Central Bank Statement on Industry Funding Levels for 2015

The Central Bank has issued a statement on industry funding levels for 2015 and the proposed approach to the levy in 2016.

The Minister for Finance approves the funding arrangements. The current levy is 50 per cent of the costs incurred on financial regulation activities.

In general, the costs are levied on a proportionate basis, depending on the level of regulatory input and oversight required in a particular sector.

The Central Bank has proposed a change in the method of levying current service pension costs. This is an acknowledgement of the impact that the volatility surrounding costs associated with the Central Bank’s pension scheme has had on individual levies within the key industry sectors.  Under the revised approach, the impact of pension volatility will be spread over a rolling ten year period. This aims to partially mitigate the increases from the previously advised 2015 levy amounts which will now be approximately 8% lower than originally communicated.

In planning the approach to the 2016 levy year, the Central Bank will consider both the views expressed by Industry bodies and the responses received on the consultation paper on the review of funding arrangements.

A link to the statement can be found here.

Finance (Miscellaneous Provisions) Bill published

The Minister for Finance has published the Finance (Miscellaneous Provisions) Bill 2015. The Bill has four main objectives:-

  • to enable the ratification of the Intergovernmental Agreement (IGA) to the Single Resolution Mechanism (SRM) as there is a requirement to have the documentation associated with the ratification lodged with the EU by 30 November of this year;
  •  to make amendments to the Financial Services (Deposit Guarantee Scheme) Act 2009 to put in place a transitional funding arrangement for the new deposit guarantee scheme and to provide a means for the government to reimburse the Central Bank where it contributes its own resources towards a deposit guarantee scheme compensation event;
  • to put in place 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; and
  • to make a technical amendment to the NTMA (Amendment) Act 2014 in order to remove any potential ambiguity over whether a “directed investment” made by the National Pension Reserve Fund Commission and subsequently transferred to the Irish Strategic Investment Fund pursuant to the Act remains a “directed investment” for the purposes of the Act.

A link to the Bill, which is currently at committee stage, is provided here.

European Commission launches Capital Markets Union Action Plan

At the end of September, the European Commission launched the Capital Markets Union Action Plan.

The plan seeks to tackle investment shortages by increasing and diversifying the funding sources for Europe’s businesses and long-term projects. The Commission also aims to remove barriers that are inhibiting cross-border investments in the EU in order to make it easier for companies and infrastructure projects to get the finance they need regardless of where they are located.

The plan is built around the following key principles:

  • Creating more opportunities for investors;
  • Connecting financing to the real economy;
  • Fostering a stronger and more resilient financial system; and
  • Deepening financial integration and increasing competition.

Although the Capital Markets Union is a medium-term plan, it contains a number of important early initiatives including:

  • New rules on securitisation involving the introduction of a regulatory framework which is simple, transparent and standardised and subject to adequate supervisory control;
  • Public consultation on venture capital; and
  • Public consultation on covered bonds.

The European Commission press release announcing the launch of the Plan can be found by following this link.

European Banking Authority (EBA) publishes its work programme for 2016

The EBA has published its work programme for 2016 setting out the specific activities and tasks it will undertake in the coming year and summarising its expected results and main objectives.

The programme identifies 34 activities within 8 strategic areas on which the Authority will focus. The eight areas of focus are:-

  • to play a central role in the regulation and policy framework with the development and maintenance of the Single Rulebook;
  • to promote the development and coordination of resolution policy and resolution plans, and to develop common approaches for the resolution of failing financial and credit institutions and financial market infrastructures;
  • to promote the convergence of supervisory practices to a high standard including provision of training to Competent Authorities so as to ensure that regulatory and supervisory rules are implemented equally across all Member States;
  • to identify and analyse trends, potential risks and vulnerabilities stemming from the microprudential level across borders and sectors;
  • to maintain and develop the common supervisory reporting framework, as well as to strengthen its role as an EU data hub for the collection, use and dissemination of data on EU banks;
  • to protect consumers and monitor financial innovation;
  • to ensure secure, easy and efficient payment services across the EU; and
  • for the EBA to be a competent, responsible and professional organisation, with effective corporate governance and efficient processes.

The work programme can be viewed by following this link.

ESMA sets out its priorities for 2016

The European Securities and Markets Authority has published its work programme for 2016. The Authority’s priorities for 2016 shows a shift from rulemaking towards implementation and the promotion of convergence of supervisory practices.

The key priorities designated for focus in 2016 are as follows:

  • Supervisory convergence which will be a key area of focus in ESMA’s activities with regard to the implementation, enforcement and supervision of EU law. The ESMA will prepare a supervisory convergence work programme and will continue its cooperation with National Competent Authorities (NCAs) and other institutions to ensure sectoral consistency;
  • MiFID II and MiFIR will continue to be a dominant part of activity in 2016 although there will be a shift in focus to concentrate on producing guidelines and Q&A documents to assist with the consistent implementation of MiFID II across NCAs;
  • Data collection and management in line with the MiFID II/MiFIR requirements. Systems will continue to be developed to assist the Authority in its supervision, risk monitoring and single rulebook activities and, in particular, the Authority will run two projects on behalf of the NCAs in relation to Financial Instruments Reference Data and Access to Trade Repositories.

