06 August 2024
Schoenherr publication
czech republic
poland
romania
to the point: financial regulation | 07/2024
Welcome to our to the point newsletter. Every month, we are looking back at the most relevant developments in the area of financial regulation in the CEE region.
In this edition, you will get a mix of updates:
- The ESMA has published two documents providing support related to application and supervision of sustainability reporting requirements, namely (i) a final report on guidelines on enforcement of sustainability information and (ii) a public statement on first application of ESRS (European Sustainability Reporting Standards) by large issuers. Whereas the guidelines provide guidance to build convergence on supervisory practices on sustainability reporting, the purpose of the statement is to support large issuers in going through the learning curve associated with the implementation of these new reporting requirements.
- The EBA published the final guidelines on complaints handling, extending the application of the guidelines to credit servicers under the new credit servicers directive. Credit servicers will now be required to apply the same procedures and standards regarding complaint handling as other entities from the financial sector, such as banks and insurance companies. The areas covered by the guidelines include, among others, a complaint management policy, a complaint management function, registration and reporting of complaints, or procedures for responding to complaints.
- The ESAs (ESMA, EBA, EIOPA) published a final report on draft regulatory technical standards (RTS) to specify the elements a financial entity needs to determine and assess when subcontracting information and communication technology (ICT) services supporting critical or important functions as mandated by art 30(5) of regulation (EU) 2022/2554 (DORA), focusing on ICT services provided by ICT subcontractors that support critical or important functions, including requirements for the application in a group context. To ensure a sound governance and compliance when managing such ICT-related services and associated risks, the RTS cover the whole life cycle of contractual arrangements with the ICT third-party service providers, starting with the planning phase before entering into an arrangement, including risk assessments and due diligence processes, further covering the ongoing service delivery, monitoring and auditing and ending with the exit from such arrangements.
- The ESAs (ESMA, EBA, EIOPA) published a second batch of policy products under regulation (EU) 2022/2554 (DORA), consisting of draft technical regulatory (RTS) and implementing (ITS) technical standards, including two sets of guidelines, focusing on the reporting framework for ICT-related incidents (reporting clarity, templates) and threat-led penetration testing and introducing requirements on the design of the oversight framework. The draft documents include:
- RTS and ITS on the content, format, templates and timelines for reporting major ICT-related incidents and significant cyber threats;
- RTS on the harmonisation of conditions enabling the conduct of the oversight activities;
- RTS specifying the criteria for determining the composition of the joint examination team (JET);
- RTS on threat-led penetration testing (TLPT);
- Guidelines on the estimation of aggregated costs/losses caused by major ICT-related incidents; and
- Guidelines on oversight cooperation.
- The ESMA updated the following Q&As:
- AIFMD
- MiCA
- Treatment of staking services in MiCA (2067);
- Grandfathering clause and applicable AML laws (2068);
- Interaction between art 60 notifications and the crypto asset service providers (CASPs) transitional phase (2069);
- Simplified authorisation procedures (2070);
- Crypto asset transfers as component of another crypto asset service or as a separate crypto asset transfer service (2071);
- Entities not authorised as CASPs by the end of the transition period (2220);
- Entities who have not applied for or whose application for authorisation as CASPs has been refused by the end of the transition period (2221);
- MiFID II
- Interpretation of "emission allowances" under C(4) (847);
- UCITS
- Derogation for newly authorised UCITS (601).
- The EBA issued new guidelines on information requirements in relation to transfers of funds and certain crypto assets transfers under regulation (EU) 2023/1113, concerning the so-called "travel rule", i.e. the information that should accompany transfers of funds and (certain) crypto-assets for the purposes of AML/CFT prevention. More specifically, the guidelines:
- set out the factors that payment service providers (PSPs), intermediary payment service providers (IPSPs), crypto asset service providers (CASPs) and intermediary crypto asset service providers (ICASPs) should consider when drafting procedures to detect and manage transfers of funds and crypto assets lacking the required information on the payer/originator and/or the payee/beneficiary, and to ensure that these procedures are effective;
- specify what PSPs, CASPs, IPSPs and ICASPs should do to manage the ML/TF risks where the required information on the payer, originator, payee or beneficiary is missing or incomplete; and
- specify technical aspects of the application of regulation (EU) 2023/1113 to direct debits.
- The ESMA has published an opinion addressing the risks related to global crypto firms utilising non-EU execution venues, i.e. venues falling outside the scope of the MiCA In particular, the ESMA aims to provide some clarifications regarding the application of certain MiCA obligations, mainly in relation to multifunction crypto asset intermediaries that might attempt to structure their business in a way to maintain access to EU clients while minimising the impact of the MiCA regulatory framework on their activities. In the opinion, the ESMA outlines, among other things, the specific requirements that should be met regarding best execution, conflicts of interest, the obligation to act honestly, fairly and professionally in the best interests of clients, and the obligation relating to the custody and administration of crypto assets on behalf of clients.
