Financial Regulatory Group Briefing - Vol 3, January 2013

This is the third edition of RegBrief, the quarterly bulletin of the Arthur Cox Financial Regulatory Group. RegBrief contains a summary of certain developments and is neither a complete nor a definitive statement of law or of regulation. Specific legal advice should be obtained before taking any action.

Irish Regulatory Developments

The Central Bank's 2013 Strategy

The Central Bank published its Strategic Plan 2013-2015 on 20 November 2012 in which it confirmed that, in 2013, it would establish an Implementation Advisory Committee to enable consultation on the detailed implementation of the Central Bank (Supervision and Enforcement) Bill (currently at Committee stage in the Dail), develop an operational framework for whistle-blowers and put in place a redress and restitution scheme. It stated that it would continue to review compliance with the Code of Conduct on Mortgage Arrears ("CCMA") and that 2013 would see a review of the CCMA, together with reviews of the Code of Conduct on Business Lending to Small and Medium Enterprises and the Account Switching Code. A new code for debt management/bill payment companies will also be developed, as will a revised Client Assets Regime (following the publication of the Review of the Regulatory Regime for the Safeguarding of Client Assets in 2012). A list of the themed inspections that the Central Bank plans to conduct in 2013 will be published early this year, and key focus areas for the year ahead will include a review of PRISM (the Probability Risk and Impact System), the restructuring and resolution of the credit union sector, mortgage arrears and the delivery of longer-term sustainable solutions under the Mortgage Arrears Resolution Strategies developed by lenders, the management and resolution of distressed SME loans, the next PCAR (Prudential Capital Assessment Review) assessments and the implementation of European legislative proposals such as MiFID II and the Alternative Investment Fund Managers Directive ("AIFMD").

Anti-Money-Laundering

The Central Bank wrote to all Irish-regulated credit institutions and financial institutions on 18 October 2012 regarding compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the "2010 Act") noting certain key control failures that it had identified. These control failures included delays in implementing measures to ensure compliance, a lack of oversight where compliance with the 2010 Act had been delegated by the relevant board, an inability on the part of firms who purported to apply a risk-based approach to demonstrate how they had evaluated specific risks arising, material gaps in policies, failures to provide training, varied types of failures to conduct appropriate customer due diligence and failure to file suspicious transaction reports within stipulated time-frames. The Central Bank noted its expectation that firms would review their policies and procedures and address any shortcomings. October 2012 also saw the publication by the Department of Finance of guidance on the prevention of the use of the financial system for the purpose of money-laundering and terrorist financing in the life assurance sector on its website.

Payment Protection Insurance

On 8 October 2012, the Central Bank named six institutions which had commenced reviews of their sales of payment protection insurance ("PPI") policies since August 2007 as part of the Central Bank's ongoing investigation into the sale of PPI policies. The Central Bank noted that it was also considering enforcement action as part of that investigation.

Intermediary Times

In its recent edition of 'Intermediary Times', the Central Bank outlined its concerns regarding the practice of regulated retail intermediary firms engaging in unregulated activities within the same business entity. Regulated intermediaries were asked to consider their business models carefully to determine whether engaging in unregulated activities was appropriate, and to also consider the related risks such as capital/solvency and professional indemnity insurance. The Central Bank stated that it would be undertaking a themed inspection on the capital and solvency requirements of retail intermediaries in the near future and noted that an investment intermediary found to be in breach of its regulatory capital requirements would be directed to prepare a credible capital plan, agreed by all directors, partners and principals as to how it would return itself to a compliant position (which plan will have to be the subject of an auditor's opinion as to its reasonableness).

Consultations

The last quarter of 2012 saw the publication by the Central Bank of its Policy on Consultations together with a Consultation Protocol for Credit Unions. On 29 October 2012, the Central Bank announced that it would be initiating a consultation on the Irish regulatory regime for non-UCITS funds, outlining changes to be introduced in connection with the implementation of the AIFMD in July 2013. The Briefing issued by the Arthur Cox Asset Management and Investment Funds Group on that consultation is available here. On 20 November 2012, the Central Bank also published a consultation paper on proposed changes to the basis for calculating the industry funding levy payable by regulated entities, designed to more closely align the funding levies paid by regulated entities with the costs of their supervision. It is proposed that there will be a single levy rate per impact category within each industry category.

Further, the Central Bank proposes to introduce application fees for firms seeking authorisation to provide financial...