FIG Top 5 at 5 - 20/04/2023

1. Fitness & Probity Updates

Central Bank of Ireland publishes Prohibition Notice issued to Mr Martin Ryan under the Fitness and Probity Regime

On 13 April 2023, the Central Bank of Ireland (the "Central Bank") published a  Prohibition Notice issued to Mr Martin Ryan, the former Chief and Signing Actuary at RSA Insurance Ireland DAC ("RSAII") and former Actuarial Manager at Euro Insurances DAC ("EID") trading as LeasePlan Insurances for breaches under the Fitness and Probity ("F&P") Regime.

The Prohibition Notice was issued after Mr Ryan signed a Statement of Undisputed Facts in December 2020, in which he accepted that:

• he facilitated a wrongful Under-Reserving Practice at RSAII for a period in excess of three years by making various actuarial adjustments which were not documented or reported;
• he failed to demonstrate proper regard for key governance procedures at RSAII;
• he signed and submitted inaccurate Statements of Actuarial Opinion to the Central Bank on behalf of RSAII for the years 2009-2012;
• he failed to comply with his whistle-blower obligations and make a report in respect of the Under-Reserving Practice at RSAII or the issues in relation to the inaccurate Statements of Actuarial Opinion;
• he made false statements during an interview as part of the RSA Insurance Group plc ("RSA Group") investigation in October 2013; and
• he made false and misleading statements and failed to disclose material information during his fitness and probity assessment at ElD.

Background

In October 2013, the Central Bank informed RSAII that it had identified delays in increasing recommended claim reserve estimates on a sample of large loss claims at RSAII. RSAII is wholly owned by RSA Group and, in 2013, RSA Group commenced an investigation into issues at RSAII which found that between 2009 and 2013, certain individuals within RSAII were manipulating claim reserve estimates.

In February 2015, the Financial Reporting Council ("FRC"), commenced an investigation into Mr. Ryan's conduct regarding his actuarial work at RSAII. As part of his settlement agreement with FRC, Mr. Ryan agreed not to undertake the performance of any Pre-Approval Controlled Function ("PCF"), or any Controlled Function ("CF"), other than a CF-2 under the supervision of an actuary performing a PCF or CF-1 role in Ireland for 3 years.

In December 2015, Mr. Ryan was engaged as Actuarial Manager for EID as an independent contractor. His services to EID included CF activities and in March 2016 ElD conducted an assessment of Mr. Ryan's F&P to perform a CF-2 role. The Central Bank found that Mr Ryan had made false and misleading statements and failed to disclose material information during this assessment. In October 2018, Mr. Ryan was notified of the Central Bank's intention to commence an investigation into his F&P. EID subsequently suspended his services pending the outcome of the Central Bank's F&P Investigation and his engagement with EID ended in April 2020.

On 18 December 2018, following investigation under the Administrative Sanctions Procedure, the Central Bank fined RSAII €3.5 million for failure to maintain technical reserves and to have sound and adequate administrative, accounting and robust governance procedures in place.

The Prohibition Notice became effective on 30 August 2022, prohibiting Mr Ryan from carrying out any CFs, including PCFs, in any regulated financial service provider for a period of 5 years.

Seána Cunningham, Director of Enforcement and Anti-Money Laundering, on the publication of the Publication of the Prohibition Notice said: "Regulated firms, and their management, have first line responsibility under the Fitness and Probity Regime, acting as a gatekeeper to the industry by ensuring people subject to the regime are fit and proper. Information provided by persons seeking to perform controlled functions during assessments of their fitness and probity must be complete and accurate.” 

Central Bank Act 1942 (Service of Notices and Other Documents) (Amendment) Regulations 2023

On 5 April 2023, Central Bank Act 1942 (Service of Notices and Other Documents) (Amendment) Regulations 2023 [S.I. No. 177 of 2023] (the "2023 Regulations") were published.

