Financial Services Regulation and Compliance – Banking April 2022

Domestic

The Central Bank issues a ‘Dear CEO’ letter outlining its prudential expectations regarding the withdrawal of retail banks from the Irish market

On April 27, 2022, the Central Bank of Ireland (CCR) has issued a “Dear CEO” letter setting out its expectations for bank oversight during the withdrawal of retail banks from the Irish market. The CBI expects banks to strengthen their obligation to take steps to ensure that the account switching exercise is smooth and the best interests of consumers are protected. The letter asks banks to submit details of plans to support customers through the switch process by the close of business on Wednesday May 11.

Central Bank issues “Dear CEO” letter on retail banking exits and account migrations

On April 27, 2022, the Central Bank of Ireland (CCR) published a second “Dear CEO” letter reinforcing its prudential expectations on retail banking exits and account migrations as set out in the June 2021 Dear CEO letter and invites CEOs to a roundtable on this topic. The letter sets out five risks that deserve particular attention at this time:

  1. notice periods
  2. switching process application
  3. new supplier making business decisions in a way that makes it easier for a customer to make and execute a change
  4. principals and/or other service providers
  5. vulnerable customers

The roundtable will take place at 11 a.m. on Tuesday, May 17, 2022 at the CBI.

The importance of effective governance, culture and agility in a changing environment

On April 27, 2022, Derville Rowland, Chief Financial Conduct Officer, spoke at the Institute of Banking/Compliance Institute Seminar. In her speech, Director Rowland made the following points:

  • The framework of individual responsibility (IAF) which consist of standards of conduct, a senior management accountability regime, enhancements to the current fitness and probity regime, and a strengthened enforcement process. Director Rowland noted that businesses should take preparatory steps now and be fully aware of existing obligations, both at company and individual level.
  • Structural changes in the Irish retail banking sector, including a deep shift to digital services, the growth in the number of authorized payment and e-money businesses and the withdrawal of Ulster Bank and KBC.
  • Sustainable finance and risks of greenwashing. Director Rowland highlighted that the CBI’s prudential expectations include companies demonstrating clear ownership of climate risks affecting their businesses and promoting a culture that emphasizes climate and other ESG risks. Companies should put in place appropriate risk management frameworks, undertake scenario analyzes and stress tests, and assess their business models for climate risks.

Opening remarks by Deputy Governor Sharon Donnery at the Central Bank Conference to inform the review of the 2021-2022 Mortgage Measures Framework

On April 26, 2022, CBI Deputy Governor Sharon Donnery delivered the keynote address at the Central Bank Conference to inform the review of the 2021-2022 Mortgage Measures Framework. In her opening remarks, Deputy Governor Donnery explained in 2021 that the CBI has conducted a comprehensive review of the entire framework surrounding mortgage measures alongside the review of mortgage measures. Deputy Governor Donnery noted that the CBI will work to finalize the framework for mortgage measures after the conference. Feedback from the conference and public engagements, along with other CBI research and analysis, will inform final conclusions on the design of the framework and the implications for the calibration and implementation of mortgage measures. The framework review is expected to be completed in the second half of 2022.

European

EBA proposes to simplify and improve the macroprudential framework

On April 29, 2022, the European Banking Authority (EBA) published its response to the European Commission’s call for advice on the review of the macroprudential framework, proposing a series of recommendations aimed at simplifying the procedures around some of the existing macroprudential tools and increasing harmonization for others. The EBA made the following recommendations:

  • replenish regulatory capital buffers to sufficient levels so that they can be released if needed in the future
  • carry out a comprehensive assessment of the interaction of macroprudential measures with other capital requirements, such as the leverage ratio, own funds and eligible liabilities (MREL) terms
  • maintain clear roles and responsibilities for the various authorities involved in microprudential and macroprudential policy as well as close coordination between them
  • include a legal mandate in the Capital Requirements Directive (CRD) to develop methodologies covering both the identification of other systemically important institutions (O-SIIs) and the setting of buffer rates
  • simplify the text of the CRD and the Capital Requirements Regulation (CRR) around the governance procedures of certain macroprudential measures
  • perform additional assessments on the ability of current macroprudential tools to address environmental risks, crypto assets and cybersecurity, and
  • ​establish a monitoring and control system for non-bank lenders and expand the scope of the macroprudential framework to cover non-bank lenders

