Financial Services Regulatory Update – December 2023 Round Up

Further IAF Pillars come into Operation

On 29 December 2023, further aspects of the Individual Accountability Framework (“IAF”) came into operation, pursuant to changes introduced by the Central Bank (Individual Accountability Framework) Act 2023 (the “IAF Act”):

(i) Conduct Standards: The new regime, operational as of 29 December 2023, is intended to impose obligations on regulated financial service providers (“RFSPs”) with respect to expected standards of conduct (the “Standards for Business”); and expected standards of conduct for every person carrying on a Controlled Function ("CF") role (the “Common Conduct Standards”); and certain additional expected standards of conduct for so-called “persons in senior roles” (the “Additional Conduct Standards”).

(ii) Enhancements to the Fitness and Probity Regime:  The new regime requires RFSPs to periodically certify the fitness and probity (“F&P”) of persons in CF and Pre-Approval Controlled Function (“PCF”) roles. RFSPs must not permit a person to perform a CF or PCF role unless they have certified that the person complies with the applicable F&P standards prior to appointment. Consolidated guidance relating to the CBI’s updated F&P regime is available here.

Following consultation by the Central Bank of Ireland (“CBI”) (CP153: see our briefings here and here), finalised Regulations designating further CF and PCF roles have been published:

(i) S.I. No. 663 of 2023 (here), which applies to RFSPs; and

(ii) S.I. No. 664 of 2023 (here), which applies in relation to holding companies.

To reflect regulatory changes, the CBI has made available updated consolidated lists in respect of: (i) CFs (here); and (ii) PCFs (here).

The majority of the IAF has now come into operation, with the notable exception of the Senior Executive Accountability Regime (“SEAR”). SEAR will apply to in-scope firms generally from 1 July 2024, and in respect of (independent) non-executive directors from 1 July 2025 (see our briefing here).

For a detailed overview of the IAF and its implementation, see our IAF hub (here).

CBI issues Feedback Statement to Consultation on Modified ASP

As a further IAF-related update, the CBI published, on 13 December 2023, a feedback statement (here) to its consultation (CP154) on guidelines on the Administrative Sanctions Procedure (“ASP”), along with finalised ASP guidelines (here), reflecting changes to the ASP introduced by the IAF Act and which were commenced on 19 April 2023 (see our briefing here).The CBI has also made available a guide (here) to transitional arrangements arising from the implementation of the IAF.

Publication of Financial Services and Pensions Ombudsman (Amendment) Bill 2023

On 13 December 2023, the Minister for Finance Michael McGrath gained Cabinet approval for the publication of the Financial Services and Pensions Ombudsman (Amendment) Bill 2023 (published here).

The Bill will strengthen protections for financial consumers by introducing amendments to the legislation that underpins the FSPO, to ensure that it continues to carry out its statutory functions in line with the Constitution. The need to introduce targeted amendments arose following the Supreme Court’s decision in Zalewski v Adjudication Officer and WRC, Ireland and the Attorney General (see our briefing here), which concerned the WRC and its “quasi-judicial role”.

First Set of ESRS published in EU’s Official Journal

On 22 December 2023, Delegated Regulation (EU) 2023/2772 (here) was published in the EU’s Official Journal. The Delegated Regulation contains the first set of European sustainability reporting standards (“ESRS”) for use by all EU companies subject to the reporting obligations of the Corporate Sustainability Reporting Directive (“CSRD”).

The ESRS will help investors understand the sustainability impact of the companies in which they invest.  There are twelve ESRS, covering the full spectrum of sustainability concerns, comprised of two cross-cutting standards and ten topical standards.

The Delegated Regulation applies as of 1 January 2024, for financial years beginning on or after 1 January 2024.

For more information, see our briefing here.

Relatedly, the European Financial Reporting Advisory Group (“EFRAG”), which is the body tasked with developing draft ESRS, has launched consultations (here) on three draft ESRS implementation guidance documents. EFRAG’s consultative process runs until 2 February 2024.

Political Agreement on the Corporate Sustainability Due Diligence Directive

On 14 December 2023, the Council of the EU and the European Parliament reached a provisional political agreement (here) on the Corporate Sustainability Due Diligence Directive (“CSDDD”). The proposed Directive (text here) imposes obligations on large companies as regards the actual and potential adverse impacts on human rights and the environment of their own operations, those of their subsidiaries, and those carried out by their business partners.

The provisional agreement frames the Directive’s proposed scope, and clarifies liabilities for non-compliant companies, as well as penalties under the Directive, and the rights and prohibitions that companies would be required to respect.

The provisional agreement awaits formal approval in accordance with EU legislative procedure. Once published in the Official Journal, the Directive will enter into force 20 days after publication; Member States would then have two years to transpose its provisions into national law.

For more information on the CSDDD, see our briefing here.

Forthcoming Negotiations on Proposed EU Regulation on ESG Ratings Providers

On 20 December 2023, the Council of the EU reached an agreement (here) on its negotiating mandate in respect of the proposal for an EU Regulation on ESG ratings activities, addressed towards increasing confidence in the market for sustainable investment products.

