1. Government Legislation Programme Autumn Session 2023
On 26 September 2023, the Government Legislation Programme ("Programme") for Autumn 2023 was published. The Programme identifies 27 bills to be prioritised for publication and a further 24 bills to be prioritised for drafting. With regards to financial services, there are a small number of bills of relevance including:
In an update from the Summer 2023 Programme, the Financial Services and Pensions Ombudsman (Amendment) Bill moves from "legislation for priority drafting" to "legislation for priority publication". The purpose of this bill is to amend the Financial Services and Pensions Ombudsman ("FSPO") Act 2017 so that it takes into consideration the Zalewski ruling. It is also intended to update parts of the legislation where there is a possibility that the FSPO could be viewed as administering justice. The Heads of Bill were approved in April and its pre-legislative scrutiny completed in June.
In a further update from the Summer 2023 Programme, the Motor Insurance Insolvency Compensation Bill 2023 moves from "All other Legislation" to "Legislation for priority drafting". This bill will transpose Article 10a and 25a of the 6th revised EU Motor Insurance Directive. The programme states that Heads of Bill are in preparation.
Also included in Autumn 2023 programme under "All other Legislation" is the Access to Cash Bill. This bill will provide Irish people with easier access to cash and make it a requirement for ATM operators and Cash-In-Transit Companies to be authorised and supervised by the Central Bank of Ireland. The programme states that Heads of Bill are in preparation.
Finally, the Autumn 2023 Programme also includes bills which are currently on the Dáil and Seanad order paper as of 26 September 2023, of relevance is the Credit Union (Amendment) Bill 2022 which is currently awaiting order for committee.
2. Dynamic change in uncertain times: Balancing opportunity and risk - speech by Derville Rowland Deputy Governor, Consumer and Investor Protection of the Central Bank of Ireland
On 28 September 2023, Derville Rowland Deputy Governor, Consumer and Investor Protection of the Central Bank of Ireland ("Central Bank") delivered a speech titled " Dynamic change in uncertain times: Balancing opportunity and risk". During her speech, Ms Rowland addressed a number of matters, a summary of which is provided below:
Challenge of responding to an increasingly complex world
Ms Rowland explained that the best way for the Central Bank and regulated entities to respond and ultimately "stay ahead" in this increasingly complex world "is by being dynamic ourselves" – seizing the opportunity while mitigating the risk for both the system overall and for consumers and investors within it.
From the Central Bank's perspective this, Ms Rowland maintained, is achieved through the Central Bank's broad, deep and integrated mandate which enables it to ensure that consumers and investors are holistically protected.
Culture, capital markets and investor protection
With regards to culture, Ms Rowland explained that effective culture is essential for any organisation seeking to navigate change efficiently and well. In particular, she identified a commitment to diversity and inclusion throughout a firm’s organisation, including at board level as an example of achieving this. She further elaborated that this prevents group-think by guarding against overconfidence and encouraging internal challenge.
With regards to capital markets, Ms Rowland highlighted that the Central Bank wants to see "deeper" capital markets, because of its potential economic and social benefits.
With regards to investor protection, Ms Rowland emphasised that retail investors should remain at the core of the European Commission's Retail Investment Strategy with the ultimate aim being to enhance "access to products with a rewarding risk-return profile, and transparent pricing and cost structures, to support consumers to build diversified portfolios".
The Individual Accountability Framework
Ms Rowland reiterated a lot of the Central Bank's key messages around the drivers behind the introduction of the Individual Accountability Framework ("IAF") and the associated Senior Executive Accountability Regime ("SEAR") while also explaining how the IAF will operate. She explained that the IAF will not just support the Central Bank in its role but will also assist firms in achieving their objectives. Ms Rowland stressed that in order for the IAF to be successful, firms need to "take real ownership of the framework" which will in turn result in fewer issues arising which will reduce the need for enforcement actions to be taken by the Central Bank.
The importance of the integrity of the financial system
Ms Rowland stressed the importance of the application of the highest standards to ensure that that the financial system, domestically and internationally, is not used for such things as money laundering and terrorist financing. As an integrated regulator supervising all sectors for both these purposes, the Central Bank, Ms Rowland explained, identifies the opportunities as well as the risks associated with digitalisation and innovation. She flagged that the European Commission’s AML Action Plan includes key elements which must be progressed without delay. From the perspective of individual firms, Ms Rowland stressed that there must be an emphasis "on a rigorous risk based approach to AML/CFT, on robust frameworks and control systems, and on agile mind-sets to assess data in new ways and adapt to ever-changing threats."
