Financial Services Regulatory Update – January 2022 Round Up

Crowdfunding

On 13 January 2022, the Central Bank of Ireland (the “CBI”) announced a new crowdfunding regime here. The CBI’s announcement follows its recent designation as the competent authority for the purpose of the EU Crowdfunding Regulation (see further detail in our 'Financial Services Regulatory Update – December 2021 Round Up' here).

On 5 January 2022, the CBI issued a guidance note on completing an application form for authorisation as a crowdfunding service provider (a “CSP”) under Regulation (EU) 2020/1503 (here). This note provides guidance in relation to the authorisation process and requirements of the CBI for establishing a CSP firm in Ireland.

The CBI also published an addendum to the Consumer Protection Code 2012 (the “Code”) here and related feedback statement here. The purpose of this Addendum is to apply a number of existing advertising requirements in the Code to CSPs and to introduce new provisions 9.1a and 9.53 of the Code, which will be specific to crowdfunding service providers (these new provisions relate to regulatory disclosure statements and a risk warning in CSP advertisements). The Addendum to the Code is effective from 13 January 2022.

On 28 January 2022, ESMA updated the investor protection provisions section of its Q&A  on the European crowdfunding service providers for business Regulation here. New Q&A clarify:

• the languages that a  key investment information sheet (“KIIS”) should be prepared in (Q&A 5.3);
• translation requirements for a KIIS of a CSP (Q&As 5.4 and 5.5);
• language requirements for the purposes of marketing requirements and the KIIS (Q&A 5.6);
• whether a project owner can market its crowdfunding projects (Q&A 5.7); and
• which laws, regulations or administrative provisions apply when marketing communications are disseminated in the Member State in which the CSP is authorised or in another Member State (Q&A 5.8).

Credit Unions

On 19 January 2022, the CBI commenced a public consultation on the application of the Minimum Competency Code 2017 and the Minimum Competency Regulations 2017 to credit union core services (“CP147”) (here). The CBI proposes extending the minimum competency requirements to credit union activities such as lending and deposits. The minimum competency requirements currently apply to credit unions when acting as retail intermediaries, providing mortgage credit agreements and devising or creating mortgage credit products. CP147 is open until 19 April 2022.

On 21 January 2022, the CBI consulted on proposed changes to the Credit Union Act 1997 (Regulatory Requirements) Regulations 2016 relating to services exempted from the additional services provisions of the Credit Union Act, 1997 (“CP148”) (here). Subject to certain conditions, credit unions may provide certain ‘exempt’ services without approval for additional services from the CBI. The proposed changes are mainly technical in nature, other than two policy changes intended to introduce amendments to the conditions for the provision of certain exempt services and prescribing a broader set of intermediation services as exempt services. CP148 is open until 21 April 2022.

Borrowers in financial distress

On 5 January 2022, the CBI published a revised Standard Financial Statement (“SFS”) to assist borrowers in financial distress here. The SFS is used by regulated firms to gather information from distressed borrowers on their current financial situation, their lender can then assess whether it can offer a borrower an alternative repayment arrangement.  The CBI states that the revised SFS is easier to understand and navigate.The revised financial statement must be used by regulated firms from 1 January 2022.

The CBI has also published a consumer guide on the completion of the SFS aimed at enhancing borrower understanding of the SFS and how it should be completed here.

New SI – Benchmark Indices

On 28 January 2022, the European Union (Indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds) (Amendment) Regulations 2022 was published here. These Regulations give effect to Regulation 2021/168 amending the Benchmark Regulation (“BMR”) and incorporates provisions in respect of replacement benchmarks.

Short Selling

On 11 January 2022, Commission Delegated Regulation (EU) 2022/27 amending the Short Selling Regulation ((EU) 236/2012) (the “SSR”) as regards the adjustment from 0.2% to 0.1% of the relevant threshold for the notification of significant net short positions in shares under Article 5(2) of the SSR in the light of the COVID-19 pandemic was published in the Official Journal of the European Union (here). The Delegated Regulation entered into force on 31 January 2022.

ESMA subsequently issued a statement on 26 January 2022 clarifying how to report net short positions under the new 0.1% threshold (here).

Credit Rating Agencies

On 31 January 2022, ESMA published a final report (here) setting out its guidelines on disclosure requirements for initial reviews and preliminary ratings under the Regulation (EC) No 1060/2009 (the “CRA Regulation”). ESMA states that these guidelines have been designed in light of ESMA’s concerns regarding rating shopping and inconsistencies in the application of certain requirements by credit rating agencies. These guidelines shall apply from 1 July 2022.

