This is the second edition of RegBrief, the quarterly bulletin of the Arthur Cox Financial Regulatory Group. RegBrief contains a summary of certain developments and is neither a complete nor a definitive statement of law or of regulation. Specific legal advice should be obtained before taking any action.
Irish Regulatory Developments
Key Focus Areas
The Central Bank's 31 July 2012 Quarterly Bulletin noted that key areas in which it expected to contribute over subsequent months would include mortgage and loan arrears, the restructuring and deleveraging of the covered banks, the reform of bankruptcy laws and the drafting of legislation in relation to credit unions.
Results of Themed Inspections
In line with the Central Bank's 9 February 2012 'Programme of Themed Reviews and Inspections', the following are notable results of themed inspections published by the Central Bank during the last quarter:
On 10 July 2012, the Central Bank published the outcome of its themed inspection (by way of both desk-top reviews and on-site inspections) into best execution practices at MiFID investment and stockbroking firms. Key issues identified from the desk-top reviews included:
- the generic nature of policies (which were not tailored to the individual business activities of each firm);
- the failure (by one-third of firms) to highlight that the total cost of a transaction was the main factor determining the best possible result for their retail clients; and
- the failure (by over three-quarters of firms) to provide retail clients with sufficient information in relation to their best execution policies.
The on-site inspections identified further issues, including:
- differences between the content of the policies and their practical application;
- insufficient information demonstrating compliance with policies; and
- insufficient compliance monitoring.
Firms were written to by the Central Bank on 4 July 2012, and asked to review their practices and take remedial action by 31 August 2012.
On 13 July 2012, the Central Bank wrote to retail intermediaries to draw their attention to a number of recurring issues under the Minimum Competency Code 2011, the Consumer Protection Code 2012 and the Central Bank's Fitness and Probity Regime. Those intermediaries were reminded of their obligations to:
- carry out sufficient background checks on potential employees;
- satisfy themselves (on reasonable grounds) that all persons performing 'Controlled Functions' meet fitness and probity standards;
- ensure that 'continuing professional development' and grandfathering records are retained regarding individual employees; and
- comply with the requirements of the Consumer Protection Code 2012 regarding personal visits and contact with consumers.
Payment Protection Insurance
The July 2012 edition of the Central Bank's 'Intermediary Times' noted that an inspection of insurance intermediaries authorised under the European Communities (Insurance Mediation) Regulations 2005 (the "Insurance Mediation Regulations") demonstrated that only 64% were in compliance with the requirements of the Insurance Mediation Regulations in relation to payment protection insurance, and that a second themed review would be conducted by the Central Bank later in 2012. Key recent Central Bank publications during the last quarter included the following:
Client Asset Reports
On 9 July 2012, the Central Bank published a guidance note on the completion and submission, by investment firms that are subject to the Central Bank's Client Asset Requirements, of the monthly client asset reports required under MiFID and the Investment Intermediaries Act 1995.
In July 2012, the Central Bank also issued Requirements for Composite Reinsurance Undertakings, Requirements for Life Reinsurance Undertakings, and Requirements for Non-Life Reinsurance Undertakings, each of which replaced their July 2011 equivalents.
Fitness and Probity
On 13 July 2012, the Central Bank updated its 'Frequently Asked Questions' document on its Fitness and Probity Regime and, on 20 August 2012, published a revised User Manual in relation to the Individual Questionnaire. Key changes to the User Manual were its division into two parts, the inclusion of step-by-step guidance on how to import and export Individual Questionnaires and the provision of detail as to why Individual Questionnaires might be rejected.
Irish Legal Developments
The Personal Insolvency Bill 2012 was discussed at a meeting of the Select Committee on Justice, Defence and Equality on 13 September 2012. A number of amendments were approved, which did not substantively change the terms of the Bill as published on 29 June 2012, and the Bill has now progressed to Report Stage. It is expected to be debated in the Dáil in October 2012. The Arthur Cox Finance Group's July 2012 Briefing on the Personal Insolvency Bill 2012 is available here.
