AML
New EU framework almost finalised
The European Parliament formally adopted the Regulation on the new EU Anti-Money Laundering Authority (AMLA), the 'Single Rulebook' AML Regulation, and the related Directive in its 22-25 April 2024 plenary session. The next step is formal endorsement by the EU Council (likely to take place on 15 May 2024), following which the Regulations and the Directive will be published in the Official Journal.
The adopted texts are here: Directive, Single Rulebook AML Regulation, and AMLA Regulation.
On timing:
- The AMLA Regulation will apply from 1 July 2025, save for the mandates to develop related technical standards, guidelines and recommendations, and the provisions relating to the establishment of AMLA's organisational structure, which will apply straight away.
- The Single Rulebook AML Regulation (where most of the new AML / CFT framework will be housed to ensure a harmonised approach across all EU Member States) will apply 36 months + 20 days after publication in the Official Journal (save in respect of football agents and football clubs, in respect of which it will apply 60 months + 20 days after publication).
- Most provisions of the Directive will require transposition by EU Member States 36 months + 20 days after publication in the Official Journal (at which stage the Fourth Money Laundering Directive as amended by the Fifth Money Laundering Directive will be repealed).
The European Commission has issued a related press release, together with FAQ on the framework generally, and FAQ on AMLA.
FATF Consultation on Wire Transfers Recommendation
FATF's consultation on changes to its Recommendation 16: Wire transfers and the related interpretive note and glossary of specific terms, to adapt them to developments in payment business models and messaging standards, closes on 3 May 2024.
Key consultation questions covered matters such as additional transparency requirements on the exemption for buying goods and services using cards; removing the withdrawal or purchase of cash or a cash equivalent from the Recommendation 16 exemption; improving the content and quality of basic originator and beneficiary information in payment messages; requirements for beneficiary financial institutions to check alignment of beneficiary information in payment messages; and the definition of payment chain and conditions for net settlement.
FATF's overarching objective with this consultation is to ensure that Recommendation 16 (which is expected to be re-named as Recommendation 16: Payment transparency) is updated to ensure that the FATF Standards remain technology-neutral and follow the principle of 'same activity, same risk, same rules.'
BANKS
Bail-In
The Single Resolution Board's consultation on the minimum bail-in data template (MBDT) closes on 8 May 2024. In August 2020, the SRB published a list of bail-in data points (the bail-in data set) which requires institutions to perform self-assessments to ensure they have adequate management information systems to identify and produce the data points needed for the operationalisation of the bail-in tool. The SRB then updated the list in 2022.
Banks are expected to perform dry runs on bail-in to show they can provide the bail-in data set within 24 hours. However, the SRB concluded that the data model needed to be standardised further, factoring in national specificities, to improve the data provision process. In light of that, as set out in the consultation, the SRB is looking at introducing the MBDT, which implements the bail-in data set from the technical side. The MBDT will replace the SRB bail-in data set instructions (including the related SRB bail-in data explanatory note), providing enhanced definitions and a template, as well as related guidance to ensure structured and standardised data collection across banks.
CRD IV Regulatory Technical Standards
Commission Delegated Regulation (EU) 2024/857 supplementing the CRD IV Directive with regulatory technical standards (RTS) specifying a standardised methodology and a simplified standardised methodology to evaluate the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of an institution's non-trading book activities enters into force on 14 May 2024.
Commission Delegated Regulation (EU) 2024/856 supplementing the CRD IV Directive with RTS specifying the supervisory shock scenarios, the common modelling and parametric assumptions and what constitutes a large decline also enters into force on 14 May 2024.
Daisy Chains Directive
The 'Daisy Chains' Directive was published in the Official Journal in April 2024 as Directive (EU) 2024/1174 following political agreement between the EU Council and European Parliament in December 2023.
Introduced as a stand-alone limb of the European Commission's CMDI (crisis management and deposit insurance) package on 18 April 2023, the Daisy Chains Directive was fast-tracked through the legislative process and addresses issues specific to the treatment of internal MREL (minimum requirement for own funds and eligible liabilities) in bank resolution groups. It amends the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRM Regulation).
For background on the Directive, read our insights here: Daisy Chains Proposal: political agreement reached.