The full press release from the ESMA can be found here.

EBA, EIOPA and ESMA consult on anti-money laundering and countering the financing of terrorism

The Joint Committee of the three European Supervisory Authorities has launched a public consultation on two new Guidelines on anti-money laundering (AML) and countering the financing of terrorism (CFT). The Guidelines promote a common understanding of the risk-based approach to AML and CFT and set out how it should be applied by credit and financial institutions and competent authorities across the EU.

The consultation paper on the Risk-Based Supervision Guidelines is addressed to competent authorities responsible for supervising compliance with applicable AML and CFT amongst credit and financial institutions. The Guidelines specify the characteristics of a risk-based approach to AML and CFT supervision and set out what competent authorities should do to ensure that their allocation of supervisory resources is commensurate to the level of money laundering and terrorist financing risk associated with credit and financial institutions within their sector.

The consultation paper on the Risk-Factors Guidelines is addressed to both credit and financial institutions and competent authorities responsible for supervising compliance with AML and CFT obligations. It provides guidance on the factors credit and financial institutions should consider when assessing the risk of money laundering and terrorism financing associated with individual business relationships, and on how they should adjust their customer due diligence procedures in light of those assessments.

The consultation process runs until 16 January 2016 and a public hearing on the draft Guidelines will take place at the EBA’s London premises on 15 December 2015.

The press release can be accessed by following this link.

Central Bank launches first ‘Consumer Protection Bulletin’

The Central Bank has published its first Consumer Protection Bulletin which will be produced periodically. Its purpose is to provide consumers with a source of information on different aspects of the financial sector.

The first bulletin is the cumulation of information gathered by the Central Bank since 2013.

The data shows a number of trends including and a decrease in current accounts but a rise in complaints on current accounts. The number if complaints represent less than 1% of the overall number of current accounts, they still account for the largest number of banking complaints.

A link to the bulletin is provided here.

EBA consultation on draft Guidelines on the disclosure of confidential information collected under the BRRD

The European Banking Authority launched a public consultation at the end of last month on draft Guidelines on how confidential information collected under the Bank Recovery and Resolution Directive should be disclosed without identifying individual institutions or relevant entities. The consultation process runs until 27 January 2016.

The draft Guidelines aim to promote the convergence of supervisory and resolution practices in respect of disclosures of confidential information. They also introduce three principles which 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 any distinctive data that would allow the identification of individual institutions or entities.
  • Disclosure of confidential information should be avoided where there is a risk that individual institutions and entities might be identifiable.

A copy of the consultation paper can be found here. The draft Guidelines can be found by following this link.

European Central Bank (ECB) issue Opinion on the deposit guarantee scheme

The ECB has issued an opinion on a draft law amending the Financial Services (Deposit Guarantee) Act 2009 and draft regulations transposing certain provisions of Directive 2014/49/EU (on deposit guarantee schemes) into Irish law. The opinion was issued following a request from the Minister for Finance, Michael Noonan, at the beginning of October this year.

In line with previous opinions addressed to the Irish authorities, the ECB emphasises that activities performed by the Central Bank of Ireland (CBI) must comply with the monetary financing prohibition laid down in Article 123(1) of the Treaty and Council Regulation 3603/93/EC. This prohibits central banks from providing overdraft or other credit facilities to the public sector. In this regard, the ECB notes that the only forms of central bank financing of a national deposit guarantee scheme for credit institutions that would be compatible with the monetary financing prohibition are:

  1. intraday credit in line with the general rules on provision of such credit by the central bank; and
  2. short-term emergency liquidity financing under strict conditions established in the ECB’s convergence reports, ie. if such funding is short term, addresses urgent situations, systemic stability aspects are at stake and decisions are at the central bank’s discretion.

In light of the criteria set out in respect of the second category above, the ECB opinion makes a number of suggestions to ensure the draft law satisfies the conditions including:

  • While welcoming the fact that the CBI is to be repaid monies advanced to the contribution fund within two weeks, the ECB emphasises that it is of crucial importance that the process by which the Central Bank can recover monies advanced is clearly set out. In this regard, it notes that the inclusion of an obligation to seek ministerial approval for repayment of monies advanced implies that there is a discretion as to whether such monies are repaid and suggests that this obligation should be removed to ensure clarity and in order to comply with the ‘short term’ financing criteria.
  • The ECB also notes that the draft regulations provide the CBI with a broad discretion to advance monies where it considers it ‘appropriate and necessary’ having regard to the objectives of Part 6 of the draft regulations. However, those objectives are not clearly identified in the draft regulations and, in order to more fully align the text of the draft regulations with the convergence criteria, the ECB suggests replacing the general reference to the objectives of Part 6 with a reference to the objective of safeguarding systemic stability.

A copy of the ECB opinion can be viewed here.

European Parliament adopts European Commission Regulation on Transparency of Securities Financing Transactions

The European Parliament has voted to adopt new rules aimed at improving the transparency of certain financial transactions in the shadow banking sector and helping the identification of the risks associated with such transactions.

