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Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021
The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 (the Act) was signed by the President on 18 March 2021 and will shortly be commenced. The revised obligations on designated persons will include:
- confirming, as part of customer due diligence (CDD) measures on a customer who is obliged to register beneficial ownership information on a central register, that such information is entered on the central register;
- verifying senior managing officials as beneficial owners;
- updating procedures for enhanced CDD (ECDD) with the specified steps which should be applied by DPs in the context of ECDD
- providing for the sharing of information relating to suspicious transactions in group situations involving third countries
- updating low and high risk factors (to reflect the schedules to the Act)
Other key features of the amended Act include the following:
- FIU Ireland will be obliged, where practicable, to provide timely feedback to a DP on suspicious transaction reports on the effectiveness of and follow-up to reports made to it
- guidelines on domestic “prominent public functions” may be issued by the Minister for Justice, in consultation with the Minister for Finance
- additional functions may be conferred on the CBI by the Minister for Justice and the CBI will be required to establish a whistleblowing channel
- improved co-operation with EU NCAs
- beneficial ownership of trusts: the amended Act include a new Chapter 9B which deals with the Designation of Classes of Express Trust (and Matters Related to Such Trusts) for Certain Purposes
“Lack of progress in gender diversity at senior levels of regulated firms is disappointing with much more needed to be done” – Ed Sibley, Deputy Governor, Prudential Regulation
The CBI has published its Demographic Analysis Report 2020 as part of its work in relation to diversity and inclusion in regulated firms. The report considers over 3,600 Fitness and Probity applications for approval for senior roles in regulated firms in Ireland. The 2020 report demonstrated that the level of gender diversity in senior roles in financial services firms remains low and notes that the lack of progress in relation to gender diversity can also be seen in the context of other aspects of diversity and inclusion.
Some of the key findings and figures from the report included the following:
- within the largest (“high”) impact regulated firms, men hold 85% of current PCF positions in the asset management sector, 78% in the banking sector and 74% in the insurance sector
- there continues to be a pronounced gender imbalance at board level across all sectors. Female applications for these positions fell by 2 percentage points from 24% in 2019 to 22% in 2020
- in 2020, less than one sixth of applicants for roles were the holders are responsible for driving strategy and / or business revenue were female
- the number of applications fell by nearly one fifth compared to 2019, due to the reduction in Brexit-related applications
Speaking in relation to the 2020 report, Ed Sibley, Deputy Governor at the Central Bank stated that “a lack of diversity at senior management and board level is a leading indicator of heightened behaviour, culture and governance risks. As diversity is so interconnected with risk, resilience and financial performance, it will continue to be a priority for the Central Bank.”
Mr Sibley noted that effective leadership is required in order to improve the levels of diversity and inclusion in the financial sector. The CBI intends to require further improvement from firms in this regard and will aim to achieve this by carrying out detailed and thematic reviews. The results of this research will be published in order to address these issues and to assess the progress being made in the context of improving diversity and inclusion in regulated firms.
EBA advises European Commission on KPIs for transparency on institutions’ environmentally sustainable activities, including a green asset ratio
The EBA has published an opinion in response to the European Commission’s call for advice on key performance indicators (KPIs) and related methodology for the disclosure by credit institutions and investment firms of information on how and to what extent their activities qualify as environmentally sustainable in accordance with the EU taxonomy. In its opinion, the EBA highlights that the green asset ratio, supported by other KPIs, is a key tool in terms of understanding how institutions are financing sustainable activities and meeting the Paris Agreement targets.
The opinion sets out the KPIs that institutions should disclose as well as the scope and the methodology for the calculation of those KPIs and the qualitative information they should provide. Policy recommendations are also included in the opinion, one of which is that the Commission should put in place a means to facilitate institutions’ disclosures and the eventual extension of the KPIs to all relevant assets, including sovereign and central banks’ exposures. The Green Asset Ratio (GAR) is the main KPI which has been proposed. The GAR identifies the assets financing activities of an institution that are environmentally sustainable according to the EU taxonomy.
Other KPIs which provide information on the taxonomy-alignment of institutions’ services other than lending and investing will be used to supplement the information provided by the GAR. Proportionality measures have also been integrated in the opinion in order to facilitate institutions’ disclosures.