On 28 January 2022, ESMA launched a public consultation to revise its guidelines relating to the scope of the CRA Regulation for private credit ratings here. Proposed revisions are intended to provide greater clarity on the exemptions for private ratings under the CRA Regulation. The closing date for responses is 11 March 2022.

EMIR – Application of Clearing Obligation to PSAs

On 25 January 2022, ESMA issued a letter to the European Commission relating to the clearing obligation for pension scheme arrangements (“PSAs”) here.  In its letter, ESMA expressed the view that the clearing obligation should start applying to PSAs and recommended a final one year extension of the exemption to start applying the clearing obligation to PSAs (until 19 June 2023). The next step is for the European Commission to consider ESMA’s recommendation.

Benchmark Regulation -Q&As

On 28 January 2022, ESMA published updated Q&As on the BMR here. Q&A 8.6 clarifies that temporary disruptions to the provision of a benchmark do not require supervised entities to initiate their written plans established for the event of cessation of a benchmark pursuant to Article 28(2) of the BMR. ESMA confirms that a temporary disruption to the provision of a benchmark does not constitute by itself a cessation of the benchmark.

Securities Financing Transactions Reporting - Q&As

On 25 January 2022, ESMA updated Question 2 of its Q&A on SFTR data reporting ‘Reporting of settlement fails’. A new subparagraph (d) clarifies that where the counterparties have been unable to modify the maturity date of an securities financing transaction (“SFT”) due to a failed settlement that takes place after the day following the maturity date, the counterparties should report the remaining/outstanding SFT with a new UTI and specify accordingly the complete and accurate details of that SFT and in particular its maturity date.

RTS and guidelines - CCP Recovery and Resolution Regulation

On 31 January 2022, ESMA published seven final reports on regulatory technical standards (“RTS”) and guidelines reflecting mandates introduced by the regulation on a framework for the recovery and resolution of central counterparties (“CCPs”) (Regulation (EU) 2021/23) (the “CCP Recovery and Resolution Regulation”).

The final reports include drafts of:

• guidelines on the consistent triggers for early intervention measures (here);
• guidelines on CCP recovery plan scenarios (here);
• guidelines on CCP recovery plan indicators (here);
• RTS further specifying the factors that shall be considered by the competent authority and the supervisory college when assessing the CCP recovery plan (here);
• guidelines further specifying the circumstances for temporary restrictions in the case of a significant non-default event in accordance with Article 45a of EMIR (here);
• RTS specifying the conditions for recompense (here); and
• RTS on the methodology for calculation and maintenance of the additional amount of pre-funded dedicated own resources (here).

ESMA states the above are aimed to improve the market preparedness and financial soundness of CCPs without extraordinary public financial support and to allow CCPs to continue to provide critical functions even after a significant deterioration of their financial situation or whilst in a situation of financial distress. The European Commission will now consider the above drafts.

EBA launches AML and CFT central database

On 31 January 2022, the European Banking Authority (“EBA”) announced the launch of its anti-money laundering (“AML”) and countering financing of terrorism (“CFT”) central database (“EuReCA”) (here). The EBA has also produced draft RTS setting up EuReCA which must be approved by the European Commission here. Once operative, the EBA intends to use the information collected through EuReCA to inform its view of AML and CFT risks affecting the EU financial sector and share these insights with competent authorities. Information collected will include data on financial institutions with “material weaknesses”, ie, inadequate AML and CFT policies, and procedures and measures imposed by competent authorities to rectify those weaknesses.

Mutual Assistance with the UK

On 27 January 2022, the Minister for Justice signed the European Union (Criminal Justice (Mutual Assistance) Act 2008 (Amendment) Regulations 2022 here. These Regulations give effect to the trade and co-operation agreement made between the EU and the UK on 30 December 2020 with a view to supplementing and facilitating the application of European Mutual Assistance Conventions between the EU and the UK.

Climate Risk Stress Tests

On 27 January 2022, the ECB launched its 2022 climate risk stress test (here). The parameters of this stress test were outlined in the ECB’s ‘Dear CEO’ letter in October 2021 (further detailed in our ‘Financial Services Regulatory Update – October 2021 Round Up’ here).

The exercise will be conducted in the first half of 2022 after which the ECB will publish aggregate results. The ECB has reiterated that this test is a learning exercise for banks and supervisors alike and is not a ‘pass or fail’ exercise, nor does it have direct implications for banks’ capital levels.

