1. Fitness and Probity Updates
IFSAT publishes decision on the Central Bank's decision to refuse a PCF application under its Fitness and Probity Regime
On 14 February 2024, the Central Bank of Ireland ("Central Bank") published a statement concerning a judgment delivered by the Irish Financial Services Act Tribunal ("IFSAT") in relation to a decision by the Central Bank to refuse an individual's application for a pre-approved control function ("PCF") role under the Fitness and Probity ("F&P") regime. IFSAT found a number of issues with how the Central Bank handled the application and returned the application to the Central Bank for reassessment.
IFSAT's decision in this matter represents a detailed consideration of fundamental procedural and substantive questions regarding the F&P process. Specifically, the decision:
- sets out the basis for the application of various tenets of procedural and constitutional fairness, which must be afforded to an applicant in an F&P application, including the necessity for fair notice, decision-making by an independent decision maker, the duty to give reasons and the observance of the principle of audi alterem partem (hear the other side);
- confirms the position that, "quasi-judicial bodies exercising limited powers, or extensive powers, must be independent, impartial, dispassionate, apply the law and observe fair procedures";
- provides that, when carrying out their role, "PCF or other interviewers and decision-makers have a duty of fairness and compliance with the standards laid down in the Constitution itself and the case law as enunciated by the Courts established under that Constitution"; and
- in particular, the decision stresses the importance of an applicant being given fair notice of the questions before them, having access to relevant information and materials, to which reference may need to be made in order to answer the questions that the Central Bank may pose. In addition, submissions made by any applicant must be given demonstrable consideration and where a decision to refuse an applicant is made, reasons why a refusal has been decided upon, need to be provided to an applicant.
The Central Bank has stated that it will immediately conduct a reassessment of the application, in accordance with IFSAT's directions. Further, the Central Bank will commission an independent review of the F&P approval process to ensure that it remains effective into the future, with the outcome of this review being published in due course. The Central Bank has confirmed that in the meantime, all of the Central Bank's gatekeeping functions, including the F&P approval process, will continue to operate in accordance with agreed service standards.
For more information on the IFSAT decision, please see Matheson Insight IFSAT publishes decision on the Central Bank's decision to refuse a PCF application under its Fitness and Probity Regime.
Amendment to PCF-16 Branch Manager of branches established outside the State
On 14 February 2024, the Central Bank of Ireland ("Central Bank") published an information note on pre-approval control function 16 ("PCF-16") "Branch Manager of branches established outside the State". The Central Bank had introduced an amendment to PCF-16 so that it will only be applicable where the business arising out of the branch amounts to 5% of more of, as applicable, the assets or revenues or gross written premium of the regulated financial service provider ("RFSP") via S.I. 663 of 2023. The information note provides additional information and takes the form of frequently asked questions. The following questions and answers in particular should be noted.
3. How will the definition apply in practice?
Firms should take a practical approach when applying the definition of PCF-16, and in determining the frequency of assessments. It acknowledges that branches may use different booking models, but the use of specific booking models should not impact the application of the definition. The definition is intended to capture branch managers who meet or exceed the materiality threshold and the definition should be applied in such spirit. Firms must document and make available to the Central Bank on request, any related assessment.
4. Could the use of a threshold for the Branch Manager role lead to timing issues regarding when an firm should submit a PCF application? How should subsequent movements above and below the threshold be addressed?
Firms should carry out an assessment to see if the branch meets the materiality threshold at the time the individual is being considered, and if it is met or exceeded, then the role is a PCF role and the new appointment should be put forward for pre-approval without delay. Once approved, the individual remains a PCF until they leave their role, regardless of fluctuations above and below the threshold post approval.
5. Will individuals currently designated as PCF-16 be required to seek approval from the Central Bank to continue to perform their PCF-16 role?
Where a firm determines that an individual currently designated as PCF-16 should continue to be designated as PCF-16, based on the definition as set out above, no further action is required and the existing PCF-16 role remains in place.
6. What is the process for individuals currently designated as PCF-16 where the branch does not meet or exceed the threshold?
Where a branch does not meet the threshold, they must end-date the relevant PCF-16 role by way of resignation on the Central Bank Portal using the date of S.I. No 663 of 2023 as the effective date. Firms should select "Other" as the reason and insert "PCF role no longer required due to updates to the regulations on 29/12/2023" in the text box. This must be completed by 29 March 2024.
7. What is the process for new appointments to PCF-16 where the branch meets or exceeds the threshold?
The full application process applies to any new appointment to PCF-16 where the branch meets or exceeds the threshold.
