Financial Services Regulatory Update – August 2020 Round Up

AIFMD Review

On 19 August 2020, ESMA published a letter (the “Letter”) it sent to the European Commission highlighting areas for consideration during the forthcoming review of AIFMD (here).  The Letter sets out ESMA’s key recommendations for improvements, which touch on a range of general issues in the legislative framework and key reporting issues. It includes several recommendations regarding the rules applicable to delegation and substance. The recommendations concern both AIFMD and the UCITS Directive.

See our related briefing here.

Anti-Money Laundering and Counter-Terrorist Financing (“AML/CTF”)

On 14 August 2020, the Minister for Justice received Cabinet approval to publish the Money Laundering and Terrorist Financing (Amendment) Bill 2020, in order to transpose the EU’s Fifth Money Laundering Directive into Irish law.

On 7 August 2020, the Wolfsberg Group published a document containing FAQs on how financial institutions can identify, mitigate and manage money laundering risks by undertaking source of wealth and source of funds checks on relevant customers, when appropriate or required by applicable regulations (here). This document is targeted predominantly at financial institutions’ Private Banking/Wealth Management customer segments and takes into consideration controls and procedures recognised in the Wolfsberg AML Principles for Private Banking.

On 12 August 2020, the Wolfsberg Group published a statement on developing an effective anti-money laundering and counter-terrorist financing programme (here).

On 19 August 2020, the EBA published its response to the European Commission’s AML/CFT action plan (here).

Bank Resolution

On 10 August 2020, the Single Resolution Board published the following set of documents to give operational guidance to banks on the implementation of the bail-in tool (here):

• Operational guidance on bail-in playbooks;
• Instructions and explanatory note on the bail-in data set;
• Q&As on bail-in playbooks and the bail-in data set.

Capital Requirements Regulation

On 10 August 2020, the EBA published the following documents on COVID-19 related amendments to the Capital Requirements Regulation made by Regulation (EU) 2020/873 (here):

• Final report on draft implementing technical standards (“ITS”) on supervisory reporting.  The EBA intends for the ITS to apply from 28 June 2021, with the exception of certain requirements concerning the leverage ratio buffer.
• Guidelines on supervisory reporting and disclosure requirements.  The guidelines apply from 10 August 2020 until 27 June 2021. In practice, this means that the clarification applies until the reporting reference date of 31 May 2021 and until and including the last disclosure reference date before 28 June 2021.
• Amended guidelines on uniform disclosure of IFRS 9 transitional arrangements under CRR. These guidelines apply from 10 August 2020 until the end of the transitional periods for Article 468 and Article 473a (that is, 31 December 2022 and 31 December 2024 respectively).

The EBA has not consulted on these ITS and guidelines in the light of the urgency of the situation.

Civil Law and Criminal Law (Miscellaneous Provisions) Act 2020

The Act provides for a range of reforms to respond to new challenges and legal issues arising from the COVID-19 pandemic. Among other things, it may facilitate enforcement actions taken by credit servicing firms and loan owners in respect of non-performing loans by providing a new statutory basis for the admission of business records into evidence for the purposes of civil proceedings. See our related briefing here.

Companies (Miscellaneous Provisions) (Covid-19) Act 2020

The Act, for the most part, temporarily amends the Companies Act 2014 and the Industrial and Provident Societies Act 1893 so that, notwithstanding challenges posed by the pandemic, entities can continue to operate in compliance with relevant provisions of those Acts.  See our related briefing here.

Consumer Credit Act 1995 – Customer Charges

Section 149 of the Consumer Credit Act (“Section 149”) requires credit institutions to notify the Central Bank of Ireland (“CBI”) if they wish to introduce any new customer charge for providing a service or update an existing charge.

The CBI has published an update to its bank charges approval process (here), which seeks to assist credit institutions when making a notification under Section 149 by providing information on the process employed by the CBI when assessing these notifications. 

The assessment of these notifications involves having regard to the effect of the proposed charge on customers and, in the case of notifications relating to personal current accounts, the CBI uses a number of notional activity profiles to assist in this assessment. The CBI has also updated these notional activity profiles (here).

