FIG Top 5 at 5 - 25/04/2024

1.Department of Finance Publications:

• National Payment Strategy Update; and
• Financial Literacy Strategy in Ireland

Department of Finance publishes a summary of submissions from its public consultation on the National Payments Strategy

On 23 April 2024, the Department of Finance published a summary of submissions which it received in response to its public consultation on the National Payments Strategy (“NPS”). 85 responses were received, with 30% of those being submitted from individuals demonstrating the level of public interest in the NPS. The Department of Finance launched the public consultation seeking stakeholder views on the NPS on 12 December 2023, for more details on the public consultation, please see FIG Top 5 at 5 dated 14 December 2023.

The following outlines the key areas addressed in the summary of submissions:

Timeline and Vision

While the timeline did not feature strongly in the submissions received, those who did express a view, most noted that 5 years was a reasonable time period for the NPS to cover, with a small number advocating for a 2 year timeline. The view that the NPS should be trusted by users was the most common preferred outcome, with resilience in the face of stress, supportive of innovation, inclusive to those who may have lower digital or financial literacy or to be vulnerable and contribute to the wider goal of a sustainable environment also being desired outcomes.

Principles

None of the submissions disagreed with the principles set out in the terms of reference. The following captures some of the observations made:

• access and choice: this appears to have been an important principle with the public, and there was a belief that consumers should maintain the current offering of payment methods available in the Irish payments ecosystem;
• inclusion for all payment users: this was also raised as a strong theme by all civil society groups, both in terms of continued use of cash and digital innovation. IBAN discrimination was raised by a small number of financial firms and a small number of individuals who believed this to be a barrier to both consumer choice and innovation;
• resilience and security: 3 suggestions were made from public bodies – (i) that there should be a national group on system-wide contingencies; (ii) the power to petition the High Court to liquidate non-bank providers be provided to the Central Bank of Ireland (“Central Bank”); and (iii) that cyber security for the payment system be enhanced across the ecosystem;
• sustainability: this was addressed in a small number of submissions; and
• some submissions suggested that the NPS should have criteria to measure progress as the strategy develops, with an appropriate governance framework to monitor progress or challenges to these on a regular basis, with annually being suggested as appropriate.

Payments

• 33% of submissions referenced instant payments;
• firms and industry bodies were in agreement on the need for an instant payments forum, but that there was a need for significant buy-in from participants as an industry driven approach would not be sufficient;
• collaboration across the sector is required to unlock all the potential benefits of the Instant Payments Regulation;
• the Department of Finance and the Central Bank were seen as key participants and enablers to provide leadership in this area, but other submissions noted the consumer voice was also central to the process;
• consumer trust in instant payments was considered fundamental for consumers, and the user journey and ease of use is considered vital for it to be a success;
• retailer groups considered cost reduction to be the greatest potential benefit for them; and
• a variety of payment options and public education campaigns regarding the benefits and challenges were also mentioned in submissions.

Open Banking

• this section received less commentary, but respondents noted barriers to the take-up of open banking such as user experience issues in authentication processes;
• consumer protection was an area of concern, with technical elements preventing consumers from reaping the benefits, and the potential for a window of financial abuse of vulnerable consumers if proper safeguards were not put in place;
• there is a need for collaboration to drive the development of open banking and address the challenges posed, with calls for forum for cross collaboration and the use of SEPA to support uniform implementation;
• as usage is largely unknown, there were also calls for the Central Bank to collect and publish data on open bank usage, and to use this to drive compliance with existing legislative requirements; and
• there was some support for the Central Bank to set out its expectations regarding user experience, and others highlighted the insufficient enforcement of open banking rules.

Payments Fraud

• half of the respondents highlighted the issue of fraud or scams, with representative bodies noting the “deleterious impact of fraud on vulnerable populations and the importance of  financial literacy”;
• the most commonly raised recommendation related to the need for a cross-sectoral response, as a joint response from banking and payment sectors is insufficient, with calls for consumer and retail representative groups, technology companies and delivery services also having a role to play;
• an enhanced targeted anti-fraud awareness campaign is needed, which should be data led to ensure consistent messaging; and
• other submissions called for the broadening of the liability for fraud reimbursement, and for similar initiatives to the UK’s “Take five to stop fraud” campaigns to be replicated.

