This article highlights the main developments that have taken place over the last two months in the domestic and European banking sector.
On the domestic front:
Consultation on Credit Institutions Resolution Fund Levy
The Minister for Finance has initiated a consultation in relation to regulations prescribing the rate of contribution or a method of calculating the rate of contribution to the Credit Institutions Resolution Fund. Under the terms of the Central Bank and Credit Institutions (Resolution) Act 2011, the Minister for Finance is required to make regulations governing contributions to the Credit Institutions Resolution Fund. The purpose of the consultation document is to provide for parameters (level, rate and application) of the Levy.
ECB Opinion on Measures for Strengthening Supervision and Enforcement in Financial Regulation
The European Central Bank has published an Opinion on new measures strengthening supervision and enforcement in financial regulation. This Opinion has been published in response to a request by the Department of Finance for an opinion on the proposed parliamentary committee stage amendments to the Central Bank (Supervision and Enforcement) Bill 2011 on which the ECB had adopted Opinion CON/2011/69 on 9 September 2011.
The Department of Finance has indicated in a press release that it is the Government’s intention that this Bill pass through the Houses of the Oireachtas during the Autumn session.
Changes to the Prospectus and Transparency Regimes in Ireland
Changes have been made to the Prospectus and Transparency regimes in Ireland by the implementation into law of Directive 2010/73/EU (the Directive) which amends both the Prospectus Directive (Directive 2003/71/EC) and the Transparency Directive (Directive 2004/109/EC).
The Prospectus (Directive 2003/71/EC) (Amendment) Regulations 2012, which were published on 6 July, amend the Prospectus (Directive 2003/71/EC) Regulations 2005. The changes came into effect on 1 July 2012. Some of the key changes relate to the maximum number of investors and the threshold of total consideration for exempt public offers, the format and content requirements of the prospectus summary, the exemptions from the obligation to publish a prospectus in the case of retail cascades and for employee share schemes, and the definition of 'qualified investors'. In addition, amendments have also been made to Commission Regulation 809/2004, dealing with format and the content of the prospectus, the base prospectus, the summary and the final terms and as regards the disclosure requirements, and these amendments came into force also on 1 July.
The changes in the Directive related in the main to the Prospectus regime. However, some corresponding changes were introduced to the Transparency regime. The Transparency (Directive 2004/109/EC) (Amendment) Regulations 2012 amend the Transparency (Directive 2004/109/EC) Regulations and likewise came into effect on 1 July 2012. Some of the key changes here relate to the minimum denomination thresholds for issuers of debt securities (a) which apply in respect of the exemption from the requirement to produce annual and half-yearly financial reports and interim management statement, (b) which apply to enable the issuer to chose any member state as a venue for meetings, and (c) which govern the right of debt issuers to elect the language of regulated information.
Central Bank Publication – Intermediary Times – Special Edition
This newsletter covers (i) the findings of the recent professional indemnity insurance themed inspection on a range of full time insurance intermediaries and a number of firms who operate as insurance intermediaries and (ii) contains information on the legal basis for submitting an Annual Return i.e. depending on whether your firm is (a) authorised under the Investment Intermediaries Act 1995, (b) registered under the European Communities (Insurance Mediation) Regulations 2005 and/or (c) authorised as a mortgage intermediary after 24 June 2011 under the Consumer Credit Act 1995 (as amended).
Central Bank publishes amended FAQ document regarding fitness and probity requirements
CBI has updated its frequently asked questions document (Updated FAQs) providing guidance in respect of the fitness & probity regime applicable to Irish regulated entities. There are a number of additional questions and responses in the updated document dealing with various issues including (i) the requirement to obtain pre-approval from the CBI where a candidate carried on the pre-approval control function in another regulated financial services provider and had been approved by the CBI (ii) whether branch managers in non-EEA country branches fall within the scope of the fitness & probity regime (iii) whether a regulated financial services provider can rely on another regulated financial services provider’s due diligence and assessment that a person complies with fitness & probity standards and (iv) at what stage of an investigation a regulated financial services provider is required to advise the CBI that a controlled function holder may no be fit and proper. In addition, a number of questions and responses have been added to the Updated FAQs regarding the Individual Questionnaire and access to and submission of the Individual Questionnaire.
Department of Finance – General Scheme of the Credit Reporting Bill 2012
The Department of Finance has published a General Scheme of the Credit Reporting Bill 2012. This Bill provides for the establishment and operation of a statutory Central Credit Register (CCR) system in Ireland to benefit both borrower and lender and ensure that lenders are in a position to make informed lending decisions.
