1. The Central Bank holds its Financial System Conference 2024
On 18 November 2024, the Central Bank of Ireland (“Central Bank”) held its now annual Financial System Conference. This year's conference was entitled, “Delivering a well-functioning financial system to support a changing economy” (“Conference”) and addressed the following themes under this umbrella:
- the future of financial services in Ireland and Europe;
- the future of payments;
- integrity in financial services; and
- enhancing the outcomes of the Irish financial system.
We will be updating clients in early course with a detailed insight piece on the themes from the Conference but for the purposes of this update, the focus is on the speech (“Speech”) delivered by Gabriel Makhlouf, Governor of the Central Bank, at the opening of the Conference.
Having given an overview of the history of the evolution of the global financial system, the Governor focused on how the Central Bank is transforming to meet the challenges posed by the changes that are occurring in Ireland’s financial sector. He also considered the direction of travel in terms of some of the changes that the Central Bank is anticipating and how it is likely to respond.
The Central Bank’s Transformation
Governor Makhlouf pointed to the fact that the Central Bank, as a whole, is changing how it works and how its frameworks are evolving to reflect an increasingly digital world. He took the opportunity to highlight some specific examples of this transformation, such as:
- the innovation sandbox programme, reflecting a change in the way the Central Bank engages with innovation in financial services. The Governor stated that the details as to the selected participants will be announced in the coming weeks. For more information on the innovation sandbox programme please see the FIG Top 5 at 5 dated 6 June 2024 and FIG Top 5 at 5 dated 3 October 2024.
- the modernisation of the Consumer Protection Code;
- work on a European level as regards the Digital Euro and the EU Financial Data Access Regulation.
The Governor then discussed the Central Bank’s new supervisory framework, citing it as its “most comprehensive response to the changing financial system”, noting that it will promote a more open and transparent supervisory approach, with the changes coming into effect in January 2025. For more information please see FIG Top 5 at 5 dated 8 August 2024.
Direction of Travel – a Look Ahead
In this context, Governor Makhlouf referenced a core theme of the Central Bank’s strategy as being future – focused and highlighted three areas which he considered likely to be the next significant widespread technological developments in the financial system, as follows:
- the payments landscape, noting the rapid pace of change and challenges as regards cross – border payments. He also referred to the development of the National Payments Strategy, for more information please see FIG Top 5 at 5 dated 24 October 2024.
- Against this background, the Governor also discussed the introduction of a Digital Euro, noting its potential to provide an “all-in-one” digital payment option in the EU. For more information please see FIG Top 5 at 5 dated 19 September 2024;
- tokenisation of financial assets, highlighting its potential to bring about advances in both real -time and dynamic transaction processing. He further stated that this technology could provide greater global access and choice to people using financial services, while also reducing costs and enhancing efficiency;
- AI – in this regard, the Governor pointed to the potential for AI to transform the risk landscape in terms of addressing challenges such as interpretability, fairness, and ethical data use but noted the possible accentuation of other challenges such as cyber risk and governance.
Finally, the Governor considered the future of the European economy and financial sector and made the following observations:
- the importance of harnessing Europe’s internal market together with an international openness, outlook and leadership;
- the recognition that long - term productivity and competitiveness come about through sustainable long - term policy; and
- as regards regulation and deepening the capital markets union, he expressed a hope that we do not fall into the trap of thinking it can be regulated into existence, rather that the focus will be on delivering structural market reforms to pensions, retail savings and to the supply of investable assets.
2. Regulations for imposition of CCPC 2025 levies are published
On 11 November 2024, the Consumer Protection Act 2007 (Competition and Consumer Protection Commission) Levy (No. 2) Regulations 2024 (“Regulations”), were published.
The Regulations set out the application of the levies and levy contributions payable by regulated entities for the period commencing 1 January 2025 to 31 December 2025. The levies relate to the function of the Competition and Consumer Protection Commission (“CCPC”) in promoting and protecting the interests of consumers of financial services.
Credit Institutions
- a levy of €0.2419 per retail consumer as at 31 December 2023 will apply, with a minimum levy of €500 payable by each credit institution.
Insurance Undertakings
- life assurance undertakings: a levy contribution calculated on the basis of 0.00113% of its total net premium income written on Irish risk business for the year ended 31 December 2023 with a minimum levy of €500 payable by each life assurance undertaking; and
- non - life insurance undertaking (other than captive insurers): a levy contribution calculated on the basis of 0.016713% of its total net premium income written on Irish risk business for the year ended 31 December 2023, with a minimum levy of €500 payable by each non - life insurance undertaking.
Investment Firms [regulated under the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017)]
- each investment firm shall pay a levy contribution calculated at the rate of €0.9809 per retail client as at 31 December 2023, with a minimum levy of €50 payable by each investment firm.
Credit Unions
- each credit union shall pay a levy contribution calculated on the basis of 0.0023873% of its total assets as at 30 September 2023, or if these asset figures are not available, of its total assets as at 30 September in the most recent year available, as supplied to the CCPC by the Bank. A minimum levy of €50 is payable by each credit union.
High Cost Credit Providers
- each high cost credit provider shall pay a levy contribution of €964.
