1. Central Bank of Ireland Deputy Governor, Derville Rowland delivers speeches on (1) the regulatory outlook for financial services and (2) AML Partnership in Ireland
1. Deputy Governor, Derville Rowland delivers speech focusing on the regulatory outlook for financial services in Europe and Ireland
On 23 September 2024, Deputy Governor of the Central Bank of Ireland (“Central Bank”), Derville Rowland gave a speech entitled “Change and challenges – responding to uncertainty, transforming for the future and driving innovation” at the Association for Financial Markets in Europe’s 8th Annual European Compliance and Legal Conference in London.
In what is a recurring theme for regulators, the Deputy Governor pointed to continuing geopolitical risks, including uncertainty around electoral outcomes. She went on to align those risks with the threat of cyber risk and the imperative requirement of operational resilience, specifically highlighting the weaknesses exposed by the recent Crowdstrike incident. Continuing in that vein, the Deputy Governor noted that cyber risk and the link to geopolitical tensions has been flagged by the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority and indeed, are being increasingly recognised as a significant and likely risk by regulated firms. On a positive note, she noted the recent Memorandum of Understanding (“MoU”) between the European Supervisory Authorities and the EU Agency for Cybersecurity – for more detail on the MoU please see the FIG Top 5 at 5 dated 13 June 2024.
Given the persistent threat that is posed by cyber risks, Deputy Governor Rowland emphasised the importance of the implementation of the Digital Operational Resilience Act (“DORA”) and noted that it is a key focus for regulators and firms. In that regard, she also addressed the matter of proportionality when it comes to such implementation, noting that the principle has added importance in the context of DORA given its cross – sectoral nature and wide – ranging scope, adding that it is important that smaller firms are not disproportionately burdened.
In what is also becoming an important and topical consideration, the Deputy Governor referred to the importance of Europe’s international competitiveness, noting it as being at the centre of the European Commission’s (“Commission”) programme. Specifically, she highlighted the recent Draghi Report and the Letta Report. For detail on the former please see the FIG Top 5 at 5 dated 12 September 2024. On the point of competitiveness, Deputy Governor Rowland noted that it seems likely that there will be a continued focus on reducing and simplifying existing EU law. She sounded a note of caution in this regard, emphasising that effective regulation which safeguards consumers, fosters market integrity and supports resilience is key to supporting financial stability, which goes hand in hand with economic growth and the promotion of competitiveness.
The Deputy Governor’s speech also reemphasised the Central Bank’s focus on technological innovation and the establishment of the innovation sandbox programme. For more detail on the latter please see the FIG Top 5 at 5 dated 6 June 2024. The speech also touches on the innovations in financial services that have occurred over recent years citing the most notable as the development of blockchain-based technologies. In this regard, Deputy Governor Rowland notes the positive impact of the Commission’s 2020 digital finance package, noting that we are now on the brink of implementing MiCA. With specific reference to MiCA, she noted the following:
- the potential for crypto and blockchain technologies, paired with global internet access, to provide easy and immediate access to people across the world to financial services, achieving a level of financial inclusivity that traditional financial services cannot;
- the fact that MiCA will introduce a harmonised regulatory framework that introduces prudential and conduct obligations for issuers of e-money tokens, asset-referenced tokens, and for crypto-asset service providers; and
- the fact that the Central Bank has been working to improve its authorisation process and that this approach of continuous improvement will continue under MiCA.
Deputy Governor Rowland also discussed the following themes in her speech:
- the importance of protecting consumers underpinned by high levels of financial literacy, specifically noting that Ireland is currently developing a national financial literacy strategy with the aim of ensuring that consumers are less likely to be vulnerable to harm from firms that are not securing their interests, and less vulnerable to frauds and scams;
- the important role of Ireland’s financial sector in supporting the Savings and Investment Union and providing opportunities for retail investors to participate in capital markets, supported by effective regulation and supervision with the maintenance financial stability to the fore.
2. Deputy Governor Derville Rowland delivers speech on AML partnership in Ireland
On 25 September 2024, Deputy Governor of the Central Bank of Ireland (“Central Bank”), Derville Rowland, gave a speech at a Future of Financial Intelligence Sharing Event in Dublin. The speech considered the development of Partnerships for Information Sharing (“Partnership(s)”) under the EU’s AML regulation.
