Financial Services Regulatory Update – February 2023 Round Up

CBI ‘Dear CEO’ Letter - Regulatory and Supervisory Priorities

On 16 February 2023, the Central Bank of Ireland (“CBI”) published a ‘Dear CEO’ letter setting out its key regulation and supervision priorities for 2023 (here). Among the priorities for the CBI are:

• providing a clear, open and transparent authorisation process;
• assessing and managing risks to the financial and operational resilience of firms;
• consulting and engaging on regulatory developments under the Consumer Protection Framework and the forthcoming Individual Accountability Framework;
• ongoing vigilance around the integrity of the financial system and combatting market abuse and money laundering;
• implementing new EU regulations on digital operational resilience (“DORA”) and markets in crypto assets (“MiCA”); and
• strengthening the resilience of the financial system to climate change risks.

Consumer Protection Levies

On 17 February 2023, the Consumer Protection Act 2007 (Competition and Consumer Protection Commission) Levy Regulations 2023 were published (here).

These Regulations provide for the calculation of levies under the levy scheme to fund the provision of information in 2023 regarding financial services. The financial services information includes information about the costs to consumers, the risks and benefits associated with the provision of those services and promoting the development of financial education and capability.

Levies will be collected in respect of the following categories of financial service providers:

• credit institutions;
• insurance undertakings;
• investment firms;
• credit unions;
• high cost credit providers; and
• retail credit firms.

European Single Access Point

On 7 February 2023, the European Parliament (the “Parliament”)'s Economic and Monetary Affairs Committee (“ECON”) published the report it adopted regarding the European Commission (the “Commission”)'s proposed Regulation establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability (the “ESAP Regulation”) (here).

The next step in the legislative process is for the Parliament to adopt a position on the draft ESAP Regulation at first reading. Details of the status of the draft ESAP Regulation are available (here).

ESMA Q&As on Prospectus Regulation

On 3 February 2023, ESMA published an updated version of its Q&As on Regulation (EU) 2017/1129 (the “Prospectus Regulation”) (here). The revised edition includes a new question 15.10 regarding the Article 1(4)(d) exemption from the requirement to publish a prospectus in the context of joint accounts.

RTS - Benchmark Transition

On 1 February 2023, ESMA published its final report on proposed regulatory technical standards (“RTS”) for the clearing obligation and the derivative trading obligation under  Regulation (EU) No 648/2012 (“EMIR”) and under Regulation (EU) No 600/2014 (“MiFIR”) in view of the 2022 status of the benchmark transition (here). The RTS relate to the transition away from LIBOR and EONIA and towards new risk-free rates.

The draft RTS have been submitted to the Commission (the “Commission”) for endorsement in the form of Commission Delegated Regulations.

Read EMIR section here.

DORA - ESRB Report on Cyber Resilience

On 14 February 2023, the European Systemic Risk Board (“ESRB”) published a report on advancing macroprudential tools for cyber resilience (here). The report is intended to complement the Digital Operational Resilience Act (“DORA”) and builds on the ESRB's January 2022 report and recommendation on cyber incidents.

The ESRB acknowledges the increasing cyber risks in the financial system and highlights the following:

• the ESRB encourages authorities to use the cyber resilience scenario testing approach in order to pilot system-wide cyber resilience scenario testing as soon as possible;
• the ESRB advocates the use of systemic impact tolerance objectives and will continue to transition from a conceptual approach to a practical basis for implementing them; and
• the ESRB will consider which operational policy tools are most effective in responding to a system-wide cyber incident and identify gaps across operational and financial policy tools.

Beneficial Ownership Register for CFVs

On 3 February 2023, the CBI updated its FAQs on the Central Beneficial Ownership Register for Certain Financial Vehicles (here). The update confirms that, following the Court of Justice of the European Union’s ruling in the Luxembourg Business Registers case (here) regarding public access to beneficial ownership registers, access requests by members of the public will not be processed until the legislative position is clarified by the law making body.

Beneficial Ownership of Trusts

On 7 February 2023, Revenue updated certain aspects of its guidance on the Central Register of Beneficial Ownership of Trusts (“CRBOT”). The updates relate to the information required for the CRBOT (here) and the requirements for non-residents (here).

Amendments to SFDR RTS/CBI Filing Process

On 17 February 2023, Commission Delegated Regulation (EU) 2023/363 was published in the Official Journal (here). This Commission Delegated Regulation amends the Sustainable Finance Disclosure Regulation RTS (the “SFDR RTS”) to provide for gas and nuclear disclosures and introduce some minor amendments to the SFDR RTS.

This Commission Delegated Regulation took effect on 20 February 2023.