EBA consults on changes to its guidelines on risk-based AML/CFT supervision
The EBA has launched a public consultation on changes to its guidelines on risk-based supervision of credit and financial institutions’ compliance with anti-money laundering and countering the financing of terrorism (AML/CFT) obligations. The purpose of the amendments is to address issues which have been identified by the EBA during the review of its current guidelines.
This review demonstrated that supervisors have encountered difficulties in relation to the implementation of the risk-based approach to AML/CFT supervision and that therefore the levels of supervision set out in Directive (EU) 2015/849 (AMLD) have not been as effective as intended. The proposed amendments provide for step-by-step approaches to addressing the areas of AML/CFT supervision that competent authorities have found particularly challenging. The revised guidelines seek to facilitate supervisors in identifying and managing ML/TF risks in a more effective manner by offering greater detail on ML/TF risk assessments and by requiring supervisors to develop a robust supervisory strategy and plan based on those risk assessments. The guidelines emphasise the importance of cooperation between supervisory authorities and stakeholders and provide guidance as the various supervisory tools which supervisors can avail of in order to achieve their supervisory objectives. The guidelines also highlight the need for supervisors to understand ML/TF risks associated with tax crimes and note that such risks may require cooperation with the relevant member state’s tax authorities.
The consultation will run until 17 June 2021.
EBA publishes final revised guidelines on money laundering and terrorist financing risk factors
The EBA has published its final revised guidelines on money laundering and terrorist financing (ML/TF) risk factors. The amendments take into account the changes to the EU Anti Money Laundering and Counter Terrorism Financing (AML/CFT) legal framework and consider new ML/TF risks, including risks which have been identified by the EBA’s implementation reviews. The amendments are intended to strengthen financial institutions’ risk-based approaches to AML/CFT and to support the development of more effective and consistent supervisory approaches in order to avoid divergent approaches. The EBA notes that the Guidelines will play a key part in the EBA’s work to lead, coordinate and monitor the fight against money laundering and terrorist financing.
The guidelines are addressed to supervisory authorities and financial institutions and list the factors which firms ought to consider when firms are carrying out a risk assessment in relation to a business relationship or occasional transaction. They also provide guidance for firms in relation to carrying our appropriate and proportionate customer due diligence. The guidelines also support the supervisory efforts of competent authorities in the context of the consideration of the adequacy of firms’ risk assessments and AML/CFT policies and procedures.
The revised guidelines enhance the requirements on individual and business-wide risk assessments and customer due diligence (CDD) measures. They include guidance in relation to the identification of beneficial owners, means of identifying and verifying customers’ identities and how firms should comply with the legal requirements relating to enhanced CDD in the context of high-risk third countries. Sectoral guidelines for crowdfunding platforms, corporate finance, account information service providers (AISPs) and payment initiation services providers (PISPs), and firms providing activities of currency exchanges offices have also been included. Additional detail in relation to terrorist financing risk factors has also been included in the revised guidelines.
The EBA has also re-stated that financial institutions are not required to discontinue services to entire categories of customers that they associate with higher ML/TF risk (so-called ‘de-risking’) but rather that financial institutions should balance the need for financial inclusion with the need to mitigate and manage ML/TF risk.
EBA highlights key money laundering and terrorist financing risks across the EU
The EBA has published its biennial opinion on risks of money laundering and terrorist financing (ML/TF) affecting the European Union’s financial sector. The EBA notes that some of the ML/TF risks it has identified apply to the financial system as a whole (e.g. the use of innovative financial services) whereas others such as de-risking are specific to certain sectors. Risks which have emerged as a result of the COVID-19 pandemic and which may affect firms’ AML/CFT compliance and competent authorities’ supervision have also been included in the list.
The EBA notes that it has previously identified the risks posed by currencies and innovative financial services but that these remain to be relevant today. Risks which have been included for the first time include differences in the treatment by competent authorities of financial institutions’ involvement in facilitating or handling tax-related crimes (‘cum-ex/cum-cum’). The opinion also notes that the ongoing trend of de-risking has implications from a ML/TF, consumer protection and financial stability point of view. The EBA has developed an interactive tool which allows European citizens, competent authorities and credit and financial institutions to access in all ML/TF risks covered in the opinion.