EU Member States must transpose the changes to the BRRD by 13 November 2024, and apply those changes from 14 November 2024. The changes to the SRM Regulation will be directly effective: the changes giving resolution authorities the power to set internal MREL on a consolidated basis will apply from 13 May 2024, and the changes in respect of liquidation entities will apply from 14 November 2024.
Banks – EU Banking Package – More Deliverables
The European Banking Authority's consultation on draft RTS on the conditions for determining whether an instrument attracting residual risk acts as a hedge closes on 3 May 2024. The RTS are part of the Phase 1 deliverables under the EBA roadmap on the implementation of the EU banking package in the area of market risk.
CRR3 will make changes in the area of operational risk - a revised framework will be introduced and all previous approaches to calculating regulatory capital will be replaced by the business indicator component (BIC). The BIC is based on the business indicator (BI), which measures an institution's volume of business. The EBA's consultation on three key related mandates closes on 21 May 2024:
- Draft RTS to further specify the components of the BI by developing a list of items and the elements to be excluded from the BI.
- Draft implementing technical standards (ITS) to provide the mapping of the items of the BI to the corresponding reporting cells in Commission Implementing Regulation (EU) 2021/451 (FINREP).
- Draft RTS specifying "how institutions shall determine the adjustments to the business indicator", "the conditions according to which competent authorities may grant the permission" and "the timing of the adjustments."
Interest Rate Risk
Commission Implementing Regulation (EU) 2024/855 comes into force on 14 May 2024, but will not apply until 1 September 2024. It contains ITS on supervisory reporting with regard to interest rate risk in the banking book (IRRBB) reporting requirements. The ITS amend the ITS set out in Commission Implementing Regulation (EU) 2021/451 to provide supervisors with the appropriate data to monitor the IRRBB risks, such as changes in policy rates and the identification of outliers.
DERIVATIVES AND MARGIN: VARIATION MARGIN IN CENTRALLY CLEARED MARKETS
The deadline for providing feedback on the joint report from IOSCO and the CPMI on examples of effective practices for streamlining variation margin (VM) in centrally cleared markets was extended from 14 April 2024 to 14 May 2024.
The report gives 8 examples of effective practices for central counterparties and their clearing members regarding VM processes and transparency. The practices cover areas such as scheduled and ad hoc intraday VM calls, the use of excess collateral held at CCPs to meet VM requirements, the pass-through of variation margin by CCPs, and CCP-clearing member and clearing member-client transparency regarding VM processes.
FINANCIAL SANCTIONS
Directive (EU) 2024/1226 on the definition of criminal offences and penalties for the violation of EU restrictive measures and amending Directive (EU) 2018/1673 was published in the Official Journal on 29 April 2024. It comes into force on 19 May 2024, and must be transposed by EU Member States by 20 May 2025.
It requires EU Member States to ensure that violating EU sanctions is punishable by effective and proportionate criminal penalties, which vary depending on the offence. Article 3(1) lists the various types of conduct that will constitute a criminal offence for the purposes of the Directive.
NON-BANKS-MACROPRUDENTIAL POLICIES
The European Commission plans to run a targeted consultation on macroprudential policies for non-bank financial intermediaries (e.g. entities such as asset management companies, investment funds, non-bank investment firms, insurance companies, and other non-bank entities) – launch of the consultation is planned for May 2024. The aim will be to collect further insights into the business models of key NBFIs and the interconnectedness among them and between banks and NBFIs, and to identify gaps in the macroprudential framework and other factors that may contribute to the build-up of systemic risks in non-bank financial intermediation.
OPERATIONAL RESILIENCE / DORA
The consultation by the Joint Committee of the European Supervisory Authorities (ESAs) is on RTS on the harmonisation of conditions enabling the conduct of the oversight activities under the regulation on digital operational resilience for the financial sector (DORA) closes on 18 May 2024.
Under DORA, the lead overseer for each critical ICT third-party service provider (CTTP) will be assisted by a joint examination team (JET) composed of staff members from the ESAs and relevant national competent authorities (NCAs). The ESAs are required to produce RTS specifying the criteria for determining the composition of the JET as well as the designation, tasks and working arrangements for JET members. The proposed RTS contain provisions relating to, among other matters, the tasks of the members of the JET; the establishment of the JET; working arrangements of JET members; and arrangements between the lead overseer and the nominating authorities.
The ESAs hope to submit the RTS to the European Commission for adoption by 17 July 2024. They envisage the RTS applying from 17 January 2025.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.