Crypto-Assets

• 15% of submissions addressed crypto-assets and noted that the use of crypto as a form of payment is complex, technical and not widely understood;
• benefits such as the speed that crypto transactions can be conducted, increased innovation and privacy, and reduced costs were also identified;
• some of the disadvantages were identified as a lack of consumer protection, use in fraud and money laundering, and environmental footprint; and
• some recommendations submitted included the carrying out of research on the consumer impact of crypto-assets and the collection of data on crypto-asset usage to inform future consumer protection actions.

Digital Euro

• 8% of submissions referenced the digital euro and the benefits to society, but noted the lack of information available on the digital euro and emphasised that it should not replace cash;
• suggestions were made that costs must be controlled in the implementation of the digital euro, and there was a degree of concern over data protection;
• some submissions suggested that there should be a cap on the amount of funds an individual could have in digital euro; and
• many expressed support for a campaign to broaden knowledge on what it entails.

Acceptance of Cash

• 39% referenced cash, with 50% stating that cash acceptance should be mandated in the public sector, and 75% of submissions noted a preference for the private sector to accept cash.

Access to Cash

• 56% referenced cash access, with submissions from the public focusing on ATM charges and access fees, and some suggesting ATM fees should be covered by legislation and affordable costs to access to cash should apply regardless of the location;
• the cashback facility is crucial for those in vulnerable and abusive circumstances;
• cash is also vital in the event of a digital systems failure;
• some submissions suggested changes to the current criteria in the Access to Cash Bill, such as transport difficulties, socio-economic factors and cash usage; and
• some submissions noted that the Central Bank should examine and compare data collection in other jurisdictions on payments to inform public debate on the role of cash in Ireland.

Next Steps

The NPS team will consider the submissions and the NPS will be drafted and finalised over the coming months, and publication of the NPS is estimated to be in H2 of 2024.

Department of Finance publishes Mapping Report on the development of a Financial Literacy Strategy in Ireland

On 19 April 2024, the Minister for Finance, Michael McGrath, published a Mapping Report on the development of a National Financial Literacy Strategy (“Report”). The purpose of the national strategy for financial literacy is to protect consumers; achieve financial wellbeing; develop better coordination on financial education between public bodies, the financial services sector, charities, non-profits and educational bodies; and to ensure effective and efficient ways of working.

Roughly 43% of adults in Ireland do not meet the minimum Organisation for Economic Cooperation and Development (“OECD”) level of financial literacy and may struggle with debt and long-term financial wellbeing. Certain groups, such as women, those unemployed, those on lower incomes, those less educated and those over 60, have been identified as having lower financial literacy. On the other hand, 57% of adults in Ireland meet the minimum OECD level of financial literacy, and are able to manage their money on a day-to-day basis and their long-term financial wellbeing.

The Report suggests that financial education should begin in pre-school, however at present most education programmes begin during senior cycle in secondary school. The Report highlighted a number of areas of financial education that should be supported including:

• the management of debt and supporting those struggling with debt to seek support, particularly mortgage debt and Buy Now Pay Now forms of credit;
• digital financial literacy, as only 44% of the adult population do not have the minimum level of digital financial literacy needed to navigate their finances;
• integrating financial education into making decisions around investments; and
• integrating financial education into supporting small-to-medium sized enterprises.

Next Steps

The Department of Finance will work with stakeholders to develop a national financial literacy strategy for Ireland, including a governance structure and action plan which will be published by the end of 2024.

2. Central Bank of Ireland Updates:

• Conversation with Gerry Cross at Insurance Ireland Event; and
• Launch of Survey on Central Bank of Ireland’s Strategy

Insurance Ireland Annual President’s Lunch: Gerry Cross in conversation with Moyagh Murdock

On 19 April 2024, the Director of Financial Regulation, Policy and Risk for the Central Bank of Ireland (“Central Bank”), Gerry Cross joined the CEO of Insurance Ireland, Moyagh Murdock for a conversation at the Insurance Ireland Annual President’s Lunch 2024. The discussion centred around Central Bank regulation, the role of the Central Bank, the importance of innovation, and European developments.

Regulation

Mr Cross began by acknowledging that there has been and will continue to be significant pieces of revised legislation impacting the sector naming the Individual Accountability Framework (“IAF”), the Senior Executive Accountability Regulations, and the revised Consumer Protection Code (“CPC”) as examples of such. However, he stressed that they should be seen as a maturing of the existing regulatory and supervisory framework, rather than an introduction of new rules and obligations. In particular, he noted that the amendments to the CPC are relatively small in terms of text but instead aim to make the CPC more predictable, proportionate and modern.

