OUR RECENT BRIEFINGS BRIEFING
AML Update: Department of Finance publishes National Risk Assessment for Ireland Brexit Update Brexit UK Government cannot serve Article 50 notice without Parliament's approval Credit Reporting Update Vol 2/2016 Loan Sales - Important Judgment in relation to Registered Land Payment Accounts: Fees, Access and Account Switching New rules become law in Ireland Possession Proceedings for Irish Residential Properties
Resolving the Mortgage Arrears Crisis Vol 3/2016
The publication by the Department of Finance of the first National Risk Assessment for Ireland (Money Laundering and Terrorist Financing) in conjunction with the Department of Justice and Equality.
An update on the expected timeline for Brexit, and recent speeches given by the Central Bank on the implications of Brexit on the Central Bank's role.
The decision of the High Court of England and Wales on 3 November 2016 that the UK Government needs the approval of the UK Parliament before the Article 50 notice can be served to trigger Brexit negotiations.
The publication of credit reporting regulations by the Central Bank, and the start dates for data reporting by in-scope lenders.
The July 2016 High Court case in which an interlocutory injunction was granted restraining a receiver from taking possession of certain registered properties.
The transposition of the Payment Accounts Directive into Irish law, the consultations launched by the European Banking Authority (EBA) and the publication of the Central Bank's new Account Switching Code.
The Court of Appeal decision that the Circuit Court does not have jurisdiction to hear possession proceedings in relation to non-rateable residential properties which are neither principal private residences nor housing loan mortgages. The Government has since published the Courts Bill 2016 (and Explanatory Memorandum) which is designed to deal with the consequences of this Court of Appeal ruling.
Recent cases, developments and trends relevant to ongoing efforts to resolve the mortgage arrears crisis.
High Risk Third Countries
Commission Delegated Regulation (EU) 2016/1675 has been published in the Official Journal. It relates to the Fourth Money Laundering Directive (MLD4) and identifies high-risk third countries with strategic deficiencies in the areas of anti-money laundering and counterterrorist financing (Afghanistan, Bosnia and Herzegovina, Guyana, Iran, Iraq, Lao PDR, North Korea, Syria, Uganda, Vanuatu and Yemen).
MLD4 and MLD5
In our July 2016 Client Briefing, we covered the European Commission's proposal (known as MLD5) to bring forward the transposition date for MLD4 to January 2017 and to make certain other amendments to MLD4 regarding virtual currencies and beneficial ownership. The European Central Bank (ECB) has issued a press release and opinion on the proposals in respect of virtual currencies and registers (but not on the proposed earlier transposition date) and the EU Council has also published its compromise proposal in respect of MLD5, suggesting (among other changes) that MLD4 still be transposed in June 2017 (rather than in January 2017), and that the other MLD5 changes be introduced at the same time. It now appears very unlikely that the proposal to transpose MLD4 in January 2017 will become a reality.
Central Bank Q&A
On 12 September, the Central Bank published its AIFMD - Questions and Answers - 20th Edition, adding questions in relation to umbrella cash accounts.
ESMA has also issued its updated AIFMD Q&A to include a new question on the commencement of periodical reporting under Article 13 of the Securities Financing Transactions Regulation (SFTR) for alternative investment fund managers (AIFMs).
On 11 October 2016, Steven Maijoor, the ESMA Chair, gave a speech to the European Parliament's Economic and Monetary Affairs Committee regarding ESMA's advice on the application of the passport to non-EU AIFMs and alternative investment funds under the AIFMD. In his statement, Mr Maijoor explains that ESMA's current focus is on:
assessing Bermuda and the Cayman Islands with a view to deciding whether to extend the passport to those countries;
beginning an assessment of an additional group of non-EU countries when it has more clarity on the next steps envisaged by colegislators; and
putting in place a framework in case the passport is extended to one or more non-EU countries.
