RegBrief summarises key recent legal and regulatory developments of relevance to our financial regulatory clients.


Application of AIFMD passport: On 19 January 2016, ESMA published a letter from the European Commission dated 17 December 2015 in relation to ESMA’s advice of 30 July 2015 on the application of the AIFMD passport to non-EU AIFMs and AIFs, and ESMA’s opinion on the functioning of the passport for EU AIFMs and the national private placement regimes. For further detail, read the Client Briefing issued by our Asset Management and Investment Funds Group.


Irish Consultation: The Department of Finance has published a Consultation Paper (in conjunction with the Department of Justice and Equality) on Member State discretions contained in the Fourth Money Laundering Directive (MLD4) and the Wire Transfer Regulation. The consultation closes on 4 March 2016. Key aspects of the consultation relate to whether gambling services should be exempt on proof of low risk, whether entities should be permitted not to apply certain customer due diligence measures in relation to e-money, the register of beneficial ownership for corporates, the register of beneficial ownership for trusts, the discretion to allow obliged entities mitigate risk through group structures and the discretion to require appointment of ‘central contact points’. For further information on MLD4, see our June 2015 Client Briefing.

Commission likely to amend MLD4 this year: The Commission has announced its intention to amend MLD4 in mid- 2016 to enhance due diligence measures for high risk third countries, bring virtual currency exchange platforms into scope, reduce terrorist financing risks posed by prepaid instruments and introduce centralised registers of bank and payment accounts. It is also calling on Member States to transpose MLD4 early (before the end of 2016).


Term reduced to 1 year: On 29 January 2016, the Irish bankruptcy term was reduced from 3 years to 1 year. For further detail, read our recent Client Briefing.


Markets Supervision: On 14 December 2015, the Central Bank’s Market Supervision Directorate published its programme of themed inspections for 2016. Our recent Client Briefing highlights the inspections that will be of most relevance to investment firms. For further information on the inspections of most relevance to funds and fund service providers, read the Client Briefing issued by our Asset Management and Investment Funds Group.

Error processes: The Central Bank has published an Industry Letter on the outcome of its desk-based review of the governance of error processes within banks and insurers. It noted that all firms had governance frameworks in place, but that there was a lack of clarity regarding the approval process and oversight of those frameworks. The process for escalation also varied between firms, with some firms having no set criteria for determining when an error should be escalated. The Central Bank, in making recommendations for improvement, also highlighted that regular reviews of error logs and processes should be conducted. Noting the requirement that firms report errors to the Central Bank that affect consumers and have not been resolved in full within 40 business days, the Central Bank reiterated that this period begins on the date that the error is first discovered.


Central Bank Outlook Report published: The Central Bank published its annual Consumer Protection Outlook Report on 2 February 2016, setting out its consumer protection objectives for the year ahead, and key ongoing risks. Our recent Client Briefing summarises those risks, and the priority themes for the Central Bank in 2016.


Central Bank Requirements divided in two: The Central Bank has split its Corporate Governance Requirements for Credit Institutions and Insurance Undertakings into two separate documents with effect from January 2016: its Corporate Governance Requirements for Credit Institutions 2015 and its Corporate Governance Requirements for Insurance Undertakings 2015.


Commodity dealers: At the moment, commodity dealers are exempt from the large exposures and own funds requirements of CRD IV until 31 December 2017. The Commission is now expected to extend this exemption until it has completed its report on the prudential supervision regime for investment firms.


Status update: On 11 February 2016, the Central Bank published a Feedback Statement on its April 2015 Consultation on the introduction of a Central Credit Register under the Credit Reporting Act 2013. Our recent Client Briefing gives an update on the status of the Register, and the Central Bank’s plans to phase in credit reporting.


New regulations: The Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 came into force on 1 January 2016 and deal with reserves, liquidity, lending, investments, savings and borrowings. They set out categories of loans which credit unions may provide together with related limits, counterparty and maturity limits for investments and a maximum individual members’ savings limit of €100,000.


Consultation on risk assessment and capital planning: The Central Bank has published Consultation Paper 100 on its proposal to introduce a risk assessment and capital planning requirement for fund administrators authorised under the Investment Intermediaries Act 1995. The consultation runs until 15 March 2016.


Recent developments: For details on recent legal and regulatory developments affecting the insurance industry, in particular Solvency II, read the December 2015 and January 2016 editions of our Insurance Group’s Insurance Regulatory Update.


Proposed capital requirements: The Central Bank has published Consultation Paper 101, which proposes the introduction of a risk-based capital requirement for market operators in Ireland (likely to be imposed as either a condition of MiFID authorisation or by way of regulation under the Central Bank (Supervision and Enforcement) Act 2013). The consultation closes on 6 May 2016.