2. Central Bank Regulatory Priorities 2024
On 14 February 2024, Governor Gabriel Makhlouf of the Central Bank of Ireland ("Central Bank") gave his opening statement at the Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach. The Governor's speech focused on the current economic outlook, the resilience of household borrowers, and the Central Bank's regulatory priorities for 2024. For the purposes of this note we will focus on the latter two.
Resilience of households
Governor Makhlouf noted that household borrowers remained resilient, but acknowledged that some borrowers are more vulnerable. The Central Bank has been working to ensure that the financial system is set up to deal with financial distress cases in a consumer focused manner. Consumers on tracker mortgages and variable rates have seen significant increases in their mortgages, and many have found mortgage switching to be the best option with switching volumes almost tripling between 2019 and 2022.
Governor Makhlouf noted that the Central Bank had seen firms enhance early indicators and improve customer engagement, as well as widening alternative repayment arrangements and introduce new support measures via the "Dealing with Debt" campaign.
Regulatory Priorities
Governor Makhlouf noted that the Central Bank's priorities for financial regulation and supervision are set in the context of current and emerging issues within the sector. The sector is growing in size, complexity and connectivity and the Central Bank is focused on dealing with the medium term implications of this growth.
The Central Bank's overarching aim is to ensure "a stable, resilient and trustworthy financial sector, operating sustainably in the best interests of the public and consumers". They key areas of focus for the Central Bank are:
- to introduce a revised Consumer Protection Code;
- address systemic risks facing the non-banking sector at an international and domestic level;
- implement the Individual Accountability Framework and the new Credit Unions (Amendment) Act.
In addition, work on the Retail Banking Review, alongside the Department of Finance is key to establishing a framework which protects access to cash services and the resilience of the cash system, particularly given the societal demand and need for cash.
3. CCPC publishes its report on understanding consumer detriment in Ireland
On 19 February 2024, the Competition and Consumer Protection Commission ("CCPC") published its report on understanding consumer detriment in Ireland. The Report outlines the money, time and peace of mind that Irish consumers lost when something went wrong with their goods and services. 39% of the 4,537 consumers who participated in the survey reported experiencing detriment. This update outlines some of the key statistics for the category of banking and insurance. It should be noted that financial advice fell within the category designated as professional services, and crypto assets in the gambling category but as they are only one component of each of those categories, we have not included them here.
The top 3 sectors for different measures of consumer detriment:
- banking and insurance was one of the top 3 sectors for the categories described as:
- any detriment;
- most serious;
- sector specific; and
- any personal time.
Share of financial costs to consumers:
- banking and insurance: 14% (3rd highest at €150million).
Incidence of detriment (average: 9%):
- banking and insurance: 9%.
Incidence of detriment (with adjustments as some sectors participated more than others):
- banking and insurance: 9%.
Most serious issue (average: 5%):
- banking and insurance: 7%.
Top 3 sectors across each problem area:
- banking and insurance: 3rd highest sector for contract terms and conditions.
Proportion of consumers who contacting seller to address detriment:
- banking and insurance: 69%.
Resolution costs:
- banking & Insurance: €36 million (2nd highest).
Personal time trying to resolve issue:
- banking and insurance: 20% spent over 11 hours of personal time.
Level of stress from the problem: extremely stressful:
- banking and insurance: 17%,
Level of stress from the problem: quite a lot and extremely stressful:
- banking and insurance: 65%.
4. MiFID Updates
Central Bank welcomes ESMA's statement on the obligation to publish RTS 28 reports after 13 February 2024
On 16 February 2024, the Central Bank of Ireland ("Central Bank") welcomed the European Securities and Markets Authority's ("ESMA") public statement on the obligation to publish RTS 28 after 13 February 2024. ESMA expects national competent authorities "not to prioritise supervisory actions towards investment firms relating to the periodic reporting obligation to publish RTS 28 reports" from 13 February 2024 until the date that the proposed Directive to amend MiFID II is transposed by Member States.
In its statement, the Central Bank has confirmed that it will apply the measures set out in ESMA's public statement. For more information on ESMA's public statement, please see FIG Top 5 at 5 dated 15 February 2024.
Council adopts proposed Directive and Regulation to improve MiFID II market data access and transparency
On 20 February 2024, the Council of the European Union published a press release announcing that it had adopted the proposed amendments to the Markets in Financial Instruments Regulation and the Markets in Financial Instruments Directive. The proposed amendments aimed to improve access to market data and trade transparency, and were accepted by the European Parliament on 16 January 2024.
For more information on the proposed amendments, please see FIG Top 5 at 5 dated 18 January 2024.
