Documente Academic
Documente Profesional
Documente Cultură
25 April 2012
Dear Minister In accordance with Section 32L of the Central Bank Act 1942 (as amended), the Bank is required to prepare an Annual Performance Statement on its financial regulatory activities undertaken during 2011 and planned for 2012. This document must be presented to you within four months after the end of each financial year. We have the honour to enclose herewith the Annual Performance Statement for 2011-2012.
Yours faithfully
Contents
Executive Summary Main Issues Addressed in 2011 and Plans for 2012 Regulatory Performance Review 2011 Introduction Financial Institutions Supervision Markets Supervision Consumer Protection Enforcement and Regulatory Actions Policy and Risk Internal Audit Organisational Changes Appendix 1 Progress Report on Strategic Plan 2010-2012 Regulatory Performance Plan 2012 Introduction Financial Institutions Supervision Markets Supervision Consumer Protection Enforcement and Regulatory Actions Policy and Risk Appendix 2 Regulatory Performance Plan 2012
3 6 8 17 23 31 36 41 42 46 60 61 65 66 68 69 72
Executive Summary
Executive Summary - Main Issues Addressed in 2011 and Plans for 2012
During 2011, the Bank carried out a challenging programme of work that marked further progress in meeting the targets for the stabilisation and restructuring of the banking sector under the EU IMF Financial Assistance Programme. In March 2011, the Bank published its Financial Measures Programme (FMP) which provided a comprehensive and thorough assessment of the capital and liquidity conditions and needs of domestic banks. The Banks methodologies and calculations were subject to extensive external validation. As a result, the total capital requirements of AIB, Bank of Ireland, EBS and Irish Life & Permanent were revised upwards by 24bn as set out in Table 1 below. Table 1 Prudential Capital Requirements Imposed in 2010 and 2011
Bank 2010 PCAR 7.40bn 2.66bn 145m 875m 2.60bn 8.30bn 21.980bn 3.00bn NAMA Uplift 3.00bn Total for 2010 10.4bn 2.66bn 145m 875m 2.60bn 8.30bn 24.98bn March 2011 13.3bn 5.2bn 4.0bn 1.5bn 24.00bn Total 2010 and 2011 23.7bn 7.86bn 4.145bn 2.375bn 2.60bn 8.30bn 48.98bn
AIB Bank of Ireland Irish Life & Permanent EBS Irish Nationwide Anglo Irish Bank Total
Restructuring of the banking sector included the merging of AIB and EBS to create one of two Pillar banks the other being Bank of Ireland. Deposits and matching assets were transferred from Anglo Irish Bank to AIB and from Irish Nationwide Building Society to Irish Life & Permanent. During 2011, the Pillar Banks and Irish Life & Permanent began the process of reducing their balance sheets through both asset disposal and sale of non-core assets. The Financial Measures Programme 2012 will comprise a further comprehensive analysis of the Irish banks assets and liabilities supported by an extensive data collection process. The development of the Banks data analysis capability for transaction level data and the development of loan loss forecasting models is planned. The roll-out of the PRISM (Probability Risk and Impact SysteM) supervisory framework substantially enhances the Banks supervisory approach with a system that is unified and a more systematic risk-based framework making it easier for banking and insurance supervisors to challenge the financial firms they regulate, judge risks and take early action to mitigate those risks. The system is calibrated to allocate and focus resources on areas of greatest risk and will be subject to continual review and refinement to maintain supervisory sharpness. PRISM will be fully rolled out for all financial institutions in 2012. At EU level, the Bank is a member of each of the European Supervisory Authorities which cover banking, insurance/occupational pensions and securities/markets - the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities & Markets Authority (ESMA). During 2011, the Bank increased and deepened its participation in key committees and working groups and the Deputy Governor (Financial Regulation) was elected to the Management Board of EIOPA and has also been appointed as Alternate Chair of the EBA. 3
Executive Summary
The Solvency II Directive will provide for a new regulatory framework for the insurance sector. During the year, the Bank continued its work on preparing for the Directives implementation. There was ongoing engagement with industry and work continued with the Department of Finance providing input to the Omnibus II Directive which will align Solvency II with the new European financial regulatory framework. In 2012, implementation dates for the Directives are expected to be clarified. As part of its strategy on Consumer Protection, addressing mortgage arrears was a key focus of the Banks work in 2011. The revised Consumer Code on Mortgage Arrears (CCMA) came into effect on 1 January 2011 and set out the Mortgage Arrears Resolution Process (MARP) framework which lenders must adopt when dealing with people experiencing difficulties with their mortgage arrears. During the year, the Bank engaged with financial institutions in the development of Mortgage Arrears Resolution Strategies (MARS). These strategies should ensure that all mortgage lenders have a robust framework in place to deliver appropriate solutions to consumers in mortgage arrears and pre-arrears. The process is designed to be sustainable from the institutions perspectives in terms of cost and capital, but would treat consumers fairly and in accordance with the CCMA. The Bank will be working closely with all mortgage lenders throughout 2012 to ensure the effective management of the mortgage arrears problem. During 2011, work was completed on an enhanced consumer protection compliance framework and the following Codes were published: The revised Consumer Protection Code (the Code) (effective 1 January 2012); The Minimum Competency Code 2011 (effective 1 December 2011); The revised Code of Conduct on Mortgage Arrears (CCMA) (effective 1 January 2011); and The revised Code of Conduct for Business Lending to Small and Medium Enterprises (effective 1 January 2012). The collective aim of the Codes is the strengthening of protections for consumers of financial institutions. Significant work was carried out on Fitness and Probity standards