1. Central Bank (Individual Accountability Framework) Bill 2022: Seanad Committee Stage and Report Stage
Committee Stage:
On 16 February 2023, the Central Bank (Individual Accountability Framework) Bill 2022 (the "Bill") was taken at Committee Stage, Seanad Éireann (the "Seanad").
Government amendments
As signalled by the Minister at Second Stage of the Seanad, the Government proposed two amendments at Committee Stage. The Minister noted that these amendments are transitional provisions and determine the extent to which an inquiry, that is already under way at the time the relevant provisions of the Bill are commenced, shall be affected by the provisions. Both amendments were accepted.
Senator McDowell's amendments
At the outset of the discussion, Senator Michael McDowell proposed amendments to Part 2 of the Bill to include
- a general duty of disclosure on the Central Bank of Ireland (the "Central Bank") where an investigation has been initiated against a natural person; and
- to provide for legal assistance for individuals under investigation, where the interests of natural justice require it.
The amendments were discussed in detail but were not accepted. The responses from the Minister of State at the Department of Finance, Deputy Jennifer Carroll MacNeill, (the "Minister of State") are however, worth noting.
Duty of Disclosure
In response to Senator McDowell's proposed amendment, the Minister of State advised that "irrespective of this legislation, the Central Bank, as a public body, is obliged to act in a manner consistent with its obligations under administrative law and with the constitutional rights of individuals to fair procedure, including the right to be heard and to mount a defence, in the context of any investigation or inquiry".
In addition, she advised that the duty of disclosure "has already been built into the Bill throughout each set of processes" and outlined a number of areas which include such provisions. She noted that there will be "new obligations on the bank, partly informed by the Supreme Court in the Zalewski case, to ensure a person who is subject to investigation by the bank, whether under the administrative sanctions procedures or the fitness and probity regime, will have access to all the information on the basis of which an enforcement decision may be based".
Discontinuation of an investigation
Responding to Senator McDowell's questions on the discontinuation of an investigation and the possible impact on an individual's professional reputation, the Minister of State noted that the reason for the discontinuation "will have to be provided as a matter of fairness to the individual". In relation to discontinuation for reasons of resources, she noted that although the Bill refers to "reasons of resources", the decision to discontinue may also be prompted by the availability of specialist investigators and not just by financial resources. She explained that the Central Bank may wish to divert those resources to a more important or urgent issue and the should have the discretion to do so.
Legal assistance
Regarding the proposed amendment on legal assistance, the Minister of State noted that there does "not appear to be any national or international comparators for a provision of this nature within such an administrative sanctions regime". Additionally, she explained that the issue of legal costs for an individual subject to enforcement action by the Central Bank was previously challenged in the courts without success in 2016[1].
Other amendments
A number of other amendments were proposed by senators which were not accepted including:
- extending the obligations on financial service providers to act in the best interests of society;
- requiring a report to the Oireachtas within two years of commencement of the legislation outlining how the regulations comply with due diligence obligations under European Union law;
- extending certain obligations to include legislation outside of financial services;
- taking into consideration whether a prescribed contravention has had a widespread impact on society and the State; and
- requiring a report to the Oireachtas within two years of commencement of the legislation examining the implementation of the designation and identification of controlled functions ("CFs"), the potential to expand the range of CF functions and the extent to which individuals not designated as CFs are exerting significant influence on the performance of a CF and how this may be reflected in any future revision of the legislation.
The remainder of the amendments were not moved or were withdrawn.
Report Stage
On 22 February, the Bill was taken at Report and Final Stage and ultimately passed by Seanad Eireann.
At Report Stage, Senator Black proposed a number of amendments which arose from the Committee Stage proceedings. These were largely variations on the amendments originally proposed by the Senator at Committee Stage. In responding to the proposed amendments, the Minister of State explained that several of the amendments could not be supported due to the vagueness of the terms proposed. Additionally the Minister of State explained that much of what the Senator was seeking to achieve was in fact already captured by the legislation. The amendments were ultimately defeated and the Bill passed.
Next Steps
The Bill will now return to the Dáil for approval of the Committee Stage amendments and then to the President for signing. Once enacted by the President, we understand that the Central Bank will launch its consultation process on the relevant supporting regulations and guidance.
2. Dear CEO on the Central Bank's Letter regulation and supervision priorities for 2023
On 16 February 2023, the Central Bank of Ireland (the "Central Bank") issued a Dear CEO Letter outlining its key regulation and supervision priorities for 2023. This is the third occasion in the past month in which these priorities have been highlighted by the Central Bank ( please see the FIG Top 5 at 5 from 26 January and 2 February for more details).
The only additional priority from the lists previously referenced is the intention to provide "a clear, open and transparent authorisation process". The Central Bank explains that this will be achieved through "active and constructive engagement" with industry and other stakeholders.