In accordance with the proposal, ESG rating providers operating in the EU would be required to comply with certain requirements, including authorisation requirements. According to EU institutions, the Regulation is necessary to ensure reliability and transparency in the ESG ratings market, and to ensure the availability of meaningful ESG data.

ESG ratings providers that wish to operate in the EU would be required to obtain authorisation from the European Securities and Markets Authority (“ESMA”), or in the case of a ratings provider established outside the EU an equivalence decision.

Following a further agreement reached by MEPs (here), interinstitutional negotiations regarding the proposal are expected to begin in January 2024.

Draft RTS on the Review of PAI and Financial Product Disclosures under SFDR

On 4 December 2023, the European Supervisory Authorities (the “ESAs”) published a final report (here) containing draft regulatory technical standards (“RTS”) on the review of principal adverse impacts (“PAI”) and financial product disclosures under Commission Delegated Regulation (EU) 2022/1288, which supplements the Sustainable Finance Disclosure Regulation (“SFDR”).

Guidance on EU Taxonomy Reporting Obligations

On 21 December 2023, the European Commission published, as approved in principle, a draft Notice (here) providing guidance on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the Taxonomy Regulation on the reporting of taxonomy-eligible and taxonomy-aligned economic activities and assets.

Through its guidance, the European Commission intends to facilitate stakeholder compliance in respect of regulatory requirements in a cost-effective manner, and to ensure the usability and comparability of the reported information.

The draft Commission Notice awaits formal adoption in all official EU languages.

EBA proposes Voluntary EU Green Loan Label

On 15 December 2023, the European Banking Authority (“EBA”) published a response (here) to the European Commission’s call for advice on green loans and mortgages, along with a related EBA Opinion (here).

The EBA is proposing the introduction of a voluntary EU label for green loans based on a common EU-wide definition, and the integration of the concept of a “green mortgage” and its key sustainability features in the EU Mortgage Credit Directive.

Transposition of EU Credit Servicing Directive

On 27 December 2023, the Minister for Finance signed the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 (here), transposing the provisions of the EU Credit Servicing Directive into Irish law (see our briefing here).

The Regulations have since come into operation domestically and new EU-level requirements relating to the sale and servicing of non-performing loans (“NPLs”) have taken effect.  As the Regulations confirm, the new regime will operate in tandem with Ireland’s existing regulatory framework for credit servicing (see here and here), which predates the enactment of the EU Directive.

The Credit Servicing Directive was finalised two years ago and had an EU-wide deadline for transposition of 29 December 2023. Its enactment forms part of wider efforts to promote convergence across EU markets and deepen the Banking and Capital Markets Unions. For more background information on the EU Directive, see our earlier briefings here and here.

In addition, the Department of Finance published a document (here) setting out the decisions it has taken regarding various national discretions contained in the EU Credit Servicing Directive, following the Department’s consultation. For more information, see our briefing here.

Expansion of Credit Union Services in Ireland

On 13 December 2023, the President of Ireland signed into law the Credit Union (Amendment) Act 2023 (here). The Act amends the Credit Union Act 1997 to provide for an expansion of credit union services in Ireland, implementing the outcomes the Department of Finance’s review (here) of the policy framework for credit unions. Among related matters, the Act:

• provides for the establishment of corporate credit unions in Ireland;
• amends the requirements and qualifications for membership of a credit union;
• alters the scope of permitted investments by credit unions;
• provides for the setting of maximum interest rates, by the Minister for Finance, on loans offered by credit unions;
• allows a credit union to refer its members to another credit union, and to participate in the loans of other credit unions; and
• provides for changes to the governance arrangements of credit unions.

This expansion of credit union services in Ireland is particularly significant in the context of the reduction in size of Ireland’s traditional retail banking sector, with prominent withdrawals from the Irish market, as well as branch closures.

EBA Report on the Assessment of Knowledge and Experience under EU Credit Servicing Directive

On 15 December 2023, the EBA published a final report (here) containing guidelines on the assessment of adequate knowledge and experience of the management, or administrative organ, of credit servicers, as a whole, under the EU Credit Servicing Directive.

The guidelines will apply from three months after the date of publication on the EBA's website of the guidelines in all official EU languages.

Political Agreement on “Daisy Chain” Proposal

On 6 December 2023, the Council of the EU and the European Parliament announced via press release (here) that they have reached a provisional political agreement on the proposal known as the “daisy chain proposal”. The proposal would introduce targeted amendments to the Bank Recovery and Resolution Directive (“BRRD”) and the Single Resolution Mechanism (“SRM”) Regulation, to include proportionality requirements in the treatment of internal minimum requirements for own funds and eligible liabilities (“MREL”) in bank resolution groups.

The agreement reached is provisional and awaits formal endorsement. Once endorsed, the legal text will be consolidated and formally voted on by the EU institutions.

