FIG Top 5 at 5 - 13/04/2023

1. Partial Commencement of the Central Bank (Individual Accountability Framework) Act 2023

On 11 April 2023, the Central Bank (Individual Accountability Framework) Act 2023 (Commencement of Certain Provisions) Order 2023 (the "Commencement Order") partially commencing the Central Bank (Individual Accountability Framework) Act 2023 (the "Act") was published in Iris Oifigiúil .

The Commencement Order notes that Parts 1, 3 (other than section 10), 4, 5, 6 and 7 of the Act will commence from 19 April 2023.

As outlined in the Top 5 at 5 update from 2 March 2023, sections 3 – 6 and 10 of the Act, which deal with the Senior Executive Accountability Regime ("SEAR"), the conduct standards and the certification process will be commenced following completion of the Central Bank of Ireland's public consultation on the draft regulations and supporting draft guidance on the operation of the Individual Accountability Framework ("IAF") as contained in the Act.

2. General Scheme of the Financial Services and Pensions Ombudsman (Amendment) Bill published

On 9 April 2023, the General Scheme of the Financial Services and Pensions Ombudsman (Amendment) Bill ("Bill") was published.

The Bill, among other things, will:

introduce legislative amendments to ensure the Financial Services and Pensions Ombudsman ("FSPO") continues to discharge its statutory functions in line with the Constitution; and

safeguard consumer protections and access to the FSPO for customers of financial service providers who have left the Irish market.

Zalewski Case

The amendments regarding the FSPO's statutory functions, follow from the Supreme Court decision in Zalewski v. Adjudication Officer and the Workplace Relations Commission Ireland ("WRC"), and the Attorney General ("Zalewski case") in which the Supreme Court held that the exercise of powers by WRC Adjudication Officers pursuant to Part 4 of the Workplace Relations Act, 2015 (As amended) was the administration of justice under Article 34 of the Constitution.

Heads of Bill in detail

• Heads 1 & 2 are standard provisions.
• Head 3 provides for an amendment to the definition of “financial service provider” in the Financial Services and Pensions Ombudsman Act 2017 ("2017 Act") to clarify that the FSPO has the statutory power to investigate complaints against a financial service provider, which was regulated at the time of the conduct complained of, even if said provider has lost its regulated status before the complaint was made to the FSPO, or before the FSPO's investigation of the complaint has been concluded.
• Head 4 provides for an amendment to the 2017 Act to clarify the methodology for the division between the FSPO’s sources of funding.
• Head 5 relates to the Jurisdiction of the FSPO and provides for amendments to clarify any potential overlap in jurisdiction between the FSPO and the Credit Reviewer.
• Head 6 refers to the powers of the FSPO in relation to the investigation of complaints and amends the 2017 Act to include an express provision specifically providing for the cross-examination of witnesses on oath.
• Head 7 also relates to the Jurisdiction of the FSPO. The purpose of this Head is to correct a cross-referencing issue.
• Head 8 relates to the conduct of investigation to provide that the FSPO is required to take a decision whether to hold oral hearings, as provided for in Section 12(1)(c) of the 2017 Act and as conducted under Section 47(3), in public or private. This decision is to be taken after consultation of the parties concerned and consideration of the nature or circumstances of the complaint or otherwise in the interest of justice.
• Head 9 concerns mediation. Mediation as required under Section 12(2) of the 2017 Act and conducted under Section 58 of the 2017 Act does not constitute the administration of the justice. The purpose of this head is to ensure that mediation shall always be conducted in private. This is considered to be of critical comfort to complainants, who otherwise may be disinclined to submit complaints to the FSPO.
• Head 10 relates to obstruction of the work of the FSPO and amends the 2017 Act to provide that a person giving false evidence on oath, whether wilfully or corruptly, will be committing an offence and that they will be subject to a Class A fine or imprisonment of up to 3 months, or both, if convicted.
• Head 11 concerns two amendments to section 62 of the 2017 Act. The first is to fix a typographical error and the second is a consequential amendment related to Head 8 to allow for discretion to name the parties concerned where an oral hearing has been conducted in public.