during 2011. The Bank undertook a fitness and probity review of directors of the Covered Institutions. No non-executive directors who were in place prior to the State Guarantee remained on the banks boards beyond 1 January 2012. On 1 September 2011, the Bank published its Fitness and Probity Standards (Code issued under Section 50 of the Central Bank Reform Act 2010) together with Draft Guidance on Fitness and Probity Standards. The Act gives the Bank wideranging powers across the financial services industry to, for example, approve or veto appointments to certain positions. The standards came into effect on 1 December 2011 on a phased basis and will be fully in place by December 2012. In July 2011, the Central Bank (Supervision and Enforcement) Bill 2011 was published and commenced Second Stage in the Dil during October 2011. The Bills purpose is to strengthen and expand the powers of the Bank and allow the Bank conduct its role in a more effective manner, learning from the lessons of the financial crisis. The Bill, inter alia, enhances and consolidates the Banks powers with respect to appointment of authorised officers, introduces a new regime for requiring skilled persons reports to be produced, gives a cross-sectoral power for issuing binding directions, enhances the Banks framework for cooperating with overseas supervisors and allows the Bank to impose new penalties. The credit union sector continued to face significant challenges in 2011. The Banks regulatory strategy for the sector in founded on the belief that credit unions should remain an important part of the financial landscape in Ireland. Underpinning this strategy are three objectives: Resolve weak and non-viable credit unions to protect members savings and maintain the financial stability of the sector; Develop and implement an appropriate legislative and regulatory framework to protect the financial stability of individual credit unions and allow the sector to develop; and 4
Executive Summary
Bring about longer term restructuring of the sector to ensure its long-term sustainability. Work was progressed on all these objectives in 2011 and substantial progress was made on the first two. PRISM will be introduced for the credit union sector in 2012. The Central Bank and Credit Institutions (Resolution) Act 2011 provides the Bank with new powers to resolve individual credit institutions, including credit unions, that are failing, or likely to fail. On 13 January 2012, the Bank applied to have a special manager appointed to Newbridge Credit Union. The order was approved by the High Court. The special manager was tasked with managing the day-to-day running of the credit union and developing a plan to restore its financial position. This was the first action by the Bank under this Act. The Banks objective is the continuing resolution of Irelands financial crisis. The 2011 Review reflects the progress made against a demanding set of regulatory objectives. Appendix 1 sets out progress made against the strategies and actions in the Banks 2010-2012 Strategic Plan. The Banks Regulatory Performance Plan outlines the work portfolio for 2012, with detailed actions contained in Appendix 2.
2011 77 72 151 101 153 13 1,900 421 3,555 1,237 5,062 242 404 13 48 1 5 16 2 11
78 70 152 115 168 13 2,026 439 3,774 1,829 4,743 253 409 27 46 1 6 18 2 10
Regulated Market/Market Operator Moneybrokers Retail Credit Firms Home Reversion Firms Payment Institutions
The total number of entities regulated by the Bank is less than the total number of the categories outlined above as a number of regulated financial service providers may hold dual or several authorisations.
1 Subject to annual renewal of licence.
Retail Credit Firms Home Reversion Firms Payment Institutions Total Authorisations Revoked Insurance Sector Banking Sector Collective Investment Schemes (including sub funds) Fund Service Providers MiFID Investment Firms (including branches of overseas investment firms) Money Transmitters5/Bureaux de Change Payment Institutions Moneybrokers Retail Credit Firms Payment Institutions Total
14 6 583 6 8 4 0 0 0 0 621
26 5 459 12 15 1 1 1 2 1 523
2 3 4 5
Figure for 2010 and previous years included branches established. From 2011 onwards, data will not include branches. Mortgage intermediary authorisations are granted for either a 5 year or 10 year term. The relatively high number of authorisations granted in 2011 reflect the renewal of some of these authorisations during the period. Subject to annual renewal of licence. The authorisation of 14 money transmitters lapsed on 30 April 2011 when the activity of money remittance no longer fell for authorisation and supervision under the Central Bank Act 1997.
High Level Goal 3 Ensure proper and effective regulation of financial institutions and markets
Financial Sector Structural Benchmarks Achieved under the EU-IMF Programme up to end-Q4 2011
Deadline
2010 December December The Bank defined the criteria to run stringent stress tests scenarios. The Bank agreed the terms of reference for the due diligence of bank assets by internationally recognised consulting firms. This involved finalising the design of the prudential capital and liquidity assessments to plan for the deleveraging, reorganisation and recapitalisation of the banks. (i.e. the Prudential Capital Assessment Requirement (PCAR) and the Prudential Liquidity Assessment Requirement (PLAR). Draft legislation on special resolution regime was submitted to the Seanad7. The Bank completed the assessment of the banks restructuring plans.
As part of the Banks strengthening of prudential supervision, a number of technical areas were drawn from the reorganised Banking Supervision Division and formed the Banks Prudential Analytics Division (PAR), which combines a range of specialist professional skills in one place. The division provides specialised technical services and analysis within the Bank primarily to the Banking and Insurance directorates. During 2011, PAR provided a range of supports and expertise to the Banks supervisory directorates in relation to the PCAR and PLAR stress tests; financial sector reform and progress on the strengthening of credit institutions supervision. This would have been submitted to the Dil, but at the time the Dil was dissolved due to the General Election.