For your reference, the following is summary of the key priorities identified:
- Providing a clear, open and transparent authorisation process;
- Assessing and managing risks to the financial and operational resilience of firms (including the potential decline in asset quality arising from inflation, lingering effects from the pandemic and a slowdown in the UK economy);
- Progressing actions on the systemic risks generated by non-banks (in particular advancing a macro-prudential framework for non-banks);
- Continuing to oversee the consolidation of the Irish banking sector (including implementing new credit supervision mandates and continuing to monitor for emerging risks in distressed debt, investor protection and product governance);
- Consulting and engaging on regulatory developments under the Consumer Protection Framework and Individual Accountability Framework;
- Consulting on the Central Bank's approach to Innovation;
- Focusing on the integrity of and preventing misuse of the financial system (through detecting and sanctioning market abuse, supervising firms’ compliance with Anti-Money Laundering/Combating the Financing of Terrorism obligations and administering and enforcing financial sanctions (working closely with An Garda Síochána and other relevant bodies in all these areas));
- Ensuring that the EU’s Anti-Money Laundering Action Plan results in a consistent and robust EU-wide framework;
- Contributing to progressing European regulation (particularly the review of the Payment Services Directive and the functioning of open banking);
- Implementing the digital operational resilience and markets in crypto assets regulations; and
- Strengthening the resilience of the financial system to climate change risks and its ability to support the transition to a climate-neutral economy (along with implementing the Sustainable Finance Disclosures Regulation).
3. European Commission considers 10th package of sanctions against Russia
On 15 February 2023, President of the European Commission (the "Commission") Ursula von der Leyen and High Representative of the Union for Foreign Affairs and Security Policy/Vice-President of the Commission Josep Borrell gave statements on the proposed 10th package of sanctions against Russia (the "Package").
While the exact details of the Package are yet to be agreed, the following, which will be of relevance to financial services firms, have been flagged:
- President von der Leyen noted in her statement that the Commission is proposing to include propagandists as well as additional military and political commanders to the lists of individual sanctions;
Mr Borrell in his statement elaborated that the Package would include "tackling the banking sector". We understand that four additional Russian banks will be impacted, including the country's largest private bank, Alfa-Bank.
- President von der Leyen advised that the Package introduces new measures to prevent circumvention. She explained that together with Member States, the Commission will set up an overview of all frozen assets of the Russian central bank held in the EU and will "track oligarchs trying to hide or to sell their assets to escape sanctions". Details of how this will be achieved are not yet known.
Next Steps
President von der Leyen called on the Member States to adopt this new package of sanctions swiftly and noted the Commission aims to have agreement in place by 24 February 2023.
4. Proposal for a Directive on financial services contracts concluded at a distance
On 16 February 2023, the Council of the EU published a compromise proposal (dated 18 January 2023) on the proposed Directive on financial services contracts concluded at a distance. The proposed Directive amends Directive 2002/65/EC (the "Distance Marketing of Financial Services Directive") to strengthen consumer rights and foster the crossborder provision of financial services.
The rationale for the proposed Directive is that the market on financial services contracts concluded at a distance has significantly evolved since the Distance Marketing of Financial Services Directive with the overall digitalisation of the sector and the new types of financial services that have been developed. These developments have been further enhanced by the impact of COVID 19, which greatly contributed to an increase in online transactions.
This is the fifth Presidency compromise proposal on the proposed Directive. The fourth Presidency compromise proposal was published on 31 January 2023 (dated 8 December 2022).
5. European Commission call for advice to EBA and ESMA to evaluate IFR and IFD prudential framework
On 20 February 2023, the European Commission ("Commission") published a call for advice to the European Banking Authority ("EBA") and European Securities and Markets Authority ("ESMA") to provide an evaluation on the prudential framework for investment firms that has applied since June 2021.
In accordance with Article 60 of Regulation 2019/2033 (EU) ("IFR") and Article 66 of Directive 2019/2034 (EU) ("IFD") the Commission is required to submit, by 26 June 2024, two reports to the European Parliament and the Council on the prudential framework for investment firms. In preparing these reports, the Commission is required to consult with the EBA and ESMA.
The Commission has acknowledged that the prudential framework for investment firms only entered into force relatively recently and that this may impact the ability of the EBA and ESMA to collect the necessary evidence on the topics in this Call for Advice. Therefore the Commission is requesting the EBA and ESMA to evaluate these topics "to the extent currently possible" and "identify those topics which are better suited for a future review when the prudential framework has been in place longer".
The EBA and ESMA are also encouraged to make use of, and build on, analyses yet conducted (e.g. ESG risks, digitalisation and crypto assets).
The Commission has requested generally that the assessment include:
- information about the structure of the market, distinguishing between investment firms’ categories and business models;
- the impact on the capital requirements of investment firms resulting from any change proposed to the current legislation; and
- an estimate of the impact of any recommendation both in terms of changes to the own funds’ requirements and the operational and administrative costs incurred by investment firms.
The Commission has requested that the assessment specifically consider:
- the categorisation of investment firms;
- interactions with Regulation 575/2013 ("CRR") and Directive 2013/36/EU ("CRD IV");
- ESG Risks;
- whether changes to the IFR/IFD are warranted due to the emergence of new market players/transformations of businesses as a result of digitalisation, the impact of crypto assets and the risks resulting from the interactions between investment firms and other financial activities; and
- specific considerations on commodity and emission allowance dealers and on energy firms.
The EBA and ESMA are also requested to include other issues or inconsistencies that competent authorities in the EU may have identified during the implementation of the IFR/IFD framework and any suggestions on how to rectify these issues.
The EBA and ESMA are requested to deliver their joint report to the Commission by 31 May 2024.
[1] Purcell v. Central Bank of Ireland