On 20 February 2023, the CBI issued a notice entitled: ‘Process clarifications for UCITS and AIFs pre-contractual documentation updates in relation to the Commission Delegated Regulation (EU) 2023/363’ (the “Notice”) (here).

The Notice details the CBI’s streamlined filing process to facilitate updates to pre-contractual documentation required as a result of the entry into force of Commission Delegated Regulation (EU) 2023/363.

Our briefing (here) provides further detail in respect of the CBI’s filing process.

LMA Green Loan Principles

On 23 February 2023, the Loan Market Association (“LMA”) published updated green, social and sustainability-linked loan principles, together with supporting guidance documents:

• green loan principles (“GLP”) (here) and guidance (here)
• social loan principles (“SLP”) (here) and guidance (here)
• sustainability-linked loan principles (“SLLP”) (here) and guidance (here)

The updates are intended to reflect recent market developments across global sustainable finance markets.

Countercyclical Capital Buffer Announcement

On 23 February 2023, the CBI announced that the countercyclical capital buffer (“CCyB”) rate on Irish exposures is to be maintained at 1 per cent (here). The CBI stated that it is also maintaining its guidance that it expects to announce a 1.5 per cent CCyB rate by mid-2023, conditional on macro-financial developments.

RTS – Exposures secured by Immovable Property

On 1 February 2023, Commission Delegated Regulation (EU) 2023/206 was published in the Official Journal of the European Union (the “Official Journal”) (here). This Commission Delegated Regulation contains RTS specifying the factors to be considered in assessing risk weights for exposures secured by immovable property and the conditions to be taken into account for assessing the appropriateness of minimum loss given default (“LGD”) values for exposures secured by immovable property.

The RTS supplement Regulation (EU) 575/2013 (the “Capital Requirements Regulation”) by outlining the calibration of parameters for exposures secured by immovable property and, specifically, the types of factors to be considered for the assessment of the appropriateness of risk weights and the conditions to be taken into account for the assessment of the appropriateness of minimum LGD values are specified in a coherent manner. This Commission Delegated Regulation entered into force on 21 February 2023.

EBA Survey - Green Loans and Mortgages

On 13 February 2023, the EBA launched an industry survey (here) seeking input from credit institutions on their green loans and mortgages and market practices relating to such loans.

Credit institutions should contact their national competent authority to receive survey templates, with replies to be submitted by 7 April 2023. The survey is intended to collect quantitative and qualitative information that the EBA can use to advise the Commission in respect of a call for advice on the definition and possible supporting tools for green loans and mortgages to retail and SME borrowers.

ITS - Supervisory Disclosures

On 8 February 2023, the EBA published a consultation paper (here) on draft implementing technical standards (“ITS”) amending Implementing Regulation (EU) 650/2014 which specifies the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities.

The EBA believes that amendments are necessary to the existing ITS in order to reflect changes to the capital requirements legal framework. In particular, the EBA is focused on changes to supervisory reporting for investment firms. The EBA explains that the amendments to the supervisory disclosure framework will enhance quality and comparability of data reported by competent authorities and enhance transparency by providing more information to the market.

Comments on the consultation paper can be made until 9 March 2023.

CRR III and CRD VI Proposals

On 10 February 2023, ECON published reports regarding the Commission proposals for the CRR III Regulation and the CRD VI Directive:

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

The reports contain draft Parliament resolutions with ECON’s suggested amendments to the proposed texts. The next step is for the Parliament to adopt a position at first reading. Details of the status of the draft proposals are available (here) and (here).

Bank Resolution and Recovery

On 13 February 2023, the EBA published a final report that provides Guidelines to resolution authorities on the publication of the write-down and conversion and bail-in exchange mechanic under the Bank Recovery and Resolution Directive (“BRRD”) (here).  The Guidelines are intended to provide a clear framework for resolution authorities to publish their approach to using the bail-in tool. Resolution authorities are expected to publish a document defining roles of key stakeholders, describe their approach to write down and conversion, whether they intend to use interim instruments or not, and how the share delivery will take place and share a timeline of the process.

Resolution authorities are expected to start publishing a high-level document from January 2024 setting out the key aspects of their favoured approach.

ITS - CRD IV Benchmarking

On 14 February 2023, Commission Implementing Regulation (EU) 2023/313 amending Implementing Regulation (EU) 2016/2070, which contains ITS on the benchmarking of internal models, was published in the Official Journal (here). The Implementing Regulation entered into force on 6 March 2023.