Deadline
March
December End-December
End-December 2011
The Bank played a central role in delivering the Financial Measures Programme 2011, particularly coordinating the work of the independent advisor (BlackRock) in its review of banks loan portfolios and developing the Prudential Liquidity Assessment Review (PLAR). The Financial Measures Programme (FMP) Report was published on 31 March 2011. This included the details of the outcomes of rigorous solvency stress tests, funding assessments and the resulting restructuring, recapitalisation and de-leveraging requirements of the Covered Institutions. Restructuring of the Covered Institutions included the combination of AIB and EBS and the identification of core and non-core assets in the Pillar Banks (AIB and Bank of Ireland and Irish Life and Permanent (IL&P)). During 2011, the banks started the process of deleveraging their balance sheets through both asset disposal and sale of non-core assets. The Bank, in line with the Programme benchmarks, produced provisioning and disclosure guidelines for the Covered Institutions and introduced a new risk probability and impact focused system for financial supervision called PRISM. A Memorandum of Understanding (MoU) between the Bank and the Department of Finance was published on banking sector oversight in November 201110. The Bank updated its action plan for strengthening supervision of credit institutions on 30 June 2011. This provided an update to the action plan published in June 2010, which set out the Banks strategy for the banking sector. The updated paper Banking Supervision: Our Approach, 2011 Update included progress made on the actions established in 2010 and detailed the main areas for focus for the next period. The action plan covered the following areas: provisioning and public disclosure requirements; capital requirements and internal models; credit risk assessment approach and credit risk standards; supervisory themed reviews; recruitment, training and development initiatives; new operational
8 The Financial Measures Programme Report was published in March 2011. This was a comprehensive assessment of the capital and liquidity conditions and needs of domestic banks. The report comprises three key elements: (i) an independent Loan Loss Exercise conducted on behalf of the Bank by BlackR ock Solutions; (ii) the 2011 PCAR; and (iii) the 2011 PLAR. The Bank also appointed Boston Consulting Group to carry out an independent assessment of the work performed by BlackRock - including their work on loan loss assessments, data integrity and validation, and asset quality review. Barclays Capital assisted in the assessment of funding and de-leveraging. Net of the liability management exercises (LMEs) conducted to date and remaining LMEs in Bank of Ireland and the then planned disposal of IL&Ps insurance arm.
10 The MoU describes the delineation of responsibilities between the Bank and Department of Finance; and provides a framework for dealings between the parties in matters relating to the oversight of the banking sector.
structures; risk assessment framework; performance management and change management; deleveraging (monitoring of targets and sanctions); enhancing credit intelligence in Ireland; arrears handling under the Code of Conduct for Business Lending to SMEs; stress testing; and the special resolution regime. The Bank submitted two comprehensive reports to the External Partners11 on progress made on implementation of its action plan for strengthening supervision of credit institutions: the first up to end-September 2011, and the second up to end-December 2011.
Supervisory Reviews
The Bank continued its thematic supervisory reviews during 2011 across a number of selected credit institutions. These reviews followed key supervisory themes set out in the Banks Strategy for the banking sector, and covered: An assessment of the effectiveness of Internal Audit Functions; A follow up review of Remuneration policies; An assessment of the Role and Effectiveness of Risk Committees; and A Trading Risk review. Overall, the findings from the thematic reviews demonstrated various levels of compliance and resulted in additional risk mitigation actions being imposed on banks reflecting their particular weaknesses or risks arising from the review. Table 4 Number of Prudential On-Site Inspections and Review Meetings
Actual 2010 BANkING SUPERvISION On-site presence/observation at board and committee meetings Review Meetings with Credit Institutions SREP Process INSURANCE Inspections & Review Meetings OTHER FINANCIAL SERvICE PROvIDERS Investment/Stockbroking Firms Inspections & Review Meetings Other Supervisory Meetings/SREP Process Fund Service Providers Inspection/Review Meetings Bureaux de Change/Money Transmitters Inspection/Review Meetings Payment Institutions Inspection/Review Meetings/Other Meetings Regulated Markets (Irish Stock Exchange) Inspections Total CREDIT UNIONS Inspections Outsourced Inspections Meetings Year-end Reviews Total ANTI-MONEy LAUNDERING AND COUNTER TERRORISM FINANCING Inspections UNAUTHORISED ACTIvITy Inspections
11 IMF, European Commission and European Central Bank
6 0
37 8
10
Mortgage Arrears
The mortgage arrears issue is one of the biggest remaining challenges for Ireland from the financial crisis, raising complex consumer protection and prudential banking issues. In 2011, the Bank updated its statutory Code of Conduct on Mortgage Arrears (CCMA) following recommendations made by the Mortgage Arrears and Personal Debt Group (Cooney Group) and in the light of the Banks experience in the operation of the Code. The revised Code provides important protections for consumers in dealings with mortgage lenders in arrears situations. During 2011, the Bank placed a significant focus on mortgage arrears where: A series of non-regulatory engagement sessions were undertaken with banks to gauge their views on the scale of the debt problem. This included consultations with BlackRock, Genworth and a number of other outsourced service providers to build a picture of local and international trends and best practices. The Bank invited the 21 mortgage lenders to each submit a comprehensive board approved Mortgage Arrears Resolution Strategy (MARS), including details on how they were to implement this strategy. The purpose is to ensure that all mortgage lenders have a robust framework in place to deliver appropriate solutions to consumers in mortgage arrears and pre-arrears. This framework must be sustainable from the lenders perspective in terms of cost and capital but must also treat consumers fairly and in accordance with the CCMA. Following an in-depth review of these strategies and plans, the Bank reverted to each lender with specific feedback, actions and timelines during Q1 2012. The Bank will be working closely with all mortgage lenders throughout 2012 to ensure the effective management of the mortgage arrears problem.