3. CAPITAL MARKETS UNION (CMU)
The Commission has issued a communication on accelerating reform under its CMU project, together with a Q&A and an Implementation Timetable. Notably, the Commission wants the European Parliament to progress related securitisation reforms urgently. The Commission is also keen for agreement to be reached on the proposed new prospectus regulation (PD3) by the end of 2016.
Central Bank View
In a recent speech on The European Financial System After Brexit, the Central Bank's Governor, Philip Lane, noted that the CMU agenda had taken on "greater urgency" in light of Brexit, but that if progress is to be made, "considerable commitment" will be required from policymakers.
4. CENTRAL SECURITIES DEPOSITARIES
The European Union (Central Securities Depositories) Regulations 2016 have been published, designating the
Central Bank as competent authority and providing for certain sanctions, in each case in respect of the EU Central Securities Depositaries Regulation.
5. CRD IV
Under the Capital Requirements Regulation, the EBA was required to issue guidelines on the application of Article 178 (Default of an obligor), and to specify the conditions by reference to which a competent authority should assess the materiality of a credit obligation that is past due. As required, the EBA has now published its final Guidelines specifying the application of the definition of default across the EU and its final draft Regulatory Technical Standards (RTS) on the materiality threshold of past due credit obligations. The implementation of the Guidelines and the RTS is expected at the latest by end-2020 but institutions have been encouraged to introduce the necessary changes as soon as possible.
6. CYBER RISK FOR FINANCIAL FIRMS
The Central Bank has published Cross Industry Guidance in respect of Information Technology and Cybersecurity Risks. The guidance incorporates findings from supervisory work carried out by the Central Bank since 2015. In its press release, it emphasised that the "...incidence of cyber-attack and business interruption is on the increase and firms should assume they will be successfully targeted. The security and resilience of IT systems, their governance and management must improve to reflect this reality."
The Central Bank announced the results of the survey conducted by the Bank of International Settlements of foreign exchange (FX) and interest-rate derivatives (IRD) market activity as it relates to Ireland between 2013 and 2016. Key findings were that:
there was a significant decline in the average daily turnover of
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both FX contracts and IRDs in Ireland between 2013 and 2016 influences included lower business volume and exits by institutions from the Irish market;
average daily turnover in Ireland of FX contracts declined by approximately 78% between April 2013 and April 2016 - Ireland is now ranked 46th (rather than 33rd) globally in terms of that turnover; and
average daily turnover in Ireland for IRDs declined by approximately 63% during the same period Ireland is now ranked 28th (rather than 23rd) globally in terms of that turnover.
8. ECB + UNSECURED BANK BONDS
The ECB has announced a change to its collateral eligibility criteria and risk control measures for senior unsecured debt instruments issued by credit institutions or investment firms within its collateral framework, with effect from 1 January 2017. The changes are in response to the implementation of the Bank Recovery and Resolution Directive.
9. FINANCE BILL 2016
On 20 October 2016, the Irish Government published the Finance Bill 2016.
Section 110 Companies
The Bill proposed changes to Section 110 of the Taxes Consolidation Act 1997 which would restrict the amount of deductible interest for Section 110 companies where the interest is profit dependent or exceeds a reasonable commercial return provided the loans or derivatives held derive the greater part of their value from Irish land.
Irish Regulated Funds
The Bill also contained a proposal for a new tax regime intended to tax nonIrish residents holding interests in Irish regulated funds (excluding UCITS) that hold Irish real estate and assets deriving their value therefrom. If implemented
as drafted, a withholding tax of 20% will be levied on certain unitholders in Irish regulated funds on certain payments (including distributions) and redemptions in respect of units, which the Irish regulated fund will be required to deduct and pay over to the Irish Revenue Commissioners.
Please contact any member of our tax team or your usual Arthur Cox contact should you wish to discuss either of these proposals.
