This article highlights the main developments that have taken place over the last month in the domestic and European banking sector.
On the domestic front:
Central Bank issues clarification of guidance
The Central Bank has issued a letter to all lenders to clarify provisions in the Consumer Protection Code 2012 (the 2012 Code) and the Code of Conduct on Mortgage Arrears (CCMA) in relation to contacting consumers. The principle message from the Central Bank to lenders is that early proactive engagement with consumers is paramount in finding a workable solution to payment arrears and that all communications with consumers must be proportionate and not excessive.
The guidance provided by the Central Bank focuses on the following areas:
- Initial communication with consumers – "communication" is referred to as successful contact with a consumer and initial communication should be made promptly;
- Unsolicited personal visits – unsolicited personal visits should only be made when all other communication attempts have failed and the consumer should be provided with advance notice in writing of a lenders intention to make an unsolicited visit within a specified timeframe.
- Limit of three unsolicited contacts – this limit applies to successful communication (e.g. letters issued, text message or conversation held) and contact should be proportionate and not excessive.
The Central Bank confirms that this guidance does not amend the provisions of the 2012 Code or the CCMA and intends to review the provisions of the CCMA later this year.
Central Bank briefing on Fitness and Probity to the IBF
The Head of Governance, Accounting and Auditing Policy of the Central Bank, Mairead Devine, has presented to the Irish Banking Federation on "Fitness & Probity – a New Regime". The presentation focused on "Who - Functions in RFSPs which fall within the scope of Part III" and "What - Standards and key obligations on RFSPs". The presentation is available on the Central Bank website.
Central Bank Supervision and Enforcement) Bill 2011 – Consultation Document
The Minister for Finance has issued a Consultation Document on the proposed Committee Stage amendments to the Central Bank (Supervision and Enforcement) Bill 2011. The amendments are the result of a comprehensive collaboration between the Department and the Central Bank to improve and complement the provisions in the published Bill. Comments were invited by close of business on 25 May 2012.
“Mortgage Arrears – A Consumer Guide to Dealing with your Lender”
The Central Bank has issued a guide for consumers when dealing with a lender in relation to mortgage arrears. The guide addresses issues such as the information that a lender must provide to the consumer, the mortgage arrears resolution process, repossession and FAQ’s. The Guide is available on the Central Bank website.
Central Bank Publication – Annual Performance Statement – Financial Regulation 2011 -2012
This Central Bank publication sets out a regulatory performance review for 2011 in relation to Central Bank’s high level goals – to ensure the proper and effective regulation of financial institutions and markets and to ensure the best interests of consumers of financial services are protected. The publication also sets out the regulatory performance plan for 2012.
On the European front:
Review of the EU Banking Sector by High-Level Expert Group
The EU Commissioner, Michel Barnier, has established a High-Level Expert Group to review possible reforms to the EU banking sector. The Review is aimed at identifying structural reforms of individual banks and banking systems as a whole with a view to reducing the probability and impact of failure to a banking system. This Review is differentiated from other reviews and regulatory reforms as to date, regulatory reforms that have been implemented have been largely focused on the identification of risk and the taking of action to combat and avoid such risk.
The Review Group in this case have been asked to focus on reducing the risks to the banking sector as a whole, reducing the risks posed by individual banks (probability impact), promoting competition and maintaining the integrity of the internal market.
The final report of the Review Group is expected by the end of the summer, 2012.
EBA Consultation Paper on Guidelines for Assessing the Suitability of Members of the Management Body and Key Function Holders of a Credit Institution
The European Banking Authority has issued a Paper which sets out the proposed process, guidelines, criteria and minimum requirements for assessing the suitability of persons as members of a management body and key function holders of a credit institution.
The EBA has relied on the assessment done by the EC in the context of the proposed Directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV).
EU Bank Recovery and Resolution Framework
It has been reported that the EU will present its long-term plan for winding up distressed credit institutions by June 6, 2012.