Recognising the prevalence of financial crime and indeed the increasing sophistication of it due to technology, the Deputy Governor stated that the creation of the EU Authority for Anti‑Money Laundering and Countering the Financing of Terrorism (“AMLA”), has presented an opportunity to eliminate the weak points in the current European AML / CFT framework. In that regard, she set out three things she considers necessary to ensure that the new AML package is a success:
- AMLA and national supervisors need to encourage and support the establishment of Partnerships;
- the private sector needs to play its part in making Partnerships work under the AML Regulation; and
- AMLA and national authorities, including law enforcement, must work in collaboration to raise standards and act as a catalyst for innovative solutions, including data sharing, to support the fight against money laundering and terrorist financing.
Information Sharing
In her speech, Deputy Governor Rowland pointed to the need for financial institutions to share information in order to combat global criminal networks, acknowledging such data as being the most useful tool when it comes to the detection and prevention of financial crime. Further, she highlighted that the inability of private sector operators to share real time financial crime information with each other is a gap that is being exploited by criminals. The Deputy Governor pointed to the UK, the US and Singapore as examples of jurisdictions that have led the way in enabling information sharing between private sector operators, particularly noting America’s Patriot Act 2001.
Article 75 of the AML Regulation
Article 75 of the AML Regulation provides for the sharing of certain confidential information between private sector operators under what are known as “Partnerships for Information Sharing”. The Deputy Governor noted that article 75 has a number of caveats and guardrails some of which are as follows:
- the requirement that information can only be shared within a Partnership provided the information relates to customers deemed to be higher risk and the information sharing is strictly necessary for the purposes of meeting AML / CFT obligations; and
- the requirement that Partnerships must be verified in advance of their establishment by the AML / CFT supervisory authorities in collaboration with data protection authorities.
The Deputy specifically considered the role of national AML / CFT supervisors, noting the following:
- supervisors should encourage the establishment of Partnerships through the development of clear guidance as well as a verification process that is accessible, transparent, and capable of evolving over time. In this regard, she stated that although the AML Regulation will not be applicable until July 2027, the Central Bank’s work as regards developing the necessary framework and governance procedures is well underway;
- fostering and supporting the development and adoption of technologies that facilitate the sharing of sensitive information through the use of anonymisation technologies. The Deputy Governor highlighted that one such way that this can be achieved is through the Central Bank’s continued engagement with innovation in financial services through the Innovation Hub that was launched in 2018 together with the establishment of the Innovation Sandbox Programme. For more detail on the latter see the FIG Top 5 at 5 dated 6 June 2024.
Call for Applicants to the Central Bank’s Sandbox Programme
In her speech, Deputy Governor Rowland announced that the Central Bank has published a call for applicants to its Sandbox Programme. She also highlighted that the Central Bank has made some additional information available on its website as regards applying for the programme, an application form and anticipated FAQs. The Sandbox programme will commence in December 2024 and run over the ensuing six months.
2. Minister Chambers announces completion of the Second Stage of the Access to Cash Bill in Dáil Éireann
On 26 September 2024, Minister for Finance, Jack Chambers, moved to read the Finance (Provision of Access to Cash Infrastructure) Bill 2024 (“Bill”) in Dáil Éireann for a second time. The Minister gave the background to the decision to put forward the Bill, highlighting in particular, the recommendations of the Department of Finance's retail banking review, published in November 2022. The Minister took the Dáil through the main provisions of the Bill, following which opposition parties and independents voiced their general support for the Bill.
Having completed the second stage of Dáil Éireann, the Bill has now been referred to the Select Committee on Finance, Public Expenditure and Reform and Taoiseach, during which a more in depth debate on the various provisions of the Bill will take place.
We will continue to monitor the progress of the Bill through the Houses of the Oireachtas and update clients in due course.
For more detail on the Bill please see the FIG Top 5 at 5 dated 8 August 2024.
3. Court of Appeal clarifies the nature of the deference owed to the FSPO by an Irish Court
On 20 September 2024, the Court of Appeal overturned a previous judgment of the High Court and clarified the nature of the deference owed to the Financial Services and Pensions Ombudsman (“FSPO”) by Irish courts.
In Ulster Bank DAC v Financial Services and Pensions Ombudsman, Ulster Bank DAC (“Bank”) appealed a High Court judgment which had upheld findings made by the FSPO regarding a tracker mortgage issue. For the purposes of this update, the focus is on the consideration given by the High Court to the deference owed to the Ombudsman by the courts, rather than the determination on the tracker mortgage issue.
