Domestic

Statement by the European Commission following the UK announcement regarding the operation of the Protocol on Ireland / Northern Ireland

On 6 September 2021, the European Commission released a statement taking note of the UK ministerial statement regarding the operation of the Protocol on the current basis, including the continuation of existing grace periods.

The focus of the European Commission remains on identifying long-term, flexible and practical solutions to address issues related to the practical implementation of the Protocol that citizens and businesses in Northern Ireland are experiencing. However, the Commission will not agree to a renegotiation of the Protocol. The Commission continues to engage constructively with the UK, in the interest of all communities in Northern Ireland. The Commission reserves its rights in respect of infringement proceedings and is not opening any new proceedings for now.

Capitalising on opportunities in Europe’s financial markets - Remarks by Deputy Governor Sharon Donnery at FT Future of Europe event

On 21 September 2021, Sharon Donnery, CBI Deputy Governor, Central Banking addressed the FT Future of Europe event. Deputy Governor Donnery spoke of the number of challenges including the withdrawal of the UK from the EU and the consequential changes to the structure, composition and operations of financial markets in the EU. Deputy Governor Donnery also spoke about a capital markets union and the Next Generation EU fund. Deputy Governor Donnery concluded that these areas provide opportunities to increase the resilience of European financial markets so they can serve households and businesses in good times and bad.

CBI proposes amendments to certain Pre-Approval Controlled Functions

On 22 September 2021, the CBI published a Notice of Intention regarding proposed amendments to certain Pre-Approval Control Functions (PCFs) under its Fitness and Probity regime. The proposed amendments to the list of PCFs are:

  • expanding PCF-16 to include branch managers in non-EEA countries;
  • segregating PCF-2 to introduce separate PCFs for non-executive director and independent non-executive directors;
  • introducing a dedicated PCF in respect of anti-money laundering and counter terrorist financing; and
  • removing PCF-31 Head of Investment (on the basis that it is covered by PCF-30 (chief investment officer)

The proposed amendments to the list of PCFs will be applicable to all Irish regulated financial service providers other than credit unions. The CBI has invited comments from stakeholders on the proposed amendments to be submitted no later than 20 October 2021.

European

Joint Letter on Basel III Agreement

On 7 September 2021, the CBI together with several Member State banking authorities published a joint letter to the European Commissioner and Directorate-General for Financial Services, Financial Stability and Capital Markets Union on the Basel III Agreement. The letter voices the supervisors' support of the full, timely and consistent implementation of all aspects of the Basel III Agreement. In particular, the three highlighted implications of Basel III are:

  1. the output floor should be implemented as agreed in Basel, with all risk-based capital measures and buffers calculated on the basis of one single set of risk-weighted assets
  2. the new Basel standardised approach for credit risk should be implemented as agreed globally
  3. EU specific deviations should be minimised

Separately, on 8 September 2021, Elizabeth McCaul, Member of the Supervisory Board of the ECB, addressed the Working Group Financial Services hosted by Kangaroo Group. Ms McCaul spoke to whether the COVID-19 pandemic should have an impact on the timeframes for the Basel III reforms, and in particular on the output floor. Ms McCaul stated that she supports the full implementation of the Basel III reforms, without postponement, and that in the short term any potential conflict between the post-pandemic recovery and the Basel III reform is limited and the one-year postponement of the implementation already mitigates the impact of the crisis.

ESAs highlight risks in phasing out of crisis measures and call on financial institutions to adapt to increasing cyber risks

On 8 September 2021, the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) issued their second joint risk assessment report for 2021. The report highlights the increasing vulnerabilities across the financial sector, the rise seen in terms of cyber risk and the materialisation of event-driven risks.

The ESAs advised national competent authorities (NCAs), financial institutions and market participants to take the following policy actions:

  1. financial institutions and supervisors should continue to be prepared for a possible deterioration of asset quality in the financial sector, notwithstanding the improved economic outlook
  2. as the economic environment gradually improves, the focus should shift to allow a proper assessment of the consequences of the pandemic on banks’ lending books, and banks should adequately manage the transition towards the recovery phase
  3. disorderly increases in yields and sudden reversals of risk premia should be closely monitored in terms of their impacts for financial institutions as well as for investors
  4. financial institutions and supervisors should continue to carefully manage their ICT and cyber risks

ESMA to focus on supervision, sustainability, digitalisation and the Capital Markets Union in 2022

On 28 September 2021, ESMA published its 2022 annual work programme (AWP), setting out its priority work areas for the next 12 months to deliver on its mission to enhance investor protection and promote stable and orderly financial markets. The key work streams for 2022 are:

  1. Cross-Cutting Themes – ESMA will focus on contributing to the EU’s priorities including:
    1. Capital Markets Union – with a focus on the European single access point, the retail investment strategy, and EC initiatives to facilitate SMEs access to public markets
    2. Sustainable finance – develop rules on environmental, social and governance (ESG) disclosures and risk identification methodology for ESG factors
    3. Innovation and digitalisation – with a focus on the implementation of the Digital Operational Resilience Act (DORA), the Markets in Crypto Assets Regulation (MiCA) and the regulation on a pilot regime for market infrastructures based on distributed ledger technology
  2. Supervisory Convergence – deliver peer reviews on the supervision of investment firms cross-border activities, NCAs’ handling of Brexit related relocations, CSD supervision, prospectus scrutiny and approval procedures, the implementation of STS criteria and the supervision of Central Counterparties' (CCPs) business continuity under remote working arrangements.
  3. Risk Assessment – strengthen its risk identification work and co-operation with NCAs and EU and international public authorities, support stress-testing for risk identification and supervisory responses to financial stability risks.
  4. Single Rulebook – priority areas include contributing to the reviews of the Prospectus and Transparency Directives, MiFID II/MiFIR, PRIIPS, the Short Selling Regulation, and CSDR, as well as maintaining a high degree of transparency when developing regulatory provisions.
  5. Direct Supervision – continue to prioritise the areas where it has been entrusted with supervisory responsibilities notably for credit rating agencies and trade repositories. In 2022, it will additionally focus on the new entities coming under its direct supervision – critical benchmarks, Data Reporting Service Providers and Tier 2 CCPs.