Minister's Comments

Speaking on publication of the General Scheme the Minister for Finance, Michael McGrath said: " It is critical that consumer protections are afforded to all customers in a consistent manner and that those protections are safeguarded for when a provider leaves the market. The Bill, once enacted, will ensure that the Financial Services and Pensions Ombudsman can continue its important work of helping consumers and small businesses resolve complaints against financial service providers and pension providers. This is important given recent exits from the Irish market. These targeted amendments will better equip the FSPO to withstand any potential challenge to its operations and the improved legal clarity will reinforce the statutory basis of the FSPO, a key element of the consumer protection framework in Ireland.”

Next Steps

The Department of Finance's press release notes that the General Scheme of the Bill will now be referred to the Office of the Attorney General for drafting of the Bill.

The text of the Bill will be finalised with the Office of the Parliamentary Counsel and it is intended to progress the legislation through the Houses of the Oireachtas in the coming months.

3. Speech by Governor of the Central Bank of Ireland, Gabriel Makhlouf, at Markets News International Event "Staying the course: monetary policy to avoid persistent inflation"

On 4 April 2023, Governor of the Central Bank of Ireland ("Central Bank"), and member of the Governing Council of the European Central Bank ("ECB"), Gabriel Makhlouf, gave a speech at a Markets News International Event entitled "Staying the course: monetary policy to avoid persistent inflation".

In his speech he noted that the latest data suggests that the direct effects of the supply shocks over the last two years are gradually fading. However, indirect effects are "still working their way through the economy". He notes that monetary policy "must ensure that this does not become a source of persistent inflation" above the 2% target.

The Governor's speech addressed two main topics as follows:

The path of headline and core inflation

• The sharp increase in headline inflation throughout 2022 stems from both supply and demand factors (supply - pandemic bottlenecks and the war in Ukraine) (demand - high consumer demand post pandemic at a time when supply was already constrained).
• The recent decline in energy prices and the easing of supply bottlenecks will help ease some of the inflationary pressures. However, this will be impacted by domestic demand factors.
• Underlying the ECB staff March macroeconomic projections is an assumption that above average nominal wage growth will play a central role in inflation dynamics through to end-2025. However, some of this wage growth is expected to be absorbed into profit margins as the conditions that allowed firms to increase margins during 2022 fade.
• While headline inflation has been falling (10.6% in October 2022 to 6.9% in March 2023), underlying inflation has continued to increase (5.0 in October 2022 to 5.7% in March 2023).
• The recent divergence between headline and underlying inflation reflects the delayed pass through of supply-related input cost shocks into core prices and an increasing role for more domestically-driven inflation drivers, such as wages and profits. Therefore, a prolonged period of higher wage demands and/or increasing profit margins could drive the persistence of underlying inflation in the euro area.
• Measures of underlying inflation tracked by the ECB and the Central Bank are either trending higher or remain elevated, with the broader range of measures currently between 4% and 8%.
• While momentum in energy prices has declined sharply in the past two months, momentum of price growth in the food, goods and services remain elevated.
• Absent future shocks to energy and commodity prices, the outlook for inflation over the medium term will be closely linked to developments in underlying inflation.

Economic outlook and transmission of monetary policy

• Given the high uncertainty around the outlook for the economy, the ECB will be especially focused on incoming data as part of making its monetary policy decisions.
• The euro area economy slowed in the fourth quarter of 2022. However, the ECB staff March macroeconomic projections envisage a recovery in the next few quarters.
• Rising nominal wages and falling energy prices will partly offset the loss of purchasing power. The ECB staff’s current projections indicate wages will return to 2022 levels in real terms by end-2025. For wage developments, much will depend on ongoing levels of labour market tightness.
• There is potential for profit margins to absorb some of this near-term higher wage growth. As labour costs have not risen to the same extent as profits in most sectors. The Governor will be closely monitoring developments in profits and labour costs as a key driver of domestic price pressures.
• The ECB staff's March projections include a slowing of growth in wages and profit margins over the next three years. If this turns out not to be the case, it would call for a stronger monetary policy response to mitigate against the risk of even more persistent inflation.
• So far, there has been no indication that expectations have become de-anchored from the ECB's inflation target. This is true for both survey and market-based measures of longer-term inflation expectations.
• The pass-through of monetary policy into financial conditions is well underway (interest rates on loans and the composite cost for borrowing have increased and lending rates have declined).

The Governor noted that we must "remain alert to the longer lags in the transmission of monetary policy to growth and inflation" and highlights the importance of assessing how "monetary policy decisions to date are working through the economy when calibrating further decisions".

