1.
The Guidance aims to assist Regulated Financial Service Provider ("RFSPs"), holding companies and individuals performing Controlled Functions ("CFs") (including Pre-Approval Controlled Functions) in complying with enhancements to the F&P regime introduced by the Individual Accountability Framework.
The Guidance has also been updated to reflect the inclusion of holding companies within the scope of the Guidance.
The main changes to the Guidance are outlined below:
Section 12: Certification
Thisrefers to the new Certification Process which states that a RFSP/holding company shall not permit a person to perform a CF unless it is satisfied that a person complies with the F&P standards; a certification of compliance with F&P standards is in force for that person and that person has agreed in writing to comply with the standards. It also outlines the processes for all the elements of the certification processes.
Section 14: Fitness - due diligence to be undertaken by a RFSP/ holding company to assess a person's fitness to perform a CF(s)
This outlines the due diligence that the
Section 16: Probity - due diligence to be undertaken by a RFSP / holding company to assess a person's probity to perform a CF(s)
This outlines the due diligence that the
Section 17: Due diligence for criminal offences
This outlines the due diligence that the
Section 18: Material changes or concerns regarding fitness and/or probity
This outlines the actions to be taken where there have been material changes or concerns regarding an individual's fitness and probity. RFSPs and holding companies must obtain confirmation that a CF has agreed to comply with the F&P Standards, and require individuals to notify the RFSP/holding company of any material changes in respect of the initial due diligence carried out. The Guidance does not provide an exhaustive list for the types of actions that must be notified to the
For more information on the updated Guidance, please see Matheson's Insight Central
2. The EU Credit Servicing Directive is transposed into Irish law
On
The Directive applies to the sales and servicing of non-performing loans ("NPLs") issued by a credit institutions established in the EU. As previously outlined in the FIG Top 5 at 5 dated
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promote a secondary market for non-performing loans;
- lay down a common framework for the sale and management of bank originated non-performing loans which are transferred or sold after
29 December 2023 ; - provide for a new EU wide authorisation and regulatory framework for credit servicers to be overseen by national competent authorities and allows such authorised entities to passport credit servicing activities across the EU; and
- make certain amendments to Directive 2008/48/EC (the "Consumer Credit Directive") and Directive 2014/17/EU (the "Mortgage Credit Directive").
- Capital intensity: undertakings with similar economic profit and loss distributions saw notable differences in their capital intensities, and did not increase or decrease over time suggesting stability in undertakings' capital allocation;
- Differences in risk measurement: some undertakings with lower capital intensity relied on uncertain future profit estimates in the calculation of their premium risk;
- Standard formula comparison: undertakings who use internal models showed significant variation and generally lower capital intensities for premium and reserve risk compared to standard formula calculations;
- Reporting: many undertakings had prepared well for the introduction of quantitative reporting templates for internal models at the end of 2023; and
- Inflation: most undertakings model inflation based on past trends and may rely on ad-hoc expert judgement when the path of inflation changes, and the analyses showed that long-lasting moderate inflation can affect undertakings more than temporary spikes.
- Negative risk capital: national competent authorities ("NCAs") will follow up on national level and on-site inspections regarding negative risk capital; and
- Low standard formula benchmarking: the analyses supports the supervisory conversations and supervisory review process of NCAs for year end 2022 submissions going forward.
- Step 2 - Defining the indicators around which the benchmarks will be developed: EIOPA proposes revisions to the published methodology to include new indicators which would help to further assess if products offer value for money which will be based on feedback from the public consultation once the data is available; and
- Step 3 - Data collection and the benchmarks calibration: EIOPA envisages relying on existing data collection processes to reduce the reporting burden on the market. The Consultation proposes refinements and adjustments to the annual Cost and Past Performance report.
- there were a number of recurring issues which were noted throughout the process of assessing the compliance of notified waivers with the MiFIR pre-trade transparency requirements; and
- it is necessary to provide guidance on the main issues identified in order to ensure consistent supervisory practices and consistent approaches regarding the application of the relevant requirements for NCAs and trading venues.
