This is the first edition of RegBrief, the quarterly bulletin of the Arthur Cox Financial Regulatory Group, in which updates are provided on a wide range of developments across our practice area.
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 Update
The Central Bank's Annual Report 2011, together with its Annual Performance Statement: Financial Regulation 2011-2012 (both published in May 2012) and its 2012 Enforcement Priorities and 2012 Programme of Themed Reviews and Inspections (both published in February 2012) show a clear focus, for the first six months of 2012 by the Central Bank, on mortgage arrears, money-laundering, best execution by stockbroking and investment firms, fitness and probity, payment protection insurance and consumer protection.
Consultations
Key areas in respect of which the Central Bank has consulted with industry so far this year are proposed new inquiry guidelines under the Central Bank Act 1942 (intended to replace the current Administrative Sanctions Guidelines), the handling of insider information under the Market Abuse (Directive 2003/6/EC) Regulations 2005 and changes to the existing regulatory reporting regime for Irish-authorised collective investment funds. In June 2012, the Central Bank also issued a Discussion Paper on the Code of Conduct on the Switching of Current Accounts, inviting comments by 30 September.
Consumer Protection
The soft implementation period for the revised Consumer Protection Code (CPC2) expired on 30 June 2012. In its June 2012 review of CPC2 implementation, the Central Bank found that most banks and insurance companies had committed the required resources and training to implementation, but that certain deficiencies regarding the provision of 'plain English' information, and dealings with vulnerable consumers, needed to be remedied.
Mortgage Arrears
The Central Bank confirmed, on 8 June 2012, receipt of details of loan forbearance and modification techniques proposed by the leading banks (for implementation in Q4 2012) which it confirmed to be broadly in line with the Report of the Inter-Departmental Working Group on Mortgage Arrears. In the days leading up to the publication of the Personal Insolvency Bill (see Irish Legal Developments below) on 29 June 2012, a number of those lenders also made public statements regarding their respective approaches to the mortgage arrears problem. The Central Bank also helpfully clarified certain rules relating to unsolicited communications in May; neither initial communications nor missed calls/engaged numbers are to count towards the monthly limit of three unsolicited communications under CPC2 or the Code of Conduct on Mortgage Arrears.
Money-Laundering
The Central Bank's Director of Enforcement, in a speech given on 8 May 2012, highlighted the Central Bank's key areas of concern as being governance, internal training, failures to investigate the purpose or intended nature of customer relationship, failure to identify nominee structure and inadequate investigative and reporting procedures.
Payment Services
A review of compliance with the European Communities (Payment Services) Regulations 2009 (PSD) by eight retail banks conducted in March 2012 led to the Central Bank clarifying its views on various matters, including: that cutoff times should not be earlier than 15.30 on a business day, that approval of a charge under Section 149 of the Consumer Credit Act 1995 (as amended) does not automatically mean that the charge complies with the PSD requirement that it be "appropriate and in line with...actual costs", that the requirement for a refund to be made "immediately" where a transaction is unauthorised or incorrectly executed means that the refund must be made within one day of receipt of notification from the customer, and that cash lodged by a consumer to a payment account must be value dated and made available on the account within two hours.
Investment and Stockbroking Firms
The Central Bank completed themed on-site inspections of eleven firms in May 2012, and made nine recommendations in relation to corporate governance matters (including the independence of directors, board reporting, and ongoing reviews of performance and arrangements) on 22 May 2012. On 25 May 2012, the Central Bank directed Bloxham to cease all regulated activities with immediate effect and began an investigation into financial irregularities at that firm. A liquidator has now been appointed.
Payment Protection Insurance
Following a themed inspection of into the sale of payment protection insurance (PPI), the Central Bank wrote to seven firms on 27 June 2012 noting that it is considering possible enforcement actions in respect of, and asking the firms to review their procedures regarding, suitability assessments, whether particular sales can in fact be justified as being made on an 'execution-only' basis, the timing of information-provision, the manner in which consumers' attention is explicitly drawn to certain matters and recordkeeping practices.
Other key recent publications of the Central Bank include its Review of the Regulatory Regime for the Safeguarding of Client Assets, its FAQ document on the operation of its Fitness and Probity Regime, new Fitness and Probity Standards outlining targeted turnaround times for the processing of Individual Questionnaires submitted through the online reporting system, and updates to its FAQ document on the Corporate Governance Code for Credit Institutions and Insurance Undertakings.
Irish Legal Developments
The Personal Insolvency Bill, containing proposals for three non-judicial debt settlement schemes for eligible individuals, and reforms to the current bankruptcy regime, was published on 29 June. Much Dáil debate on the Bill is expected before it is passed into law later this year. The Arthur Cox Finance Group Briefing on the Personal Insolvency Bill is available here.
Other recent developments have included a consultation, by the Department of Finance, on the Central Bank (Supervision and Enforcement) Bill, under which it is proposed to enhance the Central Bank's powers to seek independent expert reports, give directions, make regulations, empower authorised officers, issue warning notices and double the current fines under the Administrative Sanctions Procedure. Dáil debate on the bill is expected in Q3 2012.
The heads of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2012, which draws on the experience of the first two years of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, have been published, proposing amendments relating to: the definition of "occasional transaction", transactions with non-EU Member States, enhanced monitoring and approval requirements for politically-exposed persons, the list of policies and procedures that designated persons must have in place, a new offence of providing misleading or false information or documents for customer due diligence purposes, and new powers for the Gardaí to seek search warrants in certain cases.
