AML/CFT – AML Package
Mairead McGuinness, the European Commissioner for Financial Stability, Financial Services and Capital Markets Union delivered a speech (here), on 17 May, at the AML Intelligence Boardroom Series, in which she outlined elements of the European Commission’s plans for its AML package, which is expected to be published in July.
Among other things, the Commission will propose:
- setting out the AML requirements applicable to the private sector in a Regulation;
- providing increased detail regarding customer due diligence and beneficial ownership requirements;
- setting an EU-wide upper limit for cash purchases of €10,000; and
- setting up a single authority with combined supervisory and Financial Intelligence Unit coordination tasks.
The private sector working group on euro risk-free rates published a report setting out its recommendations addressing events that would trigger fallbacks in EURIBOR-related contracts, as well as €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).
According to a related ECB press release (here), published on 11 May, while there is currently no plan to discontinue EURIBOR, the development of more robust fallback language addresses the risk of a potential permanent discontinuation and is in line with the EU Benchmarks Regulation.
Corporate Sustainability Reporting Directive
The Department of Enterprise, Trade and Employment published a public consultation on the EU’s proposal for a Corporate Sustainability Reporting Directive, on 12 May (here). The Department is seeking the views of stakeholders on the proposal, by 23 June 2021, in order to inform Ireland’s negotiating position.
The European Commission has adopted a Delegated Regulation under EU EMIR which extends the exemption for certain pension schemes from the EU EMIR clearing obligation until 18 June 2022 (here).
The European Commission published the 2021 issue of the European Financial Stability and Integration Review ("EFSIR") on 27 May (here). The EFSIR is an annual review covering developments in finance, markets and banking, with a special focus on financial stability.
Although the year in review was dominated by the coronavirus pandemic, the report singles out the high level of uncertainty related to large-scale irreversible climate-related events and their potential impact on financial stability. It notes that methodological challenges and data shortages further magnify this difficulty, particularly when it comes to second-order effects.
On 13 May, the Central Bank of Ireland (the “Central Bank”) announced its participation in the US dollar-denominated green bond investment fund for central banks established by the Bank for International Settlements (here).
On the same date, the Central Bank published the latest entry in the Behind the Data (BtD) series, entitled “Green Bonds: A Snapshot of Global Issuance and Irish Securities Holdings”(here). This BtD bridges market data gaps by combining existing Central Bank data with commercial sources to examine the European green bond market and participation by Irish-resident entities.
The BtD finds that Irish-resident investment funds hold the majority of green bonds in Ireland, with €12.6bn or 74% of total green bond holdings at end-2020. Credit institutions are the second largest holder, followed by insurance corporations.
Retail Investment Strategy
The European Commission has launched a public consultation on the upcoming retail investment strategy, which is planned for adoption in early 2022 (here).
The Commission is seeking views on how to improve the EU’s existing retail investor protection framework, with the aim of ensuring that retail investors can take full advantage of the EU’s capital markets. The consultation closes on 3 August 2021.
On 7 May, the European Commission launched a consultation on a draft delegated regulation specifying the content and presentation of information to be disclosed by undertakings subject to the Non-Financial Reporting Directive (“NFRD”) (here). The consultation closes on 2 June 2021.
Article 8(1) of the Taxonomy Regulation requires organisations covered by the NFRD to include information in their non-financial statements as to how, and to what extent, their activities are “associated with” environmentally sustainable activities. Under Article 8(2), non-financial undertakings are also required to provide disclosure of three key performance indicators (KPIs): turnover, capital expenditure (CapEx) and operating expenditure (OpEx) related to environmentally sustainable activities.
Capital Requirements/Credit Institutions
The European Union (Payment Accounts) Regulations 2016 provide for all consumers legally resident in the EU, including people with no fixed address and asylum seekers, to be able to open a payment account without undue difficulty.
In May, the Banking & Payments Federation of Ireland published a Guide to Opening Bank Accounts for international protection applicants and people with status (here). The Guide will facilitate such persons in opening a bank account by allowing them to provide alternative documentation to prove their identity or where they live, as they may not be able to provide a passport, driving licence, or utility bill, for example.
Banks’ Climate Risk Exposures
On 21 May, the EBA has published the findings of its first EU-wide pilot exercise on climate risk (here). The main objective of the exercise was to map banks’ exposures to climate risk and provide an insight into the green estimation efforts banks have carried out so far. The EBA says the findings give a clear picture of banks’ data gaps and ‘highlight the sense of urgency to remedy them if they are to achieve a meaningful and smooth transition to a low-carbon economy’. The findings also show big differences in banks’ application of the EU taxonomy.
The EU’s Covered Bond Directive must be transposed into Irish law by 8 July 2021.
The Department of Finance held a public consultation on the transposition of the national discretions contained in the Covered Bonds Directive from 22 June 2020 to 17 August 2020.