Legislative texts reflecting EU Political Agreement on Basel III reforms

On 7 December 2023, the Council of the EU published the following legislative texts, reflecting the outcome of its provisional political agreement (see here) with the European Parliament as regards the EU’s implementation of Basel III regulatory reforms:

• Proposal for a Directive (“CRD VI”) amending the Capital Requirements Directive as regards supervisory powers, sanctions, third-country branches, and ESG risks (here); and
• proposal for a Regulation (“CRR III”) amending the Capital Requirements Regulation as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk, and the output floor (here).

The provisional agreement reached on 27 June 2023 is addressed towards the implementation of the Basel III regulatory reforms in the EU. Negotiators reached agreement in respect of, inter alia:

• the so-called “output floor”, limiting banks' variability of capital levels computed by using internal models, as well as the appropriate transitional arrangements to allow sufficient time for market players to adapt;
• reforms as regards credit risk, market risk and operational risk, making provision for further proportionality in the rules, particularly in relation to small and non-complex institutions;
• a harmonised “fit and proper” framework for assessing the suitability of members of the institutions' management bodies and key function holders;
• rules to safeguard supervisory independence, notably by providing for a minimum cooling-off period for staff and members of governance bodies of competent authorities before they can take up positions in supervised institutions, as well as for term limits;
• a transitional prudential regime for crypto-assets and on amendments to enhance banks' management of ESG risk; and
• harmonised minimum requirements applicable to branches of third-country banks and the supervision of their activities in the EU.

Delegated Regulation on Shadow Banking Activities

On 12 December 2023, Delegated Regulation (EU) 2023/2779 (here) supplementing the CRR with regard to RTS specifying the criteria for the identification of shadow banking entities referred to in Article 394(2) of the CRR was published in the EU’s Official Journal.

The Delegated Regulation entered into force on 22 December 2023.

Delegated Regulation supplementing BRRD

On 13 December 2023, the European Commission adopted a Delegated Regulation (here) amending Delegated Regulation (EU) 2015/63 as regards the calculation of eligible liabilities, and the transitional regime, under the BRRD.

The Delegated Regulation is to be scrutinised by the Council of the EU and the European Parliament. If neither objects, it will be published in the EU’s Official Journal.

Delegated Regulation supplementing CRR and CRD IV

The European Commission has adopted:

• a Delegated Regulation (here) containing RTS specifying the methodology to evaluate the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of an institution's non-trading book activities under CRD IV; and
• a Delegated Regulation (here) containing RTS on the identification of a group of connected clients under CRR.

Both Delegated Regulations await scrutiny by the Council of the EU and the European Parliament.

EBA publishes ITS on MREL/TLAC

On 20 December 2023, the EBA published (here) its final draft implementing technical standards (“ITS”) on amendments relating to the disclosure and reporting of MREL and total loss-absorbing capacity (“TLAC”). The EBA’s amendments reflect the new requirement to deduct investments in eligible liabilities instruments of entities belonging to the same resolution group (the so-called “daisy chain” framework), along with other changes to the prudential framework.

The EBA’s draft ITS will be submitted to the European Commission for endorsement. The ITS are intended to apply from 30 June 2024.

ESAP Package published in Official Journal

On 20 December 2023, the legislative package establishing the European single access point (“ESAP”) was published in the EU’s Official Journal:

• the ESAP Regulation (here);
• the ESAP Omnibus Regulation (here); and
• the ESAP Directive (here).

Once in operation, the ESAP will provide, on an EU-wide basis, centralised access to publicly available information of relevance to financial services, capital markets, and relating to sustainability. The ESAP platform is expected to become operational in July 2026 and will start publishing information no later than July 2027.

In addition, the ESAs have published a consultation paper (here) containing draft ITS regarding ESAP functionalities and the tasks of collection bodies. The draft ITS seek to enable future ESAP users to be able to effectively harness the information available via the platform. The consultation by the ESAs runs until 8 March 2024.

Political Agreement on Solvency II and IRRD Proposal

On 14 December 2023, the Council of the EU and the European Parliament reached (here) a provisional political agreement on amendments to the Solvency II Directive (proposal here), and on the proposed Insurance Recovery and Resolution Directive (“IRRD”) (proposal here).

According to the press release, the amendments to Solvency II will free up capital which insurance firms have had to keep in reserve, allowing the sector to channel more funds towards long-term investments, particularly towards green and digital investment. Currently, the cost-of-capital rate, which determines reserve levels, is assumed to be equal to 6%. The agreement reached would bring the rate down to 4.75%.

As regards the IRRD, the proposed Directive would set up a recovery and resolution framework at the EU level, similar to that existing for banks, to help ensure that failing insurance undertakings can be recovered or wound down. EU Member States would be required to establish national insurance resolution authorities, either as structures within existing competent authorities or as new legal entities.

The provisional agreement awaits formal endorsement by the EU institutions. According to the agreement, the deadline for EU Member States to implement the changes into national law is to be 1 January 2026.