10. FINANCIAL SERVICES OMBUDSMAN
The General Scheme of the Financial Services and Pensions Ombudsman Bill 2016 and related Explanatory Notes have now been published by the Department of Finance. These contain details of the proposal to amalgamate the offices of the Financial Services Ombudsman and Pensions Ombudsman.
11. FUNDS DIRECTORSHIPS
The Central Bank has published a copy of its industry letter concerning its review of the number of directorships held by individuals within the investment funds industry, with a particular focus on the time allocated by directors to sub-funds. Noting that the responsibilities involved in managing sub-funds are significant, the Central Bank expects directors to consider, when deciding whether they have the capacity to serve as a director of a sub-fund, the quality of documentation provided, the numbers of sub-funds, and the nature and level of sub-fund monitoring.
12. INDUSTRY FUNDING LEVIES 2016
The Central Bank has published a Guide to the Industry Funding Regulations 2016 and confirmed that the budget for financial regulation for 2016 reflects the growth of the financial sector and number of firms and funds regulated, the additional mandates, number and complexity of the financial regulations that the Central Bank supervises and enforces, and the phased roll-out of the
measures detailed in the Central Bank's 2016-2018 Strategic Plan.
13. MARKET ABUSE REGULATION (MAR)
Persons closely associated
A Corrigendum to MAR which makes certain minor amendments, and clarifies the definition of "persons closely associated" (PCAs), has been published in the Official Journal.
Central Bank Q&A
The Central Bank has issued a procedural set of Q&A on MAR (here) which deal with persons discharging managerial responsibility (PDMRs), PCAs and how notifications are made to the Central Bank.
ESMA has updated its MAR Q&A, incorporating a further question concerning the 5,000 threshold for PDMR notifications, and additional questions in relation to investment recommendations.
ESMA has confirmed that its Guidelines on Market Soundings and its Guidelines on delaying the disclosure of inside information will apply from 10 January 2017 and 20 December 2016 respectively, as they have now been published in all official EU languages. The English versions were published in June 2016.
ESMA has also published its final Guidelines on commodity derivatives inside information. They clarify an element of the definition of inside information in relation to commodity derivatives under MAR.
14. MIFID CONTRACTS FOR DIFFERENCE (CFDS)
ESMA has published its updated Questions and Answers relating to the provision of CFDs and other speculative products to retail investors under MiFID. New questions have been included relating to the use of trading benefits when offering CFDs or other speculative
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products, the withdrawal of funds from trading accounts when investing in CFDs or other speculative products, the use of leverage when offering CFDs or other leveraged products to retail clients, and best execution obligations for firms offering CFDs or other speculative products to retail clients.
15. MIFID II
Discussion Paper on Derivatives
ESMA has published a Discussion Paper on the trading obligation for derivatives under MiFIR, which closes for comments on 21 November 2016. Under MiFIR, the trading obligation will transfer over-the-counter derivatives trading in liquid derivatives contracts to regulated trading venues. Each time that a class of derivatives is declared to be subject to the clearing obligation under EMIR, ESMA must draft Level 2 measures which state whether (and from what date) that class of derivatives should be subject to the trading obligation under MiFIR.
Under MiFID II, Member States must require regulated markets to be able to temporarily halt or constrain trading if there is a significant price movement in a financial instrument on that market or a related market during a short period and, in exceptional cases, to be able to cancel, vary or correct any transaction.
ESMA has decided, on its own initiative, to issue guidelines regarding how such trading halts should be communicated to other trading venues, and to market participants. It is currently consulting on those draft Guidelines.
Managing trading venues and reporting services providers
ESMA is also consulting on requirements for the management of trading venues and reporting services providers, which are designed to ensure that the management body and each of its individual members are suitable to ensure sound and prudent management
of the relevant firms and are also suitable to exercise effective responsibility for the activities undertaken by those firms.
MiFID II introduces product governance requirements to improve investor protection by regulating all stages in the life-cycle of a product or service. ESMA is currently consulting on product governance guidelines under MiFID II regarding the target market assessment by manufacturers and distributors of financial products.