The Regulations amend the Central Bank Act 1942 (Service of Notices and Other Documents) Regulations 2013 (S.I. No 300 of 2013) to:

include Part 3 of the Central Bank (Supervision and Enforcement) Act 2013 among the enactments to which those Regulations apply; and

insert a new Regulation 4 provides that, for the purposes of Part 3 the Central Bank Reform Act 2010, and any regulations made under section 53 of that Act, the Governor and the Head of Financial Regulation may serve documents electronically. This will facilitate the service of documents electronically for the purposes of the Central Bank’s F&P regime.

The Regulations will come into operation on 20 April 2023.

2. Central Bank of Ireland and Law Society of Ireland joint event on the Individual Accountability Framework

On 17 April, 2023, the Deputy Governor of the Central Bank of Ireland ("Central Bank") Derville Rowland delivered a speech as part of an event on the Individual Accountability Framework ("IAF") hosted by the Law Society of Ireland.

The Deputy Governor began by reiterating the purpose of the IAF to promote sound governance throughout the regulated financial services sector and that the framework is very much in keeping with the key themes of the Central Bank’s strategy, namely: (i) safeguarding; (ii) future-focused; (iii) transforming; and (iv) open and engaged.  The following are some key messages delivered by the Deputy Governor during her speech (using the headings from her speech):

Background

The Deputy Governor explained that effective culture is, in the first instance, a matter for each individual firm to define, embed and own. However, as a regulator, the Central Bank will work to monitor, assess and influence culture within firms to guard against risk and drive better outcomes for consumers, investors and the system as a whole. The IAF implemented in a high quality manner, should support the Irish financial system in further fulfilling this role while ensuring further protection for consumers and investors.

Context

The Deputy Governor explained that the in its preparation for the IAF, the Central Bank has noted the evidence of the effectiveness of related regimes introduced in other jurisdictions from the perspective of both the relevant regulators and the firms to which such regimes apply. Notably, the Deputy Governor drew attendees attention to the fact that in the UK, senior managers and firms surveyed about the Senior Managers Regime have reported that it has had positive effects on behaviours and working practices.

Cost Benefit Considerations

The Deputy Governor explained that while the IAF is designed to bring substantive benefits, the Central Bank is conscious that there will also be costs associated with its introduction. Some of these will be inherent; others will depend on the manner in which the framework is implemented. Overall, she stressed that it is important that the benefits outweigh the costs.

As to the specific costs, the Deputy Governor explained the following:

• with regard to firms in scope of SEAR "there will inevitably be an increased, but necessary and proportionate, administrative burden during the implementation phase" due to the requirement to prepare Statements of Responsibilities and the Management Responsibilities Map;
• for all other firms, the cost will be regarding the requirement to notify and train individuals in respect of the Conduct Standards and to provide an annual confirmation in respect of the certification of Controlled Functions ("CFs"), which includes Pre-approval Controlled Functions ("PCFs"), to the Central Bank; and
• once the initial steps to comply with the legislation have been completed, the Central Bank expects that "the ongoing cost of compliance will be less as firms become more familiar with their obligations and fine-tune the necessary processes".

Regarding the potential impact of the IAF on the recruitment and retention of high quality individuals to important roles, the Deptuty Governor was of the view that the IAF "is well designed and balanced and therefore unlikely to produce such effects". Notwithstanding this, it is a point which the Central Bank will monitor.

The Deputy Governor reiterated the Central Bank's intention to prepare and publish a report on the operation of the new framework based on its first three years of operation. This review will consider the functioning of the framework, how the benefits and costs are being realised in practice, and whether any changes should be introduced.

SEAR

The Deputy Governor confirmed that the Central Bank will roll-out SEAR to other sectors in due course "with lessons from the initial roll-out to be incorporated as the scope is extended". A message which we saw in the Central Bank's consultation paper on the operation of the IAF ("CP153") was again emphasised by the Deputy Governor; that in the Central Bank's view "there is much in the spirit of the SEAR that firms not initially falling within scope should recognise as aligned with good quality governance".

