FIG Top 5 at 5 - 18/04/2024

1. SEAR Regulations are published and IAF Guidelines are updated

On 16 April 2024, the Central Bank of Ireland ("Central Bank") published S.I. No. 147 of 2024 Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Senior Executive Accountability Regime)) Regulations 2024 ("SEAR Regulations") along with the related final Guidance on the Individual Accountability Framework ("IAF") ("Guidance"). 

The SEAR Regulations include an explanatory note, which states that the SEAR Regulations give effect to section 48(1) of the Central Bank (Supervision and Enforcement) Act 2013 by specifying the aspects of a regulated financial service provider's ("RFSP") affairs for which a PCF holder has inherent responsibilities and for which responsibility is to be allocated by the RFSP to a PCF holder for the purposes of section 53B of the Central Bank Reform Act 2010.

The Guidance has been updated to reflect references to recent fitness and probity developments. However beyond this there are no material changes to the Guidance.

A number of cleansing changes have also been made to the SEAR Regulations. However, we will  conduct a more indepth review and update clients on any noteworthy amendments in early course.

For more details on the IAF and SEAR, please see our dedicated webpage.

2. Speech by Gerry Cross, Director of Financial Regulation – A Revised Consumer Protection Code: a foundation for further success

On 11 April 2024, the Director of Financial Regulation – Policy and Risk of the Central Bank of Ireland ("Central Bank"), Gerry Cross, gave a speech entitled "A Revised Consumer Protection Code: a foundation for further success". The Deputy Governor noted that the Consumer Protection Code ("CPC") plays a vital role in ensuring the future success of the financial system in Ireland as well as better consumer outcomes. The revised CPC builds on the existing CPC and reflects the outcome of the 6 month engagement on the CPC Discussion Paper.

The Deputy Governor noted that there are a number of elements to a well-functioning financial system which all interact with each other:

1. stability and resilience;
2. well run firms which manage risks both to customers and to the firm appropriately;
3. trust and confidence in financial services; and
4. robust levels of competition and innovation.

The revised CPC

The Deputy Governor reiterated the reasons for the Central Bank's review of the CPC:

• enhanced clarity and predictability: the obligation on firms to act in the best interests of their consumers was decisive in recent events;
• proportionate and well balanced: the CPC will apply in a way which is appropriate for the size of the firm and its complexity levels; and
• modernising: the CPC is being modernised in light of technology developments, digitalisation, distribution channels, improved understanding of customer vulnerability, climate change and sustainable finance.

Securing customers' interests

Until now, the obligation on firms to act in the customers best interest was set out in a system of general principles. The revised CPC proposes to include a "newly articulated duty of firms to secure their customers' interests". The duty

• sets out the concrete obligation that firms have to develop their business models, culture and decision making in a manner that aligns with the needs of their customers;
• places an obligation on firms to pay attention to outcomes as well as processes when securing customers' interests; and
• provides enhanced clarity around the obligation to act in a way which secures customers' interests by providing a robust reference point.

Product initiation, development and marketing: the Deputy Governor noted the importance that products were designed with the needs of real customers in mind. Firms should consider and assess the gaps between the knowledge and expertise of their customers and the complexity of their products, and how they can effectively address any gaps via the design and delivery of the product or service. Firms must also ensure transparency on their offerings to customers and enable customers to make informed decisions on whether the product meets their needs, offers value for money or aligns with their expectations and risk appetite.

Customer behaviours, habits and preferences: these should be incorporated in a way which improves consumer outcomes, rather than causing detriment. Firms cannot leverage consumer susceptibilities for inappropriate gains and should challenge themselves not to unfairly exploit or take advantage of customers' behaviours, or habits to their detriment.

Appropriate use of incentives: the rationale for including incentives in product offerings should be examined to determine if a firm is indeed trying to secure its customers' interests. Incentives should be designed in a manner that "supports customers to act in their own interests and make appropriately informed decisions in terms of product choices", they should not be used to interfere with price transparency and customers' ability to compare products or unfairly exploit consumer behaviour.

Contractual clarity: the revised CPC will require firms to effectively inform their customers, which should significantly mitigate the risks from contractual ambiguity. Where such ambiguity does arise, firms must interpret it in a manner which most benefits the customer. Firms should resolve any such issues as soon as possible, and only exercise the right to have meanings interpreted by courts in appropriate cases.

For more detail on the Central Bank's proposals please see Matheson Insight: Initial Observations on the Consumer Protection Code Consultation Paper, as well as our Insight Series on key elements of the proposed changes to the CPC which will launch in the coming days.

3. The Risk Management Working Group of the Climate Risk and Sustainable Finance Forum publishes its Report

On 11 April 2024, the Risk Management Working Group ("Group")  of the Climate Risk and Sustainable Finance Forum ("Forum") published its Risk Management and Working Group Report. As noted previously in the context of the Capacity Building Working Group Report, "the findings outlined in this report do not necessarily represent the views of the Central Bank of Ireland" and does not constitute regulatory guidance.

The Group was established to identify the approaches taken by financial services to climate-related risk management, and to help leverage the opportunities presented by the evolving climate agenda. The Report is based on a survey which sought the views of all firms regulated by the Central Bank in April 2023, on climate risk management, and found that considerable progress had been made, particularly among insurers and banks due to increasing regulatory requirements. It provides a baseline of knowledge of the approaches taken across the financial services sector, and gives examples of good practices of how institutions can address climate change risks within their organisations.

