Financial Services Regulatory Update – November 2021 Round Up

Directive on Credit Servicers and Credit Purchasers

Directive (EU) 2021/2167 of the European Parliament and of the Council on credit servicers and credit purchasers was adopted on 24 November 2021 and published in the Official Journal on 8 December 2021 (here).

The Directive forms part of the EU’s efforts to create a robust Banking Union and Capital Markets Union. More specifically, a key objective of the Directive is to promote the development of a secondary market for EU bank originated non-performing loans. It aims to achieve this by proposing a common set of rules that will apply to third party credit servicers operating in the European Union.

The Directive requires Member States to adopt and publish, by 29 December 2023, the laws, regulations and administrative provisions necessary to comply with the Directive. Entities already carrying out credit servicing activities on 30 December 2023 shall be allowed to continue carrying out those credit servicing activities in their home Member State until 29 June 2024 or until the date on which they obtain an authorisation in accordance with the Directive, whichever is the earlier. Member States that already have in place regimes that are equivalent to, or stricter than, those established in the Directive for credit servicing activities may allow entities already carrying out credit servicing activities under those regimes on 30 December 2023 to be automatically recognised as authorised credit servicers by the national provisions transposing the Directive.

See our briefing here for further detail on the Directive.

CBI Referral to Inquiry

On 10 November 2021, the Central Bank of Ireland (“CBI”) announced its referral of an administrative sanctions procedure case to inquiry in respect of a person formerly concerned in the management of permanent tsb plc (here).

The referral to inquiry follows an investigation conducted by the CBI under its administrative sanctions procedure (pursuant to Part IIIC of the Central Bank Act 1942). The CBI states that it has reasonable grounds to suspect that a person formerly concerned in the management of permanent tsb plc participated in the commission of a suspected prescribed contravention of Chapter 1, General Principle 1 of the Consumer Protection Code 2006.

Updates will be available on the Inquiry Hearings’ section of the CBI’s website here.

CBI Reprimand and Fine

On 30 November 2021, the CBI reprimanded and fined The Governor and Company of the Bank of Ireland €24,500,000 pursuant to its administrative sanctions procedure for failures to have a robust framework in place to ensure continuity of service in the event of a significant IT disruption. The CBI highlights that IT service continuity deficiencies were repeatedly identified from 2008 onwards but due to internal control failings were only appropriately recognised and addressed in 2015.

The CBI’s public statement is available here.

Capital Markets Union

On 25 November 2021, the European Commission announced its adoption of a package of four legislative proposals to further capital markets union (here).

The package includes:

• a proposal for a European Single Access Point (“ESAP”) which will offer a single access point for public financial and sustainability-related information about EU companies and EU investment products;
• a review of the European Long-Term Investment Funds (“ELTIFs”) Regulation to increase the attractiveness of ELTIFs for investors and their role as a complementary source of financing for EU companies;
• a review of the Alternative Investment Fund Managers Directive (“AIFMD”)). The Commission states the proposals are intended to harmonise the rules related to funds that give loans to companies and clarify rules on delegation;
• and a review of the MiFIR/MiFID to introduce a single European consolidated tape.

The next stage is for the proposals to be discussed by the Council and the European Parliament.

Payments Oversight

On 22 November 2021, the European Central Bank (the “ECB”) published the Eurosystem oversight framework for electronic payment instruments, schemes and arrangements (the “PISA” framework) (here) accompanied by an exemption policy (here) and a complementary assessment methodology (here) for electronic payment instruments, schemes and arrangements.

The new PISA framework replaces the "Harmonised oversight approach and oversight standards for payment instruments" and all related oversight frameworks for cards, direct debits, credit transfers and the security objectives for e-money. The PISA framework will also cover crypto-asset-related services, such as the acceptance of crypto-assets by merchants within a card payment scheme and the option to send, receive or pay with crypto-assets via an electronic wallet.

Newly overseen schemes or arrangements should adhere to the PISA framework within one year, at the latest, of being informed that they fall within its scope.

ITS for Reporting Requirements

On 19 November 2021, Commission Implementing Regulation (EU) 2021/1971 laying down amended implementing technical standards (“ITS”) for templates, definitions and IT-solutions to be used by institutions when reporting to the EBA and competent authorities under the Capital Requirements Directive was published in the Official Journal of the European Union (here). The Implementing Regulation shall enter into force on 9 December 2021 (20 days after publication).

ITS in respect of Credit Assessments

On 17 November 2021, Implementing Regulations 2021/2005 (here) and 2021/2006 (here) laying down ITS as regards mapping tables specifying the correspondence between the credit risk assessments of external credit assessment institutions and the credit quality steps set out in the Capital Requirements Regulation were published in the Official Journal. The Implementing Regulations enter into force on 7 December 2021 (20 days after publication in the Official Journal).