Responsibilities

The Deputy Governor explained that as the roles to which the SEAR applies at in-scope firms align with those existing PCF roles to which the F&P Regime applies, the SEAR is not expected to alter the existing governance structures of well-run firms. Regarding the allocation of Prescribed Responsibilities, the Deputy Governor confirmed that it is not the Central Bank's intention to be overly prescriptive in terms of the allocation of Prescribed Responsibilities to specific PCF role-holders. This she explained allows for "the flexibility to allocate responsibilities in a manner that accommodates different business models and organisational structures".

Non-Executive Directors

The Deputy Governor explained that proposals to include Non-Executive Directors (including Independent Non-Executive Directors) within the scope of SEAR has already generated some debate but this is something which the Central Bank has given careful consideration to. As set out in the draft Guidance attached to CP153, it is the Central Bank's view that Non-Executive Directors' existing responsibilities under the corporate governance framework is fully consistent with those under SEAR and that SEAR should not impose increased obligations.

Duty of Responsibility / Reasonable Steps

The Deputy Governor explained that in assessing the steps that an individual took in a given situation, the Central Bank will consider the steps that individual, in that position, could reasonably have been expected to take at that point in time. This will include, for example, taking account of whether the individual is a recent appointment to the role and their overall level of experience in the context.

Interaction with the Fitness and Probity ("F&P") Regime

Again, reiterating the messaging from the draft Guidance attached to CP153, the Deputy Governor explained that "the F&P Regime and the IAF can be thought of as two aspects of one overall framework of sound governance and accountability – with the F&P Regime being about suitability of individuals and the IAF about their clear responsibilities and ongoing conduct".

The need for firms to take ownership

Central to successful implementation – and driving a permanent uplift in governance standards – is the need for firms to take real ownership of the framework. This, the Deputy Governor explains will make "all the difference".

Regarding enforcement, the Deputy Governor explained the work of the Central Bank in the context of a pyramid, "whereby, at the wide base, it most commonly uses its soft powers of education, persuasion and similar to promote compliance. Further up – and less frequently used – are its ‘hard powers’. Nearing the peak are the more punitive measures, such as administrative sanctions. These are used judiciously and sparingly, but that the Central Bank will act where warranted."

Implementation and Next Steps

Regarding the timeline for implementation, the Deputy Governor explains that the Central Bank's approach "seeks to balance the need to maintain momentum by introducing the framework while allowing appropriate time for in-scope firms to ensure its quality implementation". Of interest were the Deputy Governor's suggested next steps for firms. She noted that firms should:

• use this time to prepare to implement the new framework, so as to understand their obligations and assess their current governance structures in order to identify clearly who is responsible for what within the firm;#
• clearly define the roles and responsibilities of individuals and ensure clarity over reporting lines and any delegation of tasks;
• review current F&P processes to assess any enhancements required to meet the annual certification requirements; and
• examine internal cultures and values as compared to the IAF principles and identify areas of focus.

She also highlighted the importance education and training will play in the success of the IAF.

These steps, the Deputy Governor explains, will help firms to assess gaps and identify the key changes needed on a timely basis.

Concluding remarks

In conclusion, the Deputy Governor explained that the Central Bank's ambition is to create a thriving mature financial services industry with a globally relevant foot print. It does not want to be the regulator coming with a homework list, it wants the IAF implemented so the Central Bank can do different things with its time such as exerting influence at a European level on developing legislation and the like.

3. Central Bank of Ireland Insurance Updates

Speech by Domhnall Cullinan, Director of Insurance Supervision at the Central Bank of Ireland, at Insurance Ireland Event

On 18 April 2023, the Central Bank of Ireland ("Central Bank") published a speech by Domhnall Cullinan, Director of Insurance Supervision, at the Central Bank at an Insurance Ireland  event. In his speech he covered the potential impact of recent events in the banking sector on (re)insurers and reiterated the Central Bank's supervisory priorities for the insurance sector in 2023.

