Financial Services Regulatory Update – June 2024 Round Up

CBI issues “Dear CEO” Letter on Discretionary Commission Arrangements

On 12 June 2024, the Central Bank of Ireland (the “CBI”) published a “Dear CEO” letter (here) addressing concerns regarding discretionary commission arrangements (“DCAs”) in the provision of motor finance through hire-purchase agreements.

The CBI is requiring regulated firms to cease the practice of DCAs immediately, and no later than 31 July 2024. Firms will also be required to review their other commission arrangements and, where appropriate, amend relevant consumer documentation. The CBI is proposing to apply the full Consumer Protection Code 2012 (the “CPC”) to the activities of hire purchase (including personal contract plans (“PCPs”)) and consumer-hire.

For more information, see our recent briefing here.

Council of the EU agrees Position on Simplified Financial Reporting Requirements

On 19 June 2024, the Council of the EU agreed its negotiating mandate (here) on a proposal to simplify certain reporting requirements in the fields of financial services and investment support. The proposal would update existing rules on data sharing between the European Supervisory Authorities (the “ESAs”) and other financial sector authorities, with the aim of reducing administrative burdens on authorities in the financial sector.

The European Parliament adopted its negotiating mandate in March 2024. The mandate now adopted by the Council of the EU paves the way for interinstitutional negotiations with the Parliament, in view of reaching an agreement on the final shape of the text.

CBI Report on Recent Authorisation Activity

On 24 June 2024, the CBI published its inaugural report on authorisations and gatekeeping (here). The report outlines how the CBI discharges and continues to refine its authorisation mandate by: (i) providing information on the authorisation framework and the CBI’s risk appetite; (ii) explaining CBI priorities and expectations with regard to applicant firms; (iii) providing insight into the operation of the fitness and probity (“F&P”) regime; and (iv) outlining key challenges for firms seeking authorisation.

Incorporation of Sustainability Knowledge and Competence in the Minimum Competency Code 2017

On 19 June 2024, the CBI published an Addendum (here) to the Minimum Competency Code 2017 (the “MCC”), following the publication of a Notice of Intention in November 2023. The Addendum confirms amendments to the MCC, which will recognise sustainability knowledge and competencies as part of the Code, with effect from 1 January 2025.

The Addendum updates the competencies for retail financial products in Appendix 3 of the MCC to include competencies relating to sustainability generally for all retail financial products. There are additional amendments to incorporate the suitability requirements under the Markets in Financial Instruments Directive II (“MiFID II”) and the Insurance Distribution Directive (the “IDD”).

The CBI will also recognise sustainability training for CPD purposes, where such training is directly relevant to a person’s role.

Changes to the MCC are being introduced pursuant to the powers set out under section 50 of the Central Bank Reform Act 2010.

ESAs issue Final Reports on Greenwashing

On 4 June 2024, the ESAs published final reports on greenwashing risks and the supervision of sustainable finance policies, following a request for input by the European Commission.

• The final report of the European Banking Authority (the “EBA”) is available here.
• The final report of the European Securities and Markets Authority (“ESMA”) is available here.
• The final report of the European Insurance and Occupational Pensions Authority (“EIOPA”) is available here.

Each supervisory authority provides a stocktake of current supervisory responses to greenwashing risks, noting that national competent authorities (“NCAs”) are taking steps in relation to supervising sustainability-related claims. In addition, the ESAs provide a forward-looking view as to how sustainability-related supervision could be enhanced in coming years.

ESAs publish Joint Opinion on Assessment of SFDR

On 18 June 2024, the ESAs published a Joint Opinion (here) on the assessment of the Sustainable Finance Disclosures Regulation (the “SFDR”). The Opinion stresses the need for a coherent sustainable finance framework in the EU, which makes provision for both the sustainable transition and investor protection, taking into account lessons learnt from the functioning of the SFDR, and building on the objectives of the proposed EU retail investment strategy.

RTS on Sustainability-related Disclosures regarding STS Securitisations

On 18 June 2024, Delegated Regulation (EU) 2024/1700 (here) supplementing the Securitisation Regulation was published in the Official Journal of the EU. The Delegated Regulation contains regulatory technical standards (“RTS”) specifying, for simple, transparent and standardised (“STS”) securitisations, the content, methodologies and presentation of information related to the principal adverse impacts of assets financed by the underlying exposures on sustainability factors.

The Delegated Regulation enters into force from 8 July 2024.