CBI - Private Motor Insurance Report

On 16 November 2021, the CBI published its third annual Private Motor Insurance Report of the National Claims Information Database (“NCID”) (here). The NCID compiles aggregate data received from insurers, giving information on premium levels, the cost of claims, insurers’ income and expenditure and how private motor insurance claims are settled. In particular, the report highlighted the impact of Covid-19, noting that the average claim cost per policy decreased by 20% from 2019 to 2020.

Solvency II

On 12 November 2021, Commission Implementing Regulation (EU) 2021/1964 (here) was published in the Official Journal of the European Union. The Implementing Regulation lays down technical information for the calculation of technical provisions and basic own funds reporting for insurers and reinsurers under the Solvency II Directive with reference dates from 30 September 2021 until 30 December 2021. The Implementing Regulation enters into force on 13 November and applies from 30 September 2021.

‘Dear CEO’ letter on MiFID II suitability requirements

On 1 December 2021, the CBI issued a ‘Dear CEO’ letter ‘Common Supervisory Action on MiFID II Suitability Requirements’ (here).

The letter outlines CBI findings based on a review of investment firms’ compliance with the suitability requirements under MiFID II. While the CBI identified evidence of positive practices, it also identified further actions required by firms as follows:

• firms need to take a more client focused approach; 
• firms need to improve their assessment of clients’ knowledge and experience, financial situation and investment objectives; and
• firms need to ensure suitability reports are sufficiently detailed and personalised to clients’ objectives and individual circumstances.

The CBI states that it will continue to engage with firms where specific supervisory actions have been imposed. In addition, the CBI will require all Irish authorised MiFID firms and credit institutions, who provide portfolio management and advisory services to retail clients, to conduct a thorough review of their “individual sales practices and suitability arrangements”. The CBI states this review must be documented and include details of actions taken to address findings in the ESMA public statement here and the ‘Dear CEO’ letter. The CBI also confirms that this review should be completed, and an action plan discussed and approved by the board of each firm, by end of Q1 2022.

CBI - Consultation on Macroprudential Measures for Property Fund Sector

On 25 November 2021, the CBI published Consultation Paper no. 145, ‘Macroprudential measures for the property fund sector’ (“CP145”) (here). The CBI states that the proposals set out in CP145 aim to safeguard the resilience of the property fund sector to enable it to better absorb future adverse shocks and serve its purpose as a ‘valuable and sustainable source of funding for economic activity'. The proposals in CP145 are intended to target two areas of financial vulnerability identified by the CBI in the property fund sector – leverage and liquidity mismatch.

The consultation process will run until Friday 18 February 2022.

Further detail on this consultation is set out in our briefing here.

Sustainability Disclosures

On 16 November 2021, the CBI issued a notice of intention entitled: ‘Process clarifications for UCITS and AIFs precontractual documentation updates in relation to the Taxonomy Regulation and Level 2 measures in relation to the Sustainable Finance Disclosure Regulation’ (the “Notice”) here.

The Notice details the CBI’s ‘fast-track’ filing process to assist firms meet regulatory deadlines in respect of pre-contractual document updates relating to the climate change mitigation and climate change adaptation objectives under the Taxonomy Regulation and disclosures required pursuant to the SFDR regulatory technical standards.

It should be noted that since publication of the Notice by the CBI, the European Commission has confirmed a further delay to the application date for SFDR regulatory technical standards (also known as SFDR Level 2 disclosures) (here). The application date for SFDR Level 2 disclosures has been delayed until 1 January 2023. The impending deadline of 1 January 2022 in respect of pre-contractual document updates relating to the climate change mitigation and climate change adaptation objectives under the Taxonomy Regulation remains unchanged.

See our briefing with further detail on the CBI ‘fast-track’ filing process here and our briefing on the European Commission’s delay in application of the SFDR regulatory technical standards here.

Anti-Money Laundering Bulletin

In December 2021, the CBI issued the latest edition of its Anti-Money Laundering Bulletin (the “Bulletin”) (here). The Bulletin contains information on the CBI’s Anti-Money Laundering/Counter Financing of Terrorism/Financial Sanctions (“AML/CFT/FS”) supervisory engagements with Funds and Fund Management Companies (the “Firms”).

