1. Central Bank identifies calculation errors in Deposit Guarantee Scheme contributions
On 13 January 2023, the Central Bank of Ireland (the "Central Bank") wrote to member institutions participating in the Deposit Guarantee Scheme ("DGS") and confirmed that it has identified errors in its calculation of institutions’ contributions to the DGS.
The European Union (Deposit Guarantee Schemes) Regulations 2015 mandate the DGS Contributory Fund (the "Fund”) to reach an available financial means of 0.8% of covered deposits by 2024. Since 2016, credit institutions have been required to make appropriate contributions to the Fund annually, in accordance with European Banking Authority Guidelines.
The Central Bank’s assessment is ongoing, however, its initial findings show that contribution processes for 2019 and 2021 are affected. These errors resulted in some member institutions, mostly credit unions, being over or under charged.
The extent of the matter totals c. €253,000 across all institutions. There is no effect on the overall value of the Scheme and the amount held in the Fund is unaffected by this issue.
The Central Bank apologised to member institutions for the error and noted that as soon as the assessment is complete (expected in February 2023), it will communicate its planned process for regularising the position of affected institutions. The Central Bank will prioritise refunding overcharges to affected institutions. In the meantime, no immediate action is required by any institution until they receive further communication on this matter.
2. Digital Euro Project Updates
ECB publishes call for participants for market research on possible technical solutions for a digital euro
On 13 January 2023, the European Central Bank ("ECB") published a call for participants for market research to explore options for the technical design of possible digital euro components and services.
The ECB notes that the market research will provide important input for an implementation plan, a key part of the final report due in autumn 2023. The final report will allow the ECB Governing Council to make a well-informed decision on whether to launch a realisation phase. The ECB clarified, however, that a final decision on the issuance of a digital euro would only be taken at a later stage.
To assist participants, the ECB has published the following:
- an annex document which outlines a potential design of a digital euro (for the sole purpose of this market research); and
Participants are requests to provide their submissions by 17 February 2023.
Eurogroup statement on the digital euro project
On 16 January 2023, the Eurogroup (the recognised collective term for the informal meetings of the finance ministers of the Eurozone) published a statement on the digital euro project following presentations and updates from the ECB and European Commission (the "Commission") on the progress of the project.
The President of the ECB presented the design and distribution options for a digital euro, that have been endorsed by the ECB Governing Council, to the Eurogroup. The Commission’s Executive Vice-President also updated the Eurogroup on their preparatory work towards a legislative proposal for a digital euro.
The Eurogroup noted that over the last year they discussed several key issues regarding the digital euro. These included that a digital euro should:
- complement and not replace cash. It should be safe and resilient, ensure a high level of privacy, be easy and convenient to use and widely accessible to the public. The environmental implications should also be considered in its design;
- ensure and maintain users’ trust and comply with other policy objectives such as preventing money laundering, illicit financing, tax evasion, and ensuring sanctions compliance;
- aim to safeguard the financial stability of the euro area, potential risks to financial stability should be limited and it should not impair the ability and the independence of the European System of Central Banks in ensuring monetary transmission;
- should prioritise ensuring a pan-European reach whilst also catalysing innovation in the financial sector and complementarity with private solutions. The Eurogroup considers that supervised intermediaries could play an important role in the digital euro ecosystem;
- at all times and throughout the euro area be convertible at par with other forms of the euro. The digital euro therefore cannot be a programmable money;
- consider appropriate regulatory measures, including granting the digital euro legal tender status; and
- focus, as a priority, on the needs and specificities of the euro area. Interoperability with other Central Bank Digital Currencies should be an important feature and the risks associated with the use of a digital euro outside the euro area must be mitigated and monitored.
The Eurogroup indicated that it will continue to play an active role in discussing the key political issues underlying a digital euro and look forward to the results of the prototyping exercise conducted by the ECB.
The ECB Governing Council will review the outcome of the investigation phase in autumn 2023 and decide whether to move to a realisation phase. As detailed above, the possible issuance of a digital euro would only come at a later stage.
Please click here for Paschal Donohoe, President of the Eurogroup's statement for further details.