11
In February 2011, deposits and matching assets were transferred from Anglo Irish Bank to AIB and from Irish Nationwide Building Society (INBS) to Irish Life & Permanent plc. In July 2011, the remaining assets and liabilities of INBS transferred to Anglo leaving INBS as a shell. INBS will continue to exist as a building society and is subject to the duties and obligations imposed on it under the Building Societies Act until its registration is cancelled. In October 2011, Anglos name was changed to Irish Bank Resolution Corporation (IBRC).
12
Solvency II
The Bank has been preparing for the implementation of Solvency II. Work has focussed on a European Economic Area (EEA) project to determine the quantitative and qualitative impact of the current Solvency II proposals on the insurance industry. The participation of the Irish Insurance industry was considerable and the rate was above that of the European average. The Bank was responsible for coordinating the responses and analysing them. To this end, the Insurance Directorate held a number of informative seminars discussing practical issues on completion of the templates. Once submissions were made by the Irish insurance industry, quantitative and qualitative responses were analysed by the Bank and reports submitted to the European Insurance and Occupational Pensions Authority (EIOPA). There has also been significant regulator-to-regulator interaction regarding the assessment of group internal models under the impending Solvency II regime. The Internal Model pre-application process is a very substantial exercise, with Ireland expected to be responsible for the approval of the second highest number of internal models, after the United Kingdom. Over 50 insurance companies applied to join the pre-application process. During 2011, the Bank met with most insurance companies committed to the Internal Model approach and conducted preliminary analysis of the models.
variable Annuities
The Bank participated in the Variable Annuity Task Force which reported to EIOPA in Q2 2011. This Task Force recommended factors and risks that should be examined carefully by companies transacting variable annuity (VA) business and by Member State supervisory authorities. The Bank also participated in an EIOPA Expert Group established in May 2011 with the aim of establishing good selling and disclosure practices for variable annuities. A report will be finalised in Q2 2012.
13
Over the last 12 months the Bank has carried out a significant level of analysis on the financial position of the sector. This included the Strategic Review of the Credit Union Sector reported on by Grant Thornton in January 2011, the 2011 Prudential Capital Assessment Review (CU PCAR) for credit unions and the loan book review programme for all credit unions, together with on-going supervisory work. All of this work has indicated that the sector faces structural challenges that require to be addressed.
Strategic Review
The overall objective of the Strategic Review undertaken by Grant Thornton was to make an assessment of the risk profile of the credit union sector and to provide specific proposals to strengthen the prudential soundness of the sector. The report identified significant financial weaknesses within the sector, with a number of credit unions facing possible viability concerns over the short term. The report also highlighted significant deficiencies in the regulatory framework in place, in particular the lack of governance and competency requirements, the lack of powers available to the Bank for preventative intervention in cases where credit unions were showing signs of financial difficulty, and the limitations of the external support mechanisms to facilitate credit union access to liquidity and capital.
14
Table 5 Credit Unions Approved to Provide Additional Services and Longer Term Lending
APPROvAL ADDITIONAL SERvICES Mortgages Life & Pensions PRSAs Longer Term Lending Approvals Total 2010 21 7 47 35 110 2011 21 7 48 11 87
15
year-End Process
In order to be proactive in ensuring a prudent, smooth and timely process for consideration of issues arising in relation to the 2011 year-end financial position, the Bank issued a circular to all credit unions regarding the required approach to the year-end. Credit unions were reminded of the circumstances in which they were required to make a regulatory submission in relation to proposals to pay a dividend together with the details to be contained in such submissions. The process worked well in providing a structured framework for credit unions regarding the proposals to be submitted to the Bank and enabled it to make informed and timely decisions. Almost 85 per cent of credit unions paid only nominal dividends of one per cent or less in 2011. Given the reliance the Bank place on audited accounts in making an assessment of the financial condition and performance of individual credit unions, a circular was also issued to all credit union external auditors reminding them of their obligations in relation to the year-end audit and the particular areas for focus. This ensured that auditors were in a position to be fully informed of the matters to which the Bank attached particular importance as part of the year-end process.
Resolution
The Bank has designed its supervisory regime to allow for the early identification of weak or nonviable credit unions. A framework has also been established to allow for pre-emptive intervention in such cases. The Central Bank and Credit Institutions (Resolution) Act 2011 provides the Bank with new powers to resolve individual credit institutions, including credit unions, that are failing, or likely to fail. These powers include provisions to allow the Bank to make a proposed transfer order or to appoint a special manager. These powers and the funding made available for resolution by the Government are important in the context of maintaining confidence in the credit union sector. On 13 January 2012, the Bank applied to have a special manager appointed to Newbridge Credit Union. The credit unions regulatory reserves were below the required level and there were concerns about its financial position. The order was approved by the High Court. The special manager was tasked with managing the day-to-day running of the credit union and developing a plan to restore its financial position. This was the first action by the Bank under the Central Bank and Credit Institutions (Resolution) Act 2011. The Bank will continue to take the necessary actions to resolve weak and non-viable credit unions which it identifies in order to protect members savings and maintain the financial stability of the sector.
