1. Central Bank of Ireland's Consultation Paper on the Consumer Protection Code
Following an extensive engagement programme with Regulated Financial Service Providers ("RFSPs"), relevant stakeholders and customers alike, the much anticipated Consultation Paper ( CP 158) on the Consumer Protection Code ("Code") ("Consultation Paper") was issued by the Central Bank of Ireland ("Central Bank") on Thursday, 7 March 2024. The Consultation Paper seeks to deliver an updated and modernised Code that reflects the multitude of changes in financial services in recent years, in particular the impact of digitalisation on its delivery. The Central Bank hopes that the revised Code will address these changes to offer improved protection for the consumer, while enhancing the clarity and predictability for RFSPs on their consumer protection obligations.
The proposal put forward by the Central Bank entails a significant overall of the existing structure of the Code by moving to a new format of two separate Regulations. Supporting these Regulations will be two Guidance documents, along with a number of digital tools (yet to be provided) for RFSPs and consumers alike. Cumulatively these changes represent a significant change in both the structure and scope of the Code.
The first Regulation encompasses the "business standards" the last component of the Individual Accountability Framework to be addressed. The second Regulation deals with General Requirements, keeping the existing General Requirements at its core but introducing a variety of new areas of focus including digitalisation, informing customers effectively, mortgage credit and switching, unregulated activities, frauds and scams, vulnerability and climate. In addition, it introduces a number of new sectoral specific obligations. The Code will also be a consolidation of a number of existing standalone codes which will be welcomed.
RFSPs should note that the Consultation Paper is open for feedback until 7 June 2024. The Central Bank has indicated that it will publish its feedback statement along with the revised Code in early 2025 and has proposed a 12 month implementation period, from the final date of publication of the revised Code.
For more details on the Consultation Paper please see Matheson's Insight " Initial Observations of the Central Bank of Ireland's Consumer Protection Code".
We will continue to consider the implications of the proposed changes to the Code and will publish further, more in depth cross sectoral as well as sector specific analysis in the coming weeks.
2. Fitness and Probity Updates
Fitness and Probity Review's Terms of Reference are published
The Central Bank of Ireland ("Central Bank") has published the Terms of Reference of a review of its fitness and probity ("F&P") regime ("ToR"). The Central Bank explains in the ToR that given the length of time that the F&P regime has been in operation, and its "desire to evolve and enhance the regime", it has commissioned an independent review of the regime. In short the review will consider the manner in which the Central Bank exercises its statutory functions in relation to F&P a set out in Part 3 of the Central Bank Reform Act 2010 and not the legislation itself.
The ToR sets out the specific objectives of the review which include:
- to evaluate the effectiveness of the performance of the F&P functions having regard to both the quality and quantity of work undertaken and to the current structure, and internal governance structures;
- to evaluate whether the standards applied to the F&P assessments by the Central Bank are broadly consistent with comparable international F&P supervisory practices;
- to evaluate the calibration, efficiency and timeliness of how F&P functions are carried out in the Central Bank; and
- to consider the transparency of F&P activities both for the public and the firms involved and individuals who may be impacted and whether any enhancements can be made to same.
The ToR also seeks suggestions that the reviewer considers would likely improve effectiveness of the performance of the F&P functions,
The ToR also details the supports which will be available to the reviewer as follows
- the Central Bank will support the reviewer in any way the reviewer considers necessary;
- the reviewer will have a dedicated team and can seek further (including external) legal advice if required;
- the reviewer will be provided with a background document setting out the processes, responsibilities and recent changes made to the F&P regime; and
- the reviewer will conduct interviews (and undertake assessments) with senior management across the Central Bank and other staff involved in F&P processes and decisions.
Next Steps
Although the ToR states that the timescale for the review will be discussed with the reviewer, its website states that the outcome of the review is expected in Q3 2024.
In addition, the reviewer is also identified on the Central Bank's website as Andrea Enria. Mr Enria is the former Chair of the European Banking Authority and the European Central Bank's Supervisory Board.
Central Bank of Ireland releases Demographic analysis of PCF applications in 2023
On 7 March 2024, the Central Bank of Ireland ("Central Bank") published its 2023 Demographic Analysis of applications for pre-approval controlled function ("PCF") roles within Regulated Firms ("Report").
The Report explains that the analysis it provides is primarily focused on gender diversity as there is limited data on other forms of diversity (beyond age). Although this is only one form of diversity, the Central Bank states that it is a "critically important one and is also strongly indicative of wider diversity trends".
The Central Bank's Director General, Derville Rowland, noted in her foreword to the Report that the results are mixed overall. She explained that it is the Central Bank's hope to see more progress made to "push past the 1/3 mark and get closer to parity of representation" and that improving overall diversity will continue to be a priority for the Central Bank. She reiterated the message made in previous reports that research continues to show that firms with more diverse leadership teams are likely to be "better run – more resilient and more profitable".