The Regulation increases transparency in three ways:

  • It introduces the reporting of all securities financing transactions, except those concluded with central banks, to central databases known as trade repositories. The obligation to report will commence from 12 to 21 months after the entry into force of the relevant regulatory technical standards, depending on a firm’s category under the Regulation;
  • It imposes a requirement for investment funds to disclose information on the use of securities financing transactions and total return swaps to investors in their regular reports and pre-contractual documents from the entry into force of the Regulation; and
  • It sets out some minimum transparency conditions that should be met on the reuse of collateral, such as the disclosure of risks and the need to grant prior consent. These conditions will apply 6 months after the entry into force of the Regulation.

Following the Parliament’s vote, the Regulation will be formally adopted by the EU Council in the near future and will then be published in the Official Journal of the EU.

The European Commission press release can be viewed here.

An FAQ document on the Regulation prepared by the European Commission can be found here.

Visa Inc to acquire Visa Europe

Visa Inc has announced an agreement to acquire Visa Europe, creating a single global company. The transaction consists of upfront consideration of €16.5 billion with the potential for an additional earn-out of up to €4.7 billion following the fourth anniversary of closing resulting in a potential total value of €21.2 billion.

As a result of the acquisition, European customers will have greater access to Visa Inc’s scale and resources and, in particular, will benefit from direct access to its investments in innovative technology and differentiated products and services.

The deal is subject to regulatory approval and is expected to close in the third quarter of 2016.

EBA announces details of 2016 EU-wide stress test

The European Banking Authority has published its 2016 EU-wide stress test draft methodology for discussion. The stress test will be formally launched in the first quarter of next year and will cover over 70% of the EU banking sector.

53 EU banks, including both AIB and Bank of Ireland, will participate in the exercise.

The EBA press release and draft methodology can be accessed by following this link.

Central Bank enters into settlement agreement with Credit Union

The Central Bank has fined the Irish Taxi Owners’ Co-Op Credit Union Limited (the “Firm”) €5,000 in the first enforcement case to be taken against a credit union since the Administrative Sanctions Procedure became fully applicable to the credit union sector in August 2013. The Firm was reprimanded in respect of breaches of its obligations under the Credit Union Act 1997.

Following an investigation into the Firm’s activities, it was found that the it had failed to:

  • Submit its prudential returns within the required timelines in respect of the quarters ending 30 September 2013 to 30 September 2014;
  • Have adequate systems and controls in place to ensure that the returns were submitted within the prescribed timelines; and
  • Ensure the accuracy of the information contained in the returns once submitted.

In considering the appropriate penalty, the Central Bank took the following into account:

  • The seriousness of the breach and the repeated nature of the Firm’s failure to submit its Prudential Returns on time;
  • The principle of deterrence;
  • The size of the Firm; and
  • The fact that the Firm has since implemented systems and control procedures in relation to its Prudential Returns.

The full press release from the Central Bank can be found here.

In addition, the Central Bank also entered a separate settlement agreement with Michael Hogan, a person concerned with the management of the Firm, in respect of his participation in the breaches by the Firm. Mr Hogan is responsible for preparing and submitting the Prudential Returns on behalf of the Firm. The press release in relation to that settlement agreement can be found at this link.

Central Bank consultation on Investment Firm Regulations

The Central Bank has published a consultation paper in respect of its proposal to publish an Investment Firms rulebook, which will consolidate into one document all of the conditions and requirements which the Central Bank imposes on investment firms. The proposed rulebook will, for the most part, reflect existing requirements on investment firms, but the Central Bank is seeking submissions from stakeholders on two issues where changes to the existing rules are proposed.

Firstly, chapter 5 of the Central Bank’s AIF Rulebook contains certain requirements applicable to Fund Administrators including those related to capital. The requirements will remain similar to the existing requirements but there are some changes proposed as described in summary below:

  • The definitions of own funds items will be brought broadly into line with certain modernisations made by the CRR/CRD IV regime. In particular, it is proposed that tier 2 capital will be capped at one-third of tier 1 capital. In addition, there are certain new deductions from capital proposed;
  • The method of calculation of the fixed overhead requirement will be refined to better align with CRR/CRD IV;
  • Certain other definitions, amendments and clarifications are also included.

The closing date for submissions is 27 January 2016.

A copy of the consultation paper can be found here.

Solvency II Directive transposed into Irish law

The European Union (Insurance and Reinsurance) Regulations 2015 have this month been signed into law by the Minister for Justice, Michael Noonan.  The Regulations, which come into effect from 1 January 2016, transpose the Solvency II directive (as amended) into Irish law.

Solvency II is the EU legislative programme introducing a new, harmonised prudential regulatory regime for the EU insurance sector.  The new framework is built on three pillars which aim to ensure that insurance and reinsurance undertakings across Europe hold adequate financial resources, maintain effective and robust risk management and governance standards and adhere to more stringent reporting requirements thereby enhancing market discipline and improving transparency.

The new framework has much wider scope than its predecessor.  As a result, the 2015 Regulations prescribe new, stronger capital requirements, valuation techniques, risk management and governance standards for insurance and reinsurance undertakings, replacing those requirements previously applicable under Solvency I.