On 5 June 2015, the Fourth Money Laundering Directive (Directive 2015/849/EU) and the revised Wire Transfer Regulation (Regulation (EU) 2015/847) were published in the Official Journal. For further information, see our recent briefing here.
In May 2015, the Central Bank also published a report on anti-money laundering (AML), counter terrorism financing and financial sanctions in the credit union sector, finding that while good practices were observed, "widespread and common deficiencies" regarding compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) (CJA 2010) were also discovered. Particular issues identified included lack of oversight at board level, inadequate customer due diligence policies and procedures, failure to adhere to policies, engaging in non-standard practices and failure to provide appropriate training. Credit unions will be required to confirm annually that they have put in place appropriate measures to address the matters set out in the report.
BANKING UNION: BANK RECOVERY AND RESOLUTION DIRECTIVE
On 6 May 2015, the European Banking Authority (EBA) published Guidelines on Recovery Plan Indicators addressed to national competent authorities (NCAs) under the Bank Recovery and Resolution Directive (Directive 2015/59/EU) (BRRD).
These guidelines set out the minimum list of indicators that must be included in a recovery plan to identify points at which appropriate actions referred to in the plan may be taken. The guidelines enter into force on 31 July 2015 and NCAs must confirm their compliance status to the EBA within 2 months of translations being published.
On 8 May 2015, the EBA published final Guidelines on Triggers for use of Early Intervention Measures addressed to NCAs under Article 27(4) of the BRRD. These guidelines apply from 1 January 2016.
The EBA also published Guidelines on the Effectiveness of the Sale of Business Tool, Guidelines on the Asset Separation Tool and Guidelines on the Minimum List of Services and Facilities on 20 May 2015, addressed to NCAs under the BRRD, which will apply from 1 August 2015.
The EBA is currently consulting on draft regulatory technical standards (RTS) for the valuation of derivatives under BRRD. The European Commission (the Commission) has asked 11 Member States to take steps to implement the BRRD in light of their failure to meet the 31 December 2014 deadline. Ireland was not on that list, despite having not yet transposed BRRD into national law, presumably on the basis that the relevant statutory instrument is expected shortly. Member States that do not comply with the Commission's request within 2 months risk being referred to the European Court of Justice.
BANKING UNION: DEPOSIT GUARANTEE SCHEMES
On 28 May 2015, the EBA published two sets of guidelines in relation to the recast Deposit Guarantee Schemes Directive (Directive 2014/49/EU) (the Recast DGSD). The first ( Guidelines on Methods for Calculating Contributions to DGS), deals with methods for calculating contributions (which must be risk-based) and must be implemented by Member States by 31 December 2015 (that date can be extended to 31 May 2016). The second ( Guidelines on DGS payment commitments) deals with the legal agreements that should be entered into between schemes and credit institutions in respect of payment commitments and must be implemented in practice by schemes and by designated authorities by 31 December 2015.
Member States are required to transpose the Recast DGSD into national law by 3 July 2015 to enable application of the Recast DGSD from 4 July 2015. The Department of Finance issued a 3-week consultation on transposition, which closed on 12 June 2015. The transposing statutory instrument is awaited and we will be issuing a further briefing once transposition has been effected.
BANKING UNION: PROPOSED REGULATION ON BANKING STRUCTURAL REFORM
On 19 June 2015, the EU Council announced that it had agreed its general approach to the proposed regulation on banking structural reform. The Commission had published the original proposal in January 2014 (following on from the 2012 publication of the Liikanen Report); the proposal is designed to prevent larger banks from engaging in proprietary trading. The Commission's proposal would give bank supervisors the ability to oblige those banks to separate activities perceived as risky from their deposit-taking business where the pursuit of the risky activities could compromise financial stability.
The EU Council has proposed that the regulation apply to global systemically important institutions or to entities with total assets of at least €30 billion over the last 3 years and trading activities of at least €70 billion or 10% of their total assets. Those entities would be divided into two tiers: one tier for entities where the sum of their trading activities during the last 3 years exceeds €100 billion and the other tier for entities where that threshold was not reached. The entities in the upper tier would be subject to stricter reporting requirements, more detailed risk assessment and different supervisory actions. The EU Council has proposed that the regulation not apply to entities with total eligible deposits of less than 3% of their total assets or total eligible retail deposits of less than €35 billion. The EU Council has also proposed that excessive risk arising from trading activities could be managed in one of two ways: by domestic legislation requiring the ring-fencing of core retail activities or using measures imposed by NCAs pursuant to the regulation. The next step is for the European Parliament (Parliament) to agree its position, following which negotiations will start.