Insurance Ireland’s Code of Practice for Underwriting Mortgage Protection

On 6 December 2023, Insurance Ireland’s Code of Practice (here) for underwriting mortgage protection insurance for cancer survivors entered into force. The code of practice introduces, on a voluntary basis, a “right to be forgotten” for cancer survivors, whereby participating insurers will disregard a disclosed cancer diagnosis where treatment ended more than seven years prior to an application for mortgage protection insurance, or more than five years if the applicant was under 18 at the time of diagnosis.

RTS adapting the base euro amounts for PII and for financial capacity of intermediaries

On 5 December 2023, the European Commission adopted a Delegated Regulation (here) containing RTS adapting the base amounts in euro for professional indemnity insurance (“PII”) and for the financial capacity of (re)insurance intermediaries, in accordance with Article 10(4) of the Insurance Distribution Directive (“IDD”).

The Delegated Regulation awaits publication in the EU’s Official Journal. It will apply from six months after the date of entry into force.

CBI Industry Guidance following CSA on MiFID II Requirements

On 1 December 2023, the CBI published a “Dear CEO” letter (here) following its thematic review of investment firms’ application of disclosure requirements in relation to costs and charges under the European Union (Markets in Financial Instruments) Regulations 2017 (the “MiFID Regulations”), as required by the Markets in Financial Instruments Directive (“MiFID II”).

Following its review, the CBI has requested that all Irish-authorised MiFID investment firms and credit institutions providing MiFID II services:

(i) review their costs and charges practices against the public statement issued by ESMA (here) and the findings, expectations and good practices outlined in the CBI letter. This review must be documented and must include details of actions taken to address relevant findings. This review should be completed, and an action plan discussed and approved by the Board of each firm, by 31 March 2024, with the minutes of the relevant Board meeting reflecting the discussions and approval of the Board; and

(ii) where a firm was in scope of the review and received formal mitigating actions, feedback by ESMA and the CBI should be considered in conjunction with those mitigating actions.

CBI Industry Letter following Asset Valuation Review

On 14 December 2023, the CBI published an industry letter (here) highlighting the key findings of its asset valuation review that was undertaken as part of ESMA’s common supervisory action (“CSA”).

The key findings are set below:

• Some firms, according to the CBI, continue to rely on group valuation policies or procedures with limited or no reference to Irish operations. Group policies and procedures may not capture the local regulatory environment or the operational roles and responsibilities of those involved in the Irish asset valuation process. This could lead to inaccuracies in the valuation process at the Irish entity.
• Supervisors identified firms which did not have stand-alone asset valuation error procedures in place to outline the controls and escalation measures to be applied should a valuation error or incorrect calculation of the NAV occur. In addition, a number of firms provided copies of error procedures, which did not sufficiently outline how the fund would revalue, recalculate, and resettle affected transactions and did not provide any or very limited detail on policies and procedures for determining or processing investor compensation.
• A minority of firms were identified as having poor quality asset valuation policies and procedures which fell below the level of detail that would be reasonably required to cover the valuation process. The asset valuation process at firms should be supported by documented policies and procedures, which clearly outline the operational tasks and responsibilities for all parties involved in the asset valuation process, to ensure a true and fair representation of the financial position of funds.
• A majority of firms could not demonstrate that periodic reviews were performed on their asset valuation policies and procedures. Of the firms which did provide evidence, this was in the form of either documented board minutes or evidence of version control captured on the documents. This could lead to deficiencies in valuation methodologies or models being utilised, resulting in incorrect valuations of assets being produced.

The letter sets out the actions that it requires of firms. Firms are required to conduct a review, by Q2 2024, of their asset valuation frameworks to ensure they continue to be fit for purpose, and that they adhere to relevant legislative requirements, including CBI expectations outlined in the letter.

Delegated Acts relating to Cross-Border Activities of AIFMs and UCITS ManCos

On 15 December 2023, the European Commission adopted the following draft legislative texts relating to the UCITS Directive and the Alternative Investment Fund Managers Directive (“AIFMD”) as regards the cross-border activities of alternative investment fund managers (“AIFMs”) and UCITS management companies:

• a draft Delegated Regulation (here) supplementing AIFMD with regard to RTS specifying the information to be notified in relation to the cross-border activities of AIFMs;
• a draft Delegated Regulation (here) supplementing the UCITS Directive with regard to RTS specifying the information to be notified in relation to the cross-border activities of UCITS management companies;
• a draft Implementing Regulation (here) laying down ITS for the application of the AIFMD with regard to the form and content of the information to be notified in respect of the cross-border activities of AIFMs and the exchange of information between competent authorities on cross-border notification letters; and
• a draft Implementing Regulation (here) laying down ITS for the application of the UCITS Directive with regard to the form and content of the information to be notified in respect of the cross-border activities of UCITS, UCITS management companies, the exchange of information between competent authorities on cross-border notification letters, and amending Regulation (EU) 584/2010.

ESMA publishes draft RTS pursuant to ELTIF 2.0

On 19 December 2023, ESMA published a final report (here) containing draft RTS issued pursuant to the revised Regulation on European long-term investment funds (the “ELTIF Regulation”) (“ELTIF 2.0”). The draft RTS have been amended in the light of feedback received following consultation by ESMA.