Credit Institutions

The CBI has updated its COVID-19 Regulated Firms FAQs (here) to state that credit institutions should not pay dividends for the financial years 2019 and 2020 until at least 1 January 2021 and should refrain from share buybacks aimed at remunerating shareholders, in line with the ECB's recommendation of 27 July 2020 on dividend distributions during the COVID-19 pandemic.

Digital Finance

On 27 August 2020, the ECB published their response to the European Commission’s public consultation on a new digital finance strategy for Europe/FinTech action plan (here). The response broadly supports the priority areas identified by the European Commission in the consultation document to foster the development of digital finance in the EU.

On 24 August 2020, the Bank for International Settlements published a working paper on the rise of central bank digital currencies (here). The working paper looks at the economic and institutional motives behind current central bank digital currency projects and asks how they might shape the design of such currencies.

EMIR

On 27 August 2020, ISDA and the Association for Financial Markets in Europe (AFME) published a letter to the European Commission requesting the amendment of Commission Delegated Regulation (EU) 2019/5641 and Commission Delegated Regulation (EU) 2019/5652 (the “RTS”).

The RTS provide that the novation of non-centrally cleared over-the-counter (OTC) derivatives contracts for the sole purpose of replacing a counterparty established in the UK with a counterparty established in a Member State does not trigger margin or clearing obligations, as would normally be required. However, the relief under the RTS is transitional and is only available for a period of 12 months from 31 December 2020.

In the letter, ISDA and AFME request that the RTS be amended so that the transitional relief will start to apply as soon as possible and continue to be available for a period of 12 months from 31 December 2020. The letter also requests that the RTS extend to firms that operate out of the UK, in addition to those established in the UK. It is available here.

EIOPA – Risk Dashboard

On 17 August 2020, EIOPA published its updated Risk Dashboard based on Q1 2020 Solvency II data (here). The results of the Risk Dashboard show that the risk exposures of the European Union insurance sector remain generally high compared to April as a result of COVID-19.

E-Signatures

On 24 August 2020, the CBI published a statement (here), confirming that, in the absence of any specific legal provisions to the contrary, regulated firms may use electronic signatures in submitting regulatory documents and forms to the CBI. The CBI reserves the right to request a ‘wet ink’ signature where the CBI deems it appropriate in all the circumstances of the case.

Financial Services and Pensions Ombudsman

On 7 August 2020, the Financial Services and Pensions Ombudsman issued a press release announcing that it has published 180 legally binding decisions, issued between January and May 2020 (here).

Insurance – Business Interruption Supervisory Framework

On 5 August 2020, the CBI published its COVID-19 and Business Interruption Supervisory Framework (here).  In a related press release, the CBI states that the objective of the framework is to seek early identification and resolution of issues which have the potential to cause customer harm.  The framework outlines the following:

• The CBI’s approach to the identification of potentially systemic issues of customer harm;
• The CBI’s expectations of insurers to address those issues where identified; and
• The escalation strategy for intervention by the CBI where necessary.

The CBI states that it expects firms to adopt a customer first approach to the resolution of business interruption issues.

Insurance – Resolution Regimes

On 25 August 2020, the Financial Stability Board (“FSB”) published a Key Attributes Assessment Methodology for the Insurance Sector (here). The methodology sets out essential criteria to guide the assessment of the compliance of a jurisdiction’s insurance resolution framework with the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions.

Investment Firms

On 6 August 2020, the CBI published a Q&A addressed to the investment firms sector on the payment of distributions and variable remuneration during 2020 (here).  This follows the ESRB Recommendation of 27 May 2020 on restriction of distributions during the COVID-19 pandemic.

Money Market Funds Regulation (“MMFR”)

On 27 August 2020, ESMA confirmed (here) that the 2019 Guidelines on stress test scenarios under the MMFR will be updated in 2020 to include a modification of the risk parameters to reflect recent market developments related to the COVID-19 crisis. The updated guidelines are expected to be finalised in Q4 2020 and pending their application the 2019 Guidelines will continue to apply.

The CBI has published a guidance note on MMFR Reporting (here), which provides information and direction on the completion of MMFR Reporting by fund managers.