EU to delay Adoption of Aspects of Basel III Reforms

On 18 June 2024, the European Commission published a speech (here) during which the Commissioner for Financial Services, Financial Stability and the Capital Markets Union, Mairead McGuinness, announced the decision to defer the EU’s adoption of market risk reforms, known as the Fundamental Review of the Trading Book (“FRTB”), by one year until 1 January 2026. This date would align with the anticipated application date of the Basel III standards in the US.

According to Commissioner McGuinness, the decision to defer FRTB implementation in the EU has been taken to ensure a global level playing field for EU banks, compared to their US counterparts.

Council of the EU agrees Position on CMDI Reforms

On 19 June 2024, the Council of the EU agreed its negotiating mandate on the review of the EU crisis management and deposit insurance (“CMDI”) framework for banks (see here). The review includes a comprehensive set of measures designed to strengthen the existing EU crisis management framework, particularly to improve the resolution process for small and medium-sized banks.

The European Parliament adopted its position in April 2024. The agreement by the Council of the EU paves the way for interinstitutional negotiations to begin, in view of reaching an agreement on the final shape of the text.

RTS on the Assessment of Compliance with Internal Model Requirements

On 17 June 2024, Delegated Regulation (EU) 2024/1085 (here) was published in the Official Journal of the EU. The Delegated Regulation contains RTS on the assessment methodology under which competent authorities verify an institution's compliance with the internal model approach under Article 325az(8) of the Capital Requirements Regulation (the “CRR”).

The Delegated Regulation entered into force on 7 July 2024.

RTS on the Identification of Connected Clients under CRR

On 18 June 2024, Delegated Regulation (EU) 2024/1728 (here) supplementing the CRR was published in the Official Journal of the EU. The Delegated Regulation contains RTS on the conditions for identification of groups of connected clients.

The Delegated Regulation enters into force on 8 July 2024.

Amending Technical Standards on the Disclosure and Reporting of MREL and TLAC

On 7 June 2024, Implementing Regulation (EU) 2024/1618 (here) was published in the Official Journal of the EU. The Implementing Regulation contains amending implementing technical standards (“ITS”) related to the disclosure and reporting of the minimum requirement for own funds and eligible liabilities (“MREL”) and total loss-absorbing capacity (“TLAC”), in accordance with the framework under the CRR.

The Implementing Regulation has now entered into force and will apply from 27 December 2024.

Technical Standards on the Calculation of KIRB under CRR

On 25 June 2024, Delegated Regulation (EU) 2024/1780 (here) containing RTS specifying the conditions under which credit institutions are allowed to calculate KIRB, in relation to the underlying exposures of a securitisation transaction, in accordance with the CRR, was published in the Official Journal of EU.

The Delegated Regulation enters into force on 15 July 2024.

Final Draft RTS relating to Alternative Internal Model Approach

On 28 June 2024, the EBA published a final report (here) containing draft RTS relating to the identification of “extraordinary circumstances” for the purposes of Articles 325az(5) and 325bf(6) of the CRR.

Under those Articles, in conditions of “extraordinary circumstances”, competent authorities may soften or waive the application of certain requirements for the use of internal models for market risk.

The EBA’s draft RTS prescribe that only a situation of cross-border financial market stress, or a regime shift, can qualify as a situation of “extraordinary circumstances”, and only subject to the additional condition that the stress or regime shift impact the validity of the results of the back-testing or the PLAT.

The EBA’s final draft RTS will be submitted to the European Commission for endorsement.

Final Draft ITS related to Pillar 3 Disclosure Framework

On 20 June 2024, the EBA published a report (here) containing final draft ITS on prudential disclosures, reflecting reforms introduced to the CRR by CRR III.  The changes include new and amended disclosure requirements on output floor, crypto-assets, credit valuation adjustment (“CVA”) risk, credit risk, market risk, and operational risk.

The EBA has formulated the new draft ITS to provide institutions with a comprehensive integrated set of uniform disclosure formats, and to facilitate high quality disclosures. Once adopted, the ITS would repeal Implementing Regulation (EU) 2021/6377.

EBA consults on Draft RTS relating to Operational Risk

On 6 June 2024, the EBA launched a consultation (here) on draft RTS under the CRR on:

(i) establishing a risk taxonomy on operational risk that complies with international standards and a methodology to classify the loss events included in the loss data set based on that risk taxonomy on operational risk under Article 317(9) of the CRR;

(ii) specifying the condition of “unduly burdensome” for the calculation of the annual operational risk loss under Article 316(3) of the CRR; and

(iii) specifying how institutions shall determine the adjustments to their loss data set following the inclusion of losses from merged or acquired entities or activities under Article 321(2) of the CRR.

The EBA’s consultation runs until 6 September 2024.