Consultations were issued in July and August 2012 by the Minister for Finance on two general legislative schemes. The first, in July 2012, related to the General Scheme of the Credit Union Bill 2012 and the draft Credit Union Bill 2012 was then published on 28 September 2012. The Credit Union Bill 2012:
- proposes amendments to the regulatory framework for the setting of prudential requirements in relation to reserves, liquidity, risk management and lending for credit unions;
- amends governance requirements – in particular, it is proposed to separate the functions of the board of directors of a credit union and its management, impose term limits on directors and preclude certain categories of individuals, including employees and professional advisors, from board membership;
- provides for the restructuring of credit unions over a four-year period on a voluntary and incentivised basis, and the establishment of a Credit Union Restructuring Board; and
- proposes that stabilisation support be available for credit unions which are viable but under-capitalised, provided that a recommendation for stabilisation support has been made by the Credit Union
The second consultation, in August 2012, related to the General Scheme of the Credit Reporting Bill 2012, and the draft Credit Reporting Bill 2012 was then published on 28 September 2012. The Credit Reporting Bill 2012 provides for the establishment of a Central Credit Register (to be maintained by the Central Bank) in relation to credit applications and credit agreements where either the borrower is resident in the State when the credit is advanced, or the governing law is Irish. Regulated financial services providers, providers of hire purchase or credit sale facilities under the Consumer Credit Act 1995 (as amended), NAMA and local authorities will be subject to the credit reporting obligations set out in the draft Credit Reporting Bill 2012 and, while the types of borrowers in respect of whom information will be provided are not limited to "consumers", it is expected that, by way of separate regulations, different reporting requirements will be set out by reference to borrower type.
Publication of each of the draft Credit Union Bill 2012 and the draft Credit Reporting Bill 2012 by the end of September 2012 was in line with commitments given as part of the EU/ IMF Programme of Financial Support for Ireland, and both draft bills will now move to Committee stage.
An amendment to the Consumer Credit Act 1995 (the "CCA"), by way of a Consumer Credit (Amendment) Bill 2012, has also has been proposed (albeit by a private member, and not by the Government), whereby Section 9 of the CCA would be amended to cap the annual percentage rate of charge (APR) on loans issued by licensed moneylenders at 40%; debate on that proposal is expected over the coming quarter.
Key European Developments
Consumer Protection Measures
On 3 July 2012, the European Commission (the "Commission") announced its proposals regarding revisions to the Insurance Mediation Directive and a regulation in relation to packaged retail investment products ("PRIPs"). The revised Insurance Mediation Directive ("IMD2") will be a 'minimum harmonisation' directive, will be considered by the European Parliament in May 2013, and is expected to be introduced in 2015. IMD2 aims to ensure that different sellers of similar insurance products are regulated in the same way, and that Member States interpret the scope, definitions and exemptions in the same manner. A broader range of entities (including insurance and reinsurance companies that sell products directly rather than through intermediaries) will come within the scope of IMD2, conduct of business requirements will be broadened, and certain simplifications will be made to registration procedures. The PRIPs proposals are designed to introduce uniform rules on product disclosures across EU Member States by way of a regulation that is to be considered by the European Parliament in May 2013, and which is expected to be directly applicable in Member States from the end of 2014. Under these proposals, a standardised form of disclosure will be required for a broad range of investment products that are sold to retail investors, such as structured products, capital guaranteed products, insurance-based investments and investment funds. Product providers, or those who substantively change the risk or cost structure of the product, will be responsible for producing a 'Key Information Document' and providing it to the retail investor before the retail investor makes an investment decision.