Pan-European Personal Pension Product (“PEPP”)

On 14 August 2020, EIOPA submitted the following documents to the European Commission in order to implement the framework for the design and delivery of the PEPP under the PEPP Regulation (here):

• Commission Delegated Regulation supplementing the PEPP Regulation regarding RTS specifying the requirements on information documents, on the costs and fees included in the cost cap and on risk-mitigation techniques for the PEPP
• Commission Implementing Regulation laying down ITS for the application of the PEPP Regulation regarding the format of supervisory reporting to the competent authorities and the co-operation and exchange of information between competent authorities and EIOPA
• Technical Advice on delegated acts supplementing the PEPP Regulation by specifying additional information regarding supervisory reporting
• Technical Advice on delegated acts to supplement the PEPP Regulation regarding the criteria and factors to be applied by EIOPA relating to EIOPA's product intervention powers

EIOPA has developed two mandatory consumer information documents: the PEPP Key Information Document and PEPP Benefit Statement.  It consulted on the draft RTS and ITS and the content of the technical advice in December 2019 and February 2020.

PRIIPs Regulation

The European Fund and Asset Management Association (EFAMA) issued a letter, on 4 August 2020 to the European Commission on the subject of the PRIIPS draft Regulatory Technical Standards (RTS), calling for an immediate extension of the UCITS exemption, as well as an urgent Level 1 review of the PRIIPs Regulation (see the related press release here).

RegTech

On 12 August 2020, the EBA launched an industry survey on RegTech, publishing the following documents (here):

• RegTech industrial survey: financial institutions
• RegTech industrial survey: financial institutions: areas of focus
• RegTech industrial survey: information and communication technology (ICT) third-party providers
• RegTech Industrial survey: ICT third-party providers: areas of focus

The aim of the EBA’s survey is to better understand the ongoing activity in this area, raise awareness on RegTech within the regulatory and supervisory community, and inform any relevant future policy discussion. Surveys can be submitted until 30 September 2020. The EBA expects to report on the use of RegTech solutions in the first half of 2021.

Retail Intermediaries

On 27 August 2020, the CBI published its findings of a Thematic Review of the Retail Intermediary Annual Return (here). The review examined the accuracy and quality of data submitted, and identified some material instances of incorrect reporting. The review concluded that, in the majority of cases, incorrect reporting was due to either a lack of understanding of reporting requirements or human error.

Revised Shareholders Rights Directive ("SRDII")

SRDII requires Member States to ensure that companies have the right to identify their shareholders. Member States may provide for companies having a registered office on their territory to be only allowed to request the identification of shareholders holding more than a certain percentage of shares or voting rights. Such a percentage shall not exceed 0.5 %.

On 31 August 2020, ESMA published a document (here) listing the thresholds above which shareholders can be identified in the various EU Member States.

Selected Consultations and Discussion Papers Published

• BCBS – Revisions to the principles for the sound management of operational risk and principles for operational resilience (here).  The closing date is 6 November 2020.
• EBA - Consultation paper on Guidelines on criteria for the use of data inputs in the risk measurement model referred to in Article 325bc under Article 325bh(3) of the Capital Requirements Regulation (here).  The closing date is 12 November 2020.
• European Financial Reporting Advisory Group – Consultation on a Draft Endorsement Advice letter and a separate Invitation to Comment relating to the endorsement for use in the EU of Interest Rate Benchmark Reform – Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16) (here).  The closing date is 7 September 2020.
• FSB – Questionnaire on continuity of access to financial market infrastructures for firms in resolution (here).
• International Accounting Standards Board – Proposals to update the IFRS taxonomy to reflect the disclosure requirements included in the amendments to the IFRS in response to the ongoing IBOR reform (here).  The closing date is 28 September 2020.

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McCann FitzGerald regularly publishes briefings on topics relevant to financial services regulation, among others. You may be interested in the following briefings:

• Commencing the Consumer Insurance Contracts Act (here)
• EBA Guidelines on Loan Origination and Monitoring (here)
• Financial Services Regulatory Update – July 2020 Round Up (here)
• Central Bank Enforcement Action into Cyber Frauds Highlights Mandatory Reporting (here)