and consistency in these tests so that they are seen as a credible assessment tool. As such, the guidelines lay down basic methodological principles for stress tests including the various stages that should be completed, the scenarios and areas to be tested, and the various indicators to be measured.
In addition, the guidelines set out a number of high priority tests that DGSs are required to conduct by 3 July 2019. These priority tests have been set with a view to the first EBA peer review foreseen in 2020. The four tests set out in the guidelines are:
- Single Customer View (“SCV”) file tests involving formal routine checks of SCV files of all affiliated credit institutions;
- operational capability test which will involve applying a payout scenario and measuring certain prescribed operational capability indicators;
- operational cross-border cooperation test which will be conducted with at least one other DGS and which will assess whether the DGS is able to effectively transmit a payment instruction file to a host DGS in relation to depositors at a foreign branch of a given affiliated credit institution; and
- funding capability test measuring certain prescribed financial capability areas and indicators.
A link to the guidelines and to the accompanying EBA report can be found here.
EBA confirms use of unsolicited credit ratings for institutional capital requirements
The European Banking Authority has published a decision confirming the use of unsolicited credit assessments assigned by certain External Credit Assessment Institutions for calculating institutions’ capital requirements.
Institutions are permitted to use unsolicited credit assessments for determining their capital requirements only if the EBA confirms that those unsolicited ratings are equivalent in quality from solicited ratings of the same assessor. The EBA decision allows the use of unsolicited ratings from a number of assessors in the context of the Capital Requirements Regulation. An EBA report accompanying the decision specifies 22 External Credit Assessment Institutions, including Moody’s, Fitch and Standard and Poor whose unsolicited credit ratings assessments may be relied upon.
The EBA’s conclusions are drawn on quantitative and qualitative analysis of both solicited and unsolicited credit assessments of external assessors which did not show any evidence of a difference in standards of quality between solicited and unsolicited assessments.
The EBA press release, with links to the decision and to the accompanying report, can be found here.
EBA consultation on Liquidity Coverage Ratio disclosure
The European Banking Authority has launched a consultation on its draft guidelines on liquidity coverage disclosure.
The guidelines are aimed at providing harmonised requirements in respect of the qualitative and quantitative information that credit institutions will be required to disclose in terms of liquidity coverage. The guidelines provide a harmonised table for the disclosure of general information on liquidity risk management as well as templates and instructions for the disclosure of information on the liquidity coverage ratio composition which is a key indicator used for assessing liquidity risk management.
It is envisaged that the guidelines would apply no earlier than 30 June 2017. A public hearing on the draft guidelines is scheduled to take place at the EBA premises on 13 June 2016 and the deadline for providing comments is 11 August 2016 with.
Links to the consultation paper and the draft guidelines can be found by clicking here.
Consultation on Guidance for Insurance undertakings on the Head of Actuarial Function Role
The Central Bank has launched a consultation on its draft guidance for insurance and reinsurance undertakings on the Head of Actuarial Function role. Solvency II requires insurance and reinsurance undertakings to maintain an effective actuarial function as part of their overall system of governance.
The guidance is designed to assist relevant undertakings by providing an overview of the issues which should be considered when conducting the various tasks required to be completed as part of the actuarial function. In particular the guidance addresses issues which should be considered by the Head of Actuarial Function when:
- expressing opinions on the underwriting policy and the reinsurance arrangements;
- contributing to the effective implementation of the risk management system; and
- calculating capital requirements.
The guidance is intended to operate on an explain or comply model meaning that undertakings will be permitted to adopt different practices to those set out in the guidance but will have to explain their reasoning to the Central Bank on request.
The deadline for submissions on the draft guidance is 12 August 2016.
The consultation paper can be read in full here.
Central Bank releases new Solvency II Information Note
The Central Bank published the latest Solvency II Information Note on 15 April 2016. The note outlines the Central Bank’s position regarding insurance and reinsurance undertakings that are experiencing difficulty in providing complete information for the purpose of Solvency II reporting template S.06.03.
The Information Note emphasises that undertakings should make every effort to provide a full look through of their collective investment undertakings but also provides guidance on the appropriate steps to take where, despite best efforts, an undertaking would not meet the expected levels of detail in its report.
Affected undertakings should complete the template for Q1 2016 reporting using best available data and also submit a narrative providing an explanation of the difficulties they have encountered in completing the reporting template.
The Information Note can be read here.
EU-wide insurance stress test 2016 launched
The European Insurance and Occupational Pensions Authority launched the 2016 stress test of the European insurance sector on 24 May, one week earlier than initially planned. The test aims to assess insurers’ vulnerabilities and measure the resilience of the insurance sector as a whole to severe adverse market conditions.