1 year delay confirmed: On 10 February 2016, the Commission announced that it was extending the deadline for the application of MiFID II, by 1 year, to 3 January 2018 (our recent Client Briefing sets out further detail). This had been signalled as a possibility for some time (see our November 2015 Client Briefing for further background).

Complex debt instruments and structured deposits: ESMA has published translations of its Guidelines on Complex Debt Instruments and Structured Deposits, triggering the start of the 2 month ‘comply or explain’ period by national competent authorities. MiFID II allows investment firms, subject to compliance with certain conditions, to provide ‘execution only’ services without seeking information to assess appropriateness. However, such services must relate to products which are non-complex. The Guidelines were developed by ESMA to facilitate the assessment of bonds, other forms of securitised debt and money market instruments incorporating a structure which makes it difficult for the client to understand the risk involved, and structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term. The Guidelines also clarify the concept of ‘embedded derivative’.


Revised directive published: On 23 December 2015, the revised payment services directive was published in the Official Journal as Directive (EU) 2015/2366. We will be publishing a client briefing shortly highlighting its key provisions and the changes that it will make to the existing payment services regime. The new directive must be transposed into Irish law by 13 January 2018.


Proposed new regulation: In its 30 September 2015 Capital Markets Union Action Plan, the Commission confirmed its intention to modernise the existing Prospectus Directive, having already consulted on a review of that directive in February 2015. It then published the draft of its proposed regulation and related draft annexes on 30 November 2015 (PD3). PD3 will take the form of a regulation that will be directly effective in Member States, rather than a directive requiring transposition by the individual Member States. This is designed to ensure consistent application of PD3 across Member States. It is expected that PD3 will be published in the Official Journal during the second half of 2016, and it will come into effect 12 months later (i.e. mid-to-end 2017). For further detail, read our recent Client Briefing.

Updated Prospectus Handbook and new regulations: The Central Bank updated its Prospectus Handbook in January 2016 and the Prospectus (Directive 2003/71/ EC) (Amendment) (No. 2) Regulations 2015 were also published to give effect to the amended definition of “home Member State” provided for in the Amending Transparency Directive (for further information on the Amending Transparency Directive, read our recent Client Briefing).


New Regulation from 12 January 2016: The Securities Financing Regulation came into force on 12 January 2016. Its aim is to improve the transparency of securities financing transactions in the shadow banking sector, giving regulators (including ESMA and national regulators) access to detailed information to enable them to monitor risks in that sector on an ongoing basis. Our recent Client Briefing summarises the new reporting, disclosure and reuse obligations arising under the Regulation.


Exposures: The EBA has published Guidelines on Institutions’ Exposures to Shadow Banking Entities and a Report on Institutions’ Exposures to Shadow Banking Entities, requiring EU banks and certain other financial institutions to set limits for their exposures (above a materiality threshold) to shadow banking entities as part of their internal processes. Money market funds, certain securitisation SPVs and certain alternative investment funds are shadow banking entities for the purposes of the Guidelines. The Guidelines will apply from 1 January 2017.


SRM now operational: The Single Resolution Mechanism (SRM) came into operation across the EU on 1 January 2016. If the ECB determines that a significant euro-area bank is likely to fail, resolution will be overseen at EU level by a Single Resolution Board. For banks not regarded as ‘significant’, the Bank Recovery and Resolution regime will continue to apply.


New regime from July 2016: New Central Bank Regulations governing dealings between regulated entities and SMEs were signed on 17 December 2015. They will apply to regulated entities (other than credit unions) from 1 July 2016 and to credit unions from 1 January 2017. Our recent Client Briefing summarises the new Regulations and their potential impact.


Central Bank investigation update: On 22 December 2015, the Central Bank confirmed that it had developed methodology for its broader examination of tracker mortgage-related issues. The Central Bank is seeking to identify cases where customers’ contractual rights were not honoured in full or lenders failed to comply with their disclosure and transparency obligations. Lenders have been asked to carry out reviews to identify affected customers and to provide redress. The Central Bank has informed those lenders about the information that they must provide to the Central Bank in relation to those reviews. A further progress update from the Central Bank is expected in April 2016.


Updated Q&A: On 1 February 2016, ESMA issued an updated UCITS Q&A to address certain questions relating to the implementation of the UCITS V Directive. For further detail, read the recent Client Briefing issued by our Asset Management and Investment Funds Group.


‘Fitness check’ of Directive: The Commission has announced a Fitness Check of various consumer protection directives, including the Unfair Contract Terms Directive, to check whether they are effective or whether changes are required. A final report is expected from the Commission in Q2 2017.