On 12 September 2012, the Commission published its 'Roadmap towards a Banking Union', together with its legislative proposals for a 'single supervisory mechanism' ("SSM") whereby specific powers relating to banking supervision and financial stability would be given to the ECB. It is proposed that, from 1 January 2013, the ECB will be able to assume supervisory authority over any Euro-area bank, in particular one which has received or requested public funding. It is further proposed that all banks of major systemic importance will come under ECB supervision by 1 July 2013, with the remainder to come under ECB supervision by 1 January 2014. Responsibility for key tasks relating to the prudential supervision of Euro-area banks would rest with the ECB, such as the authorisation of credit institutions, the assessment of acquisitions and disposals of holdings in banks, compliance with prudential requirements and the carrying-out of stress tests. As regards the national supervisory authorities (such as the Central Bank of Ireland), it is envisaged that other tasks will remain with them, in particular in the areas of consumer protection and anti-money-laundering. It is also expected that the national supervisory authorities will continue to play a key role in banking supervision by carrying out day-to-day verifications and other preparatory and implementing activities within the SSM, enabling the ECB to rely on their expertise and local knowledge. The Commission is also calling for work on its previous proposals regarding deposit guarantee schemes and bank recovery and resolution to be accelerated with a view to having those measures adopted by the end of 2012 to facilitate the SSM measures. The European Parliament is currently scheduled to consider the SSM at its 10-13 December 2012 session, and has asked that particular attention be paid to the manner in which bank recapitalisations will be carried out, and the need to devise a system which can address the effects of a Euro-zone banking union on non-Euro-zone members.
European Market Infrastructure Regulation ("EMIR")
EMIR was published in the Official Journal on 27 July 2012, and came into force 20 days later.
On 6 July 2012, the European Securities and Markets Authority ("ESMA") published two final sets of guidelines, one relating to the suitability of investment advice and the second relating to the compliance function, each in respect of MiFID. Each competent authority has two months following the publication of the relevant official translation of those guidelines to confirm their compliance or intention to comply, with the guidelines then applying 60 days after that.
MiFID II (the proposal to replace MiFID with a new directive, and a related regulation which will also amend EMIR):
The European Parliament will now consider these proposals at its 22-23 October 2012 session (rather than at its 19-22 November 2012 session).
In advance of the Short Selling Regulation coming into effect in Member States on 1 November 2012, the Minister for Finance has signed the European Union (Short Selling) Regulations 2012 designating the Central Bank as the competent authority. The Short Selling Regulation envisaged the adoption by the Commission of delegated acts and technical standards, which it has now done: Commission Delegated Regulation 826/2012/EU (regulatory technical standards on notification and disclosure requirements for net short positions, details of information to be provided to ESMA in relation to net short positions, and the method for calculating turnover to determine exempted shares) and Commission Implementing Regulation 827/2012/EU (setting out technical standards for means of public disclosure of net positions in shares, the format of information to be provided to ESMA in relation to net short positions, the types of agreements, arrangements and measures that will adequately ensure that shares or sovereign debt instruments are available for settlement, and the dates and period for the determination of the principal venue for a share) were both published in the Official Journal on 18 September 2012.
ESMA has published two important consultation papers in recent weeks. The first relates to the exemption for market making activities and primary market operations under the Short Selling Regulation (the closing date for responses is 5 October 2012). The second relates to proposed remuneration policies and practices under MiFID (the closing date for responses is 7 December 2012).
CRD IV (the proposal to replace the current Capital Requirements Directives (2006/48/ EC and 2006/49/EC) with a directive on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, and a regulation on prudential requirements for credit institutions and investment firms)
The European Parliament will now consider CRD IV at its 19-22 November 2012 session (a delay of two months); the Commission has noted that, while the creation of the SSM (see Key European Developments above) will not require substantive changes to CRD IV, some small amendments may be needed to reflect the SSM proposals.
MAD II (the proposed regulation on insider dealing and market manipulation, and proposed directive on criminal sanctions for insider dealing and market manipulation)
On 25 July 2012, the Commission published amendments to MAD II designed to bring benchmarks (such as EURIBOR and LIBOR) within its scope, meaning that the manipulation of those benchmarks will be a criminal offence once MAD II becomes applicable. The European Parliament will now consider MAD II at its 14-17 January 2013 session (two months later than previously expected).
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.