Taking the attendees through the key elements of the CPC proposal, the Deputy Governor focused specifically on the newly introduced concept of “securing consumers interest”, explaining that ultimately the Central Bank’s aim is to provide more predictability to what that duty entails, and ensure a balance between an industry that works for its customers and an industry that is founded in competition, innovation and sustainable profit making. For more information on the CPC, please see FIG Top 5 at 5 dated 18 April 2024, and Matheson Insight Series on the Central Bank of Ireland’s CPC Consultation Paper.

Recent Developments

The Deputy Governor explained that there have been a number of welcome developments in the insurance industry of late. Principally  the Supreme Court decision on the status of the Personal Injury Guidelines, and the visible decrease in the monetary awards under the PIAB system as evidenced in the NCID report on Employer’s Liability, Public Liability and Commercial Property Insurance (for more information on these developments, please see FIG Top 5 at 5 dated 11 April 2024).

Role of the Central Bank

Mr Cross noted that the role of the Central Bank as the financial regulator was to support the financial system that delivers for economy and citizens. To ensure a successful financial system, the system must be durably resilient, firms must be well run, there must be trust and confidence in the system, and there must be competition and innovation. Competition is vital to the insurance sector to ensure that the sector functions for policyholders, potential policyholders and those who need cover in this rapidly changing world. However, Mr Cross noted that regulators are uncomfortable with the idea of promoting the jurisdiction, and where the innovation and well-functioning elements are met, “promotion is a by the by”.

Ms Murdock raised concern that by bullet proofing consumer protection, it risked reducing innovation. Mr Cross noted that the Central Bank’s regulatory sandbox would play an important role in supporting small start-up companies who may see engaging with regulators as a barrier. The purpose of the sandbox is to enable a partnership to develop between the Central Bank and innovators on how to deal with common issues such as fraud and scams with the view to developing themes and ideas that would be mutually beneficial.

A European Perspective

Ms Murdock observed that “2024 is the year of elections” particularly at a European level. Mr Cross agreed and observed that at a European level there is an unprecedented level of intensity and urgency around the European economy, the European project and the European financial system. There have been a number of challenges and threats facing the EU, including the impact from wars, and the breakdown in traditional international trade from geopolitical tension.

A recent report by Enrico Letta highlighted that Europe is lagging behind the US and Asian markets, with trillions of household savings not being effectively utilised and invested. In order to avoid being left behind the American and Asian markets, there needs to be less red tape, more speed and more innovation at a European level.

Mr Cross noted that the has been discussion at a European level about whether strategic autonomy or open autonomy is more beneficial. As an open market with a cross-border model this discussion is significant for Ireland. Despite being a small country, Ireland has developed into a very credible jurisdiction and a significant global player when it comes to quality, commitment and serving the economy. The Central Bank has become increasingly outcome focused, and data driven and is engaging openly with stakeholders, as evidenced in the development of the IAF. In addition, it has become more innovative, both internally and externally, and is responding to risks in an efficient manner.

On 22 April 2024, the Central Bank of Ireland (“Central Bank”) launched a public engagement survey on the progress of its 5 year Strategy (2022-2026) (“Strategy”). The Strategy set out the Central Bank’s strategic goals and ambitions for the 5 year period under 4 themes – future focused, open and engaged, transforming and safeguarding.

Since the development of the Strategy, the pace of change in the external operating environment has dramatically increased due to

• economic uncertainty;
• the impact of innovation and technology on both consumers and investors, aswell as on the financial services sector;
• geopolitical tensions; and
• new ways of working.

June 2024 will mark the halfway point of the Strategy, and the Central Bank has launched the survey as part of its review into its progress and an evaluation of developments in the operating environment, in order to understand whether there is a need to change any aspect of its long term strategic direction or priorities.

Next Steps

The survey will close to submissions on the 10 May 2024. After this, the Central Bank will consider the responses and publish an updated strategy by the end of 2024.

3. General Court finds that the SRB decision for 2022 ex-ante contributions to SRF was unlawful

On the 10 April 2024, the European General Court delivered its judgment in the case of T-411/22, Dexia v Single Resolution Board (“SRB”) regarding the calculation of the 2022 ex-ante contributions to the Single Resolution Fund (“SRF”).