- guidance in section 5.4.3.5, and a related table, regarding non-equity transparency calculations.
For more details on what the transposition will mean under Irish law, and what questions remain outstanding, please see the recent Insight from our Finance and Capital Markets team EU Credit Servicing Directive - Irish Transposition.
3. European Central Bank Updates
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The updated version of the Manual replaces the version that was published in
On
The stress test involves a scenario where a cyberattack has successfully disrupted a bank's daily business operations and banks will then test their response and recovery measures such as activating emergency procedures and contingency plans and restoring normal operations. Following this, supervisors will assess how well banks can cope in such a scenario.
In addition 28 banks will take part in an enhanced assessment where they will submit additional information on how they coped with the cyberattack. The enhanced assessment will cover various business models and geographies to ensure that the assessment provides a significant reflection of the euro zone area banking system and ensure effective coordination with other supervisory activities.
The stress test will not have an impact on capital through the Pillar 2 Guidance, but the findings will be used for a wider supervisory assessment in 2024. The insights and lessons learned will be discussed by supervisors with each bank as part of the 2024 Supervisory Review and Evaluation Process, and the main findings will be communicated in the summer of 2024.
4. EIOPA Updates
EIOPA analyses internal models for non-life underwriting risk
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The key conclusions are summarised below:
- Individual feedback sessions: individual sessions highlighted undertakings' relative positioning and enabled constructive discussions with and challenge of individual results against European wide peer group samples;
The Study noted that it is not a stand-alone exercise but was an important element in the EEA supervisory toolkit for monitoring the on-going appropriateness of internal models covering non-life underwriting risk. Follow-ups from the Study include:
- Data & IM QRT readiness: this includes qualitative and quantitative benchmarking and further activities for improvements of readiness;
EIOPA launches consultation paper on the methodology on value for money benchmarks
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One of EIOPA's key priorities, first identified in 2020, is addressing value for money risks. Insurance products, particularly unit-linked or hybrid products can provide significant benefits to consumers, but are often complex and can cause a 'mismatch between consumers expected returns and the actual benefits received'. The Consultation aims to establish a methodology on value for money benchmarks in unit-linked and hybrid products which would become a key part of EIOPA's toolkit in effectively addressing these risks.
The Consultation sets out a 3 step approach:
- Step 1- Defining the product clusters: this involves defining the set of clusters based on which unit-linked and hybrid products are grouped according to policyholders' needs. Given the diversity of products, one set of benchmarks will not be sufficient. The final clusters will be defined based on the set of products collected, and the methodology already identifies some criteria, and offers 2 possible options on how to cluster multi-option products;
Next Steps
The consultation will close to feedback on
5. ESMA Updates
ESMA updates its opinion on assessment of pre-trade transparency waivers under MiFIR
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Articles 4(4) and 9(2) of MiFIR provide that NCAs are required to notify ESMA and other NCAs of its intended use of the waiver as well as explain its functionality. This must be done before granting the waiver and not less than 4 months before the waiver is due to take effect. Once it receives the notification, ESMA will within two months, issue an opinion on the compatibility of the waiver with the MiFIR requirements.
In the Opinion, ESMA made a number of interesting observations:
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it had issued 1,209 opinions (427 equity waivers and 782 non-equity waivers) by
It should be noted that the Opinion does not create any new obligations, but merely clarifies the relevant requirements under MiFIR.
Finally, ESMA flags that as the market evolves and new trading systems and functionalities are developed, it will analyse and address any emerging issues.
ESMA updates manual on post-trade transparency under MiFID II
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a correction to section 4.1.3.3, and a related table which concerns the type of transactions subject to post-trade transparency; and
It is expected that ESMA will update the manual again following the review of MiFID and MiFIR, along with the subsequent review of Commission Delegated Regulations (EU) 2017/587 (RTS 1) and (EU) 2017/583 (RTS 2), and any other legislative change impacting its content.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Matheson
Matheson
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E-mail: Lisa.McLoughlin@matheson.com
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