On 14 May, the Department published its feedback statement (here) following on from the consultation, which, among other things, outlines the decisions which the Minister has taken in relation to the national discretions.
Mortgage Credit Directive ("MCD")
The European Commission published a report to the European Parliament and the Council of the EU on the review of the MCD on 11 May (here). The review indicates that the MCD has been effective in raising the standard of consumer protection. In addition, it states that the MCD has created a more even playing field across member states by setting minimum requirements for credit providers and credit intermediaries. However, the review also concludes that major barriers remain to the cross-border provision of mortgages, which are mostly related to differences in national legislation in areas outside the scope of the MCD and the gold-plating of MCD provisions.
EU Securitisation Regulation
On 14 May, the ECB announced its decision (here) to start ensuring that the banks it directly supervises comply with the requirements for risk retention, transparency and resecuritisation, which are set out under Articles 6 to 8 of the EU Securitisation Regulation.
The decision follows recent clarifications in the amendments to the Regulation, which are part of the EU’s Capital Market Recovery Package. The amendments explicitly state that risk retention, transparency and the ban on resecuritisation requirements are of a prudential nature and, therefore, should be supervised by the competent prudential supervision authorities.
Over the coming months, the ECB will define how exactly it intends to perform these supervisory tasks. It will then communicate further details on its supervisory approach and model, including obligations for banks to notify their supervisor of securitisation-related activities.
Insurance / Insurance Distribution
European Union (Insurance and Reinsurance) (Amendment) Regulations 2021
The amendments set out in these Regulations (here) mainly concern information exchange between national competent authorities and EIOPA and the establishment of cross-border platforms.
Insurance Stress Tests
EIOPA launched its 2021 insurance stress test for the European insurance market on 7 May (here), which seeks to:
- assess the resilience of participants to adverse scenarios from a capital and liquidity perspective to provide supervisors with information on whether the insurers are able to withstand severe but plausible shocks;
- consider possible recommendations to the industry and to allow supervisors to engage with insurers on potential remedial actions;
- complement the microprudential assessment with the estimation of potential spill-over from the insurance sector triggered by widespread reactions to the prescribed shocks.
The European Systemic Risk Board also published a document (here) presenting the adverse scenario that insurance undertakings are required to use in the 2021 EU-wide stress-testing exercise.
Survey on Exposure to Emerging Risk
The Central Bank published the results of a survey of insurance firms’ exposures to and preparedness for emerging risks, including climate risks, on 13 May (here). The results provide a number of key insights into how insurers are managing climate risks.
Respondents indicated that physical and transition risks are the most material risks arising from climate change, while 11% of firms indicated that reputational risks were a concern. Moreover, a majority (84%) of firms have management structures in place for oversight of climate risks. However, according to the Central Bank, the findings also indicate a need for firms to take further steps to fully assess the impact of these risks on their business model, as 54% of respondents indicated they did not have a climate strategy, plan, or policy in place.
According to the Central Bank, the results from the survey will inform the supervisory approach going forward
Investment Firms / MiFID
The Central Bank wrote a letter to the CEOs of firms undertaking algorithmic trading, on 11 May, following a thematic review which assessed how such firms have complied with risk management and control framework requirements as required by regulatory technical standards for investment firms.
Among other things, the letter (here) highlights the key findings of the Central Bank’s review and outline the expectations of the Central Bank in relation to the governance, testing and controls surrounding algorithmic trading.
Investment Firms Directive
The Department of Finance published its feedback statement on its Public Consultation on the Exercise of National Discretions under the Investment Firms Directive (here), which was open from 6th May – 6th July 2020.
In particular, the Minister intends to exercise the discretion set out in Article 32(5) of the IFD, to set the default threshold for opting out of the provisions relating to payment in instruments and deferral arrangements, at €300 million, where the relevant conditions set out in Article 32(5) are fulfilled.
ESMA published the final Guidelines on Cloud Outsourcing on 10 May which apply to investment firms and credit institutions when carrying on investment services and activities, among others (here).
The guidelines aim to help firms and competent authorities identify, address, and monitor the risks and challenges arising from cloud outsourcing arrangements that could span from making the decision to outsource, selecting a cloud service provider, and monitoring outsourced activities to providing for exit strategies.
The guidelines will apply from 31 July 31, to all cloud outsourcing arrangements entered into, renewed, or amended on or after this date. According to ESMA, in-scope Firms should review and, accordingly, amend their existing cloud outsourcing arrangements to ensure that these arrangements consider the guidelines by 31 December 2022. Where the review of cloud outsourcing arrangements of critical or important functions is not finalised by that date, firms should inform their competent authority about this, along with the measures planned to complete the review or the possible exit strategy.