The ECB notes that the 2022 ECB climate risk stress test will complement other ECB Banking Supervision and central banking climate-related deliverables, including the ECB’s 2022 thematic review on the incorporation of climate-related and environmental risks into banks’ risk strategies, governance and risk management frameworks and processes.

ITS - prudential disclosures on ESG risks under CRR

On 24 January 2022, the EBA published a final report (here), and related factsheet (here), setting out draft implementing technical standards (“ITS”) on Pillar 3 mandatory prudential disclosures relating to Environmental, Social and Governance (“ESG”) risks under Article 449a of the Capital Requirements Regulation (Regulation (EU) 575/2013) (the “CRR”).

Forms of disclosure templates are set out in Annex I of the EBA’s report, while instructions on their completion are contained in Annex II. The EBA states that the disclosures set out are quantitative in nature and relate to climate-change-related transition and physical risks. The EBA states that the ITS also provide for key performance indicators (“KPIs”), such as the Green Asset ratio (“GAR”), consistent with the European Green Deal and the Paris agreement goals. The EBA also states it has integrated proportionality measures to facilitate disclosures, including transitional periods and the use of estimates. The draft ITS will now be considered by the Commission.

ITS - currencies with constraints on availability of liquid assets under CRR

On 26 January 2022, the EBA published a final report (here) with draft amending ITS on currencies with constraints on the availability of liquid assets supplementing the CRR. In particular, the EBA proposes removing the Norwegian Krone (“NOK”) from the identified currencies granted derogations in Commission Implementing Regulation (EU) 2015/2344, as there is no longer a shortage in the supply of liquid assets in the NOK currency. The draft ITS will now be considered by the Commission.

CRR – Q&A

On 22 January 2022, the EBA updated its CRR Q&A to clarify the calculation of “aggregated liabilities” and “total liabilities” that are used to define multi-currency reporting obligations here.

BRRD  - Q&A

On 28 January 2022, the EBA updated its Directive 2014/59/EU (“BRRD”) Q&A relating to the interpretation of a reference to ‘institutions’ in Article 25(6) of the BRRD which transmit the decision to provide financial support to a relevant competent authority here.

Guidance on the use of Service Companies for Staffing Purposes in the Insurance Sector

On 31 January 2022, the CBI published its final guidance on the use of service companies for staffing purposes in the insurance sector (the “Guidance”) here and related feedback statement here. The Guidance is directed at regulated undertakings in the insurance sector which enter into arrangements for the use of separate legal entities for the provision of extensive staffing to that undertaking (“Staffing Arrangements”) and arrangements which involve a combination of the provision of staffing and other activity outsourcing within the same arrangement (“Hybrid Arrangements”).

The Guidance includes requirements relating to general governance (including clauses the CBI expects to see in the written contract governing the staffing arrangement, role of the board, BCP, risk management, compliance risk and due diligence) and reporting (both internal and regulatory reporting).

The CBI expects undertakings to take the necessary steps to review such arrangements and ensure they are updated and augmented, as appropriate, to align with the expectations set out in the Guidance. The CBI expects undertakings to have conducted that review and augmentation, where appropriate, within 12 months of the implementation of the Guidance (ie, by January 2023).

Corrigendum to Commission Delegated Regulation (EU) 2015/35 supplementing the Solvency II Directive

On 6 January 2022, a corrigendum to Commission Delegated Regulation (EU) 2015/35 was published in the Official Journal of the European Union here. The corrigendum amends Section C (reserve risk method 1), paragraph 2, point (e)(ii) of Annex XVII on page 274 of the Solvency II Directive to include a reference to ‘best estimate’.

MiFID ‘Quick-Fix’ Directive

On 11 January 2022, the European Union (Markets in Financial Instruments) (Amendment) Regulations 2022 (SI No 6 of 2022) which transpose the MiFID ‘Quick-Fix’ Directive into Irish law was published here.

The MiFID ‘Quick-Fix’ Directive, as transposed in the Regulations, contains targeted measures to support economic recovery from COVID-19 including:

• reducing client information requirements (including providing for electronic communication as the default method of communication);
• temporary suspension of best execution reporting (specifically RTS27) until 28 February 2023;
• reducing product governance requirements (the removal of certain product governance requirements for bonds with no other embedded derivative than a make-whole clause or where the financial instruments are marketed or distributed exclusively to eligible counterparties); and
• changing the scope of position limits.

The measures contained in the Regulations are due to apply from 28 February 2022.