The Court of Appeal, having analysed certain documentation the subject of the appeal, established that the FSPO’s construction of said documentation had been incorrect. Meenan J. held that the High Court, which had failed to carry out its own analysis of the documents had shown deference to the FSPO’s analysis, something which the court did not owe the FSPO -
“A court, when reviewing a decision of the Ombudsman on the construction of a contract [is required] to reach its own conclusion as to what that proper construction is……In carrying out this exercise, the Court extends no curial deference to the Ombudsman on issues of law. Insofar as facts are involved, curial deference to the Ombudsman is limited to facts of a specialist or technical nature”
Next Steps
This case, while not of immediate impact to any financial services regulated service provider, will in the future be of relevance where a judgment of the FSPO is being considered by an Irish court.
4. Insurance Updates – Central Bank Speech and EIOPA consultations on technical standards following Solvency II Review
1. Deputy Governor Sharon Donnery delivers speech at Health Insurance Authority Conference
On 25 September 2024, Deputy Governor of the Central Bank of Ireland (“Central Bank”), Sharon Donnery, gave a speech at the Health Insurance Authority (“HIA”) Conference. The theme of the speech centred around prioritising consumers and delivering optimum outcomes for consumers amid the growing complexity of the financial sector landscape.
Deputy Governor Donnery highlighted the growing importance of the provision of information to health insurance consumers. She reiterated the Central Bank’s expectations that all regulated entities act honestly, fairly and professionally in the best interests of its customers and the integrity of the market which includes:
- provision of information to customers in a clear and transparent manner; and
- the consideration of consumers’ best interests as regards product design, development and distribution.
The Deputy Governor touched on some of the advantages brought about by recent changes in the financial sector but also noted the risks that pose challenges for regulators, industry and consumers due to this increased complexity. She went on to point out that the Central Bank has been considering such risks some of which include:
- risks from unclear information being provided at various points in the customer journey;
- risks to consumers from evolving business models;
- technology - driven risks from cyber security together with frauds and scams. With specific reference to the latter, the Deputy Governor emphasised that the theme of the Innovation Sandbox is combatting financial crime. For more detail on the establishment of the Innovation Sandbox please see the FIG Top 5 at 5 dated 6 June 2024 and for more detail on the recently announced theme of the Innovation Sandbox please see below.
Deputy Governor Donnery considered the abundance of choice that exists in the health insurance sector, honing in on the point that while choice is a good thing there is a concern that too much choice is having an impact on the extent to which consumers are engaging with the options available to them. In that regard, she highlighted that the Central Bank are actively considering, from a supervisory point of view, whether choices are being well explained, well understood, or are actually adding value.
Informed consumer choices
Deputy Governor Donnery set out three “complementary aspects”, in addition to information, that she described as being considered necessary by the Central Bank such that consumers can make decisions in their own best interest, as follows:
- information needs to be presented in a way that seeks to effectively inform consumers in that it needs to be clear and easy to understand;
- consumers need to be equipped with sufficient financial literacy to be able to use that information effectively; and
- consumers must also take on the responsibility to inform themselves, including reasonable time and care to read and understand information, to ensure they are making decisions in their own best interests.
In this regard, she referenced the new Standard for Business in the revised Consumer Protection Code adding that it should make firms’ obligations clearer in this respect. For more detail on the review of the Consumer Protection please see our dedicated series which can be found here.
Deputy Governor concluded her speech by underscoring the important role that the insurance sector has to play in ensuring that products offered are clear, transparent and can be well understood.
2. EIOPA opens first batch of consultations on technical standards after Solvency II Review
On 1 October 2024, the European Insurance and Occupational Pensions Authority (“EIOPA”) launched a series of five consultations on regulatory technical standards (“RTS”) and implementing technical standards (“ITS”). The RTS and ITS relate to changes that are expected to be introduced to the regulatory framework as part of the Solvency II review process.
On the publication of the consultations, EIOPA stated that “these standards, once adopted, will guide the implementation of the new features within the Solvency II framework to improve supervisory effectiveness, risk management and financial stability in the EU’s insurance sector.”