Arguments

It had been argued by Dexia that the SRB exceeded an annual upper limit imposed by Article 70(2) of the Single Resolution Mechanism (“SRM”), which provides that the total ex-ante contributions of all institutions authorised should not exceed 12.5% of the forecast final target level, when determining individual ex-ante contributions. The SRB had argued that Article 70(2) did not apply during the initial period as the requirement set out in Article 69(2) of the SRM took precedence. Article 69(2) provides that during the initial period, annual ex-ante contributions were to be spread out as evenly as possible until the target level was reached.

Decision

The European General Court dismissed the SRB’s arguments, finding that nothing in the SRM indicated that Article 70(2) did not apply during the initial period, and that in fact Article 69(2) clearly indicated otherwise. It found that in its Decision SRB/ES/2022/18 issued on 11 April 2022 (“Decision”), the SRB had failed to respect the requirement set out in Article 70(2).

The General Court, however, emphasises that the effects of the Decision are to be maintained until the SRB has taken the requisite measures to implement the judgment, which must be done within 6 months from the date on which that judgment becomes final. The rationale given by the General Court was that if the SRB were required to repay the amounts of Dexia and other institutions’ (who have raised a similar argument) ex-ante contributions immediately, it would risk depriving the SRF of the financial means necessary to ensure the stability of the euro area.

Next Steps

The SRB will have 2 months and 10 days from the date of notification of the decision to appeal the decision, on points of law only, to the Court of Justice.

4. Joint Committee of ESAs consult on RTS for joint examination teams under DORA

On 18 April 2024, the Joint Committee of the European Supervisory Authorities (“ESAs”) published a consultation paper on draft regulatory technical standards (“RTS”) on the harmonisation of conditions enabling the conduct of the oversight activities under Article 41(1)(c) of DORA. Article 40 of DORA provides that the lead overseer, when conducting oversight activities, will be assisted by a joint examination team consisting of staff members from the ESAs’ relevant competent authorities.

The draft RTS shall specify a number of elements for the joint examination team including:

• the criteria for determining the composition of the joint examination team ensuring a balanced participation of staff members from the ESAs and relevant competent authorities;
• their designation;
• their tasks; and
• their working arrangements.

Next Steps

The consultation will close to feedback on 18 May 2024. The ESAs will consider the feedback received when finalising the draft RTS following this public consultation which it will submit to the Commission by 17 July 2024.

5. European Legislative Updates

Over the last week, there have been legislative updates on a number of significant pieces of legislation:

1. Amendments to Solvency II and the proposed Insurance Recovery and Resolution Directive (“IRRD”);
2. Proposed Regulation on a framework for financial data access (“FIDA”); and
3. Proposed Directive on payment services and electronic money services in the internal market (“PSD3”) and the proposed Payment Services Regulation (“PSR”).

European Parliament adopts proposed Solvency II amending Directive and IRRD

On 23 April 2024, the European Parliament (“Parliament”) adopted the proposed Directive amending the Solvency II Directive and the proposed IRRD. The aim of the proposed amendments is to enhance the role of the (re)insurance sector in providing long-term private sources of investments to European businesses.

Next Steps

The next step is for the European Council to approve the texts. If approved, they will be published in the Official Journal of the European Union and will enter into force 20 days later.

For more information on the proposed amendments to Solvency II and the IRRD, please see the FIG Top 5 at 5 dated 21 December 2023.

On 18 April 2024, the Parliament released a press release announcing that the Economic and Monetary Affairs Committee (“ECON”) had voted to adopt the harmonised framework for access to financial data in the EU. The framework would enable access to consumer data processed by financial institutions across the financial sector beyond payment account data. With the customer's permission, their data would be made available in order to develop an provide tailor made and data driver financial products and services. Some of the key elements highlighted in the press release are outlined below.

Next Steps

FIDA will be followed up by the new Parliament following the European elections in June.

For more information on FIDA, please see FIG Top 5 at 5 dated 29 June 2023.

On 23 April 2024, the Parliament announced that it had adopted its position on the proposed PSD3 and PSR. The proposed PSD3 and PSR are intended to "represent an evolution not a revolution of the EU payments framework" and will "bring payments and the wider financial sector into the digital age".

Next Steps

The Parliament has closed the first reading without agreement from the Council. It is expected that work will be followed up after the European elections.

For more information on FIDA, please see FIG Top 5 at 5 dated 29 June 2023.