ESAs publish joint Q&As on bilateral margining
EBA, EIOPA and ESMA (together the ESAs) have published three joint Q&As on RTS 2016/2251 on bilateral margin requirements under the European Markets Infrastructure Regulation (EMIR). The joint Q&As aim to promote common supervisory approaches and practices in the application of EMIR. The document sets out responses to questions which have been raised by the public as well as market participants and competent authorities in relation to the application of EMIR. The joint Q&As address the following topics in relation to the bilateral margin regime under the Regulation:
- supervisory actions towards entities holding positions in commodity derivatives, other than agricultural commodity derivatives, with a net open interest below 300,000 lots
- supervisory actions towards positions that are objectively measurable as resulting from transactions entered into to fulfil obligations to provide liquidity on a trading venue as per MiFID II
The Q&As aim to promote the convergence of the supervisory activities of competent authorities in relation to the exemption regime from bilateral margin for intragroup transactions and covered bonds and to provide investors and other market participants with clarity as to the requirements of EMIR.
ESAs consult on Taxonomy–related product disclosures
The ESAs have issued a consultation paper seeking input on draft Regulatory Technical Standards (RTS) regarding disclosures of financial products investing in economic activities that contribute to an environmental investment objective. The definition of these economic activities is set out in the EU Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation).
The objectives of the draft RTS are to facilitate disclosures to end investors regarding the investments of financial products in environmentally sustainable activities and to create a single rulebook for sustainability disclosures under the Regulation on sustainability-related disclosures in the financial services sector (SFDR) and the Taxonomy Regulation. Additional taxonomy related disclosures in relation to information about which environmental objectives the investments of the product contribute to, and information about how, and to what extent, the activities funded by the product are Taxonomy-aligned are also included in the consultation paper.
The ESAs’ proposal on how and to what extent activities funded by the product are taxonomy-aligned is comprised of two parts:
- a graphical representation of the taxonomy-alignment of investments of the financial product and a key performance indicator calculation for that alignment
- a statement that the activities funded by the product that qualify as environmentally sustainable are compliant with the detailed criteria of the Taxonomy Regulation
The ESAs have also proposed to amend the templates for the pre-contractual and periodic disclosures proposed in the draft RTS under the SFDR, by including a new section which sets out the disclosures required under the Taxonomy Regulation. The closing date for the submission of responses to the consultation is 12 May 2021.
ESMA proposes rules for Taxonomy-alignment of non-financial undertakings and asset managers
ESMA has published its final report on advice under Article 8 of the Taxonomy Regulation, in relation to the information to be provided by non-financial undertakings and asset managers to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD). The recommendations provide a definition of the Key Performance Indicators (KPIs) which disclose how, and to what extent, the activities of businesses that fall within the scope of the NFRD qualify as environmentally sustainable under the Taxonomy Regulation.
The main recommendations of the report are in relation to the definitions which should be used by non-financial undertakings for the calculation of the turnover KPI, the CapEx KPI and the OpEx KPI, and the KPI which should be disclosed by asset managers. ESMA has also suggested that in order to allow for comparability of these disclosures and to enhance investors’ access to this information, standardised templates should be used by non-financial undertakings and asset managers for their reporting under Article 8.
EBA consults on draft guidelines for institutions and resolution authorities on improving resolvability
The EBA has published a consultation on guidelines for institutions and resolution authorities on improving resolvability. These guidelines seek to complement the existing EU legal framework in the field of resolution. They aggregate existing international standards, leverage on existing EU best practices and consolidate them into an EU-wide legal document.
The guidelines aim to be a reference point for or both authorities and institutions on resolvability related topics in the EU and set out requirements in relation to enhancing resolvability in the areas of operational continuity in resolution, access to Financial Market Infrastructure, funding and liquidity in resolution, bail-in execution, business reorganisation and communication. The objective of the guidelines is to ensure consistent progress on resolvability for all institutions and facilitate resolvability work for cross-border groups and its monitoring in resolution colleges.
