Recent Developments in the Domestic and European Banking Sector for June 2012 (03/07/2012)

This article highlights the main developments that have taken place over the last month in the domestic and European banking sector. 

On the Domestic Front: 
Central Bank – Discussion Paper on Code of Conduct on the Switching of Current Accounts
The Central Bank has issued a discussion paper on the “Code of Conduct on the Switching of Current Accounts”. 

In July 2010, the Central bank agreed to the following commitments: (i) The IBF (voluntary) switching codes for personal and business customers will be placed on a statutory footing immediately, and will be accompanied by an information campaign; and (ii) a review of the provisions contained in the switching code, with a view to making any necessary enhancements, will be carried out by the Central Bank and concluded by end Q2 2012. 

The first part of this commitment was met by way of the “Code of Conduct on the Switching of Current Accounts with Credit Institutions” on 1 October 2010. 

The purpose of this Discussion Paper is to meet the second part of the commitment outlined above. The Discussion Paper poses a number of questions to interested parties on issues connected with switching and how the Switching Code could be further enhanced to support the switching process. 

Central Bank Publishes Updated “Frequently Asked Questions” on the Corporate Governance Code
The Central Bank has published updated FAQ’s in relation to the Corporate Governance Code for Credit Institutions and Insurance Undertakings.

The FAQ updates are to provide further guidance and clarification in relation to the following: (a) board majority (see new point (j) in question 15), the role of the board (see new response at (a) in question 34) and (c) the annual compliance statement (see new points (e) to (k) in question 53). The updated FAQ document is available on the Central Bank’s website.  

Central Bank Publishes “Frequently Asked Questions” for Retail Intermediaries Online Reporting 
The Central Bank has published an FAQ for all Retail Intermediaries i.e. Retail Intermediaries authorised or registered by the Central Bank under the (i) Investment Intermediaries Act 1995, (ii) Insurance Mediation Regulations 2005 and (iii) the Consumer Credit Act 1995, that are required to submit a report to the Central Bank.  

The FAQ’s cover issues such as who is required to submit a return; questions as to completing the following forms - “General Information Form”; “Financial Information Form”, “Ownership Information Form”; “Conduct of Business Form”; and FAQ’s for auditors of firms authorised under the IIA 1995. 

Central Bank Publication for Applications under the Payment Services Regulations
The Central Bank has issued a Guidance Note on “Completing and Submitting an Application for the: Authorisation as a Payment Institution under Regulation 18(1)(a) of; Appointment of Agents under Regulation 28 of; and Establishment of Branches under Regulation 29, of the European Communities (Payment Services) Regulations 2009.”

The Guidance Note is available on the Central Bank website.

Fitness and Probity Service Standards
The Central Bank has published “Fitness and Probity Service Standards”. These Standards set out the Central Bank’s target “turnaround times” in relation to approvals of “Qualifying Investor Fund IQ”, “Central Bank of Ireland Previously Approved Individual”, “EEA Previously Approved Individual”, “Standard IQ” and “Incomplete IQ Responses”. The Standards also set out various reasons as to why an IQ would be returned. The Standards are available on the Central Bank website. 

On the European Front:
European Commission Publishes Details of a Framework for Bank Recovery and Resolution
On 6 June 2012, the European Commission announced new crisis management measures to deal effectively on a cross border basis and in a harmonised manner with any future bank crisis.  To read more on this topic, please see our Client Bulletin dated 12 June 2012.   

ESRB Issues First Annual Report
The ESRB has issued its first annual report. The Chair of the ESRB, in his opening statement, outlined the three main areas of focus of the ESRB in its first year as follows: (i) the assessment of systemic risks in the EU financial system; (ii) a sound macroprudential framework for the EU; and (iii) structural developments in the EU financial system. 

FSB Paper – Implementing the FSB Principles for Sound Compensation Practices and their Implementing Standards
The FSB developed Principles for Sound Compensation Practices and the Implementation Standards (P&S) in the wake of the global financial crisis where compensation practices at large financial institutions were seen as a key contributing factor to the crisis. The purpose of this report is to provide an update on the progress of implementing the FSB’s P&S since the October 2011 peer review. 