The Report made a number of key findings:

• climate-related risk management is a vital part of firms' business models, informing both decision making and financial planning;
• emerging good practices in this area will help to support the financing of the green transaction;
• while firms can identify and manage climate risks in portfolios, they cannot mitigate external risks;
• public-private collaboration on solutions is required;
• financing of the sustainable transition must be increased and customers should be incentivised to choose green economic activities;
• building a shared understanding of climate-related data through open collaboration on data in Ireland is required; and
• firms are developing the skill sets of staff to manage data, but need external mechanisms to standardise and simplify data management.

Emerging Good Practices

Industry identified emerging good practices were noted in the following areas:

• portfolio alignment with respect to climate and engagement;
• ongoing monitoring of climate related metrics and indicators;
• embedding of climate risk into strategies, business models, and risk management frameworks;
• sourcing ESG data required for NetZero transition planning and regulatory requirements;
• deploying scenario analysis and stress testing of climate related events;
• integration of climate risk in underwriting and pricing;
• enhanced climate risk disclosures and reporting; and
• consideration of climate change risk in solvency assessments.

Next Steps

The Report noted that the Forum provides opportunities for collaboration and education on climate risk management, and building on this Report, the Forum will present further proposals on work in this area.

4. Government Legislation Programme Summer 2024 – a financial services perspective

On 16 April 2024, the Government Legislation Programme for Summer 2023 was published ("Programme"). The Programme identifies 29 bills to be prioritised for publication and 24 bills to be prioritised for drafting. Those of direct relevance to financial services are outlined below:

Legislation for priority publication

• 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 'legislation for priority drafting' in the Spring Legislation Programme. The Heads of Bill were approved in January 2024 with pre-legislative scrutiny completed in March 2024;
• Motor Insurance Insolvency Compensation Bill 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 Spring Legislation Programme as 'legislation for priority publication'. 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 Spring Legislation Programme as 'legislation for priority publication' and the Heads of Bill were approved in July 2021.

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 was included under 'all other legislation' in the Spring Legislation Programme and the Heads of Bill are in preparation.

Bills currently on the Dáil and Seanad Order Paper

• Automatic Enrolment Retirement Savings System Bill 2024 is currently at Dáil Éireann, second stage. The purpose of this Bill is to establish a body known as An tÚdarás Náisiúnta um Uathrollú Coigiltis Scoir, and to provide for that body to establish, maintain and administer an automatic enrolment retirement savings system for employees not covered by qualifying schemes; and
• Financial Services and Pensions Ombudsman (Amendment) Bill 2023 is currently at Dáil Éireann, third 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 FIG Top 5 at 5 will continue to monitor the progress of the legislative initiatives and updated clients when appropriate.

5. European Updates

ESAs announce a voluntary dry run exercise to prepare industry for the next stage of DORA implementation

On 11 April 2024, the Joint Committee of the European Supervisory Authorities ("ESAs") announced that they would launch a voluntary exercise for the collection of the registers of information for contractual arrangements of the use of ICT third-party service providers by financial institutions ("Exercise") in May 2024, and published an accompanying fact sheet.

The aim of the Exercise is to assist financial entities in preparing for the application of DORA on 17 January 2025, when all financial entities within scope of DORA will be required to have a comprehensive register of their contractual arrangements with ICT third-party service providers available at entity, sub-consolidated and consolidated levels. These entities will also be required to report their registers of information to their national competent authority ("NCA"), who will then provide them to the ESAs.

The Exercise will be carried out on as a dry run on a best efforts basis and participating entities will submit their registers of information to the NCA in line with ESAs Final Report on draft ITS on Registers of Information.

The ESAs will support participating entities in:

• building their register of information in the format as close as possible to the steady-state reporting from 2025;
• testing the reporting process;
• addressing data quality issues; and
• improving internal processes and quality of their registers of information.

Next Steps

The Exercise is expected to be launched in May 2024, and participating entities will be expected to submit their registers of information to NCAs, who will pass it onto the ESAs between 1 July and 30 August 2024.

On 11 April 2024, the European Banking Authority ("EBA") published its final guidelines on the application of the group capital test ("GCT") for investment firm groups ("Guidelines") under the Investment Firms Regulation ("IFR"). The aim of these Guidelines is to set harmonised criteria to address the observed diversity in the application of the GCT in the EU and ensure a level playing field.

The Guidelines are divided into 6 sections, and there are 2 annexes attached:

• Part 1: outlines a simplified and proportionate approach applicable to investment firm groups ("Groups") consisting exclusively of small and non-complex investment firms and ancillary services undertakings;
• Part 2: sets out the conditions required to consider the structure of the Group as "sufficiently simple", provides quantitative thresholds and qualitative criteria that the competent authority should assess before granting the use of the GCT;
• Part 3: sets out the conditions for assessing the significance of the risks to clients or to the market stemming from the Group as a whole;
• Part 4: sets additional criteria that competent authorities should assess when granting the authorisation to reduce own fund requirements, and provides further clarity on the meaning of "notional own funds" and "satisfactory level of prudence";
• Part 5: lists the minimum set of information that competent authorities should assess when evaluating whether a Group meets the criteria set out in the Guidelines;
• Part 6: elaborates on the process for granting and refusing permission to use the GCT;
• Annex 1: sets a flow chart of the structure of these guidelines with reference to relevant criteria; and
• Annex 2: sets out the feedback from the public consultation on the Guidelines which it launched in July 2023, for more information on the consultation, see FIG Top 5 at 5 dated 27 July 2023, and the EBA analysis.

Next Steps

The Guidelines will now be translated into the official EU languages, and will apply from 1 January 2025. Competent authorities should ensure that all GCT and lower amount permissions are in force comply with the Guidelines by the application date.