The main provisions of the Scheme are as follows: (i) The database will be owned by the Central Bank and the Bank will be responsible for the operation of the CCR; (ii) There will be mandatory reporting of a comprehensive range of credit information by credit providers; (iii) Credit providers will be required to meet specified reporting standards in this regard (e.g. formats, timelines etc.); (iv) Credit providers will be required to make mandatory credit checks with the CCR for all credit applications above a low value monetary threshold and (v) Access to the credit information held on the Register, other than information contained in a person’s or entity’s own credit file, will be controlled and restricted to those who are registered by the Bank to access data for specific purposes.
The Department of Finance has stated that the drafting of the Bill has commenced and that the Bill should be available by the end of September (in line with EU/IMF commitments).
Central Bank – Circular Re Auditing of Credit Union Accounts for Year Ending 31 December 2012
The Central Bank has issued a Circular to all auditors of credit unions in relation to the auditing of accounts for the year ending 31 December 2012. The Circular refers to a Circular dated 13 August 2012 that was sent to the chairman of each credit union and which highlighted the key areas that the board of directors should focus on for the year end 2012. Areas to be looked at include (i) regulatory reserve ratio’s, (ii) assets reviews and (iii) loan provisioning.
A copy of the circular is available on the Central Bank website.
Central Bank Publication – Revised User Manual relating to IQ for Fitness and Probity
The Central Bank has published a revised user manual relating to the Individual Questionnaire for Fitness and Probity.
The user manual has been divided into two parts (general guidance and question specific guidance) and has been updated to contain the following additions: step by step guidance on how to export and import IQs; and reasons why IQs may be returned.
On the European front:
Basel Committee – Consultation Document - A Framework for Dealing with Domestic Systemically Important Banks
The Basel Committee has developed a consultative document in relation to a framework for dealing with Domestic Systemically Important Banks (D-SIBs). Last November, the Basel Committee issued final rules for dealing with Globally Systemically Important Banks (G-SIBs).
The proposed framework for dealing with D-SIBs adopts a principles-based approach which is in contrast to the prescriptive approach of the G-SIB framework but will allow an appropriate degree of national discretion in the assessment and application of policy tools in order to accommodate the structural characteristics of individual jurisdictions. Comments are welcomed by Wednesday, 1 August 2012.
BIS – Basel Committee Publication – The Internal Audit Function in Banks
The Basel Committee has published a new paper “The Internal Audit Function in Banks”. The document replaces the 2001 document “Internal audit in banks and the supervisor’s relationship with auditors” and takes into account developments in supervisory practices and in banking organisations and incorporates lessons drawn from the recent financial crisis. The document is based on 20 principles, which are organised in three sections:
- Supervisory expectations relevant to the internal audit function;
- The relationship of the supervisory authority with the internal audit function; and
- Supervisory assessment of the internal audit function.
The principles set out in this document should be applied in accordance with the national legislation and corporate governance structures applicable in each country.
EBA - Update on the implementation of Capital Plans following the EBA’s 2011 Recommendation on the creation of temporary capital buffers to restore market confidence
The European Banking Authority has issued an update in relation to the implementation of Capital Plans following the EBA’s 2011 Recommendation to National Authorities that participating EU Banks raise their Core Tier 1 ratio (CT1) to 9%, after accounting for an additional buffer against sovereign risk holdings.
According to the updates of the plans submitted in June, banks are generally on track to comply with the EBA Recommendation and the measures initially identified have been implemented as planned.
The EBA has also issued a Q&A in relation to the recapitalisation exercise.
EBA - Report on Risks and Vulnerabilities of the European Banking System
This annual report by the EBA sets out the risks and vulnerabilities facing the European banking sector and describes the main developments and trends that affected the EU banking sector in the previous year and provide the EBA’s outlook on the main micro-prudential risks and vulnerabilities looking ahead.
EBA Consultation Paper on Draft Regulatory Technical Standards for credit valuation adjustment risk on the determination of a proxy spread and the specification of a limited number of smaller portfolios
The EBA has launched a consultation on Draft Regulatory Technical Standards (RTS) for credit valuation adjustment risk on the determination of a proxy spread and the specification of a limited number of smaller portfolios. These RTS will be part of the Single rulebook aimed at enhancing regulatory harmonisation in Europe. The consultation runs until 15 September.
BIS: Basel Committee on Banking Supervision: Basel III counterparty credit risk - Frequently asked questions
The Basel Committee on Banking Supervision has revised paragraph 75 of Basel III (which is designed to ensure that an increase in the credit risk of a bank does not, via a reduction in the value of its liabilities, lead to an increase in its common equity) as regards its application to derivatives.