Deposit Guarantee Schemes

On 21 February 2023, the EBA published a final report containing revised guidelines on methods for calculating contributions to deposit guarantee schemes (“DGS”) under the  Directive 2014/49/EU (the “Deposit Guarantee Schemes Directive”) (here). These revised Guidelines shall apply from 3 July 2024.

Supervisory Convergence Plan

On 1 February 2023, EIOPA published its supervisory convergence plan for 2023 (here). The plan outlines EIOPA’s priorities to enhance supervisory convergence in 2023, which includes focusing on the following areas:

• practical implementation of the common supervisory culture and further development of supervisory tools, including ESG risks;
• risks to the internal market and the level playing field that may lead to supervisory arbitrage; and
• supervision of emerging risks, such as cyber risks.

Supervisory Statement on Third-country Governance Arrangements

On 3 February 2023, EIOPA published its supervisory statement on the use of governance arrangements in third countries to perform functions or activities (here).

EIOPA states that it applies the principle of substance over form in order to achieve clear supervisory expectations and ensure that similar risks are treated in a similar way, regardless of the legal form of the governance arrangement or location.

Report on Climate-related Adaptation Measures

On 6 February 2023, EIOPA published a report on the implementation of climate-related adaptation measures in non-life underwriting practices (here).

EIOPA concludes that implementing climate-related adaptation measures in the underwriting practices of non-life insurance undertakings is essential to maintain the future availability and affordability of non-life insurance with coverage against climate-related hazards.

RTS – Professional Indemnity Insurance/Capacity of Intermediaries

On 9 February 2023, EIOPA published a consultation paper on draft RTS adapting the base euro amounts for professional indemnity insurance (“PII”) and for financial capacity of intermediaries under the Insurance Distribution Directive (“IDD”) (here).

Article 10(7) of the IDD obliges EIOPA to regularly review the base amounts for PII and financial capacity to account for changes in the European index of consumer prices. The draft RTS increase the base amounts by 20.32% as this reflects the increase in consumer prices between 1 January 2018 and 31 December 2022.

The deadline for comments is 6 May 2023. After considering responses to the consultation, EIOPA will submit the RTS to the Commission by 30 June 2023.

Implementing Regulation - Q1 2023 Solvency II Reporting

On 10 February 2023, Commission Implementing Regulation (EU) 2023/266, which provides technical information for calculating technical provisions and basic own funds for reporting under the Solvency II Directive, was published in the Official Journal (here).

This Implementing Regulation sets out the technical information for use by (re)insurers when calculating technical provisions and basic own funds reporting with reference dates from 31 December 2022 until 30 March 2023.

The Implementing Regulation entered into force on 11 February 2023 and applies since 31 December 2022.

RTS - Tick Size Regime

On 1 February 2023, the Commission adopted a Delegated Regulation (here) amending Delegated Regulation (EU) 2017/588 as regards the annual application date of the calculations of the average daily number of transactions for shares, depository receipts and exchange-traded funds for the purposes of the tick sizes.

The amendments specify that the calculations for the average daily number of transactions (“ADNT”) apply as at the first Monday in April each year, rather than 1 April as is the current position.

Opinion - Trading Venue Perimeter

On 2 February 2023, ESMA published a final report containing its opinion on the trading venue perimeter under Directive 2014/65/EU (the “MiFID II Directive”) (here). The opinion sets out guidance on when certain systems and facilities qualify as ‘multilateral’ and when they should seek authorisation as a trading venue. This is intended to address different interpretations within the EU of whether a system needs to be authorised as a trading venue.

UCITS Q&As

On 3 February 2023, ESMA published an updated set of Q&As relating to the application of the UCITS Directive (here).

ESMA has included a new Q&A 5e on issuer concentration, clarifying that the term ‘body’ as used in Article 52(1)(b) of the UCITS Directive (which requires a UCITS not to invest more than 20% of its assets in deposits made with the same ‘body’) means ‘credit institution’ as referenced in Article 50(1)(f) of the UCITS Directive.

AIFMD2

On 9 February 2023, ECON published the report it adopted on the Commission's proposal for a Directive amending the Alternative Investment Fund Managers Directive (“AIFMD”) and the UCITS Directive (“AIFMD2”) (here).

The next step in the legislative process is for the Parliament to adopt a position at first reading. Details of the status of AIFMD2 as it progresses through the legislative process is available (here).

ELTIF Regulation

On 22 February 2023, the Council of the EU (the “Council”) published the text of the proposed Regulation amending the Regulation on European long-term investment funds (“ELTIF Regulation”) (here). The Council subsequently adopted the amending Regulation on 8 March 2023 (here). The amending Regulation was published in the Official Journal on 20 March 2023 (here).