16
Markets Supervision
Markets Supervision
Markets and Stockbrokers Supervision Transaction Reporting
The quality of transaction reports received from MiFID12 firms is continuing to improve. There has been a heightened focus on initiatives to improve the quality of transaction reporting data. This has included: educating market participants on accurate transaction reporting; the enhancement of the Banks audit programme of reporting quality; the introduction of new systems involving routine inspections of reporting data; the introduction of an internal grading system and satisfaction rating system in respect of reporting firms and the conduct of bilateral transaction reporting workshops with reporting firms. A similar programme of work is planned for 2012 with an increased focus on the worst performing reporting firms and greater scrutiny of complex transactions. The Banks work to develop high quality market monitoring processes to analyse reported data continued in 2011. The Bank has strengthened its market surveillance activities and now has significant processes in place in order to detect instances of suspicious market behaviour. This work will continue during 2012 as the Bank continues to develop order book monitoring as well as developing the monitoring of derivative transactions. Within the European Securities and Markets Authority (ESMA), the Banks initiative to develop a more structured dialogue on market monitoring methodologies resulted in the Bank hosting an ESMA conference entitled Securities Market Monitoring Methodologies in September 2011. The conference was attended by more than 40 participants from over 20 different countries. Presentations were made by France, UK, Italy, Netherlands and Ireland. The attendees were able to gain an insight into the market surveillance techniques employed in other European countries. Table 6 Market Monitoring Reports
Approval Transaction reports received from entities located in Ireland Transaction reports sent to other competent authorities via TREM* Transaction reports received from other competent authorities via TREM* Administrative Sanctions Cases Opened Administrative Sanctions Cases Closed Audits conducted on firms transaction reports * Transaction Reporting Exchange Mechanism 2010 18,513,091 15,204,474 10,720,854 1 1 17 2011 22,372,791 18,975,700 12,829,415 4 2 48
Market Abuse
The Banks work in this area has included a significant number of investigations closed after initial investigation and a small number of cases where on-going investigations have revealed matters of concern. The Bank will continue to progress those cases in 2012. On 31 January 2012, the Bank unwound the delegation agreement in place with the Irish Stock Exchange that provided for certain monitoring and investigative functions pursuant to the Market Abuse Directive 2003/6/EC since the implementation of the Directive in July 2005. The Bank has begun themed inspection work to benchmark how issuers handle inside information and a significant piece of analysis was carried out by the Bank in 2011 regarding the maintenance of insider lists. In 2012, the Bank proposes to build on this work and will issue a Consultation Paper on resulting proposals to update its relevant Market Abuse Rules and Guidance.
17
Markets Supervision
The Bank will work with the Department of Jobs, Enterprise and Innovation to adopt the changes to the Market Abuse Directive when finalised by the European Commission. It will also be considered if it is necessary to seek additional changes in Irish market abuse law to enhance the regulatory framework. The Bank will continue to work with the relevant Government Departments in relation to the European Commissions Regulation on auctioning of greenhouse gas allowances. Table 7 Investigations under Securities Law
2010 Enquiries initiated regarding possible contraventions Enquiries completed regarding possible contraventions Suspicious Transaction Reports submitted to the Bank by persons professionally arranging transactions Suspicious Transaction Reports submitted to the Bank by other EU Competent Authorities. Suspicious Transaction Reports transmitted by the Bank to EU Competent Authorities. Assistance rendered to other EU Competent Authorities Stabilisation Notifications submitted to the Bank Securities Law Settlement Agreements (concluded) Securities Law Formal Private Cautions Issued 15 9 8 4 7 13 0 1 4 2011 30 37 3 6 1 19 1 0 2
Corporate Finance
Prospectus Directive
On 12 December 2011, the Bank successfully concluded a joint project with the ISE to unwind the delegation of prospectus scrutiny tasks which had been carried out by the ISE on behalf of the Bank since 2005. Under European law, responsibility for the review of prospectuses had to be returned to the Bank by 31 December 2011. The projects early implementation date, along with the new document review infrastructure and the skills and experience of the seven employees from the ISE who transferred to the Bank to assist with the review function, all effectively combined to deliver on the projects over-arching objective to ensure that the business of prospectus review and approval continued as usual. The successful completion of a project of this scale and significance to the market has delivered a firm platform for the Bank to cement and further build on Irelands reputation as a jurisdiction for prospectus approval. 2012 will see the implementation of the amendments to the Prospectus Directive 2003/71/EC pursuant to the Amending Directive 2010/73/EU. The amendments are aimed at making securities issuance more efficient by adding greater legal clarity; reducing administrative burdens for issuers and intermediaries; giving issuers employees access to a full range of investment opportunities; and helping retail investors more effectively analyse the prospects and risks posed by a security before investing.