Potential impact of the recent events in the banking sector on the financial resilience of (re)insurers

Mr Cullinan noted that the fallout from SVB and Signature Bank in the US, and to the acquisition of Credit Suisse by UBS, highlights the importance of financial institutions "building and maintaining strong governance and risk management frameworks, of robust board oversight, as well as cultures which prioritise long term, stable performance over short term profits". While the exposure of Irish (re)insurance undertakings to the banking sector as a whole is significant, direct exposure to the above mentioned institutions above appears to be much more limited.

He noted that during a period of heightened market volatility, such as this, the Central Bank expects firms to:

• closely monitor market and credit risks in their investment portfolios, to ensure that these risks are not unduly concentrated within a particular counterparty, sector or region;
• adhere to the Prudent Person Principle; and
• be vigilant with regard to any exposure a firm might have through financial lines business written or assumed.

Insurance Supervision priorities for 2023

We have previously reported on the Central Bank's Insurance Supervision priorities for 2023 in the FIG Top 5 at 5 of FIG Top 5 at 5 on 23 March 2023, firms should also consider that along with the below for a comprehensive view on the priorities:

1. The implementation of the Individual Accountability Framework ("IAF")

Mr Cullinan stressed that in preparation for implementation of the IAF, firms should:

• become familiar with the inherent and prescribed responsibilities under SEAR;
• review their existing procedures; and
• arrange comprehensive training for staff to ensure all individuals are familiar with their obligations.

In particular, Mr Cullinan considered the role of the CRO in the context of the IAF highlighting that "the design of the IAF required some reflection on what the key accountabilities of a [Chief Risk Officer ("CRO")] should be. He advised that the inherent responsibility of a PCF-14 CRO is set out in the IAF guidance as “overall responsibility for managing the firm’s risk function including risk controls, setting and managing risk exposures and reporting directly to the Board on risk management matters”. However, he noted that in addition "the best CRO’s act as a trusted advisor to the Board, are capable of identifying and assessing the immediate risks facing their firm and risks arising from longer term shifts in our economy and society" and that these are "considerations that insurance supervisors must also take into account".

2. Consumer Interests, specifically Payment Protection Insurance ("PPI") and Value for Money ("VfM") in unit linked products

Mr Cullinan noted that the Central Bank's focus in 2023 will continue on the monitoring of consumer interests in relation to specific products, in particular PPI and VfM in unit linked products.  The Central Bank is also "attuned to other legislative proposals that could have profound social implications" (e.g. the introduction of pension auto-enrolment).

3. Climate Change

Mr Cullinan noted that "identifying and managing the risks arising from the consequences of climate change for the financial system is a strategic priority for the Central Bank and will remain so into the future". The Central Bank is focusing on four main areas in 2023: 

• Setting clear expectations: The Central Bank has published Guidance for (Re)insurance Undertakings on Climate Change Risk. Mr Cullinan noted that "all (re)insurers, whether large or small, should assess and manage the climate change risks they are exposed to, and consider the impact that they themselves are having on the climate through the business that they write, or their investments". He advised that the Central Bank considers that "(re)insurers have a key role to play in the transition to a more sustainable, climate neutral society".
• Focusing supervision on areas and firms with higher climate risk: The Central Bank's Insurance Supervision Directorate has developed a ‘Heat Map’ that identifies (re)insurers with greater exposure to climate change risks. Focus will be on areas where risks appear concentrated. 
• Examining how firms are undertaking processes relevant to climate change: The Central Bank will examine in particular "how natural catastrophe risks are being modelled and managed, including how modelling is being adapted and revised to take climate change risks into account".
• Flood Protection Gap: The Central Bank will consider how to better understand the flood protection gap in Ireland (building on the results of the Central Bank's 2021 Climate & Emerging Risk Survey).

4. Digitalisation & Technology

The Central Bank will adopt a "proactive and forward looking approach" to digitalisation. Mr Cullinan highlighted that (re)insurers should "clearly understand risks, opportunities and challenges presented by innovation and the rapidly evolving technological landscape within which they operate".  