The draft RTS, as set out in ESMA’s final report, have been submitted to the European Commission for adoption. The European Commission will make a decision with regard to adoption within three months.

For more information on ELTIF 2.0, see our briefing here.

Minimum Performance-Related triggers relating to Securitisation Transactions

On 13 December 2023, the European Commission adopted a Delegated Regulation (here) containing draft RTS supplementing the Securitisation Regulation as regards the specification of the minimum performance-related triggers for simple, transparent and standardised (“STS”) on-balance-sheet securitisation transactions.

The Delegated Regulation will be scrutinised by the Council of the EU and the European Parliament. If neither objects, it will be published in the EU’s Official Journal.

CSDR Refit published in Official Journal

On 27 December 2023, Regulation (EU) 2023/2845 (here) ("CSDR Refit") was published in the EU's Official Journal. The Regulation aims to reduce the financial and regulatory burden on central securities depositories (“CSDs”), and to improve their ability to operate across borders, while also strengthening financial stability.

The Refit Regulation takes effect from 16 January 2024, with certain provisions to apply from 1 May 2024 and from 17 January 2026, respectively.

EU adopts 12th Package of Sanctions against Russia

On 18 December 2023, the Council of the EU announced (here) that it has adopted the EU’s 12th package of sanctions against Russia, in view of Russia’s ongoing war of aggression in  Ukraine.

The focus of the package is to impose additional import and export bans on Russia, to combat sanctions circumvention, and close loopholes. In particular, the package includes additional listings of Russian individuals and companies, and new import and export bans such as banning the export of Russian diamonds to Europe. The package tightens the implementation of the oil price cap by monitoring more closely how tankers may be used to circumvent the cap. It also includes stricter asset tracing obligations, as well as measures targeting third-country companies seeking to circumvent sanctions.

EU Political Agreement on Penalties for Sanctions Breaches

On 12 December 2023, the Council of the EU and the European Parliament announced via press release (here) that they have reached a provisional political agreement on the proposed Directive which seeks to harmonise criminal offences and penalties for the violation of EU sanctions. According to the press release, the new rules are particularly important in the context of Russia’s ongoing war of aggression against Ukraine.

Under the proposal, EU Member States would be obliged to define certain designated actions as criminal offences, including:

• assisting an entity subject to EU restrictive measures to bypass a travel ban;
• trading sanctioned goods and running transactions with states or entities subject to EU restrictive measures;
• providing financial services or performing financial activities that are prohibited or restricted;
• obscuring the ownership of funds or economic resources by a person, entity or body sanctioned by the EU; and
• inciting, or aiding and abetting, the above-mentioned actions.

EBA Guidelines on Sanctions Compliance by PSPs and CASPs

On 21 December 2023, the EBA launched a public consultation (here) on two sets of guidelines on internal policies, procedures and controls to ensure the effective implementation of both EU-level and national restrictive measures.

Through the guidelines, the EBA aims to establish a common understanding, among payment service providers (“PSPs”) and crypto-asset service providers (“CASPs”), and their supervisors, of the steps required to ensure compliance with restrictive measures.

The EBA’s consultation runs until 25 March 2024.

ESAs propose to extend Equity Option Exemption

On 20 December 2023, the ESAs published joint draft RTS (here) proposing a two-year extension, lasting until 4 January 2026, to the time-limited exemption from margin requirements for non-centrally cleared OTC single-stock equity options and index options under the European Market Infrastructure Regulation (“EMIR”).

Given that the prior exemption expired on 4 January 2024, the draft RTS are accompanied by a “no action” letter (here) providing that:

“[f]rom 4 January 2024 until the entry into force or rejection of the proposed amendment to the Commission Delegated Regulation 2016/2251 or the adoption of any long-term solution in the context of the EMIR revision, whichever occurs first, the competent authorities should not prioritise any supervisory or enforcement action in relation to the requirements set out in Article 11 of Regulation 648/2012 as specified in Articles 9 to 18, points (c), (d) and (f) of Article 19(1), Article 19(3) and Article 23 of Regulation 2016/2251 in respect equity options.”

For more information, see our briefing here.

Upcoming EMIR 3 Negotiations

The European Commission’s proposal to bring targeted amendments to EMIR (“EMIR 3.0”; see our briefing here) has been wending its way through the European legislative procedure. Each of the European Parliament’s Committee on Economic and Monetary Affairs (“ECON”) and the Council of the EU has confirmed its position on the Commission’s proposal for EMIR 3.0 (see here and here).

Several legislative measures are being put forward, as part of the proposed revisions to EMIR, with the stated aim of refining EU clearing services, notably by streamlining and shortening procedures, ensuring consistency between rules, strengthening central counterparty (“CCP”) supervision, and requiring market participants subject to a clearing obligation to clear a portion of products, flagged as being of “substantial systemic importance”, through active accounts at EU CCPs (the so-called “active account requirement”).

