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:
Credit Unions – Important Dates to Note
The Minister for Finance has signed an Order bringing Part 3 of the Central Bank Reform Act 2010, as it applies to and in relation to credit unions, into operation from 24 September 2012. From that date, the Central Bank of Ireland will have powers to set out regulations and a code of fitness and probity for credit unions but the Central Bank intends to introduce the new standards on a phased basis beginning by the end of 2012.
The Minister for Finance has also signed an Order commencing Section 4 of the Financial Services (Deposit Guarantee Scheme) Act 2009 for credit unions and has appointed a commencement date of 30 November 2012. From that date, each credit union will be required to maintain in the Deposit Protection Account at the Central Bank of Ireland, an amount equal to 0.2% of the deposits and shares held on behalf of members.
ECB Opinion on Credit Unions
The European Central Bank has published an opinion on the General Scheme of the Credit Union Bill 2012 (CON/2012/68) which establishes a process for the restructuring of credit unions in Ireland.
IBF – Support for Microfinance Scheme
The Irish Banking Federation (IBF) has welcomed the launch by Minister Richard Bruton of the Microfinance Scheme which is designed to support commercially-viable microenterprises that do not meet the conventional risk criteria applied by banks. The Microenterprise Loan Fund, as announced by Government, will provide loans of up to €25,000 to commercially viable micro-enterprises that do not meet conventional risk criteria applied by banks.
Central Bank Publication - Guidelines on Breach, Error and Incident Reporting for MiFID Firms
The reporting of breaches, potential future breaches, the reporting of errors and operational incidents are necessary MiFID firms’ obligations under Section 1.2 of the Central Bank’s "Supplementary Supervisory Requirements for Investment Firms under S.I. No. 60 of 2007, European Communities (Markets in Financial Instruments) Regulations 2007".
This "Breach, Error and Incident Reporting Form for MiFID Firms" is a return on the Bank’s Online Reporting System which was developed to facilitate breach, error and incident reporting by MiFID firms. The Form consists of two parts: Part 1 - the Online Reporting System on which firms are required to provide information on the category of the issue being reported; and Part 2 is a word document in which firms are required to provide more detailed information on the issue reported in Part 1 by answering specific questions.
The Form is now available on the Central Bank website.
Money Laundering and Terrorist Financing: Prescribed Countries List Updated
The list of "Prescribed Countries" designated as "places imposing requirements equivalent to the Third Money Laundering Directive" for the purposes of Section 31 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2012, has been amended by the Minister for Justice, Alan Shatter. From 30 September, Argentina, New Zealand and the Russian Federation will no longer appear on the list, and India and South Korea will be included. The amendments are set out in SI No. 347 of 2012, which replaces the countries designated in SI No. 343 of 2010.
On the European Front:
Basel Committee – Basel III Monitoring Exercise and FAQ
The Basel Committee has published the results of its Basel III monitoring exercise which is based on rigorous reporting processes set up by the Committee to periodically review the implications of the Basel III standards for financial markets. The report focuses on: changes to bank capital ratios under the new requirements; changes to the definition of capital that result from the new capital standard referred to as common equity Tier 1; increases in risk-weighted assets resulting from changes to the definition of capital, securitisation etc; the Basel III leverage ratio and two Basel III liquidity standards.
The Basel Committee on Banking Supervision has also published a "Frequently Asked Questions on Basel III Monitoring". This document provides answers to technical and interpretive questions raised by supervisors and banks during the Committee’s Basel III monitoring.
European Commission – "Towards a Banking Union"
On September 10, the European Commission issued a memo "Towards a Banking Union" and included questions such as what do we want to achieve with banking union and what have we done so far?
This Memo was followed up on September 12 with
- a communication outlining the EC’s overall vision for a banking union;
- a legislative proposal for a Council Regulation to give specific tasks related to financial stability and banking supervision to the ECB; and
- a legislative proposal for a Regulation of the European Parliament that is designed to align the existing Regulation 1093/2010 on the establishment of the European Banking Authority to the modified framework for banking supervision.
In the new single mechanism, ultimate responsibility for specific supervisory tasks related to the financial stability of all euro area banks will lie with the European Central Bank.
The new structure will be in place from 1 January 2013, with the ECB taking supervisory responsibility for banks of systemic importance by 1 July 2013, and all Euro zone banks from 1 January 2014 - some 6,000 banks according to the Commission’s FAQ’s published alongside the Commission’s press release. Non-euro countries will be able to opt in to ECB supervision by ensuring that their national regulators co-ordinate closely with the ECB.
The Commission also called on the Council and European Parliament to adopt the proposed regulations by the end of 2012, together with the other three components of an integrated "banking union" – the single rulebook in the form of capital requirements (see IP/11/915), harmonized deposit protection schemes (see IP/10/918), and a single European recovery and resolution framework (see IP/12/570).
BIS – Core Principles for Effective Banking Supervision
The Basel Committee on Banking Supervision has completed a review of the October 2006 Core principles for effective banking supervision and the associated Core principles methodology.
The revised Core Principles were endorsed by banking supervisors at the 17th International Conference of Banking Supervisors held in Istanbul, Turkey, on 13-14 September 2012.
This revised document combines the Core Principles and the assessment methodology into a single comprehensive document and has also been reorganised with a more logical structure as follows: (i) Principles 1 to 13 address supervisory powers, responsibilities and functions, focusing on effective risk-based supervision, and the need for early intervention and timely supervisory actions; (ii) Principles 14 to 29 cover supervisory expectations of banks, emphasising the importance of good corporate governance and risk management, as well as compliance with supervisory standards. In addition, important enhancements to the revised Principles include additional criteria to strengthen supervisory practices and risk management.