Renewal of US Provisional Equivalence under Solvency II

On 21 June 2024, Delegated Decision (EU) 2024/1763 (here) on the renewal of the determination that the solvency regime in force in the United States applicable to undertakings with their head office in that third country is provisionally equivalent to that laid down under the Solvency II Directive was published in the Official Journal of the EU.

The existing grant of provisional equivalence in respect of the United States regime is due to expire on 1 January 2026. Delegated Decision (EU) 2024/1763 provides for a renewal of provisional equivalence in respect of the United States regime from 1 January 2026 to 31 December 2035.

ESAs consult on the Prudential Framework for Investment Firms

On 3 June 2024, the EBA and ESMA published a discussion paper (here) on the potential review of the prudential framework for investment firms. The discussion paper seeks to gather early stakeholder feedback, to inform the response of the EBA and ESMA to the European Commission’s call for advice regarding multiple aspects of the Investment Firms Directive (the “IFD”) and the Investment Firms Regulation (the “IFR”).

The European Commission has sought advice from the EBA and ESMA on the following areas of the regulatory framework:

• the categorisation of investment firms, including the conditions to qualify as small and non-interconnected investment firms, and the conditions to qualify as credit institutions;
• the adequacy of IFR/IFD prudential requirements, including the scope of K-factors, on prudential consolidation and liquidity requirements;
• interactions with the capital requirements framework for banks, and implications of the adoption of the EU banking package;
• future-proofing the IFR/IFD regime, in particular with reference to the impact of crypto-assets on investment firms’ activities;
• considerations of the risks related to ESG factors; and
• specific considerations on commodity and emission allowance dealers, and energy firms.

The consultation by the EBA and ESMA runs until 3 September 2024. To assess the impact of the possible changes discussed in the paper, the EBA has also launched a data collection exercise, which will run on a voluntary basis.

European Commission consults on Transparency Requirements under MiFIR

On 12 June 2024, the European Commission published for feedback (here) a draft Delegated Regulation supplementing the Markets in Financial Instruments Regulation (“MiFIR”) as regards over-the-counter (“OTC”) derivatives identifying reference data to be used for the purposes of the transparency requirements under Articles 8a(2), 10 and 21 of MiFIR.

The feedback period runs until 10 July 2024.

Council of the EU agrees Position on Retail Investment Package

On 12 June 2024, the Council of the EU agreed its position on the proposed retail investment package (see press release here).

The retail investment package comprises two legislative proposals:

(i) a proposal for an Omnibus Directive amending MiFID II, the IDD, the Solvency II Directive, the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive and Alternative Investment Fund Managers Directive (“AIFMD”); and

(ii) a proposal for a Regulation amending the Packaged Retail and Insurance-based Investment Products (“PRIIPs”) Regulation.

The European Parliament agreed its negotiating mandate in April 2024. The agreement by the Council of the EU paves the way for interinstitutional negotiations to begin, with a view to reaching on agreement on the final texts.

EU adopts 14th Package of Sanctions against Russia

On 24 June 2024, the Council of the EU adopted its 14th package of sanctions against Russia for its continued illegal war against Ukraine (see here). The package contains a number of measures, which include:

• energy-related restrictions targeting liquified natural gas (“LNG”);
• measures targeting specific vessels contributing to Russia's warfare against Ukraine;
• a ban on EU banks using the financial messaging system SPFS (the Russian equivalent to SWIFT);
• stricter restrictions regarding the export of dual-use and advanced technology items;
• measures strengthening existing transport restrictions, and in particular the flight ban and the road transport prohibition;
• an extension of the import ban to helium;
• measures safeguarding EU democratic processes;
• new listings targeting individuals and entities; and
• anti-circumvention measures.

EU confirms Extension of Sanctions against Russia

On 17 June 2024, the Council of the EU announced (here) that it has renewed the sanctions introduced by the EU in response to the illegal annexation of Crimea and the city of Sevastopol by the Russian Federation, until at least 23 June 2025.

The restrictive measures currently in place were first introduced in June 2014, and include prohibitions targeting the import of products originating from the illegally annexed Crimea or Sevastopol into the EU, and infrastructural or financial investments and tourism services from the illegally annexed Crimea or Sevastopol. Furthermore, exports of certain goods and technologies to Crimean companies, or for use in illegally-annexed Crimea in the transport, telecommunications and energy sectors, or for the prospection, exploration and production of oil, gas and mineral resources, are also subject to EU restrictive measures.

Council of the EU adopts Sanctions against Belarus

On 29 June 2024, the Council of the EU adopted restrictive measures targeting the Belarusian economy, in view of the regime’s involvement in Russia’s illegal war of aggression against Ukraine. The measures mirror several of the EU restrictive measures already in place in respect of Russia. By doing so, the measures aim to mitigate circumvention risks, which stem from the high degree of integration between the Russian and Belarusian economies.