Having considered responses to a consultative document issued last December, the Committee has confirmed its intention to proceed with the baseline proposal included in the consultative document and has agreed that valuation adjustments to derivative liabilities arising from the bank's own credit risk should be fully derecognised from the calculation of common equity at each reporting date.
BIS: Basel Committee on Banking Supervision: Capital requirements for bank exposures to central counterparties
The Basel Committee issued today interim rules for the capitalisation of bank exposures to central counterparties (CCPs). The Committee's framework for capitalising exposures to CCPs builds on the new CPSS-IOSCO “Principles for Financial Market Infrastructures”, which are designed to enhance the robustness of the essential infrastructure - including CCPs - supporting global financial markets.
European Banking Authority – Guidelines On the Remuneration Benchmarking Exercise and on the Data Collection Exercise regarding High Earners
The EBA has issued two sets of guidelines (i) Guidelines on the Remuneration Benchmarking Exercise and (ii) Guidelines on the data collection exercise regarding high earners.
The objective of the Guidelines is to streamline the data collection and increase the consistency and comparability of the information collected by national competent authorities.
In relation to the Remuneration Guidelines, in order to comply with obligations under CRD III (Directive 2010/76) (which mandates national competent authorities to collect information on remuneration practices of credit institutions and investment firms to benchmark remuneration trends), the EBA proposed guidelines and published a consultation paper. The EBA has now published these final Guidelines which are to be applied by competent authorities as soon as possible but in any case, no later than two months following publication. The first data should be submitted by the competent authorities to EBA by the end of December 2012. They should relate to fixed and variable remuneration awarded for the 2010 and 2011 performance years.
The EBA guidelines on the data collection exercise regarding high earners are meant to increase the consistency of information collected on the number of individuals per credit institution in pay brackets of at least 1 million euros.
EBA Opinion on the Commission’s Green paper on Shadow Banking
The EBA has issued an opinion in with regard to the Green Paper on Shadow Banking that was issued last March by the European Commission.
ESMA Publishes Updated Q&As on Prospectus Law
ESMA has published an updated version of its Prospectuses: Questions and Answers document.
This is the 15th iteration of the Q&A document since its inception in 2006. ESMA, which took over from its predecessor, the Committee of European Securities Regulators, on 1 January 2011, is an independent EU authority with responsibility for safeguarding the stability of the EU’s securities markets.
The purpose of the ESMA Q&A document, which was last updated in April 2011, is to promote common approaches and practices in the application of prospectus law across the EU, by providing responses to frequently asked questions posed by the general public and competent authorities in the area.
The updated version of the Q&A document includes all the questions and answers previously adopted. The principal change since the last published version is the addition of a new Question 80, which provides guidance on the requirements of the prospectus summary, including specific wording to be incorporated into the summary. Question 45, regarding information on taxes on the income from securities withheld at source, and Question 78, regarding the specific details in the case of Category B items, have also been updated since the last version of the Q&A.
EBA, EIOPA and ESMA Publication – List of Groups Identified as Financial Conglomerates
The EBA, EIOPA and ESMA have published a list of groups that have been identified as Financial Conglomerates with a head of group in the EU/EEA by July 2012.
EBA - Update on the finalisation and implementation of the standards on supervisory reporting
The finalisation and publication of the EBA draft Implementing Technical Standards on supervisory reporting requirements for institutions has been pushed back pending the adoption by the EU legislators of the Capital Requirements Regulation (CRR). The expected date of application of the CRR is 1 January 2013. When the CRR text is available, the EBA will finalise the ITS.
EACB – Position Paper on EBA Document “Draft Implementing Technical Standards on Disclosure for Own Funds by Institutions”
The European Association of Co-Operative Banks (EACB) has published a position paper in relation to the European Banking Authorities Consultative Document “Draft Implementing Technical Standards on Disclosure for Own Funds by Institutions”.
BIS/FSB Publications - Formation and launch of the FSB Legal Entity Identifier Private Sector Preparatory Group
In response to the FSB report “A Global Legal Entity Identifier for Financial Markets” in June which set out global LEI system High Level Principles and 35 recommendations for the development of a unique identification system for parties to financial transactions, the FSB has established the LEI Implementation Group consisting of experts from the global regulatory community.
Work will now commence in three main workstreams and specific objectives include:
- Governance and legal workstream: assist and contribute to the work of the Implementation Group on the development of the legal framework and necessary legal documents for the establishment of the global LEI foundation.
- Operations workstream: to develop options for a “plug-in” architecture for the Central Operating Unit that supports the federated nature of the LEI system and allows integration of Local Operating Units.