There are four consultations on RTS as follows:
1. Consultation on liquidity risk management plans
This draft RTS sets out the criteria defining which undertakings and groups should include medium and long - term analyses in their liquidity risk management plans as well as specification on the content of the plans and the frequency at which they should be updated.
2. Consultation on the criteria for the identification of exceptional sector-wide shocks
This draft RTS on exceptional sector-wide shocks provides criteria to supervisory authorities for identifying such shocks. At the time of exceptional shocks, supervisors may require insurers with a particularly vulnerable risk profile to restrict or suspend dividend payments, share buybacks or bonuses.
3. Consultation on undertakings under dominant / significant influence or managed on a unified basis
This draft RTS specifies factors for identifying insurance undertakings that are under dominant or significant influence, together with those managed on a unified basis. EIOPA state that these factors are relevant for supervisory authorities to identify and effectively supervise insurance groups.
4. Consultation on relevant insurance and reinsurance undertakings with respect to the host Member State’s market
This draft RTS sets out the conditions and criteria that need to be considered by host supervisors when determining the relevance of cross-border activities for their market, given that the Solvency II review introduces new rules to enhance cooperation and information exchange between home and host supervisors in case of significant cross - border activities.
There is one consultation of ITS as follows:
5. Consultation on scenarios for best - estimate valuations for life insurance obligations
This draft ITS relates to a simplification of the valuation for life insurance obligations that will be introduced with the Solvency II review. It is envisaged that the simplification will be used by specific small and non-complex undertakings. The ITS sets out the methodology for deriving technical information that insurers will need when applying the simplification.
Next Steps
EIOPA invites stakeholders to provide their feedback on the consultation papers by responding to the questions via the online surveys no later than 2 January 2025. EIOPA will revise the proposals in view of the stakeholder comments received.
5. MiCA Updates – Implementing Regulations and Delegated Regulations
Between 24 September 2024 and 1 October 2024 there were a number of updates to implementing regulations and delegated regulations under the Regulation on Markets in Cryptoassets ((EU) 2023/1114) (“MiCA”). The following is a brief summary of the updates:
Regulations published in the Official Journal of the European Union (“Official Journal”)
1. Commission Implementing Regulation (EU) 2024/2494
This Implementing Regulation sets out implementing technical standards (“ITS”) for the application of MiCA with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities, the European Banking Authority (“EBA”) and the European Securities and Markets Authority (“ESMA”). This Implementing Regulation reflects a mandate under Article 36(3) of MiCA.
The Implementing Regulation was published in the Official Journal on 25 September 2024 and will come into force on 15 October 2024.
Regulations recently adopted by the European Commission (“Commission”) and awaiting publication in the Official Journal
2. Commission Implementing Regulation C(2024) 6599
This Implementing Regulation lays down ITS for the application of MiCA with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities, the EBA and ESMA. This Implementing Regulation reflects a mandate in Article 96(3) of MiCA.
This Implementing Regulation was adopted by the Commission on 24 September and will come into force 20 days after its publication in the Official Journal.
3. Commission Implementing Regulation C(2024) 6597
This Implementing Regulation lays down ITS for the application of MiCA with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities and is on foot of a mandate in Article 95(11) of MiCA.
This Implementing Regulation was adopted by the Commission on 24 September 2024 and will come into force 20 days after its publication in the Official Journal.
4. Commission Delegated Regulation C(2024) 6649
This Delegated Regulation supplements MiCA with regard to regulatory technical standards (“RTS”) establishing a template document for cooperation arrangements between competent authorities and supervisory authorities of third countries. This Delegated Regulation is in accordance with Article 107(3) of MiCA.
This Delegated Regulation was adopted by the Commission on 26 September and will come into force 20 days after its publication in the Official Journal.
5. Commission Delegated Regulation C(2024) 6670
This Delegated Regulation supplements MiCA with regard to RTS specifying the requirements, templates and procedures for the handling of complaints relating to asset referenced tokens.
The Delegated Regulation was adopted by the Commission on 30 September 2024 and will come into force 20 days after its publication in the Official Journal.
6. Commission Delegated Regulation C(2024) 6682
This Delegated Regulation supplements MiCA with regard to RTS specifying the requirements, templates and procedures for the handling of complaints by crypto - asset service providers.
The Delegated Regulation was adopted by the Commission on 1 October and will come into force 20 days after its publication in the Official Journal.