For more information, see the Council’s press release here.

CBI Update on Innovation Engagement; Confirmation of Development of Regulatory Sandbox

On 4 June 2024, the CBI published its Innovation Hub update concerning 2023 activities (here), together with a feedback statement (here) to the CBI’s consultation (CP156) on its approach to innovation engagement in financial services.

The CBI’s consultation sought feedback on, among other matters, the CBI’s intention to launch an “Innovation Sandbox” programme. The programme would provide regulatory advice and support, and enable innovating firms to engage with the regulatory framework in a clear and transparent way. According to the CBI, feedback on the proposal was “broadly positive”. The CBI intends to commence the programme later in the year.

Additionally, the CBI has seen an increase in the number of engagements through its Innovation Hub. According to the CBI, this suggests continued innovation within financial services in Ireland, and demonstrates a high demand for engagement.

Consultation on AI in the EU Financial Sector

On 18 June 2024, the European Commission launched a targeted consultation (here) on the use of AI in the EU financial sector. The consultation will gather input from stakeholders in the financial services sector, including companies and consumer associations. According to the Commission, it welcomes feedback, in particular, from financial firms that provide, or deploy, AI systems. The consultation is designed for respondents developing, or planning to develop, or use, AI applications in financial services.

The European Commission’s consultation runs until 13 September 2024.

Technical Standards supplementing DORA

On 25 June 2024, the following Delegated Regulations supplementing the Digital Operational Resilience Act (“DORA”) were published in the Official Journal of the EU:

• Delegated Regulation (EU) 2024/1772 (here) containing RTS specifying the criteria for the classification of ICT-related incidents and cyber threats, setting out materiality thresholds, and specifying the details of reports of major incidents;
• Delegated Regulation (EU) 2024/1773 (here) containing RTS specifying the detailed content of the policy regarding contractual arrangements on the use of ICT services supporting critical or important functions provided by ICT third-party service providers; and
• Delegated Regulation (EU) 2024/1774 (here) containing RTS specifying ICT risk management tools, methods, processes and policies and the simplified ICT risk management framework.

The Delegated Regulations enter into force on 15 July 2024. DORA applies from 17 January 2025.

For more information on DORA, see our briefings here and here.

ECB Guidance on Outsourcing Cloud Services

On 3 June 2024, the European Central Bank (“ECB”) launched a consultation (here) on its new guide (here) on outsourcing cloud services to cloud service providers.

The ECB’s guide aims to clarify both the ECB’s understanding of the related legal requirements, and its expectations for the banks under its supervision. According to the ECB, the guide will help make supervision more consistent, whilst helping ensure a level playing field for all banks. The guide draws on risks and best practices observed by the ECB in the context of ongoing supervisory activities.

The ECB’s consultation runs until 15 July 2024.

EBA publishes Draft Policy Products under MiCA

On 6 June 2024, the EBA published final draft RTS under the Markets in Crypto-Assets Regulation (“MiCA”) relating to: (i) the minimum content of the governance arrangements on the remuneration policy under Article 45 of MiCA (here); and (ii) requirements for policies and procedures on conflicts of interest for issuers of asset-referenced tokens (“ARTs”) under Article 32(5) of MiCA (here). The EBA also published final draft guidelines on the minimum content of the governance arrangements for issuers of ARTs (here).

In addition, on 13 June 2024, the EBA published a further batch of MiCA policy products.

The EBA’s package comprises:

• draft RTS on the adjustment of own funds requirements and stress testing of issuers of ARTs and of e-money tokens (“EMTs”) subject to such requirements (final report here);
• draft RTS to specify the procedure and timeframe to adjust the own funds requirements for issuers of significant ARTs or of EMTs subject to such requirements (final report here);
• draft RTS to further specify the liquidity requirements of the reserve of assets under Article 36(4) of MiCA (final report here);
• draft RTS to specify the highly liquid financial instruments with minimal market risk, credit risk and concentration risk under Article 38(5) of MiCA (final report here);
• draft RTS to specify the minimum contents of the liquidity management policy and procedures under Article 45(7)(b) of MiCA (final report here); and
• guidelines on recovery plans under Articles 46 and 55 of MiCA (final report here).

The EBA will submit the MiCA policy products to the European Commission for endorsement.