- Ownership and relationship data workstream: to support the Implementation Group in developing recommendations for the early introduction of additional reference data for corporate ownership, relationships and hierarchies.
The FSB Secretariat has also issued a press release seeking views regarding the appropriate jurisdiction for establishment of the Global LEI Foundation and Central Operating Unit of the global LEI system. Responses should be submitted by 10 September 2012.
Responses to the BCBS Consultation on: “A Framework for Dealing with Domestic Systemically Important Banks
The IBFed has welcomed the opportunity to share with the Basel Committee, its views on the proposal for a framework for dealing with domestic systemically important banks (D-SIBs). The IBFed states in its letter that it considers that the most effective policy tools to address the threats posed by systemic risk are improved supervision and resolution frameworks. However additional loss absorbency, though swifter to implement, can only be a complementary measure and the IBFed has remarked that the currently proposed D-SIB framework should not replace nor take priority over the current improvements in supervision and resolution tools.
The European Banking Federation (EBF) has also welcomed the opportunity to share the views of the European banking sector on the proposal for a framework for dealing with D-SIBs. The EBF also considers that the most effective policy tools to address the threats posed by systemic risk are improved supervision and resolution frameworks. The EBF comments that it has a particular interest in the interaction between the systemic risk framework proposed by the Basel Committee and the proposals that European policy makers have included in the capital requirements regulation (CRR) and directive (CRD4) underway. The EBF in its response has also set out a number of remarks in relation to the assessment methodology.
IOSCO – Consultation Document – Recovery and Resolution of Financial Market Infrastructures
The purpose of the IOSCO report is to outline the features of effective recovery and resolution regimes for financial market infrastructures (FMIs) in accordance with the “Key Attributes” (as set out in the FSB Paper entitled “Key Attributes of Effective Resolution Regimes for Financial Institutions” which was published last November 2011 and which was endorsed by the G20) and consistent with the principles of supervision and oversight that apply to them.
FSB – Questionnaire on Thematic Peer Review of Resolution Regimes
The Financial Stability Board has issued a Questionnaire on “Thematic Peer Review of Resolution Regimes”. This Peer Review follows the publication by the FSB last November of “Key Attributes of Effective Resolution Regimes for Financial Institutions”. The objective of the peer review is to evaluate FSB member jurisdictions’ existing resolution regimes and any planned changes to those regimes using the “Key Attributes” as a benchmark.
The Questionnaire is divided into two sections: (i) Section 1 – questions regarding recent experiences with the resolution of systemically significant or critical financial institutions and lessons learned; recent reforms to resolution regimes; and plans and timelines for additional reforms; and (ii) Section 2 - focuses in more detail on national implementation (or planned implementation) of the Key Attributes in resolution regimes across different sectors.
Feedback on the Questionnaire should be provided by Friday, 28 September 2012.
BIS – Consultation Document – Supervisory Guidance for Managing Risks Associated with Settlement of Foreign Exchange Transactions
The Basel Committee on Banking Supervision has published a consultation document in relation to supervisory guidance for managing risks associated with the settlement of foreign exchange transactions.
The proposed new guidance aims to ensure that foreign exchange transaction risks are effectively managed. The guidance is organised into different “guidelines” to address governance, principal risk, replacement cost risk, liquidity risk, operational risk, legal risk and capital for FX transactions.
Comments on this Consultation Document should be submitted by 12 October 2012.
European Parliament Committee – Report on Shadow Banking
The European Parliament’s Committee on Economic and Monetary Affairs has issued a report on shadow banking. This report includes a motion for a European Parliament Resolution in relation to shadow banking and includes an explanatory statement on the background to the report.
IBFed – Response to IOSCO Consultation Report on Global Developments in Securitisation Regulation
International Banking Federation has welcomed the opportunity to respond to the IOSCO Report on Global Developments in Securitisation Regulation and has set out its comments in a letter in which it states that it supports IOSCO’s work on shadow banking and wishes to ensure a strong securitisation market in the future.
Joint Committee (EBA, EIOPA, ESMA) Publication – Supervisory Cooperation Protocol between “Home Supervisor” and “Host Supervisor” of Agents and Branches of Payment Institutions in Host Member States
The Supervisory Co-operation Protocol is intended to assist with the passport notification and registration process and facilitate the effective supervision of agents and branches of the “Payment Institution” in “Host” Member State (i) in accordance with provisions of the Payment Services Directive and (ii) for AML/CTF purposes in accordance with the provisions of the 3rd Anti Money Laundering Directive.