Double Volume Cap Q&A
ESMA has published a Q&A on the implementation of the double volume cap under MiFID II. The double volume cap limits the use of reference price waivers and negotiated price waivers under the new MiFID II transparency regime.
ESMA published a new set of Q&As on investor protection topics under the MiFID II Directive and MiFIR. The Q&As relate to best execution, recording telephone conversations and electronic communications, record keeping, investment advice on an independent basis, underwriting and placement of a financial instrument and inducements.
Guidelines on Transaction Reporting
ESMA has also published its Final Guidelines on transaction reporting, order record keeping and clock synchronisation under the MiFID II Directive and MiFIR. The guidelines, which apply to investment firms, trading venues, approved reporting mechanisms and competent authorities, will apply from 3 January 2018. The relate to the submission of transaction reports under Article 26 of MiFIR, recording keeping of orders under Article 25 of MiFIR and synchronisation of business clocks under Article 50 of the MiFID II Directive.
Corrigendum to MiFID II
A corrigendum to the MiFID II Directive has been published in Official Journal which makes a small change to Article 61(5) (the requirement that ESMA develop implementing technical standards on information to be provided by data reporting services providers).
16. PACKAGED RETAIL AND INSURANCE-BASED INVESTMENT PRODUCTS (PRIIPS)
On 9 November 2016, the Commission proposed a one year extension to the application date for the PRIIPs Regulation, stating that this "...one-year extension is being proposed exceptionally in the interest of ensuring a smooth implementation for European consumers and to ensure legal certainty for the sector". This was, in particular, in response to the issues (highlighted below) that arose in respect of the Key Information Document (KID).
The European Parliament announced that it had rejected the European Commission's draft Level 2 Delegated Regulation (and Related Annexes) on the presentation, content, review and revision of KIDs on the basis that it was "...so `flawed and misleading' that it could actually lose them money." The draft delegated regulation was returned to the Commission for revision.
Product Intervention Powers
Commission Delegated Regulation (EU) 2016/1904 on product intervention under the PRIIPs Regulation has been published in the Official Journal and is stated to apply from 31 December 2016 (although this date is now likely to be extended by one year) . It sets out what national competent authorities and EIOPA must take into account when deciding whether to use their product intervention powers if there are significant investor protection concerns, or perceived threats to functioning, integrity or stability of the EU financial system (or the financial
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system of a Member State). The product intervention powers include the ability to impose restrictions on the marketing, distribution or sale of certain insurancebased investment products.
17. PRIVATE PLACEMENTS
The Central Bank published results of its research on the role played by private placement debt securities in the banking system over the last 10 years. In its press release, it noted that c121 billion of these bonds were outstanding in 2007, with Irish domestic market and IFSC banks participating. At the end of 2014 however, their importance had reduced to 29 billion with a notable decline in holdings by Irish domestic banks. Up to 62% were held by other financial sector entities at end-2014, with investment funds and money market funds being the main holders.
18. PROSPECTUS LAW
The European Parliament has adopted (with amendments) the Commission's PD3 proposal. Negotiations on PD3 have now moved to trilogue stage, and the aim remains to reach political agreement between the Parliament, Commission and EU Council by the end of 2016.
The Central Bank has updated its Prospectus Handbook (available here). Updates made reflect the change to the process for submission of final terms and other minor technical changes.
19. REVISED PAYMENT SERVICES DIRECTIVE (PSD2)
The EBA is also consulting on draft guidelines setting out the criteria that competent authorities should follow when stipulating the minimum monetary amount of the professional indemnity insurance or comparable guarantee for undertakings that apply to provide payment initiation services or account information services under
PSD2. The consultation closes on 30 November 2016.
The EBA has begun a Consultation on draft guidelines specifying the information to be provided by applicants intending to obtain authorisation as payment and electronic money institutions and to register as account information service providers under PSD2. The consultation runs until 3 February 2017.