Next Steps
The proposed amending legislation will enter into force 20 days after it is published in the Official Journal of the European Union. The Regulation will apply immediately, and Member States will have 18 months to bring laws, regulations and administrative provisions required to comply with the Directive into force.
5. Banking Updates
Department of Finance publishes its responses to Public Consultation on the future of the Bank Levy
On 15 February 2024, the Department of Finance published the responses it received to its public consultation on the future of the further levy on certain financial institutions ("bank levy"). The consultation was launched on 7 April 2023 and closed to feedback on 5 May 2023, and received 18 responses in total. The bank levy was first introduced in 2014 as a revenue raising measure to enable the banking sector to contribute towards Ireland's economic recovery, initially for a 3 year period, but has since been extended multiple times. To date it has provided €1.3billion to the Exchequer.
The consultation was carried out as part of the Department of Finance's work on ensuring that the levy remained fit for purpose. The responses helped to inform the Department of Finance's analysis of the levy and its considerations for the future of the bank levy. These considerations were reflected in the announcement made as part of Budget 2024 on the nature and duration of the new bank levy.
A revised levy is being put in place which will continue to apply to credit institutions which received financial assistance from the State during the financial crisis, and are still operating in the State. The revenue target is €200million and it will be apportioned based on "the level of relevant customer deposits held by each liable institution". The amendments were contained within Section 73 of the Finance (No 2) Bill 2023.
EBA consults on draft ITS on operational risk and supervisory reporting requirements under CRR
On 20 February 2024, the European Banking Authority ("EBA") published its consultation paper on 2 draft implementing technical standards ("ITS") amending Commission Implementing Regulation 2021/637 ("Regulation") on public disclosures by institutions of the information on operational risk to reflect the new disclosure requirements which apply on the commencement of the Capital Requirements Regulation ("CRR III").
Readers should note that this consultation is in addition to the EBA's consultation launched on 14 December which considered draft ITS on current Pillar 3 public disclosure. The aim is to bring together those ITS and these ITS in a common draft ITS for publication and onward submission to the European Commission ("Commission").
In addition to the consultation paper, the EBA has published an updated mapping tool between the revised disclosure and reporting requirements on operational risk to ensure consistency between the 2 frameworks; and 2 annexes with accompanying templates.
Next Steps
The consultation will close to feedback on 30 April 2024. The EBA intends to finalise the draft ITS (as described above) and submit them to the Commission by the end of June 2024. The ITS will apply from 1 January 2025, and the first disclosure reference date will be 31 March 2025, aligned with the application date of CRR III.
EBA consults on technical standards clarifying new business indicator test under CRR III
On 20 February 2024, the European Banking Authority ("EBA") published a consultation paper on 2 draft regulatory technical standards ("RTS") and draft implementing technical standards ("ITS"). They aim to clarify the composition of the new business indicator ("BI") component of the own funds requirement for operation risk on the commencement of the Capital Requirements Regulation III ("CRR III").
The EBA is consulting on:
- draft RTS further specifying the components of the BI by developing a list of items and the elements to be excluded from the BI, respectively, which have been developed in line with the EBA's policy advice on the Basel II reform;
- draft ITS to provide mapping of the BI items to the corresponding financial reporting items, in Commission Implementing Regulation (EU) 2021/451; and
- draft ITS for specifying how institutions should determine the adjustments to the BI in the case of specific operations.
Next Steps
The consultation will close to feedback on 21 May 2024, and will revise the draft amending technical standards in light of the feedback it receives and will present them to European Commission.
ECB publishes revised guide to internal models under SSM
On 19 February 2024, the European Central Bank ("ECB") published a revised version of its guide to internal models under the Single Supervisory Mechanism ("SSM") ("Guide"). The Guide aims to set out the ECB's understanding of the rules applicable under the Capital Requirements Regulation ("CRR") where banks use internal models to calculate how much capital they need. Some of the key revisions include:
- clarification on how banks should include material on climate-related and environmental risks in their models;
- outline how banks can revert to the standardised approach for calculating risk-weighted assets, to assist banks in their efforts to simplify their internal model landscapes;
- assist banks in moving towards a common definition of default and consistent treatment of "massive disposals";
- detail how to measure default risk in trading book positions in the chapter on market risk; and
- clarify issues regarding counterparty credit risk.
The Guide takes into consideration the feedback it received from industry during its public consultation launched in June 2023, which received 20 responses. For more information on the consultation, please see FIG Top 5 dated 29 June 2023.
Alongside the Guide, the ECB has also published a feedback statement to its public consultation and republished its FAQS which explain the main changes to the updated Guide.