FIG Top 5 at 5 - 18/01/2024

1. Certification Regulation pertaining to the IAF is signed into law

On 8 January 2024 Governor Makhlouf of the Central Bank of Ireland ("Central Bank") signed the Central Bank Reform Act 2010 (Section 21(6)) Regulations 2024 into law ("Certification Regulation").

The Certification Regulation applies to all regulated financial service providers ("RFSPs") and certain holding companies to which Part 3 of the Central Bank Act 2010 applies. It outlines

• the circumstances triggering a requirement to certify that a person is compliant with standards of fitness and probity, and the period of validity of such certification;
• procedures, systems and controls to be adopted and checks to be performed by RFSPs and certain holding companies;
• record keeping; and
• reporting of information by RFSP or certain holding companies to the Central Bank in relation to their obligations.

The amendments introduced by the Certification Regulation are reflected in the Central Bank's updated Fitness and Probity ("F&P") Standards and elaborated on in the Central Bank's F&P Guidance. For more details on both, please see FIG Top 5 at 5 dated 11 January 2024, and Matheson Insight Central Bank of Ireland Updates F&P Standards and Guidance.

2. Government Legislation Programme Spring 2024 – a financial services perspective

On 16 January 2024, the Government Legislation Programme for Spring 2024 was published ("Programme"). The Programme identifies 24 bills to be prioritised for publication and 22 bills to be prioritised for drafting. Those of direct relevance to financial services are outlined below:

Legislation for priority publication

• Motor Insurance Insolvency Compensation Bill which transposes Article 10a and 25a of the revised EU Motor Insurance Directive (Directive 103/2009/EC) as amended by Directive 2021/2118. This was included in the Autumn Legislation Programme as 'legislation for priority drafting', and the Heads of Bill were approved in November 2023; and
• Credit Review Service Bill which puts S.I. No.127 of 2010 which established the Credit Review Office on a statutory footing. This was included in the Autumn Legislation Programme as 'legislation for priority drafting', and the Head of Bill were approved in July 2021.

Legislation for priority drafting

• Access to Cash Bill which will provide Irish people with easier access to cash and make it a requirement for ATM operators and Cash-In-Transit Companies to be authorised and supervised by the Central Bank of Ireland. This was included in the Autumn Legislation Programme under 'all other legislation', and the Programme states that the Heads of Bill remain in preparation.

All other legislation

• Restrictive Measures Bill will create a mechanism by which persons would be obliged to adhere to the asset freezing requirements of certain UN Security Council Resolutions in the period prior to their incorporation in an European Union legislative act, i.e. a ‘bridging measure’, in order to meet Ireland’s international obligations and prevent sanctions evasion. The Programme explains that the Heads of Bill are in preparation.

Bills currently on the Dáil and Seanad Order Paper

• Financial Services and Pensions Ombudsman (Amendment) Bill 2023 is currently at Dáil Éireann, second stage. The purpose of this bill is to amend the Financial Services and Pensions Ombudsman Act 2017 so that it takes into consideration the Zalewski ruling. It is also intended to update parts of the legislation where there is a possibility that the FSPO could be viewed as administering justice. The Heads of Bill were approved in April and its pre-legislative scrutiny completed in June.
  

3. EIOPA publishes second report on the application of IDD

On 15 January 2024, the European Insurance and Occupational Pensions Authority ("EIOPA") published its second report on the application of the Insurance Distribution Directive ("IDD") ("Report"). The Report covers the period 2022 and 2023, highlighting relevant changes in the application of the IDD compared to the last reporting period, and examines how the IDD has been applied in European Union ("EU") Member States by the insurance industry and national competent authorities ("NCAs"). It considers the impact of the IDD on consumers, insurance distributors and supervisory activities with respect to the structure of the EU insurance distribution market and the regulatory and supervisory framework.

The Report presents its findings under 3 categories:

• Changes in the structure of the EU insurance distribution market;
• Impact on the new regulatory framework; and
• Impact on the supervisory framework.

In this Insight we note the key observations made in the Report and outline, where relevant, where Ireland stands vis a vis their observations.

4. European Banking Authority Updates relating to CRR and ML/TF

EBA consults on targeted amendments to prudential valuation framework under CRR

On 16 January 2024, the European Banking Authority ("EBA") launched a consultation paper on targeted amendments to Commission Delegated Regulation 2016/202 which sets out regulatory technical standards ("RTS") on the prudent valuation of fair-valued financial instruments and was developed under the Capital Requirements Regulation ("CRR"). The RTS outline the requirements that institutions who operate in the European Union must apply for the valuation of their fair-valued assets and liabilities for prudential purposes.