3. EBA, ESMA and EIOPA publish their respective Work Programmes for 2024
Over the past week the European Banking Authority ("EBA"), the European Securities and Markets Authorities ("ESMA") and the European Insurance and Occupational Pensions Authority ("EIOPA") all published their respective Work Programmes for 2024. These Work Programmes give an insight into the planned direction of travel of all three authorities and their contents should be reviewed and considered by impacted firms. The following is a brief outline of each:
On 3 October 2023, the EBA published its work programme for 2024 which is categorised under five strategic areas and 19 activities. The areas identified as strategic priorities for 2024 include:
- the implementation of the Basel framework in the EU and enhance the Single Rulebook;
- monitoring financial stability and sustainability in a context of increased interest rates and uncertainty;
- providing a data infrastructure at the service of stakeholders;
- developing an oversight and supervisory capacity for DORA and MiCA; and
- increasing focus on innovation and consumers.
On 28 September 2023, ESMA published its work programme for 2024 which identified six strategic priorities and thematic drivers including:
- effective markets and financial stability;
- effective supervision;
- retail investor protection;
- sustainable finance;
- technological innovation; and
- effective use of data and ICT technology
ESMA also noted that in addition to the above, "several legislative projects will shape ESMA’s work and responsibilities in 2024", some of which include:
- expanding the single rulebook for sustainable finance as part of the new European Green Bond Regulation and delivering its final report on greenwashing;
- delivering technical standards for the European Single Access Point;
- delivering several technical standards and guidelines in relation to MiCA and DORA
- undertaking preparatory work regarding oversight responsibilities related to DORA;
- begining the process of selecting and authorising Consolidated Tape Providers in the EU; and
- undertaking tasks mandated under the new Retail Investment Strategy.
On 28 September 2023, EIOPA published its revised single programming document 2024-26 which includes its annual work programme for 2024. The areas identified as priorities for 2024 include:
- integrating sustainable finance considerations across all areas of work;
- supporting consumers, the market and the supervisory community through digital transformation;
- enhancing the quality and effectiveness of prudential and conduct of business supervision;
- ensuring technically sound conduct of business and prudential policy;
- identifying, assessing, monitoring and reporting on risks to financial stability and promoting preventative policies and mitigating actions; and
- ensuring good governance, agile organisation, cost-effective resource management and a strong corporate culture.
In addition to these areas of strategic importance, EIOPA explains that it is "simultaneously" expected to deliver policy work and implementation of the following initiatives:
- Solvency II Review;
- Insurance Recovery and Resolution Directive;
- European Single Access Point;
- AI Act;
- Cyber Security and Information Security Regulations; and
- possible work stemming from" the Retail Investment Strategy.
4. European updates on MiCA and the Crowdfunding Regulation
1. EBA publishes its technical advice on the classification of asset-reference tokens and e-money tokens and related fees under MiCA
On 29 September 2023, the European Banking Authority ("EBA") published its response to the European Commission’s ("Commission") Call for Advice on two delegated acts under the Markets in Crypto-assets Regulation ("MiCA") regarding
- the criteria for determining the significance of asset-referenced tokens ("ARTs") and electronic money tokens ("EMTs"); and
- the supervisory fees that may be charged by the EBA to issuers of significant ARTs and significant EMTs.
In response to the first request, the EBA recommends a set of "core and ancillary indicators" for determining the instances where ARTs and EMTs and their issuers can be considered as interconnected within the financial system and their activities can be considered to be significant on an international scale. The EBA suggests that the significance assessment against each criterion should be undertaken by giving pre-defined weights to each core indicator, but will not provide guidance on this until after the publication of the necessary delegated act by the Commission. Additionally, with regard to the minimum thresholds for the proposed indicators, the EBA has not provided guidance regarding a methodology to determine them at this stage, due to the limited amount of data available.
It is noteworthy that in its advice, the EBA identifies gaps in reporting obligations for issuers of ARTs and EMTs under MiCA. It warns that if these gaps are not addressed this would, not only limit the EBA’s ability to assess tokens against the criteria to which the EBA’s advice relates, but would also limit the EBA’s overall ability to assess tokens against the other criteria specified in Article 43 of MiCA. Its stated preference is that these gaps would be remedied via ‘Level 1’ changes but flags that should this not happen, it may need to introduce its own guidelines.