Following agreements by the European Parliament and the Council of the EU with regard to their respective positions, inter-institutional negotiations on the proposed active account requirement, among other aspects of the proposal, will take place in January 2024. The derivatives industry is keen to see a comprehensive and robust cost-benefit analysis undertaken of the proposed active account requirement before it is implemented (see here); ongoing advocacy can be expected in this regard.

Go-Live Date for New EMIR Reporting Obligations is Approaching

Changes made to EMIR by EMIR Refit (see here and here) mandated the development of new technical standards regarding the information to be reported to trade repositories. The revised standards, which were published by the European Commission in October 2022 (here), come into operation on 29 April 2024. Given the serious consequences of failing to comply with EMIR reporting obligations (see our briefing on the CBI’s recent enforcement action here), it is essential that all in-scope entities are prepared for compliance or, as applicable, monitoring compliance, with the new requirements once in effect.

To facilitate preparations, see our recently-published briefing (here) for more information.

ESMA publishes Final Report containing Position Calculation Guidelines

On 18 December 2023, ESMA published a final report (here) containing amended guidelines on position calculation pursuant to EMIR requirements.

The final report contains an assessment of the feedback received from stakeholders, following ESMA’s consultation, and proposes updates to the guidelines on position calculation. The modified guidelines provide clarification regarding the time of calculations, the scope of the data to be used in calculations, and the calculation methodologies under new EMIR Refit standards.

Supervisory Cooperation between ESMA and ECB

On 8 December 2023, ESMA published the text of a cooperative agreement (here) that it has reached with the ECB on the coordination and exchange of supervisory information relating to CCPs and their participants.

Political Agreement on Proposed EU AI Act

On 9 December 2023, the Council of the EU and the European Parliament reached a provisional political agreement on proposed harmonised rules on AI, to be consolidated in the EU AI Act. According to the Council’s press release (here), the proposal is a flagship initiative that has the potential to foster the development and uptake of safe and trustworthy AI across the EU, by both private and public actors.

For more information on the proposed AI Act, see our recently-published briefing here.

EU institutions will continue, over the coming weeks, to finalise the details of the proposal. The provisional agreement provides that, once published, the AI Act is to apply two years after entry into force, with exceptions in respect of certain provisions.

Consultations on Policy Products under DORA

On 8 December 2023, the Joint Committee of the ESAs launched consultations in respect of the following sets of draft policy products and guidelines, issued under the Digital Operational Resilience Act (“DORA”):

• draft RTS on the elements which a financial entity needs to determine and assess when subcontracting ICT services supporting critical or important functions (here);
• draft RTS on the harmonisation of conditions enabling the conduct of the oversight activities (here);
• draft RTS on the content of the notification and reports for major incidents and significant cyber threats and determining the time limits for reporting major incidents and draft ITS on the standard forms, templates and procedures for financial entities to report a major incident and to notify a significant cyber threat (here);
• draft RTS specifying elements related to threat-led penetration tests (here);
• guidelines on the oversight co-operation and information exchange between the ESAs and the competent authorities (here); and
• guidelines on the estimation of aggregated annual costs and losses caused by major ICT-related incidents (here).

The consultations run until 4 March 2024.

Political Agreement on Establishment of AMLA

On 13 December 2023, the Council of the EU and the European Parliament announced via press release (here) that they have reached a provisional political agreement on the creation of a new European authority, the “AMLA”, for countering money laundering and the financing of terrorism.

The provisional political agreement leaves out a decision as to the location of the authority's seat. Ireland has applied to host AMLA (see here), along with nine separate bids by various other EU Member States.

The Council and the Parliament recently announced (here) that they have reached agreement on common procedures for selecting the seat of the AMLA; an assessment is expected in January 2024. The location of the seat resulting from the process will be included in the AMLA Regulation and formally adopted as part of the legislative text.

Delegated Regulation amending List of High-Risk Third Countries

On 12 December 2023, the European Commission adopted a draft Delegated Regulation (here) amending the list of high-risk third countries with strategic AML/CFT deficiencies, by deleting the Cayman Islands and Jordan from the list.

The Delegated Regulation will be submitted to the Council of the EU and the European Parliament for scrutiny. If neither objects, it will be published in the EU’s Official Journal and enter into force on the twentieth day thereafter.

Department of Finance consults on National Payments Strategy

On 12 December 2023, Minister for Finance Michael McGrath launched a public consultation (here) seeking views on the new National Payments Strategy (the “NPS”), which the Department of Finance aims to finalise and publish in 2024.

The NPS will set out a roadmap for the future evolution of Ireland’s payments system, taking account of developments in digital payments, cash usage, and how future changes should be made to the legislative criteria relating to access to cash.

A key element of the work will be to examine and analyse fraud. While much of the area is governed by EU legislation, the Department of Finance will access payment fraud, to ascertain whether further domestic measures are required. On a related point, the Department of Finance is currently undergoing work designed to promote financial literacy (see here).

The NPS will also assess developments relating to crypto-assets, instant payments, open banking, and what new data needs to be collected on the new payments landscape.