European Commission publishes Delegated Regulation (EU) 2022/676 supplementing Article 18 of the Capital Requirements Regulation

On April 26, 2022, the European Commission (EC) published in the Official Journal of the European Union (CHEEK). The Delegated Regulation specifies the conditions under which the consolidation must be carried out in the cases referred to in Article 18(3) to (6) and Article 18(8) of Regulation No 575/2013 (CRR). The delegated regulation will enter into force on May 16, 2022.

EBA publishes final draft regulatory technical standards on risk retention requirements for securitisations

On 12 April 2022, the EBA published its final draft regulatory technical standards (RTS) specifying the risk retention requirements for originators, sponsors and original lenders as set out in the Securitization Regulation and as amended by the Capital Markets Recovery Program (CMRP). The RTS aim to clarify risk retention requirements by ensuring better alignment of interests and reducing the risk of moral hazard. The draft RTS includes several amendments to the RTS adopted by the EBA in 2018 and further clarifies the risk retention requirements. The draft RTS will replace the current Commission Delegated Regulation of 2014 and a transitional period will apply to securitisations whose securities were issued before its date of application.

EBA issues opinion on European Commission’s proposed amendments to final draft EBA technical standards for own funds and eligible liabilities

On 8 April 2022, the EBA published its opinion on the EC’s proposed amendments to the final draft EBA Regulatory Technical Standards (RTS) for own funds and eligible liabilities. The EBA expressed its disagreement with two substantive changes proposed by the Commission concerning:

  1. the provisions covering the notions of direct and indirect financing
  2. the prior authorization procedure for certain types of entities in liquidation

EBA submitted the amended draft RTS to the Commission.

The EBA publishes the final report on the modification of its technical standards on the exemption to strong customer authentication for account access

On 5 April 2022, the EBA published its final report on amending its regulatory technical standards (RTS) on strong client authentication (SCA) and common and secure communication (CSC) under the Payment Services Directive (PSD2). The amendment is intended to reduce friction for customers using these services and to mitigate the impact that the frequent application of SCA and the inconsistent application of the current exemption is having on AISP services. The changes include a new mandatory exemption to SCA requiring account providers not to apply SCA when customers use an account information service provider (PSIA) to access their payment account information. The renewal frequency for SCAs will also be extended from 90 days to every 180 days. The draft amended RTS will be submitted to the Commission for approval. The amendments will apply seven months after their entry into force.

EBA launches survey of banks on application of infrastructure support factor

On 5 April 2022, the EBA launched a survey of banks on their experiences in applying the so-called infrastructure support factor under the Capital Requirements Regulation (CRR 2) (the survey). The survey aims to assess the application of the support factor and provide valuable information on the materiality of lending to infrastructure projects in EU banks. The survey is running until May 27, 2022.

Competent national authorities (CNAs) distribute the survey directly to the largest banks. A virtual industry roundtable to discuss the application of the infrastructure support factor will take place on April 21, 2022.

Annual supervision fees for 2021

On 5 April 2022, the ECB adopted Decision (EU) 2022/514 on the total amount of annual supervisory fees for 2021. The decision sets the annual supervisory fees to be paid by significant supervised entities and groups, less large and smaller supervised groups.

Sanctions imposed in response to the crisis in Ukraine

Since February, the EU has imposed a number of sanctions in response to the crisis in Ukraine. As the crisis develops and sanctions continue to evolve, the CBI is publishing details of new restrictive measures/sanctions adopted in this regard, along with any associated EU/UN guidance, on their dedicated webpage.