BIS/FSB – Progress Note on the Global LEI Initiative
The FSB has issued a second note in a series of notes on the progress of the Global LEI Initiative. This note outlines progress made in relation to: the Charter for the Regulatory Oversight Committee; location and legal form for the global LEI foundation; and number allocation scheme for the global LEI system.
A Joint Forum Publication – Principles for Supervision of Financial Conglomerates
The Joint Forum of Basel Committee on Banking Supervision, International Organisation of Securities Commissions and International Association of Insurance Supervisors has issued its final report entitled "Principles for Supervision of Financial Conglomerates". This updated report supersedes the Compendium of documents produced by the Joint Forum in 2001 (which included capital adequacy principles, fit and proper principles, and framework for supervisory information sharing).
In revising its principles, the aim of the Joint Forum was to focus on closing regulatory gaps, eliminating supervisory "blind spots" and ensuring effective supervision of risks arising from unregulated financial activities and entities. The principles are divided into five sections as follows (i) supervisory powers and authority, (ii) supervisory responsibility, (iii) corporate governance, (iv) capital adequacy and liquidity and (v) risk management.
EACB – Call for Revision of the Liquidity Coverage Ratio within the Trilogue
The European Association of Co-operative Banks (EACB) has published a press release in relation to the European co-operative banks calling for a revision of Liquidity Coverage Ratio within the Trilogue.
The EACB has urged the parties to the Trilogue on the Capital Requirements Regulation not to take hasty decision but to review the parameters of the suggested new liquidity requirements and to take into account any decisions of the Basel Committee which is currently involved in discussions in reviewing the Liquidity Paper of the Basel III package.
FSA – General Guidance on Proportionality for Remuneration
The FSA has published finalised guidance on the review of ‘General Guidance on Proportionality’ for Remuneration. The Guidance relates to both the Remuneration Code (SYSC 19A) and the requirement to make Pillar 3 disclosures in relation to remuneration. The Guidance Statement has effect from 25 September 2012.
ESMA – Q&A on Short Selling Regulation
ESMA has published a Q&A on implementation of the regulation on short selling and certain aspects of credit default swaps.
The purpose of the Q&A is to promote common supervisory approaches and practices amongst the EU’s national securities markets regulators on the requirements of the Short Selling Regulation once it comes into force on 1 November 2012. It will also provide clarity on the requirements of the new regime to market participants and investors.
The Q&A addresses issues related to: (i) territorial scope; (ii) transparency requirements, (iii) calculation of net short positions, (iv) uncovered short sales and (v) enforcement regime.
This document is however, likely to be revised and updated before 1 November as new questions are received by ESMA.
EBA – Draft Technical Standards on Capital Requirements for Central Counterparties and Opinion
The EBA has adopted draft technical standards on Capital Requirements for Central Counterparties under the EMIR Regulation. The draft regulatory technical standards were developed by the EBA with the aim of specifying the requirements expressed in the EMIR Regulation.
The draft RTS provide that a CCP should hold capital, including retained earnings and reserves, that is at all times at least equal to the sum of:
- the CCP’s gross operational expenses during an appropriate time span for winding down or restructuring its activities;
- the capital necessary to cover the overall operational and legal risks;
- the capital necessary to cover credit, counterparty credit and market risks not covered by specific financial resources; and
- the capital necessary to cover business risk.
The draft RTS will now be sent to the European Commission who shall decide whether to endorse it within 3 months.
The EBA has also adopted an opinion in order to raise awareness of the European Commission regarding market developments and supervisory practices which should be taken into consideration for a future review of the EMIR Regulation.
Consultation on benchmarks and market indices launched following LIBOR manipulation
The European Commission has launched a consultation inviting stakeholders to comment on possible new rules for the production and use of indices serving as benchmarks in financial and other contracts. The objective is to ensure the integrity of benchmarks.
The consultation paper comprises 5 chapters covering: (i) the scope, process and nature of indices and benchmarks; (ii) governance and transparency in the use of actual transaction data; (iii) the purpose and use of benchmarks; (iv) the provision of benchmarks by private or public bodies, and (v) the impact of potential regulation, including transition, continuity and international uses issues.
The consultation will run until 15 November.
EC Publication - Proposal for a Regulation of the European Parliament and of the Council on Insider Dealing and Market Manipulation
The European Commission has published an amended proposal for a regulation on insider dealing and market manipulation.
In light of recent investigations in relation to possible manipulation of EURIBOR and LIBOR benchmarks for interbank lending rates by a number of banks, the Commission has assessed whether the possible manipulation of benchmarks would be captured by its current proposals on insider dealing and market manipulation and related proposal for criminal sanctions for insider dealing and market manipulation.
The Commission had concluded that the direct manipulation of benchmarks does not fall within the scope of either proposal. In order to ensure that the manipulation of benchmarks is covered by common European rules to prevent market abuse, the Commission proposes to amend its proposal for a Regulation.
FSA Consultation – Client Assets Regime
The FSA has issued a Consultation Paper (CP) and Discussion Paper (DP) that proposes a number of changes to the client money and custody assets regime for firms that undertake investment business.
In addition to some changes required by the European Markets Infrastructure Regulation (EMIR), the FSA proposes changes that could lead to a radical shift in how firms protect client money.
The FSA is also seeking comment on some wider issues in relation to its fundamental review of the client assets regime with the aim of producing better results in the insolvency of an investment firm. The proposals fall under three different headings: (i) Changes required by EMIR; (ii) Introduction of Multiple Client Money Pools, (iii) Client Assets Regime: Achieving Better Results.