In response to the second request, the EBA's advice addresses
- the type of supervisory fees;
- the matters for which fees are due;
- the amount of the fees and the manner in which they are to be paid; and
- the methodology for calculating the maximum amount per entity that can be charged by the EBA.
The EBA highlights that flexibility will be needed to estimate the amount of fees from year-to year given the ever evolving market for crypto-assets, and the fact the number of tokens within its direct supervision, and supervisory priorities, may evolve substantially over time.
2. European Commission adopts Delegated Regulation in the context of the Crowdfunding Regulation
On 29 September 2023, the European Commission ("Commission") adopted its Delegated Regulation on regulatory technical standards ("RTS") regarding certain obligations on crowdfunding service providers ("CSPs") under the Crowdfunding Regulation. The Delegated Regulation addresses the following:
- necessary disclosures to investors regarding the methods used to calculate the credit score for crowdfunding projects and suggest the price for crowdfunding offers;
- factors which must be had regard to so as to ensure that the pricing of the loans that CSPs facilitate on their platforms is fair and appropriate;
- information and factors that CSPs must have regard to when assessing the credit risk for a crowdfunding project or project owner;
- information and factors that CSPs must have regard to when conducting a loan valuation at different points in the life cycle of the loan;
- the need for methods for assessing creditworthiness to be proportionate to the size, type and maturity of the loan; and
- governance arrangements that CSPs must put in place to support information disclosure to investors and the risk management framework.
The Delegated Regulation will enter into force on the 20th day following its publication in the Official Journal of the European Union.
For more information on the background to the Delegated Regulation, please see the FIG Top 5 at 5 dated 22 June 2023.
5. European updates on DORA and MiFID II
1. ESAs publish their response to a Call for Advice regarding critical ICT third-party providers under DORA
On 29 September 2023, the European Supervisory Authorities ("ESAs") published their joint response to the European Commission’s ("Commission") Call for Advice on two delegated acts under DORA. The two delegated acts address:
- additional criteria for critical ICT third-party service providers ("CTPPs"); and
- the determination of oversight fees levied on CTPPs.
The following is a brief summary of the Joint Response:
The ESAs propose 11 quantitative and qualitative indicators for each of the criticality criteria, along with the necessary information to build up and interpret such indicators. The ESAs also put forward minimum relevance thresholds for quantitative indicators, where possible and applicable, to be used as starting points in the assessment process to designate CTTPs. However, the ESAs note that they were not requested, under this call for advice, to provide details regarding the designation procedure or the related methodology. Notwithstanding this, the ESAs explain that they intend to define these details no later than six months after the adoption of the delegated act by the Commission.
The ESAs make proposals for determining the amount of the fees to be levied on CTPPs and the way in which they are to be paid. In doing this, it identifies:
- the type of estimated expenditures that must be covered by oversight fees;
- the basis for the expenditures’ calculation;
- the available information for determining the applicable turnover of the CTPPs (the basis of fee calculation);
- the method of fee calculation; and
- other practical issues regarding the collection of fees.
It should be noted that the Commission is required to adopt the delegated acts by 17 July 2024.
2. ESMA to launch Common Supervisory Action on MiFID II sustainability requirements
On 3 October 2023, the European Securities and Markets Authority ("ESMA") announced that it will launch a Common Supervisory Action ("CSA") with National Competent Authorities ("NCAs") in 2024 regarding the integration of sustainability in firms’ suitability assessment and product governance processes and procedures under MiFID II.
Why a CSA?
ESMA explains that this CSA is intended to gauge the progress made by intermediaries in meeting the key sustainability requirements since their introduction in 2022. In addition, ESMA maintains that this work "will help ensure consistent application of EU rules and enhance the protection of investors in line with ESMA’s objectives"
What will the CSA address?
The CSA will consider the following:
- how firms collect information on their clients’ “sustainability preferences”;
- the arrangements firms have put in place to understand and correctly categorise investment products with sustainability factors for the purpose of the suitability assessment;
- how firms ensure the suitability of an investment with respect to sustainability;
- how firms specify any sustainability-related objectives a product is compatible with as part of the target market assessment of the investment product.
The CSA will launch in 2024 and NCAs will be required to engage.