The following is a brief overview of some of the Central Bank's key findings:
- the overall level of applications for PCF roles increased by 3% compared to 2021;
- there were 3,359 Individual Questionnaires (IQ) submitted in 2023, seeking approval to act in 3,870 roles. Of these applications, 298 applicants chose not to disclose their gender. Hence the analysis was based on 3,061 applications;
- the most material changes were in the Payment Institutions and E-Money Institutions and Securities & Markets sectors, where female appointments accounted for 31% and 36% respectively, compared to 28% and 34% female representation in 2022;
- the gender imbalance for board level applications across all sectors has shown improvement, with female applications for these positions increasing from 29% in 2022 to 31% in 2023;
- female representation in all management level applications has shown a slight decrease on the previous year, dropping 2 percentage points to 34%. However, the Securities & Markets sector showed an increase of 25 percentage points in female applicants, increasing to 50% in 2023;
- females still continue to be under represented in revenue generating roles. In 2023, just 18% of incumbent role holders responsible for driving business revenue were female, down from 19% in 2022;
- existing regulated firms continue to show higher levels of gender diversity than new firms seeking authorisation which continue to show a material imbalance, with just 27% of applicants being female; and
- with regards to other forms of adversity captured by the Central Bank's analysis, it should be noted that the majority of applicants were in the age ranges 35-54 which is similar to 2022 submissions while Irish applicants continued to account for the majority of applications (representing 64%, down 3% on 2022).
3. Updates on the Ireland for Finance Strategy and the Capital Markets Union
Update to Ireland for Finance Action Plan 2024
On 8 March 2024, the Minister for Finance Michael McGrath and the Minister of State for Financial Services, Credit Unions, and Insurance Dr Jennifer Carroll MacNeill, launched the Government's second Action Plan from the updated Ireland for Finance strategy ("2024 Action Plan"). The 2024 Action Plan sets out how the Irish Government and the financial services industry will continue to support the Ireland for Finance Strategy in 2024 through various key measures. A total of 13 deliverables for the year are detailed under five themes:
- Sustainable Finance;
- Fintech and Digital Finance;
- Diversity and Talent;
- Regionalisation and Promotion; and
- Operating Environment.
Each of the deliverables is aligned with a relevant state body or Government Department.
At the launch of the 2024 Action Plan, Minister MacNeill spoke of "the twin powerhouses of fintech and sustainable finance" and how they are likely to "change the course of investment and delivery of financial services products over the coming years". This is reflected in the Action Plan's themes and the particular focus on sustainable finance.
Comprehensive Statement by the Eurogroup on the future of Capital Markets Union
On 11 March 2024, the Eurogroup (the finance ministers of the euro zone member states) published a detailed statement on the future of Capital Markets Union ("CMU"). The statement acknowledged that significant progress has been made in recent years to improve the functioning of European capital markets through the CMU action plans but that they are "far from reaching their full potential". Against this background the Eurogroup identified three priority areas for action where measures are necessary to improve the functioning of European capital markets:
- Architecture – develop a new regulatory system to allow better channelling of funds into European Union ("EU") businesses;
- Business – ensure better access to private funding for EU businesses to invest, innovate and grow in the EU; and
- Citizens – increase access to investment opportunities to create access for EU citizens to accumulate wealth and improve financial security.
The Eurogroup also outlined measures to be taken in the three priority areas:
Architecture:
- develop the EU securitisation market to allow for the efficient and transparent transfer of risks to parties best equipped to carry those risks;
- further supervisory convergence of capital markets across the EU;
- reassess the regulatory framework to reduce regulatory burden and transaction costs for market participants;
- targeted convergence of national corporate insolvency frameworks;
- further harmonise accounting frameworks in a targeted manner to enhance cross-border comparability of available information on companies, without increasing administrative burden;
- increase the attractiveness of capital market funding for companies through better integrated market infrastructure in the EU and through further convergence and harmonisation of listing requirements across European exchanges; and
- foster equity financing through well-designed national corporate tax systems to ensure EU companies have access to diversified sources of funding.
Business:
- improve conditions for institutional, retail, and cross-border investment in equity, in particular in growth/scale up venture capital; and
- bolster the EU’s edge in sustainable finance by scaling up the impact of the EU framework in place and fostering the use of the provided finance toolkit by market participants to support their transition efforts.
Citizens:
- create an attractive, easy-to-use and consumer-centric investment environment;
- support sufficient complementary income streams for an ageing population through wider use of longer-term savings and investment products, including through occupational and personal pension schemes;
- facilitate the strengthening of an investor/shareholder culture among EU citizens to increase retail participation; and
- develop attractive cost-effective and simple cross-border investment/savings products for retail investors.