18
Markets Supervision
The difference between the number of documents that have been approved to date and the number of documents that have been published on the Banks website relates to (i) Final Terms, Final Offer Price and Amount of Securities Announcements and Annual Information Reports (which do not require approval) that have been filed and published on the website and (ii) notifications in respect of prospectuses which have been approved by the Competent Authority of another Member State and which are then passported into Ireland and do not require the approval of the Bank.
Transparency Directive
Since the implementation of the provisions of the Transparency Directive 2004/109/EC in June 2007, the Bank has had an agreement in place to delegate the performance of certain tasks relating to monitoring compliance with disclosure and filing requirements under the Directive to the ISE. As a consequence of EU legislation, this delegation arrangement must end no later than 19 January 2013. A significant project was commenced in 2011 to unwind the delegation arrangement with the ISE and it is anticipated that this project will be concluded by 31 December 2012 and, in any event, not later than 19 January 2013. The Bank is working closely with the ISE to ensure that the work carried out pursuant to the Transparency Directive continues to operate as usual with minimal disruption to the market during and after the project. The Transparency Directive establishes minimum requirements in relation to the disclosure of certain information by issuers and shareholders to market. Ensuring the information is disseminated to the market pursuant to the Transparency Directive is of a high quality and published in a timely manner will be a key area of focus in 2012. Table 9 Company Information Disclosures13
2010 Annual Financial Reports published Half-yearly Financial Reports published Interim Management Statements published Major shareholding submitted Number of Issuers whose securities were suspended from trading on the ISE by the Bank 174 144 129 423 16 2011 147 131 120 316 11
13 The Bank is the designated central competent authority for the purposes of the Regulations, except for the purposes of Article 24(4) (h) of the Transparency Directive in respect of which the Irish Auditing and Accounting Standards Authority (IAASA) has been appointed the relevant competent authority.
19
Markets Supervision
Markets Supervision
The Risk Advisors submitted a report to the Commission on 24 February 2012. The report was published together with the Banks response on 23 March 2012. The Bank has commenced a project to consider the appropriate actions to implement the recommendations.
Payment Institutions
As part of the ongoing prudential supervisory regime established for payment institutions, analysis of the regular reports required under the prudential requirements issued to authorised firms was carried out. A series of review meetings was developed and conducted in the second half of 2011. A Home/Host protocol for supervision of agents of payment institutions has recently been finalised by the Anti-Money Laundering Task Force (AMLTF) Working Group which meets at the European Banking Authority. The Bank is represented on that Working Group. Bilateral engagement took place during the second half of 2011 between the Bank and other host regulators to enhance supervisory co-operation.
Supervision of Funds
The supervision of Irish investment funds is carried out through direct and indirect supervisory models. This is achieved through the supervision of Irish authorised managers, trustees and administrators who provide services to the funds. In addition, each fund must submit monthly statistical data, an interim report and audited financial statements to the Bank. In 2011, the Bank had 25 review meetings (both on and off-site) with fund service providers which focussed on capital, financial standing, organisational structure, staffing, systems and processes, risk management and compliance with regulatory conditions. The Bank also had 80 ad-hoc meetings addressing specific issues such as derogation requests, investment breaches and compensation arrangements on funds, and corporate governance matters.
14 This data meets the Banks reporting requirements under Section 3(6) of the Unit Trust Act, 1990.
21
Markets Supervision
22
Consumer Protection
High Level Goal 4 Ensure that the best interests of consumers of financial services are protected
Consumer Protection
Mortgage Arrears
As part of the Banks strategic focus on consumer protection, a key area of its work in 2011 continued to be the impact of the economic crisis on indebted households.
23
24
Mar-11 Balance 000 Arrears 000 Number Balance 000 Arrears 000 Number Balance 000 Arrears 000 Number Balance 000 Jun-11 Sep-11 Dec-11 Arrears 000
Particulars
Number
Consumer Protection
782,429
115,957,640
Arrears:
Total mortgage arrears cases outstanding at end of quarter which are: 2,563,539 7,035,684 9,599,223 7.2% 8.1% 827,174 55,763 10,837,726 947,365 62,970 753,357 40,040 7,985,161 859,877 46,371 9,310,970 73,817 15,723 2,852,565 87,488 16,599 3,058,984 81,009 993,932 17,825 53,086 70,911 9.2% 3,273,772 89,146 10,667,015 1,027,975 13,940,787 1,117,121 -
14,268
35,341
49,609
12,369,954 1,074,941
6.3%
692
Restructured Mortgages: 169,812 36,855 66,732 11,659,116 6,041,961 213,861 69,735 36,376 12,228,308 5,926,189 240,428 74,379 36,797 13,290,957 6,100,786 316,250
62,936
11,076,088
36,662
Consumer Protection
25
Consumer Protection
Box 4 key Consumer Protection Elements of New/Revised Codes - continued Minimum Competency Code An annual requirement of 15 formal hours of Continuing Professional Development (CPD) for all persons, including grandfathered persons, to replace the existing 3 year CPD cycle requirements. Inclusion of an Ethics module in CPD programme. Detailed supervision requirements for all new entrants. Clarification on activities included within the scope of the requirements including restructuring and rescheduling of loans, amendments to insurance policies and services provided over the internet. Restructuring of the categories of retail financial products. The new Code is issued, in part, under Section 50 of the Central Bank Reform Act 2010 and is closely linked to the new Fitness and Probity regime which also came into effect on 1 December 2011. Code of Conduct on Mortgage Arrears (revised) More detailed requirements for lenders when dealing with borrowers experiencing arrears and financial difficulty. The Standard Financial Statement (SFS) is now required to be used by all lenders when gathering information from consumers to assess their financial position. Published Consumer Guide to the CCMA and the protections available to consumers Published Consumer Guide on the completion of the SFS. Details of both of these Guides can be found on the Banks website. Code of Conduct for Business Lending to SMEs (revised) Lenders must confirm to the SME the information that must be provided by them for an alternative repayment arrangement assessment to be undertaken. A lender must complete its SME alternative repayment assessment and inform the SME of its decision within 15 business days of receiving all information required from the SME. A lender must have procedures in place to allow an SME to appeal its decision on an alternative repayment arrangement. Where an SME is concerned about meeting repayments and approaches the lender, a lender must offer the SME an immediate review meeting to discuss its circumstances and assess the potential for the SME to be offered an alternative repayment arrangement.