The aim of the amendments made is to overcome a number of supply-side and demand-side limitations in the existing ELTIF framework. The revisions are intended to clarify the scope of eligible assets and investments, the portfolio composition and diversification requirements, the conditions for borrowing and lending of cash and other fund rules, including sustainability aspects.

The next step will be publication of the amending Regulation in the Official Journal.

Extension of Intragroup Exemptions

On 13 February 2023, two Commission Delegated Regulations containing RTS extending the temporary exemptions regime for intragroup contracts under EMIR were published in the Official Journal:

• Commission Delegated Regulation (EU) 2023/314 amends the RTS laid down in Delegated Regulation (EU) 2016/2251 as regards the date of application of certain risk management procedures for the exchange of collateral (here). This Commission Delegated Regulation extends until 30 June 2025 the deferred date of application of the margin requirements for intragroup transactions contained in the existing RTS; and
• Commission Delegated Regulation (EU) 2023/315 amending the RTS laid down in Delegated Regulations (EU) 2015/2205, (EU) 2016/592 and (EU) 2016/1178 as regards the date at which the clearing obligation takes effect for certain types of contracts (here). This Commission Delegated Regulation extends until 30 June 2025 the deferred date of application of the clearing obligation for intragroup transactions.

These Commission Delegated Regulations entered into force on 14 February 2023.

Our briefing (here) provides further detail on the above.

Q&As on DLT Pilot Regime

On 3 February 2023, ESMA published an updated version of its Q&As regarding the implementation of the Regulation on a pilot regime for market infrastructures based on distributed ledger technology (“DLT Pilot Regime Regulation”) (here). The new Q&As relate to transaction reporting of natural persons, financial instruments reference data and transparency. The DLT Pilot Regime is applicable from 23 March 2023.

Instant Payments

On 7 February 2023, the European Central Bank (“ECB”) published an opinion (here) on the proposed Regulation on instant credit transfers in euro. The ECB prepared the opinion following requests from the Parliament and the Council.

The proposed Regulation amends Regulation (EU) No 260/2012 (the “SEPA Regulation”) and Regulation (EU) 2021/1230 (the “Cross-Border Payments Regulation”) to make provision for instant payments (“IPs”) in euro. Overall, the ECB strongly supports the Commission’s initiative to promote the provision and uptake of IPs. In particular, the ECB welcomes measures to further harmonise the provision of IPs across SEPA jurisdictions for the benefit of consumers and to foster innovation.

RTS – Homogeneity of Underlying Exposures

On 14 February 2023, the EBA published its final report on draft RTS on the homogeneity of the underlying exposures in simple, transparent and standardised (“STS”) securitisations under the Securitisation Regulation (here). The final report follows a public consultation that finished in October 2022.

These draft RTS will amend Delegated Regulation (EU) 2019/1851 to specify criteria for homogeneity for asset-backed commercial paper (“ABCP”) and non-ABCP securitisations, and will apply to all STS securitisations, including ABCP, non-ABCP and on-balance sheet securitisations.

The draft RTS will be submitted to the Commission for endorsement and published in the Official Journal.

Q&As on Securitisation Regulation

On 17 February 2023, the Joint Committee of the European Supervisory Authorities (“ESAs”) published an updated version of their Q&As on the Securitisation Regulation (here). Eleven new Q&As are included, covering topics such as:

• early amortisation provisions in transaction documentation;
• step-up margins for investors upon loss of a securitisation's STS status;
• the application of the homogeneity criteria to branches;
• reporting templates for securitisation backed by project finance loan receivables;
• securitisation exposures backed by several collaterals;
• the application of EMIR to securitisation transactions; and
• institutional investors’ reporting obligations.

Papers, Speeches and Reports Published

Bank for International Settlements - When the music stops - holding bank executives accountable for misconduct (here)

CBI -  Specific disclosure requirements containing summary descriptions of the outcome of the review and description measures imposed by the CBI in cases of non-compliance with the Securitisation Regulation and the Capital Requirements Regulation (here)

CBI – Markets Update (Issue 2, 2023) (here)

CBI -  Ireland Safe Deposit Box, Bank and Payment Accounts Register - Frequently Asked Questions (here)

EBA -  No-action letter on the boundary between the banking book and the trading book provisions (here)

Commission - EU agrees 10th package of sanctions against Russia (here)

Commission - Call for advice to the EBA and ESMA to report on the prudential requirements applicable to investment firms (here)

ISDA –  ‘In Review’ February 2023 covering topics including, ISDA’s collateral initiatives infohub, a video on the benefits of the French and Irish law versions of ISDA documentation and a statement on EMIR 3 proposals (here)

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