- The ESMA has published a final report on draft technical standards specifying certain requirements of the MiCA regulation, introducing both regulatory and implementing technical standards which provide greater transparency for retail investors, clarity for providers on the technical aspects of disclosure and record-keeping requirements, and data standards to facilitate supervision by National Competent Authorities (NCAs). In the report, the ESMA outlines, among other things, requirements related to the following matters:
- sustainability indicators in relation to climate and other environment‐related adverse impacts;
- measures to ensure continuity and regularity in the performance of crypto asset services;
- pre-and-post-trade transparency;
- record-keeping obligations for CASPs;
- machine readability of white papers and white papers register; and
- technical means for appropriate public disclosure of inside information.
- The EBA has prepared a report on the application of derogations under art 94 (3) and 94 (5) CRD regarding the payout of remuneration to identified staff, setting out the requirements to pay out a part of the variable remuneration for identified staff under deferral arrangements and in instruments that are available to small and non-complex institutions and for identified staff receiving only a relatively small amount of variable remuneration. In addition to presenting the views of the industry, the report also contains the competent authorities' observations on the application of derogations and data on the impact of waivers.
- In relation to, among other things, the latest amendments to the Czech AML Act, the Financial Analytical Office (FAO) decided to also amend its guideline no. 7 – measures against politically exposed persons (PEPs). The respective amendments are mainly related to (i) the use of the register of notifications in the control of a PEP client, (ii) the response to the situation of automatic transcription of UBOs and the transfer of PEP status to other persons (which usually does not correspond to reality), and (iii) the legal requirement to apply the principle of proportionality and a risk-based approach when carrying out a review of a PEP client.
- The Ministry of Finance has sent a draft regulation on the countercyclical buffer for consultation, in accordance with the resolution of the Financial Stability Committee (FSB-M) of 14 June 2024. The aim is to set the countercyclical buffer rate at 1% and to raise it to 2% after 12 months. The countercyclical buffer, a macroprudential policy instruction, is intended to increase the resilience of the banking system to cyclical fluctuations in systemic risk. Currently, as of 2016, the indicator is 0%. The National Bank of Poland points to increasing systemic risk, justifying the introduction of a buffer at 0.25%, but no higher than 2%. The countercyclical buffer is intended to help stabilise the banking system during times of risk materialisation. The regulation will enter into force 12 months after promulgation.
- The Financial Supervision Authority (FSC) has adopted the Long-term Funding Ratio (WFD) aimed at reducing the risks arising from the current mortgage financing structure. From 2027, banks will be required to maintain a WFD ratio of at least 40%. The recommendation is expected to increase the share of long-term debt instruments in the funding of these loans, instead of relying mainly on retail deposits. The new regulations will apply to domestic banks from the end of 2026, excluding cooperative banks and institutions in restructuring. The FSC will monitor the level of WFD at the end of each month and, from 2027, may adjust the expected level of the ratio depending on the macroeconomic situation and the individual situation of banks. The aim is to increase the banking sector's resilience to financial crises.
- The Basel Committee published its final disclosure framework for banks' crypto asset exposures. Credit institutions will be required to use standardised disclosure tables and templates (covering qualitative information on banks' crypto asset exposures and quantitative information on the capital and liquidity requirements for such exposures);
- The disclosure requirements cover the following areas: (i) qualitative disclosure on banks' activities related to crypto assets and the approach used to assess the classification conditions; (ii) crypto asset exposures and capital requirements; (iii) accounting classification of exposures to crypto assets and crypto liabilities; and (iv) liquidity requirements for exposures to crypto assets and crypto liabilities
- According to the disclosure templates, credit institutions will be required to describe their business activities related to crypto assets, including owning crypto assets directly, trading of crypto assets on clients' account, equity investments in crypto asset activities and the issuance of crypto assets by the bank. Banks should further describe how such activities translate into their risk profile (credit, market, operational, liquidity risks etc.);
- The framework is to be implemented by
1 January 2026, aiming to support information symmetry amongst banks and market participants.
- The Basel Committee released the targeted amendments to the prudential standards on banks' exposures to crypto assets published in December 2022. Among several technical amendments, the changes aim to clarify the criteria for stablecoins to receive preferential regulatory treatment, external audit requirements for stablecoin reserve assets and the frequency of due diligence requirements;
- The final revised standard is set to be implemented by 1 January 2026.
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