26
Consumer Protection
Over the last three years, inspections have been targeted at banking, insurance, moneylending and investment firms with a strategic focus on specific areas such as ensuring compliance with statutory requirements, fair treatment of consumers, mortgage arrears, product design and selling. As a result of the Banks supervisory approach, it has managed to identify poor practices and respond immediately through regulatory and enforcement action with non-compliant firms resulting in over 20 million refunded to consumers and over 6 million in settlement agreements with firms from enforcement action through the Banks Administrative Sanctions Process over that period. Table 11 Themed Consumer Focused Inspections in 2011
2010 Activity Number of Themes Number of Inspections Number of Non-Inspection Meetings Details of 2011 Activity on Consumer Focused Inspections Themes (On-site and Off-site) Entity Type Number Inspected/ Examined 8 6 4 60 Credit Institutions Credit Institutions Insurance Insurance 5 8 12 25 desk based of which 11 also were inspected onsite 11 6 6 4 10 118 Intermediaries MiFID Firms Insurance Total Inspections Other Meetings MiFID Firms Insurance Intermediaries Credit Institutions IMD Firm/Government Department/UK Regulator/Auditor Various Moneylenders Retail Credit Firm Government Department Total Non-Inspection Meetings Overall Total
* 2010 Annual Report stated that these issues would be reported on in 2011
6 102 162
Review of Tracker Bonds Key Features Documents* Inspection of Banks Promotional Interest Rates* Institutions - Onsite - Mystery Shopping (60 branches of 4 credit institutions) Review of Certain Out of Order Activity Fees on Current Accounts Payment Services Directive** Complaints Handling by Insurance Firms* Themed Inspection into Third Party Personal Injury Claims
Findings of Inspection of Licensed Moneylenders* Review of Lenders Compliance with the Code of Conduct on Mortgage Arrears Complaints Handling by Investment & Stockbroking Firms Review of Contract for Difference (CFD)/Financial Spread Betting Firms Compliance with MiFID Regulations Total Themes: Total Entities included in Themes Other Inspections (On-Site)
37 2 3 42 7 24 16 30 1 2 2 1 8 91 251
27
Consumer Protection
19%
15% 15%
36%
15%
Priority Areas
Code Compliance Product Design/Selling Openness Transparency Fairness Mortgages/Arrears
28
Consumer Protection
Following a review of Contract for Difference (CFD)/spread betting firms compliance with MiFID Regulations, the main findings identified included a lack of sufficient information gathered by firms, inadequate assessment of appropriateness of the product for the client, misleading marketing material and inadequate risk disclosures. Firms were requested to take immediate action and review their existing processes and procedures to ensure they are in compliance with MIFID regulations. The key findings from the inspection into third party personal injury claims found that overall, third party personal injury claims are being handled appropriately by insurance firms and in compliance with the Code. Insurance firms are settling claims across the range of amounts outlined in the Injuries Boards Book of Quantum which the Bank uses as a guide when assessing claims settled by the insurance firms. An inspection on how banks are imposing out of order charges on current accounts found that all charges were within limits approved by the Bank. However, a number of concerns were identified with the way certain charges were applied. The inspection examined three out-of-order charges i.e. surcharge interest, referral/over limit fees and unpaid item fees, across 300 customer accounts in five banks. The inspection also included an examination of 100 customer complaints files. The key outcomes from the inspection included a prohibition on charging a minimum amount of surcharge interest, a prohibition on applying referral fees and unpaid item fees jointly for the same item and a requirement to base referral fees on close of day account balances. All banks were encouraged to enhance the ways in which they assist customers to avoid incurring out of order activity fees, particularly in the current economic climate.
Advertising Monitoring
The Bank actively investigated a total of 90 advertising issues during 2011. As a result, 20 advertisements were required to be withdrawn with a further 53 requiring amendment. Table 12 Advertising Issues Investigated
2010 Central Bank Monitoring Complaints Total 70 15 85 Outcome of Advertising Issues Investigated 2011 Advertisements Amended 53 Advertisments Withdrawn 20 No Action Required 11 Ongoing 6 2011 44 46 90
Review of Implementation of Code of Conduct on Switching of Current Accounts with Credit Institutions
The objective of this inspection was to assess how well the switching process worked for consumers and the extent to which frontline bank staff provided information to consumers, and were aware of and understood the Banks Switching Code. The inspection was conducted both through on-site work and by using external mystery shoppers. The mystery shopping exercise identified concerns about the level of awareness and understanding of the Switching Code by branch staff, and the quality of information provided to consumers when making enquiries about switching. However, the on-site inspection found that the switching process is generally working well and within the statutory timeframes allowed, although consumers continue to experience problems when moving direct debits when switching.