Conclusion

In conclusion the Governor highlighted that the ECB staff’s March macroeconomic projections see headline inflation at 2.1% and core inflation at 2.2% in 2025 which shows that monetary policy tightening is taking effect, however he stresses that the importance of remaining "steadfast, and ready to act as required".

He advised that he is closely monitoring the recent financial market volatility, however, he is "confident that the banking sector is more resilient to a wide range of potential adverse shocks". The Governing Council will be "mindful of developments in the banking sector, and financial stability more broadly", as it continues to assess its monetary policy stance.

4. Department of Finance - Public Consultation on the future of the Bank Levy

On 6 April 2023, the Minister for Finance Michael McGrath, ("Minister") launched a public consultation on the future of the further levy on certain financial institutions (“Bank Levy”).

The Bank Levy was first introduced in 2014 to allow for the banking sector to contribute to Ireland's economic recovery. The Bank Levy was originally designed to run for three years, from 2014 to 2016 but has subsequently been extended a number of times, and is now due to apply up to and including the year 2023. There is no provision currently in place for it to be charged in 2024 and beyond.

In 2022, the Department of Finance ("Department") conducted a Retail Banking Review ("Review") which considered the Bank Levy. The Review suggested that the Bank Levy could be reformed to level the playing field for traditional domestic banks by broadening the scope of the firms it applies to. The Review acknowledged that, a reformulated levy could act as a disincentive to would-be new entrants to providing retail banking products and services in Ireland or for credit institutions to offer savings products to consumers.

The Department is now considering this further and is seeking views to inform its analysis on the future of the Bank Levy and whether it should be extended, reformulated, broadened or abolished.

In responding to this consultation the Department requests respondents to give views on

• the impact of the Levy as it has applied since 2014;
• whether it or an alternative levy model should continue beyond 2023; and
• if so, in what form and for how long.

The specific questions the Department is requesting responses to are set out in part 6 of the document and include:

1. Should the Bank Levy be allowed to expire, phased out, or further extended?
2. What impact has the Bank Levy had on the Irish retail financial services marketplace?
3. What form should the levy take from 2024 onwards?
4. Should Ireland adopt a levy based on a measure of assets or liabilities?
5. Should the Bank Levy be extended to other types of deposit taking financial institutions?
6. What should be the annual revenue target from 2024 onwards?
7. If Ireland were to continue to apply a levy beyond 2023, for how many years should it apply or should it be a permanent feature for credit institutions doing business in Ireland?

The consultation is open for feedback until 5 May 2023 . The Department's preferred means of response is by email to: BankLevyConsult2023@finance.gov.ie

5. European Commission adopts Implementing Regulation amending ITS on SFCR under Solvency II

On 4 April 2023, the European Commission (the "Commission") adopted an Implementing Regulation, laying down implementing technical standards ("ITS") for the application of Directive 2009/138/EC ("Solvency II") with regard to the procedures, formats and templates for the disclosure by insurance and reinsurance undertakings of their report on their solvency and financial condition ("SFCR") and repeals Implementing Regulation (EU) 2015/2452 (the "Implementing Regulation").

Implementing Regulation (EU) 2015/2452 lays down the ITS on the procedures, formats and templates for the disclosure by insurers and reinsurers of their SFCR under Solvency II.

The Implementing Regulation notes that it is necessary to substantially revise the disclosure templates laid down in Implementing Regulation (EU) 2015/2452 to "ensure that the disclosure requirements remain relevant and provide high quality information to policyholders and other stakeholders". Given the extent of the changes involved, Implementing Regulation (EU) 2015/2452 will be repealed.

EIOPA submitted the draft amendments to the Solvency II Technical Standards on Reporting and Disclosure to the Commission on 31 March 2022 following a public consultation on these amendments in 2021. The draft amendments submitted to the Commission took into account feedback received to the public consultation in particular the extension of the timeline for implementation.

The Implementing regulation notes that insurance undertakings should be given sufficient time to implement the updated disclosure requirements and, therefore, the application of the Implementing Regulation has been deferred to 31 December 2023.

Next Steps

The Implementing Regulation will enter into force 20 days after its publication in the Official Journal of the EU and, as noted above, will apply from 31 December 2023.