Home Reversion Firms and Retail Credit Firms
- retail credit firms and home reversion firms shall pay a levy on the basis of 0.0009636% of each firm’s outstanding loans figure. The levies are calculated on the basis of the value of each firm’s outstanding loans as at 31 December 2023, as reported to the CCPC by the firms themselves. A minimum levy of €50 is payable by each retail credit firm and home reversion firm.
Next Steps
Firms that receive levy notices are required to pay the amount of the levy indicated in the notice within 28 days from the date of the levy notice. Where a regulated firm does not receive a levy notice, it remains liable to pay the levy contribution.
3. Insurance Updates:
1. EIOPA welcomes approval of global ICS by IAIS as a prescribed capital requirement for IAIGs
On 14 November 2024, the European Insurance and Occupational Pensions Authority (“EIOPA”) published a statement (“Statement”) welcoming the approval of the global insurance capital standard (“ICS”) by the International Association of Insurance Supervisors (“IAIS”) as a prescribed capital requirement for internationally active insurance groups (“IAIGs”).
In the Statement, EIOPA highlights the adoption of the ICS as an important step towards global consistency in the supervision and regulation of IAIGs, noting that it encompasses many features of Solvency II which have led to stability and resilience in the European insurance sector. In that regard, EIOPA particularly mentions the following as crucial elements of Solvency II that now form part of the ICS:
- market - adjusted valuation;
- risk – based capital requirements; and
- the use of internal models.
EIOPA also addressed the provisional US aggregation method, noting that, as it currently exists, it requires amendments in order to deliver outcomes comparable to those of the ICS. EIOPA noted that the US regulators have committed to carry out further work in certain areas, such as, the treatment of interest rate risk and the timing of supervisory interventions.
In a statement issued by the IAIS on 14 November 2024, announcing the approval of the ICS by the IAIS, Shigeru Ariizumi, IAIS Executive Committee Chair, stated that:
“Arriving at an agreement on a global Insurance Capital Standard as a prescribed capital requirement is a landmark achievement for the IAIS. This decision reflects our unwavering commitment to enhancing global insurance supervision and ensuring the resilience of the insurance sector.”
Further, the IAIS stated that it will continue to work closely with its members to ensure a smooth transition to the ICS and to support the implementation assessment process, a sentiment echoed by EIOPA.
Next Steps
The ICS will be presented for adoption at the IAIS annual general meeting on 5 December 2024.
2. EIOPA issues opinion on scope of DORA in light of amended Solvency II Directive
On 14 November 2024, the European Insurance and Occupational Pensions Authority (“EIOPA”) published an opinion (“Opinion”) on the impact of the increased size thresholds as regards exclusion from the scope of Solvency II on insurance undertakings in scope of the Digital Operational Resilience Act (“DORA”).
Under Article 4 of Solvency II, certain insurance undertakings are excluded from the scope of the directive due to their size. Additionally, Article 4(1) of Solvency II specifies that insurance undertakings which fulfil a set of conditions are exempted from the scope of application of the Solvency II. This is without prejudice to national transposition.
Moreover, the size thresholds defined in Article 4 of Solvency II are set to be increased, resulting in more insurance undertakings being excluded from its scope.
Article 2(3)(b) of DORA references Article 4 of Solvency II, implying that the same insurance undertakings which are excluded from the scope of Solvency II, due to their small size, are also excluded from the scope of DORA.
EIOPA is concerned that such insurance and reinsurance entities are required to comply with DORA from its date of entry into application on 17 January 2025 but may subsequently be exempted from DORA at the date of application of the amended Solvency II framework. The amended Solvency II Directive is expected to become applicable at the end of 2026.
EIOPA is of the view that this temporary application of DORA is disproportionate, imposing unnecessary and significant cost on affected entities. Accordingly, EIOPA has invoked Article 9a(4) of the EIOPA Regulation calling on the European Commission to amend the relevant EU law. The Opinion sets out the action EIOPA considers appropriate to remedy the issue.
The Opinion also outlines EIOPA's expectation that National Competent Authorities should not prioritise DORA supervisory actions for these small insurance undertakings.
3. ESMA and EIOPA issue letter to Commission, Parliament and Council on retail investment strategy
On 13 November 2024, the European Securities and Markets Authority (“ESMA) and the European Insurance and Occupational Pensions Authority (“EIOPA”) published a joint letter (“Letter”) that was sent to the European Commission (“Commission”), the European Parliament (“Parliament”) and the European Council (“Council”).
The Letter deals with the legislative proposals for the retail investment strategy (“RIS”), consisting of the proposed directive on retail investment protection (“Omnibus Directive”) and the proposed regulation amending the PRIIPS Regulation (“PRIPPS”).
EIOPA and ESMA are concerned that multiple revisions of the retail investment framework, in a short period of time, may be required and suggest that this could be avoided if the Commission considers complementing the RIS proposals with proposals in line with the following:
- the April 2024 conclusions of the Council on the capital markets union (“CMU”); and
- recommendations made by ESMA in its paper on the CMU and EIOPA’s paper on the future pan – European pension product (“PEPP”).