The consultation period will run until 17 June 2021.
ESMA sees high risk for investors in non-regulated crypto assets
ESMA has published its first trends, risks and vulnerabilities report of 2021. The report considers the impact of COVID-19 on financial markets during the second half of 2020 and notes the increasing credit risks as a result of the significant corporate and public debt overhang, as well as the risks linked with investments in non-regulated crypto-assets.
The findings of the report demonstrate that there has been a significant rebound in the equity markets and the valuation of debt indices, which is contrast with weak economic fundamentals. The report notes that this ongoing decoupling may result in a reversal in investor risk assessment and a sudden market correction and that this is the main risk for the EU’s financial markets. The ESAs have reiterated their warnings in relation to virtual currencies and have reminded consumers that crypto-assets are highly risky and speculative.
The ESAs have also warned that consumers buying and/or holding these instruments cannot avail of the guarantees and safeguards applicable to regulated financial services are the majority of crypto-assets remain unregulated in the EU. In relation to Brexit, ESMA notes that, as anticipated, a shift in trading domicile occurred in January and that most on-exchange trading moved to EU venues. The risk analysis section of the report includes five detailed articles on the following topics:
- vulnerabilities in money market funds
- fund portfolio networks from a climate risk perspective
- stress simulation in the context of COVID-19
- PRIIPs KIDs
- ESG ratings
European Commission adopts standards on institutions’ public disclosures
The European Commission has adopted an Implementing Act laying down Implementing Technical Standards (ITS) on institutions’ Pillar 3 disclosures. The Implementing Act is based on the final draft ITS on institutions’ public disclosures which was submitted by the EBA in June 2020 and was adopted by the Commission on 15 March 2021. The Implementing Act is yet to be published in the EU Official Journal however the disclosure ITS will apply from 30 June 2021. The ITS set out a comprehensive Pillar 3 disclosure framework in order to facilitate its implementation by institutions and to provide clarity to users of this information. In addition, the ITS also implement regulatory changes introduced by the Capital Requirements Regulation (CRR2) and align the disclosure framework with international standards.
ESMA advises on framework for data reporting service providers
ESMA has published advice to the European Commission in relation to data reporting service providers (DRSP). The advice considers the fees, fines and penalties applicable to EU supervised DRSPs and considers the criteria to be used when assessing whether certain DRSPs may be exempted from ESMA supervision (derogation criteria). The advice seeks to provide a clear and straightforward framework by building on the existing frameworks for trade repositories and securitisation repositories in order to streamline the approach for the determination of the derogation criteria. Authorisation and supervision of authorised reporting mechanisms and approved publication arrangements (APAs) will transfer to ESMA from competent authorities following the ESAs’ review.
ESAs publish joint opinion on jurisdictional scope under the Securitisation Regulation
The ESAs have published a joint opinion on the jurisdictional scope of the obligations of non-EU parties to securitisations under the Securitisation Regulation (SECR). The joint opinion aims to improve understanding of the provisions of the SECR in situations where third-country entities become parties to a securitisation. The joint opinion seeks to provide clarity in relation to third-countries’ obligations and the compliance aspects of a transaction under SECR in order to improve the operation of EU securitisation markets. It also sets out the ESAs’ views in relation to the jurisdictional issues market participants have encountered when applying the provisions of the SECR in the following situations;
- securitisations where some, but not all, of their sell-side parties i.e. originator, original lender, sponsor and special purpose entity issuer etc., are located in a third country
- securitisations where all sell-side parties are located in a third country and EU investors invest in them
- investments in securitisations by subsidiaries of EU regulated groups, where those subsidiaries are located in a third country
- securitisations where one of the parties is a third country investment fund manager.
The ESAs have recommend that these issues should be addressed, insofar as possible by way of interpretative guidance from the European Commission.
ESAs publish Q&As on cross-sectoral aspects of the Securitisation Regulation
The ESAs have published Q&As on cross-sectoral aspects of the Securitisation Regulation. The Q&As provide guidance on a number of topics in relation to the application of the Securitisation Regulation in order to assist market participants to comply with their obligations and to facilitate a more consistent cross-sectoral approach to the implementation of the securitisation requirements in the EU.
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