Ireland: Central Bank Update - August 2013

Last Updated: 12 August 2013
Article by Sharon Daly and Darren Maher

Consultation paper on proposed revisions to the Corporate Governance Code for Credit Institutions and Insurance Undertakings

On 1 August 2013, the Central Bank published a consultation paper (CP69) on proposed changes to the Corporate Governance Code for Credit Institutions and Insurance Undertakings (the 'Code').

The consultation paper sets out a series of proposed amendments in areas such as the composition of the risk committee and the board sub-committees.  More generally, it sets out requirements regarding the Chairman and the Chief Executive Officer. Among other proposed changes, the consultation paper sets out a proposed new section on the role and responsibilities of the Chief Risk Officer. The paper also seeks comments on issues including board composition, board meeting requirements and the current limits on the number of directorships permitted for directors of institutions.

Comments on CP69 are invited from interested parties before 1 October 2013. Submissions should made to

Please click here to view the consultation paper in full.

National Report on Long-Term Guarantee Income Assessment

The Central Bank published a National Report on the Long-Term Guarantee Impact Assessment (the "National Report") which provides key messages from the Central Bank in relation to its impact assessment (carried out between late January and late March 2013) of the long-term guarantee measures proposed under Solvency II.

Key areas of the National Report are as follows:

(a) Matching Adjustment - The matching adjustment, within the draft proposals, is restricted to both domestic business and direct insurers. The non-applicability of the measures to cross-border business represents a clear disadvantage for undertakings selling cross-border business. The non-applicability of the measures to reinsurers places them at an economic disadvantage to direct writers. This is not consistent with maximum harmonisation and the freedom of establishment or freedom of services.

(b) Ring Fenced Funds - Under the draft proposals, the matching adjustment can only be applied within ring fenced funds. The Central Bank notes that there may be an unintended consequence of requiring the use of ring fenced funds in this instance through a loss of diversification benefit between mortality and longevity risk. It takes the view that this diversification benefit should be preserved and this can be achieved by establishing requirements for asset liability matching that do not require legal ring fencing.

(c) Transitional Measures - Under the draft proposals, the transitional measures are restricted to both domestic business and direct insurers. This raises the same concerns as the matching adjustment.

(d) Extrapolation - A discount rate yield curve which is not market consistent may cause a problem for insurers/reinsurers who hedge their liabilities.  The measures contained in the proposals represent a move away from market consistency and may mean reduced transparency around the costs of guarantees provided over the longer term.  The Central Bank favours a longer extrapolation period.

(e) Member State Options - Measures that are subject to Member State option may mean they are not permitted by all Member States, therefore creating an arbitrage potential within the sector. Again this is not consistent with maximum harmonisation.

Please click here to view the full text of the National Report. 

Intermediary Times

The Central Bank has published a third edition and a special edition of the Intermediary Times.  The purpose of the special edition is to provide advance notice to all registered insurance / reinsurance intermediaries of forthcoming changes to the professional indemnity insurance ("PII") levels and clarification in relation to the inclusion of a specified retroactive date.

From 1 August 2013, all PII policies incepted or renewed by insurance or reinsurance intermediaries must provide cover for at least €1.25m per claim and €1.85m in aggregate per annum. From 1 August 2014, all registered insurance and/or reinsurance intermediaries must hold PII at these revised levels.  

The Central Bank considers that all insurance / reinsurance intermediaries should hold continuous PII cover from the date of their registration, as the European Communities (Insurance Mediation) Regulations 2005 ("IMR").  Therefore, where a firm holds a policy which includes a specified retroactive date, it should ensure that:

1. Any specified retroactive date is:

  • the date that the firm was registered as an insurance / reinsurance intermediary under the IMR; or
  • any date prior to the date that the firm was registered as an insurance / reinsurance intermediary under the IMR.

2. If a PII policy with a specified retroactive date does not comply with (i) or (ii) above the intermediary must hold another PII policy or a comparable guarantee which provides satisfactory cover for the relevant period prior to the retroactive date specified on the current PII policy.  All documentary evidence should be retained on a firm's PII file as evidence of compliance with Regulation 17 of the IMR.

The Central Bank intends to commence a further thematic review of PII cover prior to the end of 2013.

Please click here to view the special edition of the Intermediary Times.

Issue 3 of the Intermediary Times covers matters including the following:

(a) Changes to the Annual Return: 

A new Annual Return will be made available through the Central Bank's web-based Online Reporting System ("ONR") for firms due to submit Returns from June 2013 onwards.  These changes are the result of a review of the format and ease of use of the Annual Return system that was introduced by the Central Bank in July 2011.  The changes made to the Annual Return are minor and should not pose any difficulty for firms.  Firms will be able to submit Returns using the new version from 17 June 2013.  This will allow firms with a December 2012 financial year-end only two weeks to complete and sign off their Annual Return. The Central Bank has expressed regret in relation to the shortened timeframe, which it explains is due to IT requirements.

(b) Revision of the Handbook of the Prudential Requirements for Authorised Advisors and Restricted Intermediaries:

The Central Bank is revising the Prudential Handbook which has been in effect since July 2006.  The revision is intended to reflect changes in the regulatory environment and to strengthen the prudential supervisory framework for investment intermediaries. 

There will be a three month public consultation as part of the process.  The consultation paper is due to be issued and will be available in the Consultation Papers section of the Central Bank website. 

Please click here to view this section of the website.

(c) Report on the Retail Intermediary Sector:

A Report on the Retail Intermediary Sector was published by the Central Bank on 28 February 2013.  This highlighted key issues and risks for the sector and consumers and outlined the Central Bank's regulatory approach to reducing risk and ensuring that consumers are protected. 

Please click here to view the report.

(d) Roadshows:

A series of regional roadshows will be held by the Central Bank in the second half of 2013.  These roadshows will provide updates on topical regulatory issues and give attendees the opportunity to speak with the Central Bank in person.  It is intended that the roadshows will take place in the South East and in the Midlands of the country in September.  Suggestions for other locations should be sent by email.

Please click here to view the full text of the third issue of the Intermediary Times.

Payment Protection Insurance Review

The Central Bank issued an update in relation to its on-going investigation into the sales of payment protection insurance ("PPI").

Ten firms are currently conducting a review of their PPI sales since July 2007.  At the request of the Central Bank, customers that are included in the PPI sales review have been previously notified.  The firms have now commenced writing to their customers who purchased PPI in July 2007 in order to inform them of the outcome of the on-going review, as it relates to their situation.   Throughout 2013, the firms will continue to conduct the review and contact all other customers in relation to the outcome.  The Central Bank is advising customers who receive a letter and have any questions to contact their bank or credit institution directly.

The Central Bank will monitor progress on an on-going basis with both the firms and the independent third party overseers who were appointed at the request of the Central Bank.

The Central Bank will make a comprehensive statement at the conclusion of the overall process.

Consultation Paper on Authorisation Service Standards

The Central Bank has published a Consultation on Authorisation of Regulated Firms, Funds and Intermediaries: Process Improvements and Service Standards ("CP 67"). The purpose of CP 67 is to seek feedback on proposed target turnaround times for processing applications from firms who wish to become authorised to provide financial services. The paper describes the programme of work conducted by the Central Bank to improve the authorisation process applied to firms, funds and intermediaries in order to improve efficiency and timeliness of response, while maintaining rigorous assessment of new applicants. The paper also outlines the proposed new service standards for authorisation activities across a variety of sectors and the proposed dates for their introduction.

Comments on CP 67 are invited from interested parties before 28 October 2013.

Please click here to view the consultation paper in full.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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