to the point: financial regulation l 06/2023

The rights of payment institutions in respect of the funds (and accrued interest) entrusted to them by their clients have recently been under scrutiny following a rise in deposit interest rates. Is a payment institution allowed to retain interest accrued on funds safeguarded for clients and deposited to a bank account, as required under PSD II?

Some are in favour of the interpretation that payment service providers do indeed acquire ownership of the funds entrusted to them (in which case, they would generally acquire ownership of interest too). In respect of small payment institutions, this can be further supported by prohibition to distribute any interest to clients, as set forth under the Czech Payment Services Act. It can therefore be argued that small payment institutions are not restricted from retaining accrued interest. It is important to note that, under Czech law (contrary to other jurisdictions such as Austria or Poland), such prohibition currently applies only to small payment institutions. Accordingly, when it comes to other types of payment institution, due to the lack of any specific public law guidance, this matter shall be governed by civil rather than public law.

Due to the absence of a clear regulatory framework addressing this issue in the Czech Republic, this question largely boils down to an assessment of the class of contractual arrangement under which the contracts for payment services fall. Is this more likely to be a mandate agreement (in Czech: příkazní smlouva) under which a payment institution solely acts as an administrator of the funds or an account agreement (in Czech: smlouva o účtu), which would more likely indicate that the payment institution can retain interest without any further actions needed?

We always advise our clients to specifically address their rights to interest in the terms and conditions or other contractual arrangements with their clients.

The EC published a new package of measures to build on and strengthen the foundations of the EU sustainable finance framework (along with accompanying Q&A), which includes:

1. a proposal for a regulation of ESG ratings providers; ESG rating providers offering services in the EU will also need to be authorised and supervised by ESMA;
2. an overview of the recent measures and tools put forward to address key implementation issues and questions raised by stakeholders; the EC is also publishing a EU Taxonomy Navigator, a guidance document on the taxonomy for non-experts; and
3. transition finance – the package provides guidance and practical examples for companies and the financial sector on utilising the tools of the EU sustainable finance framework for transition finance, aiming to facilitate transition finance for companies at different stages of sustainability performance, including SMEs.

The ESAs published reports (EBA, ESMA, EIOPA) in which they presented a common high-level understanding of greenwashing applicable to market participants. The ESAs understand greenwashing to be a practice where sustainability-related statements, declarations, etc. do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product or financial services, which may be misleading to consumers, investors or other market participants. The ESAs also highlight that misleading sustainability-related claims can be made and spread either intentionally or unintentionally and in relation to entities and products that are either under or outside the remit of the EU regulatory framework.

The ESMA published final reports on guidelines on the summary of resolution plans and guidelines on templates for written arrangements for resolution colleges under the resolution regime for central counterparties (CCPs) under the CCPRRR, which complement the Commission Delegated Regulations on resolution plans and resolution colleges. The guidelines on templates for summary resolution plans provide guidance to resolution authorities on the information that should be included in the summary, which will be shared with the CCP, whereas the guidelines on templates for written arrangements for resolution colleges will assist National Competent Authorities (NCAs) in establishing and reviewing resolution colleges, ensuring a smooth process.

Negotiators from the Council presidency and the EP have reached a provisional agreement on the implementation of Basel III reforms in the EU's banking sector, under which negotiators agreed on how to introduce a minimum exit level that limits the variability of banks' capital levels calculated using internal models on improvements in the areas of credit risk, market risk and operational risk and proportionality for small institutions. It also establishes criteria for assessing the suitability of bank management and key function holders, and safeguards supervisory independence. Furthermore, the agreement includes a transitional prudential regime for crypto-assets and changes to strengthen banks' management of environmental, social and governance (ESG) risks. Finally, the negotiators decided to harmonise the minimum requirements applicable to branches of third-country banks and the supervision of their activities in EU.

The EBA released an updated list of indicators for risk assessment and risk analysis tools, along with a methodological guide. It is aligned with the EBA reporting framework version 3.2 and includes a review of indicators related to profitability, liquidity, funding and other areas.

The EBA issued final guidelines on resolvability testing for institutions and resolution authorities, under which institutions are required to submit a resolvability self-assessment every two years, demonstrating their compliance and providing assurance of adequacy. The first self-assessment is due by the end of 2024. Authorities will then develop testing programmes based on these assessments, offering a three-year visibility period for banks. The initial multi-annual testing programme is expected to be launched by the end of 2025. Complex banks are also obliged to create a master playbook for comprehensive resolution planning, with the first playbook to be submitted by the end of 2025.

EBA released final draft of ITS for benchmarking credit risk, market risk and IFRS9 models in the 2024 exercise, with the most significant change being the roll out of the benchmarking of accounting metrics (IFRS9) to high-default portfolios (HDP). It also provides new templates for market risk – the collection of additional information, notably the Default Risk Charge (DRC) and the Residual Risk Add-On (RRAO). The EBA's benchmarking exercise monitors own funds requirements and the impact of regulatory measures.

The Council and EP have reached a provisional agreement on an EU law that aims to facilitate access to financial information for national authorities, which requires EU member states to make data from centralised bank account registers available through a single access point.

Proposals for a new directive and regulation have been introduced, covering various aspects of the provision and intermediation of investment services. They include, in particular, permissible methods of remuneration of intermediaries, product governance, rules on dealing with investors, professional standards for investment distributors, categorisation of investors, strengthening of supervisory powers or mandatory financial education of investors.

The EBA published a final report on the draft amending ITS on supervisory disclosure under the CRD, which specifies the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities. The revisions consider changes in the EU legal framework (Directive (EU) 2019/878 and Regulation (EU) 2019/876), particularly regarding supervisory reporting and investment firms, with the aim of the improving the quality and comparability of reported data, enhancing transparency and providing the market with more information.

The Council and the EP have reached a provisional political agreement on the proposal of directive concerning financial services contracts concluded at a distance, which aims to simplify existing legislation, enhance consumer protection and ensure a level playing field for financial services conducted online or through other remote methods.

There are currently three new draft acts being discussed in the Czech Chamber of Deputies, namely:

1. a Draft Act amending certain laws in connection with the development of the financial market – the draft act introduces a series of measures aimed at contributing to the development of the CZ capital market, in particular the so-called investment pension account, along with additional changes to the third pension pillar; and
2. a Draft Act on the non-performing loans market, containing regulations on the administration of non-performing loans; it sets out, among other things, the conditions for such administration, including the definition of a non-performing loan administrator and a loan trader.