Statement for MiFID Investment Firms

On 26 January 2022, the CBI issued a statement for MiFID investment firms authorised to provide the MiFID investment services of dealing on own account or underwriting of financial instruments on a firm commitment basis (here).

The CBI statement provides that all MiFID investment firms authorised to provide the MiFID investment services of dealing on own account or underwriting of financial instruments on a firm commitment basis should give due regard to both the threshold reporting requirements and the threshold calculation methodology for determining the need for reclassification of an investment firm as a credit institution set out in recent EBA draft RTS here and here.

The CBI highlights that MiFID investment firms that anticipate meeting the threshold triggering requirements are expected to engage with the CBI regarding their re-authorisation within 3 months of the date of entry into force of the delegated act and submit an application for re-authorisation as a credit institution within 6 months of the date of entry into force of the delegated act.

The CBI also states that impacted MiFID investment firms are required to engage with their usual supervisory team setting out a reasonable plan to bring the respective firm into compliance with the prudential framework under CRR (including Part VI liquidity requirements) as soon as possible. The CBI also confirms for the avoidance of doubt that any impacted MiFID investment firm must be in compliance with this framework by the end Q3 2022 reporting date.

RTS - liquidity thresholds and trade percentiles used to determine SSTI applicable to non-equity instruments under MiFIR

On 12 January 2022, the European Commission adopted a Delegated Regulation (here) amending Delegated Regulation (EU) 2017/583 which contains RTS on the adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument (“SSTI”) applicable to certain non-equity instruments. The Delegated Regulation shall now be considered by the Council of the EU and the European Parliament and if neither object, be published in the Official Journal of the European Union, 20 days upon which it shall enter into force.

RTS - K-factor daily trading flow coefficients under IFR

On 20 January 2022, Commission Delegated Regulation (here) supplementing the Investment Firms Regulation with regard to RTS  supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards specifying adjustments to the K-factor ‘daily trading flow’ (K-DTF) coefficients was published in the Official Journal of the European Union and shall enter into force on 9 February 2022.

RTS -  prudential requirements under IFR

On 11 January 2022, two Delegated Regulations with RTS relating to prudential requirements for investment firms under the Investment Firms Regulation (“IFR”) were published in the Official Journal of the European Union. Delegated Regulation (EU) 2022/25 (here) lays down RTS specifying methods for measuring K-factors. Delegated Regulation 2022/26 (here) lays down RTS on segregated accounts to protect client money in the event of an investment firm’s failure. Both Delegated Regulations entered into force on 31 January 2022.

MiFID/MiFIR Q&A

On 28 January 2022, ESMA updated its Q&A on MiFID II and MiFIR transparency topics here to include a Question 6 clarifying that before a trading venue starts operating as well as before an instrument is admitted to trading or traded on a trading venue for the first time, that trading venue should verify whether the respective instrument(s) is(are) traded on other trading venues and is(are) subject to an EU level suspension under the Double Volume Cap mechanism.

CSA on valuation of UCITS and open-ended AIFs

On 20 January 2022, ESMA announced a common supervisory action (“CSA”) with NCAs on valuation of UCITS and open-ended AIFs (here).

The CSA is intended to assess compliance of supervised entities with the relevant valuation-related provisions in the UCITS and AIFMD frameworks.

ESMA states that the CSA will focus on authorised managers of UCITS and open-ended AIFs investing in less liquid assets and one core objective is ‘to ensure that less liquid assets are valued fairly both during normal and stressed market conditions’. In-scope managers should expect follow-up from the CBI in respect of this CSA in due course.

Reverse Solicitation

On 3 January 2022, ESMA made available a letter to the European Commission (dated 17 December 2021) in relation to the Commission’s request for support in relation to a report on reverse solicitation (here).

ESMA states that the result of its survey of NCAs showed that almost all NCAs have no readily available information on the use of reverse solicitation either via asset managers or investor associations. ESMA notes that the absence of figures on reverse solicitation can be explained by the fact that, under EU law, asset managers are not subject to any obligation to report to their NCAs any information on subscriptions stemming from reverse solicitation.

ESMA suggests that if there was willingness to fill in this information gap on a more permanent basis at European level, consideration should be given to the introduction of new reporting requirements allowing to collect information on reverse solicitation across the EU.