The CBI has identified a number of areas where Firms must introduce improvements in order to ensure they can sufficiently demonstrate compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, as amended. These areas are: 

• corporate governance; 
• AML/CFT/FS business risk assessment; 
• outsourced AML/CFT/FS activities;
• and customer due diligence

The CBI states that it will continue to conduct supervisory engagements with Firms in this sector and expects Firms to be in a position to demonstrate that they have reviewed the findings and expectations detailed in the Bulletin and remediated any identified failings. The CBI states that where Firms fail to demonstrate the necessary remediation to ensure compliance, the CBI will determine the appropriate action to undertake, including utilising its enforcement powers, where necessary.

PRIIPS

On 23 November 2021, the European Parliament approved (here) an extension of the deadline by which investment companies must present a PRIIPs key information document (“KID”) to retail investors until 31 December 2022. The extension was adopted by way of:

• A legislative resolution on the proposal for a regulation amending Regulation (EU) No 1286/2014 as regards the extension of the transitional arrangement for management companies, investment companies and persons advising on, or selling, UCITS and non-UCITS (here); and
• a legislative resolution on the proposal for a directive amending Directive 2009/65/EC as regards the use of key information documents by management companies of UCITS (here).

The next step is for the Council to consider the proposed deadline extension.

Money Market Fund Reporting

In November 2021, the CBI published the ninth volume of reporting requirements for Fund Management Companies of Irish Authorised Money Market Investment Funds (here). The purpose of this guidance is to provide information and direction on the completion of money market fund reporting by Fund Managers.

Selected Consultations, Discussion Papers, Speeches and Reports Published

BCBS - standards for banks' voluntary disclosure of their sovereign exposures (here).

BCBS - market risk disclosure requirements standards (here).

CBI – feedback Statement ‘Enhancing our Engagement with Stakeholders’ (here).

CBI - feedback to consultation paper CP110 on the implementation of Competent Authority Options and Discretions in the European Union (Capital Requirements) Regulations 2014 and Regulation (EU) No 575/2013 (here).

European Commission - call for evidence (which shall range from 12 November 2021 until 4 February 2022) to develop and fine-tune a proposed directive aimed to improve corporate reporting and its enforcement, to improve the framework for corporate governance, external audit and supervision, investor protection and the depth and attractiveness of the Capital Markets Union (here).

EBA - final report containing draft RTS on the factors considered in assessing risk weights and conditions accounted for in the assessment of minimum loss given default values under Articles 124(4) and 164(8) of the CRR, as amended by the CRR II Regulation (here).

EBA - final report and draft implementing technical standards for consideration by the Commission on the disclosure of information on exposures to interest rate risk on positions not held in the trading book under the CRR as amended (here).

EBA - final paper of its guidelines on a common assessment methodology for granting authorisation as a credit institution, covering requirements set out in the Capital Requirements Directive (here).

EBA - final report on its revised guidelines on sound remuneration policies for investment firms under the Investment Firms Directive (here). These guidelines enter into force on 30 April 2022 and shall apply to competent authorities across the EU, as well as to credit institutions and investment firms on an individual and consolidated basis.

EBA - final report on internal governance under the Investment Firms Directive, specifying the governance provisions for Class 2 investment firms (here). These guidelines enter into force on 30 April 2022 and shall apply to EU competent authorities, as well as to credit institutions and investment firms on an individual and consolidated basis.

EBA - final report containing revised guidelines on recovery plan indicators under Article 9 of the Bank Recovery and Resolution Directive (here). Upon entering into force, two months after their publication, they shall repeal the previous 2015 guidelines.

EBA - final draft RTS on individual portfolio management of loans offered by crowdfunding service providers under Article 6(7) Regulation (EU) 2020/1503 (here).

EIOPA - technical information on the relevant risk free interest rate term structures (used to calculate technical provisions for (re)insurance obligations) with reference to end October 2021 (here).

EIOPA - annual Report on the use of Capital Add-ons during 2020 under Solvency II (here).

EIOPA - supervisory statement on the assessment of value for money of unit-linked insurance products under product oversight and governance (here).

ESMA - final report on draft technical standards for commodity derivatives as part of the post-COVID-19 MiFID II recovery package (here).

ESMA/EBA - consultation paper on joint guidelines on common procedures and methodologies for the supervisory review and evaluation process under the Investment Firms Directive (here). The deadline for responses to the consultation is 18 February 2022.

ESMA - annual report on the administrative and criminal sanctions and other administrative measures issued under the Market Abuse Regulation (MAR) in 2020 (here).

ESMA - final report on 12 sets of draft technical standards under the Regulation on European crowdfunding service providers for business ((EU) 2020/1503) (here).

ESMA - final report on draft RTS on the clearing and derivative trading obligations in view of the benchmark transition to risk free rates (here).

FSB – ‘Good Practices for Crisis Management Groups’ (here)

ISDA - updated matrix for EMIR EU and UK Reporting Industry Best Practices (here)

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