BANKING UNION: OTHER PROPOSALS
In a report on the completion of European Economic and Monetary Union published on 22 June 2015, the Commission referred to matters which may still need to be addressed in the context of banking union. These included a proposed European deposit insurance scheme, agreement on a bridge-financing mechanism before the Single Resolution Fund (SRF) begins on 1 January 2016, a backstop to the SRF, a review of the European Stability Mechanism's direct recapitalisation instrument, measures to address the substantial discretion still afforded to Member States and monitoring risks in relation to shadow banking. As these areas develop, updates will be given in future editions of RegBrief.
CAPITAL MARKETS UNION
On 10 June 2015, the Commission published the responses that it had received to its Green Paper on building a Capital Markets Union (CMU) and its consultations on reviewing the Prospectus Directive (Directive 2003/71/ EC) and putting in place a framework for simple, transparent and standardised securitisation. A summary of the responses received by the Commission will be published at a later date and the Commission's action plan on CMU is expected in September 2015.
Prior to the above, on 12 May 2015, the Chair of the European Securities and Markets Authority (ESMA) commented that it would not be possible to establish a full CMU within 5 years, but certain areas should be prioritised including an EU-wide comprehensive supervisory approach and investor participation.
CODE OF CONDUCT ON MORTGAGE ARREARS/ FURTHER MORTGAGE ARREARS MEASURES PROPOSED
On 24 June 2015, the Central Bank published the outcome of its themed inspection into lenders' compliance with the Code of Conduct on Mortgage Arrears (CCMA). It had inspected 7 lenders and, while it found that each lender had implemented a framework along the lines required by the CCMA, it identified a number of weaknesses, in particular delays in assessing cases, issues with the quality of customer communications in relation to decisions of Arrears Support Units, issues in complying with timelines (particularly around warning borrowers that they are classified as not cooperating, and giving advance notice of personal visits), calling borrowers directly in circumstances where borrowers had nominated third parties to deal with the lenders, and an inability to provide supporting documentation to show compliance with the CCMA.
Arising out of the themed inspection, lenders have been warned (via an industry letter) by the Central Bank not to continue with legal proceedings once an alternative repayment arrangement (ARA) is agreed, not to seek ad hoc payments from borrowers in addition to agreed repayments without verifying the borrower's ability to pay, not to change figures in the Standard Financial Statement without discussing this with the relevant borrower and not to remove a borrower from a Mortgage Arrears Resolution Process purely because the borrower has not agreed to an ARA over the telephone.
There have been some recent judgments of the Irish courts in relation to the CCMA which should be noted:
- where a breach of the CCMA involves a failure by the lender to adhere to the moratorium requirement (but no other failure), that will affect the lender's entitlement to seek a possession order (Irish Life and Permanent plc v Dunne and Irish Life and Permanent plc v Dunphy  IESC 46);
- while the CCMA requires lenders to explore all options for alternative repayment, lenders are not obliged to explore the option of a voluntary scheme in which they do not participate (Stepstone Mortgage Funding Ltd v Clarke & anor  IEHC 105).
On 13 May 2015, the Department of Justice announced a series of measures designed to further support distressed borrowers. These measures include proposed changes to the Personal Insolvency Act 2012. For further information, see our recent briefing here.
The Commission agreed to extend the transitional period for capital requirements for banks' exposures to central counterparties (CCPs) under the Capital Requirements Regulation (Regulation (EU) 575/2013) (CRR) from 15 June 2015 to 15 December 2015. Capital charges for exposures to CCPs are higher if the CCP is not authorised or recognised under the European Market Infrastructure Regulation (Regulation (EU) 648/2012) (EMIR). As those processes take time, the CRR allows for a transitional period during which those higher charges are not applied. As a result, on 9 June 2015 Commission Implementing Regulation (EU) 2015/880 on the extension of the transitional periods related to own funds requirements for exposures to CCPs was published in the Official Journal. It entered into force on 12 June 2015.
On 17 June 2015, Commission Delegated Regulation (EU) 2015/923 amending Delegated Regulation (EU) No 241/2014 (which set out the RTS on own funds requirements for institutions under the CRR) was published in the Official Journal. It comes into force on 7 July 2015.
On 19 June 2015, Commission Delegated Regulation (EU) 2015/942 amending Regulation 529/2014 on assessing the materiality of extensions and changes of internal approaches when calculating own funds requirements for market risk under the CRR was published in the Official Journal. It enters into force on 9 July 2015.
The Central Bank Consultation Paper on the Central Credit Register under the Credit Reporting Act 2013 closed for comment on 12 June 2015. In it, the Central Bank sought views on reporting of borrowers to the register, reporting by lenders to the register, the collection of credit application data, the first point of reporting of credit agreements to the register, the extent to which historic data will be collected, the single borrower view and accurate identification of credit information subjects, the collection of foreign credit data, the collection of guarantor data, and levies and fees. We will be issuing a briefing on the Credit Reporting Act 2013 and the Central Credit Register as further progress is made in this area.
The Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015 was passed by Dáil Éireann on 17 June 2015 and is expected to complete Seanad stage on 2 July 2015. Our Briefing on the Bill as initiated is here.
The Central Bank's Credit Union Handbook was amended in May 2015 to refer to the EBA's Guidelines on the Security of Internet Payments, and to insert a new section on Central Bank communications and publications to assist credit unions in complying with the CJA 2010.
The Regulation on European Long-Term Investment Funds (ELTIF Regulation) was published in the Official Journal on 19 May 2015 as Regulation (EU) 2015/760. It came into force on 8 June 2015 and will apply from 9 December 2015. The ELTIF Regulation facilitates the creation of a new fund vehicle, aimed at promoting investment in entities and projects that require long-term capital investment.
EUROPE: GENERAL DEVELOPMENTS
On 13 May 2015, it was announced that the Commission and ESMA would implement an early review process for draft technical standards for the Central Securities Depositaries Regulation (Regulation (EU) 2014/909), the UCITS V Directive (Directive 2014/90/EU), the Transparency Directive (Directive 2004/109/EC), the Market Abuse Regulation (Regulation (EU) 596/2014) (MAR), the MiFID II Directive (Directive 2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014) (MiFIR). The early review process is intended to ensure that the drafting of these standards is as legally correct as possible, but may result in a short delay in finalising the standards for MAR, MiFID II and MiFIR.
On 22 May 2015, ESMA called for the UCITS IV Directive (Directive 2006/65/ EC) to be modified to take account of the clearing obligation for certain over the counter (OTC) derivative transactions required by EMIR, by removing the distinction between OTC and exchange traded derivatives. It suggests replacing that distinction with one between cleared and non-cleared financial derivative transactions.
In a 9 June 2015 update on ESMA's work on EMIR, ESMA's Executive Director confirmed that, as regards the clearing obligation for derivatives under EMIR, it expects that obligation to be implemented in the EU in the coming months.
The Commission is currently consulting on market participants' experience in implementing EMIR. Responses received will assist the Commission in reviewing the need for measures to facilitate access by CCPs to central bank liquidity facilities, the systemic importance of the transactions of nonfinancial firms in OTC derivatives, how the supervisory framework for CCPs is functioning, the efficiency of margining requirements to limit procyclicality, and the evolution of CCPs' policies on collateral margining and security requirements. The consultation closes on 13 August 2015.
FITNESS AND PROBITY
The Central Bank has made an online return available for regulated financial services providers to whom new prescribed control function (PCF) roles apply under SI 394/2014 (which prescribed 6 new PCF roles with effect from 31 December 2014).
FUNDS: DIRECTORSHIPS HELD BY INDIVIDUALS
On 16 June 2015, the Central Bank issued an industry letter following a thematic review in which it assessed the number of directorships held by individuals on the boards of corporate investment funds and fund management companies. It confirmed that where an individual director has an aggregate professional time commitment of greater than 2,000 hours per year, including commitments to at least 20 fund boards, that individual will be deemed by the Central Bank to be at high risk of not being able to fulfil those board roles to an appropriate standard. Proposed appointments of such directors must be accompanied by a letter to the Central Bank from the relevant board setting out the proposed time commitment for that director and the Central Bank will also not be able to commit to its usual 24 hour authorisation timeframe for corporate QIAIFs in such cases as it will need to consider making additional enquiries.
INTERCHANGE FEES REGULATION
The regulation on interchange fees for card-based payment transactions (Interchange Fees Regulation) was published in the Official Journal on 19 May 2015 as Regulation (EU) 2015/751. It came into force on 8 June 2015 and will (subject to certain limited exceptions) apply from 9 June 2016. It introduces new rules for payment card schemes together with caps on the interchange fees that can be charged on all card transactions. The Department of Finance ran a Public Consultation on elements of the Interchange Fees Regulation where Member State discretion is permitted from 19 May 2015 to 10 June 2015. The outcome of this consultation is awaited.
The Central Bank recently published the results of an extensive review of retail intermediaries, covering 379 firms (representing 13% of Irish-authorised firms). The review focused on the sale of pension products (9 firms were identified for follow-up supervision, and 4 firms were required to have independent reviews undertaken of their processes and controls in relation to the sale of pension products), financial position (64 firms were identified as having a negative financial position, but 94% of in-scope firms resolved their financial positions by various means, including capital injections and voluntary revocation of authorisations) and professional indemnity insurance (PII) (98% of in-scope firms did not have the required level of PII cover and the remaining 2% had no PII cover). Almost all of those cases have been resolved, with a limited number of firms revoking their registrations or becoming the subject of Central Bank enforcement action.