The consultation paper builds on the review of the implementation of those requirements since 2016 and proposes targeted amendments to the RTS to promote better practices and ensure a more harmonised application of the RTS. It also includes a proposal for a framework for 'extraordinary circumstances' for prudential valuation and outlines conditions to determine the presence of extraordinary circumstances and rules for the calculation of additional value adjustments under those circumstances.

Alongside the consultation, the EBA is also carrying out a quantitative impact study ("QIS") to calibrate certain aspects of the proposed amendments.

Next Steps

The consultation will close to responses on 16 April 2024. When finalising the draft RTS, the EBA will consider responses to the consultation and the results from the QIS.

The EBA revises reporting requirements for market risk

On 11 January 2024, the European Banking Authority ("EBA") issued a final report containing draft implementing technical standards ("ITS") in respect of the Capital Requirements Directive. The proposed ITS will amend Commission Implementing Regulation (EU) 2021/451 with regard to reporting requirements for market risk and repealing Commission Implementing Regulation (EU) 2021/453.

In anticipation of the full implementation of the Fundamental Review of the Trading Book ("FRTB"), the EBA has revised the information to be reported on the own funds requirements under the Alternative Standardised Approach ("ASA") and adds reporting on reclassifications of instrument between the regulatory books. The ITS complements existing reporting requirements on the ASA and it also introduces a template to capture information on the instruments and positions in scope of the alternative internal model approach. The new reporting requirements would impact the reporting by entities with sizeable business subject to market risk.

Next Steps

The draft amending ITS will be submitted to the European Commission and must be endorsed before being published in the Official Journal of the European Union. It is expected that the amended reporting requirements will apply for the reporting as of 31 March 2025.

On 16 January 2024, the European Banking Authority published a final report ("Report") which amends the scope of the original Guidelines on money laundering ("ML") and terrorist financing ("TF") to include crypto-asset service providers ("CASPs") ("Guidelines"). The Guidelines highlight the ML/TF risk factors and mitigating measures associated with individual business relationships and occasional transactions that CASPs must consider.

The Guidelines have been amended following a consultation on the proposed changes launched in May 2023, and the Report summarises the feedback it received and explanation of the changes that have been made as a result. For more details on the consultation, please see FIG Top 5 at 5 dated 8 June 2023.

The amended Guidelines:

• insert risk factors specific to crypto-assets and CASPs;
• provide guidance for credit and financial institutions on the ML/TF risks associated with customers that are providing crypto-asset services, but are not authorised or regulated in line with MiCA and its amending Regulations;
• provide sector specific guidance for CASPs on the factors that they should consider when assessing ML/TF risks with associated businesses;
• additional risks that CASPs should consider associated with transactions, products, the nature of customers and their behaviour and the customers' or beneficial owners' links to high risk jurisdictions or transactions to/from jurisdictions associated with a high risk of ML/TF;
• guidance on mitigating measures that CASPs should apply in situations where the ML/TF is increased including circumstances that warrant the use of advanced analytical tools as part of monitoring its business relationships; and
• guidance on mitigating measures that CASPs should apply in lower ML/TF situations to the extent that it is permitted by national law.

Next Steps

The Guidelines will apply from 30 December 2024. After the Guidelines are translated and published on the EBA's website, competent authorities will have 2 months after the publication to report whether or not they intend to comply with the Guidelines.

5. MiFID Updates

ESMA and NCAs to coordinate supervisory activities on MiFID II pre-trade controls

On 11 January 2024, the European Securities and Markets Authority ("ESMA") launched a common supervisory action ("CSA") with national competent authorities ("NCAs") to assess the implementation of pre-trade controls ("PTCs") by European Union ("EU") investment firms using algorithmic trading techniques and how these are being used across the EU. The CSA is a follow up to evidence gathered by ESMA and NCAs from questionnaires issued to a sample of EU investment firms, following a flash crash in May 2022.

The CSA will examine the following aspects:

• the implementation of PTCs including their calibration methodology and the use of hard and soft blocks in the design of PTCs;
• the establishment of credit and risk limits and their interaction with PTCs;
• the monitoring and governance framework related to PTCs; and
• the implementation and monitoring of PTCs in case of outsourcing of trading activity to third countries.

Next Steps

The CSA will be carried out by ESMA and the NCAs during 2024.

On 16 January 2024, the European Parliament adopted proposed amendments to the Markets in Financial Instruments Regulation and Markets in Financial Instruments Directive II at first reading.

The key aims of the  proposed amendments are

• to improve access to market data and trade transparency;
• reduce information asymmetries between market participants;
• improve orderly trading in commodity derivatives concerning energy and food;
• ban the practice of receiving payments for forwarding client orders for execution; and
• protect investors from suboptimal trading decisions.

Next Steps

The Council of the European Union must now formally adopt the proposed amending legislation, and following this they will enter into force 20 days after their publication in the Official Journal of the EU.