Guidelines on Suitability Requirements under MiCA

On 27 June 2024, the EBA and ESMA issued a final report (here) containing joint guidelines on suitability assessments under MiCA. The guidelines pertain to suitability assessments in relation to: (i) members of the management body of issuers of ARTs and of crypto-asset service providers (“CASPs”); and (ii) shareholders and members (whether direct or indirect) with qualifying holdings in issuers of ARTs and in CASPs.

The guidelines will apply two months after publication on the EBA and ESMA websites in all official EU languages. Within two months of the date of publication, competent authorities to whom the guidelines apply must notify the EBA or ESMA as to whether they: (i) comply; (ii) do not comply, but intend to comply; or (iii) do not comply and do not intend to comply with the guidelines.

EBA Priorities in the light of EU AML/CFT Package

On 26 June 2024, in a press release (here) welcoming the entry into force of the new EU anti-money laundering and countering the financing of terrorism (“AML/CFT”) package (see here), the EBA has identified priority areas of focus in the areas of AML/CFT.

Over the course of 2024 and 2025, the EBA will focus on delivering technical advice to the European Commission regarding the following:

• a methodology for selecting financial institutions for direct EU-level AML/CFT supervision;
• a common risk assessment methodology;
• information necessary to carry out customer due diligence (“CDD”);
• criteria to determine the seriousness of a breach of AML/CFT provisions.

The EBA has also made available a factsheet (here) on the EU’s new AML/CFT regime, which comprises a Sixth Money Laundering Directive (“MLD6”), a new AML Regulation, and a Regulation establishing the Anti-Money Laundering Authority (“AMLA”) (which is to be based in Frankfurt).

EU Member States have two years to transpose certain provisions of MLD6, and three years to transpose the remaining provisions. The AML Regulation will apply on an EU-wide basis three years after entry into force. The AMLA will begin operations in Frankfurt in mid-2025.

European Commission issues Report on Extension of Power to adopt Delegated Acts under BMR

On 12 June 2024, the European Commission published a report (here) on the extension of its power to adopt delegated acts under the Benchmarks Regulation (“BMR”), as provided for by Article 49(1) of the BMR.

The BMR provides that the power to adopt delegated acts is conferred on the European Commission for a five-year period; that power can be tacitly extended for a further five-year period, unless the European Parliament or the Council of the EU opposes it. Initially, the five-year period ran from 30 June 2016 until 30 June 2021. Regulation (EU) 2019/2089 amended Article 49(2) so that the empowerment is currently granted from 10 December 2019 until 10 December 2024, and added the requirement to prepare a report in respect of the delegation of power. The report now published by the European Commission aims to fulfil that requirement.

Given that a number of empowerments under the BMR have not been utilised to date, the European Commission believes that there is a need for a tacit extension of the delegation of power, provided for by Article 49(2) of the BMR, for a further period of five years.

Selected Consultations, Discussion Papers, Speeches and Reports Published

CBI – Annual Report 2023 and Annual Performance Statement 2023-2024 (here)

CBI – Fitness and Probity: Individual Questionnaire, Applications and PCF Roles Guidance (here)

CBI – Insurance Quarterly: June 2024 (here)

CBI – Regulatory Service Standards: Performance Report 2023 (here)

CBI – Remarks by Gerry Cross, Director of Financial Regulation – Policy and Risk, on the Responsible Use of Big Data and Related Technologies (here)

CBI – “The Future of Customer Engagement and Banking Channels” (Remarks by Colm Kincaid, Director of Consumer Protection) (here)

Department of Enterprise, Trade and Employment – Guidance Note: EU Trade Sanctions in response to Russia’s aggression against Ukraine (here)

Department of Finance; Department of Enterprise, Trade and Employment – Artificial Intelligence: Friend of Foe?

- Summary and Public Policy Considerations (here)

- A Review of How AI Could Impact Ireland’s Economy (here)

- An Analysis of How AI Could Impact Ireland’s Labour Market (here)

EBA – Monitoring Report on AT1, Tier 2 and Eligible Liabilities Instruments: June 2024 Update (here)

ECB – Annual Report on Sanctioning Activities in the SSM in 2023 (here)

ECB – Convergence Report: June 2024 (here)

ECB – Supervisory Banking Statistics for Significant Institutions: Q1 2024 (here)

ECB – TARGET Annual Report 2023 (here)

ECB – The International Role of the Euro (here)

EIOPA – Annual Report 2023 (here)

EIOPA – Financial Stability Report: June 2024 (here)

ESAs – Annual Report of the Joint Committee 2023 (here)

ESMA – Annual Report 2023 (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review (incorporating link to updated ISDA OTC Derivatives Compliance Calendar): June 2024 (here)

Loan Market Association (“LMA”) – Horizons: Issue 2 (here)

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