Finally, the NPS will assess the inter-related issues of cash access and cash acceptance.

The Department of Finance’s consultation runs until 14 February 2024.

Feedback Statement to Consultation on National Discretions under MiCA

On 14 December 2023, the Department of Finance published a feedback statement (here) to its consultation on national discretions contained in the Markets in Crypto-Assets (“MiCA”) Regulation.

On the key issue of the transitional period for crypto-asset service providers (“CASPs”) operating in accordance with existing national regimes, the Department has concluded that Ireland’s regulatory framework does not qualify to meet the pre-condition set out by under Article 143(3) of MiCA for a full 18-month period.  Therefore, the Minister for Finance has decided to exercise the national discretion available and has reduced the transitional period available to virtual asset service providers (“VASPs”) registered with the CBI to a maximum period of 12 months.

MiCA was published in the Official Journal on 9 June 2023 (see here). The Regulation entered into force on 29 June 2023 and will mostly apply from 30 December 2024 (save for requirements relating to asset-referenced tokens (“ARTs”) and e-money tokens (“EMTs”) which apply from 30 June 2024).

For more information on MiCA, see our briefing here.

Consultation on RTS under MiCA regarding Issuers of ARTs

On 7 December 2023, the EBA launched a consultation (here) on draft RTS specifying the requirements for policies and procedures on conflicts of interest for issuers of ARTs under MiCA.

The EBA’s consultation runs until 7 March 2024.

Council of the EU agrees Mandate on Proposal to amend BMR

On 20 December 2023, the Council of the EU announced via press release (here) that it has agreed its negotiating mandate (here) in respect of the proposal to reform the EU Benchmarks Regulation (“BMR”). The proposal is addressed towards the scope of rules for benchmarks, the use in the EU of benchmarks provided by an administrator located in a third country, and certain reporting requirements. The proposal aims to reduce the regulatory burden on administrators of benchmarks that are not economically significant in the EU by removing them from the scope of current rules.

As part of its negotiating mandate, the Council of the EU has agreed that the regulatory treatment of commodity benchmarks should be tailored to their specific characteristics. The Council agrees that only benchmarks that are critical or significant, or other specified benchmarks, should remain within the scope of the BMR.

Final Statement of Working Group on Euro Risk-Free Rates

On 4 December 2023, the Working Group on Euro Risk-Free Rates issued its final statement (here), announcing the completion of its work. The Working Group is discontinued as of 13 November 2023.

In the statement, ESMA summarises the Working Group's key achievements, such as the identification of the euro short-term rate (“€STR”) as the risk-free rate for the euro area, and the definition of EURIBOR fallback provisions in respect of each asset class.

ESMA encourages industry to ensure that all financial products referencing EURIBOR, including mortgages, embed robust fallback provisions.

ESMA to launch CSA on ESG Disclosures under BMR; issues Report on 2022 Sanctioning Activity

On 13 December 2023, ESMA announced via press release (here) that it will launch a CSA with NCAs on ESG disclosures under BMR.

The CSA will focus on supervised benchmark administrators, located either in the EU or in a third country, that have acquired an authorisation, registration, recognition, or endorsement of benchmarks under BMR. The goal of the CSA will be to assess compliance with ESG disclosure requirements under BMR. The exercise will be ESMA’s first CSA in the context of its role as a direct supervisor of benchmarks administrators.

ESMA and the NCAs will carry out the CSA during 2024 and until Q1 2025.

ESMA has additionally published a report (here) on administrative sanctions and measures, and criminal sanctions, imposed under BMR in 2022.

Consultation on Proposed “Taxonomy-Aligning” Benchmarks

On 13 December 2023, the EU Platform on Sustainable Finance published for feedback a report (here) which contains a proposal to introduce two new taxonomy-aligning benchmarks (“TABs”), to be called “EU TAB” and “EU TABex”.

The proposal is inspired by the success of the Paris-aligned benchmarks (EU PABs). The report states that the proposed benchmarks’ main objectives are:

• to show how a significant level of comparability of TABs methodologies could be achieved while leaving benchmark administrators with an important level of flexibility in designing their methodologies;
• to provide investors with an appropriate tool to align their investment strategies with the EU taxonomy;
• to increase transparency as regards investors’ environmental impacts, specifically with regard to climate change, and the environmentally sustainable capital expenditures (CapEx) required for the energy transition; and
• to disincentivise greenwashing.

The call for evidence runs until 13 March 2024.