In addition to the above, the Letter also sets out some observations and concerns, on the part of EIOPA and ESMA, about the amendments to the RIS text proposed by the European Parliament and the Council, as follows:
- value for money benchmarks: ESMA and EIOPA consider that the Council and the Parliament's proposals concerning national benchmarks, companies' peer grouping analysis, with the peer group defined by the companies, and the modified nature of the benchmarks for identifying outliers in the market would significantly undermine the effectiveness of the proposed value for money framework;
- collaboration platforms: ESMA and EIOPA are concerned about potential additional hurdles introduced in the Council’s position, whereby the request by at least two member states would be needed to establish supervisory collaboration platforms; and
- resourcing implications: ESMA and EIOPA highlighted the resource implications of the RIS proposal for both the public and private sector. In addition to the increased administrative burden that the RIS proposal seems to be creating, they also point to the substantial number of tasks and responsibilities for ESMA and EIOPA, which arise from the amended draft texts.
4. EBA Updates:
1. EBA issues opinion in response to the Commission’s proposed amendments to the EBA final draft ITS on supervisory reporting and Pillar 3 disclosures
On 14 November 2024, the European Banking Authority (“EBA”) published an opinion (“Opinion”) on the amendments proposed by the European Commission (“Commission”) to the EBA final draft Implementing Technical Standards (“ITS”) on public disclosures by institutions and supervisory reporting under the revised Capital Requirements Regulation (“CRR3”).
Background
On 20 June 2024, the EBA published final draft ITS on pillar 3 disclosures. On 5 July 2004, the EBA submitted the final draft ITS on supervisory reporting to the Commission for adoption.
On 7 and 28 October 2024, the Commission informed the EBA that it intended to endorse both sets of draft ITS with amendments and submitted a modified version of the ITS to the EBA. Specifically, the Commission proposed to draft ITS that would include reporting and disclosure templates as part of the ITS, rather than on the EBA's website, as the EBA had proposed.
Opinion
In the Opinion, the EBA stated that it considers the original approach as preferable, whereby both templates and instructions would be kept on the EBA website only, as it would provide more flexibility in the development of such IT solutions.
The EBA stated that it accepts the Commission’s proposal and acknowledged that the changes proposed by the Commission preserve some of the flexibility originally intended under the CRR3 mandates for the ITS. However, the EBA considers it an intermediate step only, requiring further work on the part of the EBA and the Commission in order to further operationalise the ITS in accordance with the mandates under CRR3.
Next Steps
The EBA has stated that it will continue to work with the Commission to further operationalise the amended ITS mandate under CRR3
2. EBA publishes final report on guidelines, internal policies, procedures and controls to ensure the implementation of EU and national sanctions
On 14 November 2024, the European Banking Authority (“EBA”) published a final report on two sets of final guidelines (“Guidelines”) that set common EU standards on the governance arrangements and the policies, procedures and controls that financial institutions should have in place to be able to comply with restrictive measures.
The first set of Guidelines are directed at all institutions under the EBA’s supervision. These guidelines outline provisions for ensuring that financial institutions have effective governance and risk management systems in place to mitigate the risk of breaching or evading restrictive measures.
The second set of Guidelines are specifically directed at payment service providers (“PSPs”) and crypto-asset service providers (“CASPs”). They detail the actions PSPs and CASPs must take to ensure compliance with restrictive measures when handling transfers of funds or crypto - assets.
Next Steps
Competent authorities will have two months after publication of the translations into the official EU languages to report their compliance with the guidelines. The guidelines will apply from 30 December 2025.
5. Joint Committee of ESAs publish decision on information authorities must report for designation of CTTPs under DORA
On 15 November 2024, the Joint Committee of the European Supervisory Authorities (“ESAs”) published a decision (“Decision”) on the information that competent authorities must report to them for the designation of critical ICT third-party service providers (“CTTPs”)under the Regulation on digital operational resilience for the financial sector (“DORA”).
The Decision sets out a framework for the annual submission of information to the ESAs necessary for the designation of CTTPs. The Decision considers aspects such as timelines, frequency and reference dates, procedures for submitting information, quality assurance, revisions of submitted data, confidentiality and access to information.
The deadline for the first submission of the registers of information to the ESAs is 30 April 2025. The ESAs expect competent authorities to have collected the registers of information from relevant financial entities in advance.
While the European Commission (“Commission”) has yet to adopt the final implementing technical standards (“ITS”) on the registers of information, the ESAs have highlighted that most of the essential requirements have been known since January 2024, when the ESAs published their final report. For more information on the final report, please see FIG Top 5 at 5 dated 25 January 2024. Accordingly, the ESAs are advising financial entities to prepare their registers of information in advance, as much as possible, particularly in regard to information that may not be immediately available.
The ESAs have also published a list of validation rules and a visual representation of the data model which will be included in the updated reporting technical package.
Next Steps
The ESAs have announced that they will hold a workshop on 18 December 2024 addressing how to prepare registers of information. Feedback on the dry run exercise, that took place earlier in 2024, will also be provided, for more information please see FIG Top 5 at 5 dated 18 April 2024.