He noted that the Central Bank’s focus in 2023, in particular, will be on analysis of responses to the digitalisation survey issued to a sample of Irish (re)insurers in Q4 2022. He advised that overall, the survey results indicate that

• the Irish (re)insurance sector is currently at a relatively early stage regarding the digitalisation of business models and adoption of innovative technologies, and
• that the pace of change over the next three years will be ‘moderate’ rather than ‘transformational’ in most instances.

While the Central Bank acknowledges the varying the level of digitalisation and type of innovative technologies in firms, "all firms need a clear strategy and robust oversight is fundamental as digitalisation progresses".

The analysis from the digitalisation survey will inform the Central Bank's supervisory strategy and engagements in this area.  The Central Bank will also focus on "enhancing supervisory resources, capabilities and oversight of technology and digitalisation".

5. Operational Resilience including Digital Operational Resilience Act ("DORA")

Mr Cullinan highlighted the important for firms of identifying vulnerabilities to critical business services, in line with the Central Bank’s Cross Industry Guidance on Operational Resilience. The guidelines will come into effect in December 2023. He noted that firms should now be "in the process of developing their Operational Resilience Frameworks, identifying their critical or important business services and determining the impact tolerances for those services". 

Building on this, Mr Cullinan explained that DORA entered into force in January 2023 and applies from January 2025. He summarised the high-level requirements of DORA and advised that the European Supervisory Authorities are working on the construction of the related regulatory and implementing technical standards. Mr Cullinan advised that "whilst 2025 might seem some time away", the Central Bank urges firms to "pay close attention to the Regulation and Directive, and to the more detailed Regulatory Technical Standards, as these become available".  

6. Financial Sanctions

Mr Cullinan reminded firms of the importance of compliance with the financial sanctions in place.

7. Financial Resilience

As discussed at the outset of Mr Cullinan's speech, financial resilience of (re)insurers is also a key priority for the Central Bank.

Central Bank of Ireland publishes updated General Good Rules for insurance distributors operating in Ireland on a cross-border basis

On 17 April 2023, the Central Bank published updated General Good Rules for insurance distributors operating in Ireland on a cross-border basis

The General Good Rules document sets out the general good rules in accordance with Article 11 of Directive (EU) 2016/97 (the "Insurance Distribution Directive" or "IDD"), that insurance distributors and reinsurance distributors must adhere to when operating in Ireland on a cross-border basis.

There are number of changes to the list the majority of which are as a result of requirements arising under the Consumer Insurance Contracts Act 2019. We will conduct a full analysis of the changes and update clients in due course.

4. Banking Updates

Central Bank of Ireland response to query posed by Deputy Pearse Doherty on the collapse of Silicon Valley Bank

On 13 March 2023, Deputy Pearse Doherty wrote to the Governor of the Central Bank of Ireland ("Central Bank") regarding recent developments arising out of the collapse of Silicon Valley Bank ("SVB") in the United States ("US"). On 16 April 2023, on behalf of the Governor, Vasileios Madouros, Deputy Governor of Monetary and Financial Stability at the Central Bank, responded to Deputy Doherty. A copy of this letter has been published by the Central Bank and can be found here. This letter is the first detailed commentary made by the Central Bank on this matter. For details on previous comments made, please see the FIG Top 5 at 5 dated 23 March 2023.

The following is a brief note on the Deputy Governor's response:

• The Deputy Governor outlines the steps which the Central Bank has been taking to evaluate the impact of recent global banking developments. He confirms that the Irish financial sector, including Irish retail banks, have minimal direct exposure to SVB as well as to a number of key regional US banks.
• The Deputy Governor explains that identifying the impact of these developments on the broader Irish economy is more difficult, given that SVB was not regulated by the Central Bank. Relying on other bodies, including the IDA Ireland, Enterprise Ireland, the Department of Enterprise, Trade & Employment, and the NTMA the "intelligence suggests that a limited number of Irish Information & Communications Technology and Life Science companies had deposits with SVB or relied on credit provision by SVB".
• Commenting on the factors contributing to SVB's failure, the Deputy Governor notes that while a full review by the US Federal Reserve Board is ongoing, it seems clear that SVB had a "unique mix of acute underlying vulnerabilities" including:
  • a very high concentration in terms of its lending and deposit-taking activities to a single sector;
  • more than 80% of its deposit base consisted of uninsured corporate deposits, which tend to be more volatile than other deposit types; and
  • most of the bank’s assets consisted of long-term US fixed income securities, which – when not appropriately hedged – left the institution vulnerable to losses as interest rates rose.
• He explained that this mix of vulnerabilities is not evident in the Irish retail banking sector or euro area significant banks.
• The Deputy Governor then went on to address the factors which distinguish the Irish retail banks from what happened to SVB including that:
  • the deposit base of Irish retail banks is much more diversified and insured deposits comprise a much higher proportion of their funding;
  • Irish retail banks also have large liquidity buffers, a greater proportion of which is held in central bank reserves, which is the most resiliently liquid asset and does not expose banks to mark-to-market losses if that liquidity needs to be used; and
  • fixed income securities also represent a much smaller proportion of the assets of the retail banking system and interest rate risk on these exposures is actively hedged.
• The Deputy Governor also stressed that "there are also important differences in terms of the overall regulatory framework between the European Union and the United States".
  • Firstly, the European Union ("EU") banks – regardless of their nature, size and complexity – are typically subject to the same prudential framework, including the implementation of Basel III standards for bank capital and liquidity. By contrast, in the US, there is a differential application of the prudential framework depending on banks’ size. In practice, this meant that SVB was not subject to the full Basel III standards for bank capital and liquidity.
  • Secondly, from a supervisory perspective, the Single Supervisory Mechanism ("SSM"), has been well aware of banks’ exposure to interest rate risk. In the first half of 2021, the SSM intensified its assessment of interest rate risk and credit spread risk as part of its supervisory priorities at a euro-area wide level (including for the largest Irish banks).
• The Deputy Governor referenced the various regulatory initiatives which have been put in place at a European level to "strengthen the identification and mitigation of risks and vulnerabilities in the financial system" and concludes that the Irish and euro area banking sectors are less exposed to the risks that SVB was confronted with. Notwithstanding this, he confirmed that the Central Bank is focused on identifying and evaluating any emerging risks and will continue to manage any such risks.

European Commission proposes reform of bank crisis management and deposit insurance framework

On 18 April the European Commission ("Commission") adopted a proposal to amend the European Union's ("EU") current bank crisis management and deposit insurance framework (with a focus on medium-sized and smaller banks). While the Commission's press release acknowledges that the EU's banking sector has become much more resilient in recent years through various legislative initiatives, it also notes that "experience has shown that many failing medium-sized and smaller banks have been managed with solutions outside the resolution framework. This sometimes involved using taxpayers' money instead of the bank's required internal resources or private, industry-funded safety nets (deposit guarantee schemes and resolution funds)".

The proposal being put forward by the Commission is intended to enable supervisory authorities to organise the orderly market exit for a failing bank of any size and business model, with a broad range of tools. At a high level the proposal aims to:

• preserve financial stability and protect taxpayers' money;
• shield the real economy from the impact of bank failure; and
• provide better protection for depositors.

This will be brought about through:

• a directive amending the Bank Recovery and Resolution Directive (2014/59/EU) ("BRRD") addressing early intervention measures, the widening of the application of the public interest assessment when it comes to meeting the conditions for resolution, the use of national Deposit Guarantee Scheme ("DGS") funds in the financing of crisis management tools, the removal of the super-preference of DGSs and the creation of a single-tier ranking for all deposits.
• a regulation amending the Single Resolution Mechanism Regulation (806/2014/EU) addressing similar reforms to those proposed to BRRD in the context of the public interest assessment and the use of DGSs in resolution.
• a Directive amending the Deposit Guarantee Schemes Directive (2014/49/EU) in respect of the scope of deposit protection, use of deposit guarantee schemes funds, cross-border co-operation, and transparency.