Selected Consultations, Discussion Papers, Speeches and Reports Published

Basel Committee on Banking Supervision (“BCBS”) – Consultation on Crypto-Asset Standard Amendments (here) (consultation runs until 28 March 2024)

BCBS – Consultation on the Recalibration of Shocks for Interest Rate Risk in the Banking Book (here) (consultation runs until 28 March 2023)

CBI – Insurance Corporations Statistics: Q3 2023 (here)

CBI – Market Based Finance Monitor 2023 (here)

CBI – Private Motor Insurance Report 5, National Claims Information Database (here)

CBI – Quarterly Bulletin: Q4 2023 (here)

CBI – Report on Differential Pricing Regulations in the Private Car and Home Insurance Markets (here)

CBI – Unofficial Consolidation of Consumer Protection Code 2012 (revised 13 December 2023) (here)

Department of Finance – Funds Sector 2030 (Progress Report) (here)

EBA – Amending Guidelines on the Specification and Disclosure of Systemic Importance Indicators (here)

EBA  – Final Report on the Guidelines on Benchmarking of Diversity Practices under CRD IV and IFD (here)

EBA – Peer Review Report on the Supervision of Treatment of Mortgage Borrowers in Arrears (here)

EBA – Risk Assessment Report: December 2023 (here)

ECB – Aggregated Results of Supervisory Review and Evaluation Process (“SREP”) 2023 (here) and Updated SREP Methodology (here)

ECB – New Technologies for Wholesale Central Bank Money Settlement (Call for Expression of Interest) (here)

ECB – Single Supervisory Mechanism (“SSM”) Priorities 2024-26 (here)

ECB – Towards Macroprudential Frameworks for Managing Climate Risk (here)

ESAs – Consolidated Q&As on the PRIIPs Key Information Document (here)

ESAs – Consultation Paper on the system established for the exchange of information relevant to the assessment of the fitness and propriety of holders of qualifying holdings, directors and key function holders of financial institutions and financial market participants by competent authorities (here) (consultation runs until 15 January 2024)

ESAs – Update on the Functioning of Innovation Facilitators (Innovation Hubs and Regulatory Sandboxes) (here)

ESMA – Consultation Paper on Draft Guidelines on the Enforcement of Sustainability Information (here) (consultation runs until 15 March 2024)

ESMA – Consultation Paper on Technical Advice on CSDR Penalty Mechanism (here) (consultation runs until 29 February 2024)

ESMA – Consultation Paper on the Securitisation Disclosure Templates under Article 7 Securitisation Regulation (here) (consultation runs until 15 March 2024)

ESMA – Credit Rating Agency Market Share Report (here)

ESMA – Derivatives Market Report 2023 (here)

ESMA – Discussion Paper on MiFID II Investor Protection Topics linked to Digitalisation (here)

ESMA – Final Report on EU CLO Credit Ratings: risks of conflicts of interests relating to methodology changes (here)

ESMA  – Final Report on Guidelines on Stress Test Scenarios under the MMF Regulation (here)

ESMA – Making Finance Work for a Sustainable Future (here)

ESMA – Peer Review Report on Due Diligence of Clearing Members 2022 (here)

ESMA – Q&As on: (i) BMR (here); (ii) the Crowdfunding Regulation (here); and (iii) MiFID II and MiFIR Investor Protection and Intermediaries Topics (here)

ESMA – Update on the Guidelines on Funds’ Names using ESG or Sustainability-related Terms (here)

EU Platform on Sustainable Finance – Briefing on EC Targeted Consultation regarding SFDR Implementation (here)

European Insurance and Occupational Pensions Authority (“EIOPA”) – Consultation Paper on the Opinion on Sustainability Claims in the Insurance and Pensions Sectors (here) (consultation runs until 12 March 2024)

EIOPA – Consultation Paper on the Prudential Treatment of Sustainability Risks (here) (consultation runs until 22 March 2024)

European Payments Council – Payments Threats and Fraud Trends Report (here)

International Association of Deposit Insurers (“IADI”) – 2023 Banking Turmoil and Deposit Insurance Systems: potential implications and emerging policy issues (here)

International Organisation of Securities Commissions (“IOSCO”) – Consultation Report on Market Outages (here) (consultation runs until 1 March 2024)

IOSCO – Final Report with Policy Recommendations for Decentralised Finance (“DeFi”) (here)

IOSCO – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes (here)

IOSCO – Supervisory Practices to address Greenwashing (here)

International Swaps and Derivatives Association (“ISDA”) – ISDA in Review: December 2023 (here)

ISDA – ISDA Quarterly: Q4 2023 (Digital Transformation) (here)

Loan Market Association (“LMA”) – Introductory Guide to Green Loan Frameworks (here)

LMA – Sustainable Lending Glossary (here)

Network for Greening the Financial System (“NGFS”) – Recommendations toward the development of scenarios for assessing nature-related economic and financial risks (here)

Single Resolution Board (“SRB”) – Consultation on the Future MREL Policy (here) (consultation runs until 13 February 2024)

You may also be interested in:

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

• Better Late Than Never! ESAs Issue EMIR “No-Action” Confirmation (here)
• Credit Servicing: what does the new EU Regime mean for Irish NPLs and credit servicing? (here)
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• EMIR Enforcement Action (here)
• Expected Revision of the EU’s FDI Screening Regulation (here)
• Gambling Regulation Bill 2022: Significant impacts for online advertising of gambling activities (here)
• Go-Live for EMIR Reporting Changes is Fast Approaching (here)
• High Risk Medical Devices’ New Regime (here)