EBA Discussion Paper on a template for Recovery Plans
This EBA Discussion Paper presents some preliminary ideas on what the key elements of a recovery plan should be. The template for the recovery plan has three main chapters: One - general but comprehensive information on the institution and governance structure with regard to the corporate plan; Two – core of the recovery plan namely the assumptions behind the options available and an assessment of their execution and impact; and Three – identification of measures to be taken by an institution to draft a plan and keep it updated. Comments are invited by 15 June 2012.
General Approach to Bank Capital Rules Agreed
On 15 May, the European Council unanimously agreed a general approach on two proposals on the so-called “CRD 4” package which will amend EU rules on capital requirements for banks and investment firms, with a view to negotiations with the European Parliament.
The proposals aim to amend and replace the existing capital requirements directives by two new legislative instruments: (i) a regulation establishing prudential requirements and (ii) a directive governing access to deposits taking activities. The proposals are aimed at transposing into EU law the so called Basel III Agreement. The negotiations with the Parliament will aim for adoption of the package at first reading by June 2012.
The Association for Financial Markets in Europe has published a range of CRD IV briefing notes including (i) reporting on own funds requirement; (ii) Treatment of exchange-trade of derivatives; and (iii) Liquidity operation requirements for holding of liquid assets. The briefing notes are available on the AFME website. The European Commission has also published a useful presentation which provides an overview of the CRD IV and key relevant issues.
European Banking Authority Publishes Guidelines on Stressed Value-At-Risk and on the Implemental Default and Migration Risk Charge
The EBA Guidelines are viewed as an important means of addressing weaknesses in the regulatory capital framework and the risk management of financial institutions. Their objective is to contribute to a level playing field and to enhance convergence of supervisory practices across the EU. National competent authorities are expected to implement the provisions set out in the guidelines within 6 months after publication.
EBA – Consultation on Data Point Model related to Implementing Technical Standards on Supervisory Reporting
Last December the EBA published a consultation paper on draft Implementing Technical Standards on Supervisory reporting for institutions (CP 50) and this was followed in February by a consultation paper on draft Implementing Technical Standards on reporting of large exposures (CP51). The draft ITS will be part of a single rulebook enhancing regulatory harmonisation in Europe and assist in the objective of implementing uniform reporting requirements between comparable financial institutions. In order to achieve comparable reporting requirements, it is necessary to detail and define all relevant technical specifications necessary to the development of IT reporting formats. The Data Point Model (DPM) has been produced for this purpose and includes all data items included in the draft ITS. The EBA invites comments on the draft DPM by 11 June 2012.
European Central Bank Paper on Shadow Banking in the Euro area
The European Central Bank has published an occasional paper on shadow banking in the Euro area. This paper presents a first investigation of the size and the structure of shadow banking within the Euro area, using the statistical data sources available to the ECB/Euro system. It also looks at the link between the regulated and the non-bank regulated segments of the financial sector.
Basel Committee Consultation on Fundamental Review of Trading Book Capital Requirements
The Basel Committee on Banking Supervision has issued a consultative document on the fundamental review of trading book capital requirements. These proposals will strengthen capital standards from market risk and thereby contribute to a more resilient banking sector.
It looks at the following proposals:
- a more objective boundary between the trading book and the banking book that materially reduces the scope for regulatory arbitrage;
- moving from value at risk to expected shortfall, a risk measure that better captures “tail risk”; and
- measures to reduce model risk in the internal model space approach, including a more granular model approval process and constraints on diversification.
EBA Report on the fulfilment of the EBA Recommendation following the 2011 EU-wide stress test
Following publication of the 2011 EU-wide stress test results last July, the EBA issued a Recommendation to national supervisory authorities to ensure that appropriate steps and actions were taken by (i) banks with a Core Tier 1 capital (CT1) ratio below 5% in the adverse scenario and (ii) to banks with a CT1 ratio close to 5% in the adverse scenario and with sizeable exposures to sovereigns under stress. The EBA, as a part of its ongoing monitoring activities, has continued to assess the implementation of these mitigating measures against the requirements of the EBA Recommendation and has set out its finding in this Report