Selected Consultations, Discussion Papers, Speeches and Reports Published

BIS - Money markets, Collateral and Monetary Policy here

BIS -  Gatekeeping the Gatekeepers: When Big Techs and Fintechs own Banks – Benefits, Risks and Policy Options here

CBI – Withdrawal of 2017 Policy Statement on its approach to Proportionality relating to the Pay-out Process applicable to Variable Remuneration dated 31 January 2017(here)

EBA -   Final draft implementing technical standards on prudential disclosures on ESG risks in accordance with Article 449a CRR (here)

EBA - Opinion of the EBA on ‘de-risking’ (here)

EBA - Decision of the EBA concerning rules of procedure for non-binding mediation between competent authorities (here)

EBA - Decision on rules of procedure for the Settlement of Disagreements between Competent Authorities (here)

EBA - consolidated Decision of the EBA concerning Rules of Procedure for Investigation of breach of Union law (here).

EBA - Guidelines on Transferability to complement the Resolvability Assessment for Transfer Strategies (here)

EBA – Guidelines on improving Resolvability for Institutions and Resolution Authorities under Articles 15 and 16 BRRD (Resolvability Guidelines) (here)

EBA – Discussion paper on the EBA’s preliminary observations on selected payment fraud data under PSD2, as reported by the industry (here)

EBA – Guidelines on the benchmarking exercises on the remuneration practices, on the gender pay gap and on approved higher ratios under Directive 2013/36/EU (here) and Guidelines on the benchmarking exercises on remuneration practices and gender pay gap under Directive (EU) 2019/2034 (here)

EBA – Consultation on draft Guidelines on the data collection exercises regarding high earners under Directive 2013/36/EU and under Directive (EU) 2019/2034 (here)

EBA – confirmation of the continued application of COVID-19 related reporting and disclosure requirements until further notice (here)

ECB - Opinion on the establishment by the Central Bank of Ireland of a database on safe-deposit boxes and bank and payment accounts (here)

ECB - Opinion on a proposal to amend Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms with respect to resolution (here)

EIOPA -  Methodological Principle of Insurance Stress Testing – Climate Change Component (here)

EIOPA – Advice to the European Commission regarding certain aspects relating to Retail Investor Protection (here)

European Commission - Call for advice to the EBA regarding the review of Directive 2014/17/EU1 (Mortgage Credit Directive) (here)

European Commission - Summary of responses to Consultation on Supervisory Convergence and Single Rulebook (here)

European Commission - Interpretation of the Payment Accounts Directive (PAD) – Negative interest rates (here)

ESMA - Call for Evidence in relation to the DLT Pilot Regime and Review of MiFIR Regulatory Technical Standards on Transparency and Reporting (here)

ESMA -   Review of MAR Guidelines on delay in the disclosure of inside information and interactions with prudential supervision (here)

ESMA - Final Report on revised MAR Guidelines on Delay in Disclosure of Inside Information and Interactions with Prudential Supervision (here)

ESMA - Proposal for a Regulation of European Green Bonds (EU GB Regulation) here

ESMA - Methodology for Mandatory Peer Reviews in relation to CCPs’ authorisation and supervision under EMIR (here)

ESMA – Report to the European Commission on the application of accepted market practices (here)

ESMA - Consultation on draft guidelines on certain aspects of MIFID II suitability requirements here

ESMA - final report on guidelines on aspects of appropriateness and execution-only under MiFID II (here)

ESMA – Consultation on Review of RTS No 153/2013 with respect to procyclicality of margin (here)

ESMA – Consultation on ESMA’s Opinion on the trading venue perimeter (here)

ESRB -  Recommendation on reform of Money Market Funds (here)

ESRB – Recommendation on a pan-European systemic cyber incident coordination framework for relevant authorities (here)

FSB -  Practices Papers - Resolution Funding for Insurers (here) and Internal Interconnectedness in Resolution Planning for Insurers (here)

IAIS - 2022-23 Roadmap (here)

IOSCO -  Report on Retail Distribution and Digitalisation Consultation Report (here)

ISDA – ISDA in review – January 2022 (here)

ISDA -  ISDA Statement on RBSL Consultation on CDOR (here)

ISDA – Informal Comments - Time to Revisit FRTB Treatment of Funds (here)

ISDA - Updated OTC Derivatives Compliance Calendar (here)

ISDA -  Transition to RFRs Review: Full Year 2021 and the Fourth Quarter of 2021 (here)

ISDA -  ISDA and IIF Respond to BCBS/CPMI/IOSCO Consultation on Margin Practices (here)

ISDA -  ISDA Responds to CFTC’s Consultation on Clearing Requirements in Relation to LIBOR Transition (here)

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