The report describes the overall progress made by national authorities in the implementation of the P&S and includes a focus on the implementation of new Basel Committee Pillar 3 disclosure requirements on compensation. Other areas covered include descriptions of developments in supervisory monitoring and co-operation in this area, challenges faced by firms in implementing P&S, preparations by national authorities for the establishment of a bilateral complaint’s handling process and the next steps to further promote the sharing of experiences in the area of compensation practices. 

AFME Response to High-Level Expert Group on Reforming the Structure of the European Banking Sector Consultation
The Association for Financial Markets in Europe has published its response to the Consultation of the High-Level Expert Group (HLEG) on Reforming the Structure of the EU Banking Sector. It states that it believes that structural regulation, including specific controls on activities, risks producing sub-optimal outcomes and is unnecessary or inappropriate for the European banking markets. AFME believes that the regulatory reform programme already underway, including the work on Resolution and Recovery, will better achieve the objectives of the HLEG and that the focus of policymakers should be on completing that programme and allowing it time to function. 

EBA Launches Consultations on Draft Regulatory Technical Standards (RTS) in respect of (i) Gains on Sale; and Draft Implementing Technical Standards in respect of (i)  Disclosure for Own Funds; and (ii) Reporting Requirements for Leverage Ratio
The EBA has launched the following consultations: 

1. Consultation Paper on Draft Regulatory Technical Standards to specify further the concept and the treatment of a Gain on Sale Associated with Future Margin Income in a Securitisation Context 
   A “gain on sale” refers to any increase (or part of the increase) in equity under the applicable accounting standard arising from future margin income in the context of a securitisation transaction.  These RTS will form part of the single rulebook aimed at enhancing regulatory harmonisation in Europe. The consultation is based on the draft Capital Requirements Regulation published in July 2011 but which is currently under review with the EU Legislator.
   
   The consultation runs until 12 August 2012. A public hearing will take place on 28 June.
   
   
2. Consultation Paper on Draft Implementing Technical Standards on disclosure for own funds
   The EBA has launched this Consultation on draft implementing technical standards for own funds which is aimed at ensuring a uniform approach to disclosure for own funds by institutions and across jurisdictions to allow detailed assessments of banks’ capital positions and make cross-jurisdictional comparisons. 
   
   This Consultation will run to 31 July 2012.
   
   
3. Consultation Paper on Draft Implementing Technical Standards on Supervisory Reporting Requirements for Leverage Ratio
   This Consultation is aimed at providing national authorities with harmonized information on the leverage ratio and its components using uniform reporting formats developed by the EBA.
   
   The leverage ratio will be part of the supervisory review by national authorities to assess the risk of excessive leverage in its institutions and will give the EBA the ability to quantitatively assess the impact and effectiveness of the leverage ratio, on which the EBA is required to produce a report by 2016.   The scope and level of application of these ITS are in line with the Capital Requirements Regulation.
   
   This Consultation will run to 27 August 2012.

European Banking Federation response to a paper on recovery and resolution plans
The European Banking Federation has published a response to the European Banking Authority to a paper on recovery and resolution plans. In general, the EBF supports the concept of capital recovery and resolution plans and in general believes that the EBA template for recovery is well balanced and FSB compliant. 

It states that a recovery plan should encourage the planning process and at the same time ensure that banks are aligned to common supervisory practices in this area. It should not be overlooked however that too detailed requirements could restrict the institutions specific recovery planning and the necessary flexibility to adjust to specific risk situations.  

BIS/FSB – A Global Legal Entity Identifier for Financial Markets
This report sets out recommendations and proposals to implement a global Legal Entity Identifier (LEI) system that will uniquely identify parties to financial transactions. The financial crisis has provided a renewed spur to the development of a global LEI system.  