Additionally, the Commission has called for a renewed effort by the European Parliament and the Council of the EU to reach a political agreement on European Deposit Insurance Framework.

Speaking on the publication of the proposals, Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union said that the "reform will improve our capacity to ensure that any bank can exit the market smoothly, irrespective of its size or business model, putting to use the tools created for this purpose. This is the most efficient way to handle bank failures for our economy, taxpayers and, ultimately, financial stability. Depositors will also benefit as they would be more likely to retain uninterrupted access to their accounts."

Next steps

The proposals will now be discussed by the European Parliament and Council of the EU. The Commission has asked for agreement on the proposals before the next elections of the European Parliament in 2024.

Included in the Commission's press release are links to some additional useful resources including a factsheet on the proposal, a question and answer page on why the reform is needed and the legislative texts.

5. European Parliament updates on AML and Crypto-assets

European Parliament's ECON and LIBE reports on proposed AML Regulation, MLD6 and AMLA

As reported in our FIG Top 5 at 5 update on 6 April 2023, on 28 March 2023, the European Parliament's (the "Parliament") Economic and Monetary Affairs ("ECON") and Civil Liberties, Justice and Home Affairs ("LIBE") committees adopted their position on three pieces of draft legislation the European Commission’s (the "Commission") Action Plan for a Comprehensive Union Policy on anti-money laundering and countering the financing of terrorism ("AML/CFT").

On 12 & 14 April 2023, the Parliament published the text of the reports:

• Report on the proposed regulation establishing the European Anti-Money Laundering Authority ("AMLA") (dated 5 April 2023);
• Report on the proposed Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the "AML Regulation" ).
• Report on the proposed Directive on the mechanisms to be put in place by the member states for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing Directive (EU) 2015/849 (the "Sixth Money Laundering Directive").

On 17 April 2023, the Parliament approved during a plenary session its negotiating mandates for the proposals.

Next steps

The Parliament is now ready to start negotiations with the Council of the EU (the "Council") on the AML/CFT package as the Council agreed its own negotiating position in December 2022. The first meeting to start negotiations with the representatives of EU ministers will take place at the beginning of May 2023.

European Parliament adopts proposals on the proposed Markets in Crypto-Assets Regulation and the Transfer of Funds Regulation

On 20 April 2023, the Parliament voted to adopt the following proposals:

• the proposed Regulation on Markets in Crypto-assets ("MICA"). MICA will provide legal clarity and certainty for crypto-asset issuers and providers. The new rules will allow operators authorised in one Member State to provide their services across the EU. Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer. Issuers of significant asset-backed crypto-assets (so-called global ‘stablecoins’) will be subject to more stringent requirements.
• the proposed  Regulation on transfer of funds and certain crypto-assets  (the "Transfer of Funds Regulation"). The Transfer of Funds Regulation intends to repeal and recast Regulation 2015/847 (the “Wire Transfer Regulation”) which currently imposes data collection and transmission requirements on payment service providers with respect to wire transfers to include transactions involving crypto-assets for the first time.

Speaking at the commencement of the debate on the proposals on 19 April 2023, Commissioner Mairead McGuinness highlighted that the new rules are "absolutely vital for the financial system" and while the crypto-asset market "may be too small to trigger systemic risks, we do know there are increasing links between crypto markets and traditional financial services".

She further noted that the EU is "putting safeguards in place that would prevent companies active on the EU market from engaging in some of the practices that led certain crypto-asset operators to collapse in recent months".

Next Steps

The proposals will now go to the Council for final approval prior to publication in the Official Journal of the EU. Commissioner McGuinness noted that it is hoped that publication will occur by the end of June and the proposals will enter into force in July 2023.

She highlighted that the new rules "will apply progressively" to give "stakeholders time to adapt to them" and to give "time to adopt the secondary legislation for the implementation of the rules".

The MiCA provisions on stablecoins will start to apply in July 2024 and the provisions on issuers of other crypto-assets and crypto-asset service providers will start to apply in January 2025, together with the Transfer of Funds rules.