The 2016 test focuses on two major market risks, namely the prolonged low-yield environment and the so-called ‘double hit’ which refers to a negative market shock to asset prices coupled with a low risk free rate.
EIOPA will publish weekly Q&As addressing possible queries from participating companies. The deadline for submission of results to the National Competent Authorities will be 15 July 2016 with results intended to be disclosed in an anonymised manner in December 2016.
The EIOPA press release can be read here.
Insurance Europe concerns over final draft PRIIPs Regulatory Technical Standards
Insurance Europe has published a paper outlining the industry’s concerns regarding the technical content of the final draft Regulatory Technical Standards under the Packaged Retail and Insurance-based Investment Products Regulation. The draft Standards set out the presentation, content, review and provision of the Key Information Document which must be provided to consumers in order to assist them in understanding and comparing different investment products.
The issues identified in the paper include perceived problems with the risk indicator, performance scenarios and the presentation of costs. According to Insurance Europe, the final draft Standards are not sufficiently adapted to insurance-based investment products and are in many ways extremely unclear. As a result, the industry is concerned that they will fall short of their objective of helping consumers to compare different PRIIPs on the market and make informed decisions.
The full paper can be read here.
New EIOPA Q&A documents released
The European Insurance and Occupational Pensions Authority has published new sets of questions and answers covering the following matters:
- Final Report on the ITS on the templates for the submission of information to the supervisory authorities;
- Guidelines on the recognition and valuation of assets and liabilities other than technical provisions; and
- Guidelines on the treatment of market and counterparty risk exposures in the standard formula.
EIOPA develops the Q&A documents based on questions submitted by financial institutions, supervisors and other stakeholders. The aim of the Q&A facility is to promote the consistent and effective application of regulation in the EEA.
A full list of the available Q&A documents can be found here.
EIOPA publishes Preparatory Guidelines on product oversight and governance
The European Insurance and Occupational Pensions Authority has published preparatory guidelines on product oversight and governance arrangements to be followed by insurance undertakings and distributors.
The aim is to provide early guidance and support for national authorities and market participants with the implementation of the formal product oversight and governance requirements set out in the Insurance Distribution Directive.
The Guidelines are subject to a comply-or-explain procedure whereby competent authorities are expected to make every effort to comply with them. Each competent authority will have a 2 month window in which to confirm whether they comply or intend to comply with the Guidelines. In the event that a competent authority does not comply or does not intend to comply, it will need to inform EIOPA, stating its reasons for not doing so.
EIOPA intends to review the Guidelines further after the passing of the deadline for transposing the Directive on 23 February 2018.
Central Bank publishes updated UCITS and AIFMD Q&As
The Central Bank has published updated editions of its UCITS and AIFMD Q&A documents. New questions have been added to each document in relation to organisational effectiveness reviews of UCITS Management Companies, share class hedging and whether regulated financial service providers will be required to convert to designated activity companies under the Companies Act 2014.
Central Bank releases feedback on Consultation Paper 99
The Central Bank has released a feedback statement on its consultation in respect of potential amendments to the AIF Rulebook.
The statement summarises the responses received and outlines the Central Bank’s comments and decisions on the various issues raised. The statement also provides that the Central Bank will proceed with the preparation of AIF Regulations and will consult on the draft regulations in due course.
The feedback statement can be read in full here.
Central Bank consultation on Fund Management Company Effectiveness
The Central Bank has this month issued a further consultation paper on Fund Management Company Effectiveness.
The new consultation paper follows the second consultation published in November of last year and focusses on managerial functions, operational issues and procedural matters. The paper also summarises the work that has already been done by the Central Bank in relation to fund management company governance and sets out its proposed approach to compliance and supervisability issues.
The Central Bank intends to allow a one year transition period following the completion of the consultation process for fund management companies to comply with the new rules and guidance.
The deadline for responding is 25 August 2016. The full paper can be read here.
ISE opens Global Exchange Market to Investment Funds
The Irish Stock Exchange has expanded the Global Exchange Market (“GEM”) to allow the listing of investment funds with effect from 4 April 2016. As a result, investment managers now have two options when listing their funds on the ISE and can choose between the Main Securities Market and the GEM.
The GEM is authorised by the Central Bank as a multi-lateral trading facility as defined under the Markets in Financial Instruments Directive and investment funds listed on the GEM will not be subject to the Prospectus Directive, the Transparency Directive or the Statutory Audit Directive. However, the European market abuse regime will be broadened to include multi-lateral trading facilities from 3 July 2016.
A transfer of an investment firm’s listing from the Main Securities Market to the GEM can be done by way of an announcement which has received prior approval by the ISE.
The ISE has published rules for investment funds listed on the GEM which can be read here.