The report sets out 35 ‘Recommendations for the Development and Implementation of the Global LEI System’ to advance the practical implementation of such a system. These recommendations are guided by a set of ‘Global LEI System High Level Principles’ that set out the objectives that the design of a global LEI system must meet. 

BIS – Rules on the Composition of Capital Disclosure Requirements 
The Basel Committee on Banking Supervision has published rules on the composition of capital disclosure requirements. The publication sets out a framework to ensure that the components of banks' capital bases are disclosed in standardised formats across jurisdictions. The publication aims to improve the quality of Pillar 3 disclosures in respect of the capital that banks use to meet their regulatory requirements. 

IOSCO – Consultation Report on “Global Developments in Securitisation Regulation” 
This Consultation has arisen as a result of the FSB’s work in developing recommendations to strengthen oversight and regulation of the shadow banking system. As part of this work, the FSB is assessing if there is a case for action in relation to the regulation of securitisation. IOSCO, in coordination with the Basel Committee on Banking Supervision, has been requested to conduct a stock-taking exercise in relation to requirements for risk retention and measures enhancing transparency and standardisation of securitisation products, and to develop policy recommendations as necessary. 

The Consultation Report contains a description of the Global Securitisation Market and seeks public comment on policy issues arising in relation to differences in approaches to risk retention, improvements in transparency and measures to standardise disclosure. 

Comments may be submitted on or before 6 August 2012. 

Reponses to the EC’s Green Paper on Shadow Banking 
The Investment Management Association (IMA), the Association for Financial Markets in Europe (AFME) and the Institute for International Finance (IIF) have all responded to the EC’s Green Paper on Shadow Banking. 

The AFME has responded that it believes that shadow banking contributes positively to the financial system by providing significant funding to capital markets and thus the economy, and by diversifying risk in the financial system. While AFME notes the high-level nature of the consultation in the context of ongoing FSB work streams, the AFME believe the Commission should wait for the approach for shadow banking to be settled globally before proceeding with regulatory proposals. 

The IIF has welcomed the efforts of the Commission and agrees for the need for sound policy in this area. The IIF believe that a satisfactory approach to achieving the aim of increasing financial stability would be to focus on individual non-bank financial activities and assess whether they have the potential to create systemic risk, whether this risk is being properly mitigated through existing regulation, transparency and disclosure, and if not, how the particular risks can be most effectively mitigated. 

The IIF attached its recently published paper “Shadow Banking: A Forward Looking Framework for Effective Policy” to its response and in which the IIF focuses on the potential benefits and risks of the activities together with the most appropriate use of loss mitigation tools. 

EBF's Response to EC's Proposal for a Regulation on the Protection of Individuals with Regard to the Personal Data 
The European Banking Federation (EBF) has published a position paper in relation to the European Commission (EC) proposal for a regulation on the protection of individuals with regard to the processing of personal data and on the free movement of such data. The EBF supports the objectives of the current review and states the EC's proposal is aimed at clarifying some broad and complex issues in respect of which the EBF identified concerns for European banks in regard to fulfilling their data protection obligations.  

Notably in relation to data breach notification, the EBF believes that the proposed requirement on data breach notification within 24 hours is unrealistic. It also believes it is important not to flood regulators with too much information which only leaves to additional, unnecessary and costly burden for both the data protection authorities and data controllers. The EBF is also of the view that reliance on explicit consent and significantly restricting consent where there is an imbalance between the parties creates significant complications for companies. A number of other issues are also addressed by the EBF. 

European Parliament – Report on directive proposal on prudential requirements for credit institutions and investment firms
The European Parliament has published a report in relation to the proposal for a directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate.

European Parliament – Opinions on Proposed Regulations
The European Parliament has issued opinions on the following proposed legislation:

(i) Proposal for a Regulation on Insider Dealing and Market Manipulation; and

(ii) Proposal for a Directive on Criminal Sanctions for Insider Dealing and Market Manipulation.

For further information on this article, please contact Louise McNabola at lmcnabola@algoodbody.com.

Date published: 3 July 2012