3. BA publishes peer review on authorisation under PSD2
On 11 January 2023, the European Banking Authority (the "EBA") published the outcome of a peer review on authorisation of payment institutions and e-money institutions under Directive (EU) 2015/2366 (the "revised Payment Services Directive" or "PSD2"). The review examined the implementation of the EBA Guidelines on authorisation and registration under PSD2 (the "Guidelines").
The review generally found that national competent authorities’ ("NCAs") have either largely or fully applied the Guidelines. However, it also identified significant divergences in assessment and the degree of scrutiny of applications. To address this, the EBA has set out a series of remedial measures for NCAs.
The EBA identified divergent practices in relation to:
- the assessment of business plans;
- applicants’ governance arrangements and internal control mechanisms;
- applicants’ compliance with PSD2 requirements on the need for payment institutions to have their head office in the Member State where they are seeking authorisation and to conduct part of their activities there; and
- the average duration of the overall authorisation process which varied significantly across NCAs (ranging from 4 to 20 months or more).
EBA follow up measures for NCAs
The EBA adopted a number of follow-up measures for NCAs which include targeted measures for specific NCAs and general measures for all NCAs.
The EBA requires all NCAs to:
- review their authorisation resources and processes to ensure that they remain adequate to scrutinise applications within a reasonable timeframe;
- ensure that applicants have a ‘three lines of defence’ model that includes the functions of risk management, compliance and internal audit, where the nature, scale and complexity of their activities makes this appropriate; and
- ensure that applicants are effectively managed and controlled from the jurisdiction in which they seek authorisation.
The EBA notes that any future review of the Guidelines should provide more detailed guidance on how the proportionality principle should be applied in assessing the suitability of shareholders with qualifying holdings.
The EBA recommends that the European Commission clarifies the following, as part of its PSD2 review process:
- the delineation between the different categories of payment services and e-money issuance;
- the applicable governance arrangements for institutions, including the criteria that competent authorities should use in assessing the suitability of management; and
- what having sufficient local substance requires.
The EBA will review the follow-up measures in two years’ time.
4. European Parliament's Committee on Civil Liberties, Justice and Home Affairs adopts new rules on access to centralised bank registries
On 12 January 2023, the European Parliament's (the "Parliament") Committee on Civil Liberties, Justice and Home Affairs (the "Committee") voted to adopt a proposal for a Directive amending Directive (EU) 2019/1153 as regards access of competent authorities to centralised bank account registries through the single access point (2021/0244(COD)). This proposed Directive forms part of the European Commission's (the "Commission") anti-money laundering and counter-terrorist financing action plan.
The proposed Directive:
- ensures more effective investigations into financial crime by making it easier to retrieve data from centralised bank registries created by the fifth anti-money laundering directive ("5MLD").
- mandates EU Member States to ensure that the information from centralised registries is available through a single access point to be developed and operated by the Commission.
- emphasised the importance of respecting an individual’s right to privacy, and the principle of data minimisation;
- highlighted the need to gather bank account information proportionally to the needs of specific ongoing investigations; and
- emphasised that searches in the centralised bank registries should only be allowed in cases where the authorities would be allowed to conduct a similar search in national registries.
The Parliament will now consider the Committee's report in a plenary session (the Commission having previously adopted the proposed directive in July 2021).
5. ESMA launches Common Supervisory Action on the Application of MIFID II Disclosure Rules
On 16 January 2023, the European Securities and Markets Authority ("ESMA") launched a common supervisory action ("CSA") with national competent authorities ("NCAs") on the application of MiFID II disclosure rules with regard to marketing communications.
ESMA notes that it is launching the CSA to assess the application by investment firms and credit institutions of the MiFID II requirements on marketing communications due to "the key role that marketing communications and advertisements can play in determining consumer behaviour and influencing investment decisions".
Under the CSA, NCAs will review:
- whether marketing communications (including advertisements) are fair, clear and non-misleading; and
- how firms select the target audience for the marketing communications, especially in the case of riskier and more complex investment products.
ESMA also highlighted that younger, less experienced investors, are particularly vulnerable when they operate online and, therefore, as part of the CSA, NCAs will be closely considering marketing and advertising by firms through distribution channels including apps, websites, social media and collaborations with affiliates such as influencers.
ESMA will also be utilising the CSA as an opportunity collect information about possible ‘greenwashing practices’ in marketing communications and advertisements.
The CSA will be conducted over the course of 2023.