Next Steps
The Eurogroup concluded by calling on Member States to implement the outlined measures swiftly, and by calling on the European Commission to consider bringing forward the corresponding initiatives as early as possible, so that the relevant legislative work can be completed by 2029.
The Eurogroup intends to continue to play an active role in furthering the development of the Capital markets Union, by taking stock regularly of the performance of the European capital markets and to monitor progress on the above measures at both national and EU level.
4. MiCA Updates
The EBA consults on Guidelines on redemption plans under the Markets in Crypto-Assets Regulation
On 8 March 2024, the European Banking Authority ("EBA") launched a consultation on the Guidelines for the plans to redeem asset-referenced tokens or e-money tokens in the event that the issuer fails to fulfil its obligations under the Markets in Crypto-assets regulation ("MiCA"). Redemption plans are required to ensure the orderly redemption.
The draft Guidelines address the following:
- the main principles governing the redemption plan (the equitable treatment of token holders, and describe the steps for the orderly and timely implementation of the plan);
- governance requirements, including the processes applicable for the development, update and the execution of a redemption plan and the identification of responsible persons;
- cases where the same token is issued by multiple issuers (pooled issuance); and
- outline triggers which will activate the plan and the cooperation with the prudential and resolution authorities.
Next Steps
The consultation closes to comments on 10 June 2024. Once the guidelines are finalised they will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from two months after publication of the translations of the guidelines to all official languages.
EBA final report on RTS on complaints handling for issuers of ARTs under MiCA
On 13 March 2024, the European Banking Authority ("EBA") published a final report on draft regulatory technical standards ("RTS") specifying the requirements, templates and procedures for handling complaints under Article 31 of the Regulation on Markets in Crypto assets ("MiCA").
Commenting in the final report, the EBA explains that the RTS along with the provisions in MiCA detail the effective and transparent procedures for the prompt, fair and consistent handling of complaints by holders of assets referenced tokens ("ARTs").
For more details on the RTS please see FIG Top 5 at 5 dated 20 July 2023.
Next Steps
The EBA had advised that the draft RTS will be submitted to the European Commission for endorsement by 30 June 2024.
5. AML Updates
European Commission publishes report on the implementation of the 4th Money Laundering Directive
On 11 March 2024, the European Commission ("Commission") published a report on the implementation of the Fourth Money Laundering Directive ((EU) 2015/849) ("4MLD") ("Report"). In addition, the Commission also published a staff working document which includes contributions to the Report from two surveys conducted by Commission, as well as contributions from the European Banking Authority and the Council of Europe.
The Report considers each of the following topics:
- the transposition of the 4MLD as well as the Fifth Money Laundering Directive ((EU) 2018/843);
- risk assessment and risk mitigation;
- national competent authorities and financial intelligence units specifically information access and co-operation, including at international level;
- beneficial ownership information regarding entities located outside the European Union;
- politically exposed persons, specifically enhanced due diligence measures;
- fundamental rights; and
- considers new legislative proposals on several specific topics including virtual currency user databases and asset recovery offices.
In its conclusion, the Commission notes that despite the many challenges faced in the areas of anti-money laundering / countering the financing of terrorism much improvement has been made by financial services firms calling out specifically information exchange and cooperation between entities and their supervisors. Finally the Commission explains that it has sought to address the issues regarding implementation of the 4MLD in its AML package proposed in 2021 which has now progressed to the final legislative stage.
European Commission asks EBA for provisional technical advice on priority RTS and guidelines under new AML Framework
On 12 March 2024, the European Banking Authority ("EBA") published a call for advice from the European Commission ("Commission") regarding regulatory technical standards ("RTS") and guidelines under the future AML Framework. It should be noted that this call for advice is dependent on the framework's adoption which is due in the coming months. The call for advice covers the following:
- draft RTS setting out the methodology for classifying the risk profile of cross-border credit or financial institution that may be selected for supervision by the future AML/CFT Authority;
- draft RTS on risk-based supervision;
- draft RTS on the information necessary for the performance of customer due diligence;
- draft RTS on criteria to be taken into account when setting the level of pecuniary sanctions or taking administrative measures;
- draft RTS on minimum requirements of group-wide policies; and
- draft guidelines on base amounts for the imposing of pecuniary sanctions.
The Report notes that the call takes into consideration that the EBA requires sufficient time to prepare its technical advice and that the new AML Authority will need to develop the RTS within two years of the entry into force of the relevant legislation. The Report urges that this work commences as soon as possible.
The EBA is to deliver its advice by 31 October 2025.