Commission launches public consultation on cross-border distribution of investment funds
The European Commission has launched a public consultation aimed at identifying the main barriers to the cross-border distribution of investment funds in order to better understand how cross-border distribution can be improved.
The consultation seeks feedback by 2 October 2016 on the following areas:
- Marketing restrictions;
- Distribution costs and regulatory fees;
- Administrative arrangements;
- Distribution networks;
- Notification processes; and
The Commission plans to use the feedback received as the basis for taking action to address barriers to cross-border distribution. The consultation paper can be read in full here and responses can be submitted here.
ESMA discussion paper on UCITS share classes
The European Securities and Markets Authority has published a discussion paper on UCITS share classes as part of its intention to develop a European framework for UCITS share classes throughout the EU.
The paper describes the nature of share classes, the reasoning behind them and their key elements. It also sets out a number of principles at both a high-level and operational perspective which could be used as the basis of a European framework for UCITS share classes.
The paper builds on the feedback received from the previous discussion paper in December 2014 and seeks input on whether and how share classes can actually work under the principles outlined. The deadline for responding to the paper is 6 June 2016. ESMA then intends to take further steps on UCITS share classes by the end of 2016.
The discussion paper can be read here.
Central Bank report on consumer perceptions of complaints handling in regulated firms
The Central Bank has published the results of its research into consumers’ perception of the complaints handling process in regulated firms.
The main findings from the research were as follows:
The majority of complainants were unsatisfied with the relevant complaints process with only 41% of respondents saying that they felt they had been fairly treated during the process.
- Respondents who had been given a named contact during the process were generally more satisfied with how their complaint was handled than those who had not been provided a contact.
- The knowledge, experience and authority of the point of contact was considered one of the most important aspects of the complaints process together with timely resolution.
- The two main reasons for consumers not making a complaint were a belief that the problem could not be resolved and that they would not be treated fairly.
The full report can be read here.
High Court upholds FSO finding that claim was time barred
The High Court delivered its judgment in the case of Stowe & Anor v Financial Services Ombudsman  IEHC 199 on 18 April 2016. The case involved an application by the appellants for an Order setting aside the decision of the Financial Services Ombudsman (“FSO”) to reject a complaint against EBS Limited (“EBS”).
The appellants had agreed to a fixed rate mortgage from EBS in 2006. The loan documentation provided that the applicable interest rate would revert to the ‘variable base’ on the expiry of the five year fixed rate period. Despite this, the appellants believed that they would be left with a tracker rate which followed the European Central Bank rate. This belief was based on a statement that they alleged had been made by their local EBS branch manager explaining that the term ‘variable rate’ meant ‘standard variable rate’ which at the time was defined as a variable rate which changes in line with the ECB rate.
In April 2010 the appellants received a communication from EBS providing that variable interest rates would no longer be adjusted in line with the ECB rate. This led to the appellants complaining that the proposed change to the variable rate was contrary to the explanation that had been given to them by their branch manager.
In reaching its decision to reject the complaint, the FSO considered section 57BX(3)(b) of the Central Bank Act 1942, which provides that: “A consumer is not entitled to make a complaint if the conduct complained of … occurred more than 6 years before the complaint is made”. As the alleged representation by the branch manager had been made more than 6 years before the lodging of the complaint, the conduct complained of could not be considered by the FSO.
The appellants argued that the branch manager’s statement was an oral term forming part of the written loan documentation and that the ‘conduct complained of’ was the breach of the mortgage agreement in 2010 rather than the representation made in 2006. As such, the complaint did not fall outside the relevant time limit.
The High Court rejected this argument and found that the appellants had failed to meet the “high threshold” required for the courts to set aside a finding of the FSO. In reaching its decision the Court expressed the view that the FSO’s construction of the Mortgage Agreement did not amount to ‘a serious error’ sufficient to justify setting aside the decision.
The Court also rejected the argument that the branch manager’s representation was merely evidence of the “conduct complained of” and therefore not caught by the applicable time limit. Such an interpretation would circumvent one of the clear policy objectives of the 1942 Act, namely to limit the period during which the FSO must investigate complaints to 6 years.
The Court also stressed that consumers need to be aware that choosing to pursue a complaint through the FSO process has consequences in relation to any related, given the high threshold required to overturn a decision of the FSO.
The High Court judgment can be read in full here.
ESMA publishes updated Q&A document on the Market Abuse Directive
The European Securities and Markets Authority has issued a Q&A document on the implementation of the Market Abuse Regulation. The Q&A documents provides answers to common questions regarding the implementation of the Regulation and clarifies the scope of firms who will be subject to the Regulation.
The Market Abuse Regulation is aimed at enhancing market integrity and investor protection and, once implemented, will result in an EU-wide market abuse regime.
The document can be viewed here.