Cross Border Distribution of Investment Funds Regulation
ESMA issued its Final Report - Guidelines on marketing communications under the Regulation on cross-border distribution of funds, on 27 May (here). The purpose of the Guidelines is to clarify the requirements that funds’ marketing communications must meet, pursuant to the Regulation, which is to:
- be identifiable as such;
- describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner; and
- contain clear, fair and not misleading information, taking into account the on-line aspects of marketing communications.
For further information see our briefing here.
UCITS Liquidity Risk Management
The Central Bank issued a “Dear CEO Letter” on 19 May (here) in relation to the 2020 Common Supervisory Action on UCITS Liquidity Risk Management, which was recently conducted by ESMA together with the competent authorities of EU/EEA Member States.
In the Letter, the Central Bank elaborates on some of the findings of the Common Supervisory Action and requires all Irish authorised UCITS managers to conduct a specific review of their practices, documentation, systems and controls by reference to both the Letter and the Statement. For further information, see our briefing here.
Selected Consultations, Discussion Papers, Speeches and Reports Published
- European Commission - Roadmap - Distance Marketing of Consumer Financial Services - Review of EU rules (Closing date – 25 June 2021) (here)
- European Commission – Investment Market Transparency - amended ancillary activity exemption (Closing date - 24 June 2021) (here)
- European Commission – EU Financial System – supervisory data strategy (here) (Closing date 15 June 2021)
- EBA - Consultation Draft Implementing Technical Standards amending the Implementing Regulation (EU) No 637/2021 on disclosure of information on exposures to interest rate risk on positions not held in the trading book in accordance with Article 448 of Regulation (EU) No 575/2013 (here) (Closing date – 30 August 2021)
- EBA – Consultation on new Guidelines on cooperation and information exchange in the area of anti-money laundering and countering the financing of terrorism (here) (Closing date – 27 August 2021)
- EBA - Consultation on draft Regulatory Technical Standards (RTS) on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in the EU (here) (Closing date – 17 June 2021)
- EBA - Report on the application of the BRRD early intervention framework (here)
- EBA – Report on Member States external reliance on credit rating agencies (here)
- EBA – Report on implementation and functioning of the securitisation regulation (here)
- EBA - Draft Regulatory Technical Standards on own funds and eligible liabilities amending Delegated Regulation (EU) No 241/2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for Own Funds requirements for institutions final draft RTS on own funds and eligible liabilities (here)
- EBA – Report on Mystery Shopping Activities of National Competent Authorities (here)
- ESMA - Public Consultation on the Guidelines on transfer of data between Trade Repositories under EMIR and SFTR (Closing date – 27 August 2021) (here)
- ESMA - Public Consultation on the STS notification for on-balance sheet securitisations (Closing date – 20 August 2021) (here)
- ESMA - Public Consultation on Guidelines on the Disclosure Requirements for Initial Reviews and Preliminary Ratings (Closing date – 4 August 2021) (here)
- ESMA - call for evidence seeking information on digital finance issues (Closing date - 1 August 2021) (here)
- ESMA - Consultation Paper - Technical standards for commodity derivatives - MiFIDII Recovery Package (Closing date – 23 July 2021) (here)
- ESMA - Consultation Paper - RTS 2 Annual Review (Closing date 11 June 2021) (here)
- ESMA publishes final report and guidelines on the calculation of SFT positions by TRs (here)
- ESAs publish report on the implementation and functioning of the EU Securitisation Regulation (here)
- ISDA: ISDA has finalised the 2021 ISDA Interest Rate Derivatives Definitions, which will replace the 2006 ISDA Definitions as the standard definitional book for cleared and non-cleared interest rate derivatives. Publication of the Definitions on a new web-based user platform (ISDA MyLibrary) is currently scheduled for 11 June 2021. An implementation date has been set for the weekend of 2/3 October 2021, with the Definitions available for use as the market-standard booklet from Monday 4 October 2021. For further information, see ISDA’s factsheet, webinar and an animated video
You may also be interested in:
McCann FitzGerald regularly publishes briefings on topics relevant to financial services regulation, among others. You may be interested in the following briefings:
- UK Application to Join Lugano Convention following Brexit: An Update (here)
- Employment, Pensions and Incentives Group Update – 11 May (here)
- Directors’ Duties in Challenging Times – 12 Practical Steps (here)
- Changes to Anti-Money Laundering Legislation Start to Apply (here)
- Financial Services Regulatory Update April Round-up (here)
- Reporting Sustainability (here)
- Employers Beware: New Whistle-blowing Rules on the Horizon (here)
- EU Taxonomy Regulation – Agreed Technical Screening Criteria Published (here)
- Employment, Pensions and Incentives Group Update – 24 May 2021 (here)
- COVID-19: Directors’ Duties and Compliance Considerations (here)
- Procuring Cloud IT Solutions – Seven Key Areas in Cloud Agreements for Customers (here)