The type of information requested from applicants varies depending on the different nature of the payment service provider. The draft guidelines are divided into three separate sections, dealing with payment institutions, account information service providers, and electronic money institutions respectively.
The EBA has published its final Guidelines on remuneration policies and practices related to the provision and sale of retail banking products and services. It had previously identified poor remuneration policies and practices as a key driver of miss-selling of financial products and services.
The Guidelines apply to remuneration paid to staff employed by credit institutions, creditors, credit intermediaries, payment institutions and electronic money institutions, when providing deposits, payment accounts, payment services, electronic money, residential mortgages, and other forms of credit to consumers. They provide a framework for these institutions to implement remuneration policies and practices that will improve links between the remuneration of sales staff and the fair treatment of consumers, thereby reducing the risk of misselling and conduct costs.
The Guidelines will apply from 18 January 2018.
UCITS and AIFMD
ESMA has announced the publication of its guidelines on remuneration practices under both the UCITS Directive and AIFMD, which will apply from 1 January 2017.
21. SECURITIES FINANCING TRANSACTIONS AND EMIR
ESMA has published a consultation paper on draft RTS and draft implementing technical standards implementing the SFTR. The key areas of the draft rules include:
the procedure and criteria for the registration as a trade repository under the SFTR;
the use of internationally agreed reporting standards, the reporting logic and the main aspects of the structure and content of securities financing transaction reports;
the requirements regarding transparency of data, data collection, aggregation and comparison; and
the access levels for different competent authorities.
ESMA also proposed changes to some EMIR Level 2 measures relating to trade repositories, in particular those relating to the registration of trade repositories and access levels.
The EBA has published its Final Guidelines on implicit support for securitisation transactions under the Capital Requirements Regulation. Article 248 of the Capital Requirements Regulation restricts the provision of implicit support to securitisations. Originator institutions and sponsor institutions that do not comply with the relevant requirements must, at a minimum, hold own funds against all of the securitised exposures as if they had not been securitised. The Guidelines set out what constitutes arm's length conditions and when a transaction is
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not structured to provide support they will apply from 1 March 2017.
The Central Bank's most recent Quarterly Bulletin includes an article on New Data Collection on Special Purpose Vehicles in Ireland: Initial Findings and Measuring Shadow Banking. This covers the new database of SPVs that the Central Bank now maintains following the extension of its FVC reporting requirements to Section 110 companies last year. The client briefing that we issued on the extension of the reporting requirements last year is here.
24. TRANSPARENCY DIRECTIVE
On 31 August 2016, the Delegated Regulation on the European Electronic Access Point under the Transparency Directive was published in Official Journal. It deals with access to regulated information at an EU level and entered into force on 20 September 2016 save for the provisions of Articles 7 (Unique identifier used by OAMs) and 9 (Common list and classification of regulated information) which will instead apply from 1 January 2017.
There is also a new section on reporting under the SFTR.
26. UNFAIR TERMS DIRECTIVE
The Court of Justice of the European Union has recently set out the test for when the Unfair Terms Directive applies to personal guarantees and security agreements given by an individual to secure debts of a company. It held that where the loan is made to a legal entity (such as a company), a guarantee or security agreement would be subject to the Directive if all three of the following conditions were met: the guarantee/ security agreement is made with an individual, the individual is acting for purposes outside his trade, business or profession, and the individual has no link of a functional nature with the company. An example of a functional link would be a directorship or a nonnegligible shareholding.
Central Bank Q&A
The Central Bank published its UCITS - Questions and Answers - 14th Edition on 12 September, adding new questions in relation to accounts and umbrella cash accounts.
ESMA has also published its updated UCITS Q&A. The updates relate to the meaning of a "regulated market" under the UCITS Directive, translation requirements relating to remuneration disclosure, and collateral management.
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