On 5 May 2015, the Central Bank published Consultation Paper 94 on Corporate Governance Requirements for Investment Firms. CP94 sets out the requirements that it is proposed such firms must comply with. These include requirements in relation to minimum board size, the roles of Chairman and CEO, board composition, frequency of board meetings and the function and composition of both audit and risk committees. Where an investment firm is designated as high impact or as medium high impact, additional requirements have also been proposed.
The consultation closes on 5 August 2015.
On 6 May 2015, ESMA published Guidelines on the definitions of commodity derivatives and their classification under C6 and C7 of Annex I to the MiFID Directive (Directive 2004/39/ EC). The guidelines apply from 7 August 2015, but will be superseded by MiFID II delegated acts in due course. As a result, translations are not being published in light of the short time frame during which the guidelines will apply.
On 19 June 2015, the Central Bank published the results of its review of client categorisation by MiFID investment firms. It noted that most firms appeared to be aware of the requirements, but some firms are not implementing these correctly. Where issues were identified, the Central Bank followed up with the relevant firm directly. It also issued an industry letter reminding MiFID investment firms of the requirements around retail clients opting up to elective professional status, and clarifying that approved retirement funds (ARFs) are not pension funds for the purposes of Schedule 2 to the Irish MiFID Regulations (SI 60/2007) and, as such, cannot be categorised as per se professional clients. Instead, they should be categorised as retail clients in the first instance, and could opt up to elective professional status if the beneficiary of the ARF meets the criteria and chooses to opt-up.
We have published a guide on the impact of MiFID II on the MiFID Conduct of Business Regime in Ireland, available here.
In a statement by ESMA's Chairman on 16 June 2015, he confirmed that the key complex areas of focus in relation to MiFID II are non-equity transparency (with ESMA acknowledging that it will not be able to find a system that balances transparency and liquidity in a way that satisfies everyone), position limits (ESMA will not be taking a 'one-size-fitsall' approach to its solution on this issue) and ancillary activity (ESMA intends to significantly refine the originally proposed test as to whether noninvestment firms perform investment services as an ancillary activity to their main business).
MORTGAGE CREDIT DIRECTIVE
On 1 June 2015, the EBA published final Guidelines on Arrears and Foreclosure and final Guidelines on Creditworthiness Assessment under the Mortgage Credit Directive (Directive 2014/17/EU). These apply from 21 March 2016 (the date by which the Mortgage Credit Directive must be transposed). Once translations of these guidelines are published by the EBA, NCAs will have 2 months to confirm their compliance status. Where an NCA has not yet been designated, it must confirm compliance status within 2 months of being designated. Final guidelines on passport notifications for mortgage credit intermediaries are expected in Q3 2015, and will also apply from the transposition date.
On 11 June 2015, the Central Bank updated its Prudential Requirements for payment institutions authorised by the Central Bank under the European Communities (Payment Services) Regulations 2009 to reflect the Central Bank's Fitness and Probity Regime. The section in relation to AML has been removed and payment institutions have instead been directed to the AML pages of the Central Bank's website.
Notwithstanding the political agreement reached between the EU Council and the Parliament on the revised Payment Services Directive (announced on 5 May 2015), the Commission has expressed regret that while the compromise text gives host Member States increased powers to supervise and monitor activities conducted in those host Member States by payment institutions authorised in other Member States using agents, host Member States can still require such payment institutions to set up a central contact point in the host Member State – the Commission views this as a potential barrier to the proper functioning of the internal market and has suggested that, instead, improved supervisory and administrative cooperation between Member States could be a more appropriate approach.
On 13 May 2015, Commission Delegated Regulation (EU) 2015/761 was published in the Official Journal. It will apply from 26 November 2015 (the transposition date for the amended Transparency Directive 2013/50/EU). The regulation sets out RTS on major holdings under the amended Transparency Directive.
VARIABLE INTEREST RATES
In September 2014, Hogan J (in the High Court) delivered his judgment in the case of Millar & anor -v- Financial Services Ombudsman. The Millar's had complained to the Financial Services Ombudsman (FSO) that their mortgage loan contracts had been breached by Danske Bank when Danske Bank increased the variable interest rate applicable to those loans at a time when the European Central Bank (ECB) rates were falling. The FSO had rejected their claim but, in the High Court, the Millars succeeded in arguing that their mortgage loan contracts enabled Danske Bank to increase their variable rates in line with general market interest rates only. Danske Bank and the FSO both appealed to the Court of Appeal. On 24 June 2015, the Court of Appeal overturned the High Court decision. The Court of Appeal found that the courts are not entitled to interfere with the FSO's decision unless he errs in law. Further, Kelly J noted that the phrase "in line with general market interest rates" was not in the terms and conditions of the mortgage loans and those contracts provided that rates could be altered in response to market conditions and may change.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.