A consultation document has also been published on a Credit History Reporting Bill which proposes that a Central Credit Register be established and maintained by the Central Bank, designed to facilitate the making of informed lending decisions, protect consumers and promote competition. Providers and servicers of credit (including NAMA and international banks with an Irish presence) would be obliged to report matters regarding credit above a certain threshold, with the nature of the required reporting varying by credit type, and to be set out by way of regulation.
The General Scheme of the Credit Union Bill 2012 was published by the Minister for Finance on 28 June 2012, and is designed to give effect to certain recommendations set out in the Final Report of the Commission on Credit Unions' dated 18 April 2012. The general scheme contains five main parts dealing with prudential regulation, governance, conditions under which stabilisation supports will be available, proposed restructuring (intended to be on a voluntary and incentivised basis over 4 years) and certain amendments to the Credit Union Act 1997. The Credit Union Bill itself is scheduled for publication at the end of September 2012.
Key European Developments
MiFID II
The indicative date for the European Parliament's first/ single reading of MiFID II and the related European Market Infrastructure Regulation (EMIR) is 22-23 October 2012 (compromise texts for both MiFID II and EMIR have recently been published by the Danish EU Council Presidency). The Arthur Cox Financial Regulatory Group Briefing entitled "An Introduction to MiFID II" is available here.
Bank Recovery and Resolution Framework
The framework proposed by the European Commission (the "Commission") for bank recovery and resolution, which will take the form of a directive, was published on 6 June 2012 and is intended to apply to credit institutions and investment firms (with a projected implementation date of 1 January 2015, although no timetable for political agreement has been put forward). The proposal aims to equip national authorities to tackle bank crises as quickly as possible, requiring firms to prepare recovery plans and national authorities to prepare resolution plans, allowing financial groups to enter into intragroup agreements, empowering national authorities to take early action to resolve problems and replace management, and providing resolution tools relating to bridge institutions, debt write-down and asset separation. It is expected that the European Banking Authority will also be given a wider role. Further details on recent legislative steps taken in Ireland regarding bank recovery and resolution are contained in the Arthur Cox Financial Regulatory Group Briefing in relation to the Central Bank and Credit Institutions (Resolution) Bill 2011 available here.
Market Abuse
The indicative date for the Parliament's first/single reading of both the Directive on Criminal Sanctions for Insider Dealing and Market Manipulation, and the Regulation on Insider Dealing and Market Manipulation is 11 September 2012. The regulation will replace the existing Market Abuse Directive (2003/6/EC), will be broader in scope, and will be directly applicable in Member States; the directive will introduce minimum rules on criminal offences and criminal sanctions as the Commission's assessment was that existing sanction regimes were not adequately dissuasive.
Capital Requirements Directive and Regulation (CRD IV)
Compromise texts of both, which will replace and recast the existing Capital Requirements Directive and implement key Basel III reforms, have been published and are to be considered further by the European Parliament on 11 September 2012. In the meantime, the EBA has been consulting on various related regulatory technical standards. Member States are expected to have national implementing measures in place by 31 December 2012 with a view to the CRD IV package coming into force on 1 January 2013.
Proposed Mortgage Directive
The March 2011 legislative proposal for a residential mortgage directive, which aims to prevent irresponsible lending and borrowing practices and create a competitive single market will come before the European Parliament for consideration in Autumn 2012.
In Brief
Insurance Solvency II
The Commission has proposed a further directive whereby the Solvency II transposition date would be extended from 31 December 2012 to 30 June 2013, and its effective date would be extended to 1 January 2014 (with Solvency I ceasing to apply on that date).
Financial Transactions Tax (FTT)
A resolution on the proposed FTT directive was adopted on 23 May 2012 by the European Parliament. While the Minister for Finance has stated that the FTT, in whatever final form it may take, should be applied widely to minimise the risk that financial activities will gravitate to jurisdictions which do not levy taxes on financial transactions, it appears that Ireland is to remain outside of the core group of EU Member States that will implement the FTT.
Banking Union
The Commission published details of its concept of a 'banking union' on 6 June, with an update on 22 June. The Commission's detailed proposals (which it hopes to make available by Autumn 2012) are expected to include an integrated system for the supervision of cross-border banks, a single deposit guarantee scheme and an EU resolution fund.
Shadow Banking Consultation
The Commission published a green paper on 19 March consulting on the approach it should take towards the regulation of shadow banking entities and activities. Comments were invited by 15 June 2012 which are now being considered by the Commission with a view to deciding whether legislative measures are required.
Basel III
The Basel Committee on Banking Supervision (BCBS) published a progress report on Basel III implementation on 11 June 2012, noting that some jurisdictions had not made enough progress towards Basel III implementation, and confirming that it had commenced "level 2 reviews" of the national rules implementing Basel III requirements in the EU, Japan and the US, the results of which it expects to publish at the end of September 2012.
Improving Consumer Protection in Financial Services
The Commission presented, on 3 July 2012, a package of measures including (a) a proposal for a regulation on key information documents for packaged retail investment products, (b) a revision of the Insurance Mediation Directive and (c) a proposal to boost protection for those who buy investment funds.
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.