Consumer Protection
Charging Issues
The Consumer Credit Act 1995, requires financial service providers (credit institutions, bureaux de change and money transmission businesses) to notify the Bank of any proposal to introduce new or increased charges, for certain financial services. In 2011, the Bank issued letters of direction on foot of 22 notifications from financial service providers in this area. The notifications received from these financial service providers ranged from an individual charge, charges in respect of new products launched and entire suites of charges for credit institutions. The Bank is required under the legislation to consider each notification using a range of criteria, which include the commercial justification, impact on the relevant consumers and on competition in the sector. Of the 22 notifications, 11 were approved in full, 11 were partially approved and none were rejected.
30
15 A Supervisory Warning is a non-statutory device that is available where a Supervisory division has reasonable cause to suspect that a prescribed contravention has occurred and where it is considered that an ASP sanction is not warranted.
31
16 Directions imposed under the Transparency Directive can only be issued for a period of 10 days at a time and, therefore, a new Direction must be issued every 10 days. For example, if an issuer failed to publish their annual financial report within the required timeframe specified in the Regulations, the Bank would issue a Direction to the Irish Stock Exchange requesting it to suspend trading in the issuers securities for a period of 10 days pending publication of the annual financial report. If the issuer was suspended for a period of 30 days, this would be based on 3 Directions issued by the Bank. In 2011, a total of 286 Directions were issued under the Transparency Directive (334 in 2010). However, adjusted for the re-issue of Directions previously issued, the number of Directions issued pursuant to the Regulations falls to 16 (21 in 2010).
32
The draft Inquiry Guidelines provide significant detail in terms of the practice and procedure to be adopted during an Inquiry. It is intended that, once finalised, the Inquiry Guidelines will replace the existing Administrative Sanctions Guidelines published by the Bank in 2005.
33
Box 6 The Fitness and Probity Regime - continued The new regime will be introduced on a phased basis to allow institutions adequate time to introduce the necessary internal controls and procedures to comply with the Regulations and Standards. From 1 December 2011, existing and new staff in PCF roles became subject to the Regulations and Standards. New appointments to less senior positions (CFs) become subject to the Regulations and Standards from 1 March 2012. From 1 December 2012, the Regulations and Standards will apply to all staff in existing CF roles.
Central Bank Information Sessions and Presentations on the new Fitness and Probity Regime
In November 2011, the Bank hosted two industry Information Sessions on the Fitness and Probity Regime. In addition to these information sessions, Bank staff spoke at a number of conferences during 2011 to provide updates and information on the new Regime.
34
35
Corporate Governance
Credit Institutions & Insurance Undertakings
In February 2011, the Bank hosted a stakeholder roundtable on Corporate Governance, with attendees including industry representatives, accountancy bodies, legal representatives and academics. The Roundtable focused on the challenges and opportunities of implementing the Code. In May 2011, the Bank published an FAQ document on the Corporate Governance Code as a mechanism to provide guidance and to ensure consistency of application of the Code by industry. In August 2011, additional guidance was issued to industry to assist institutions and directors in preparing the Annual Compliance Statement which institutions are required to provide to the Bank under Section 25 of the Corporate Governance Code for Credit Institutions and Insurance Undertakings.
Funds
The funds industry produced a voluntary Corporate Governance Code for the sector, in consultation with the Bank, which was published in December 2011.
Internal Governance
In May 2011, the Bank advised industry that it would be implementing EBA and EIOPA guidelines in the area of Internal Governance. Further guidance on internal governance may be developed if appropriate. The EBA and EIOPA guidelines will form the basis for auditor assurance over internal governance. 37
17 European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities & Markets Authority (ESMA) which were formed from the extant Committee of European Banking Supervisors (CEBS), Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the Committee of European Securities Regulators (CESR). 18 Statutory Instruments 625 and 627 of 2010, respectively, in December 2010.
38
Box 8 Capital Requirements Directive 1v In July 2011, the European Commission published the proposal for CRD IV via two legislative instruments - a Directive and a Regulation. This proposal is currently under negotiation at European level. CRD IV proposes, inter alia, the following amendments: Narrowing the definition of regulatory capital; Introducing two new liquidity ratios (i.e. the Liquidity Coverage Ratio and the Net Stable Funding Ratio); Enhancing risk coverage by amending requirements for counterparty credit risk; Reducing procyclicality by introducing both a conservation and countercyclical capital buffer; Supplementing the risk-based capital requirements with a non-risk based leverage ratio; and The first phase of a single rule book which will remove many of the national discretions currently available to Member States.
Together with attending EU Council meetings on the proposal, the Bank attended the Oireachtas Committee on Finance, Public Expenditure and Reform in November 2011 to discuss CRD IV and presented on the topic at the Irish Banking Federation Conference in December 2011. On the domestic policy front the Bank issued a Discussion Paper Review of the Requirements for the Management of Liquidity Risk in October 2011. A feedback statement was issued in Q1 2012. During 2011, the Bank assisted the Department of Finance in drafting the Statutory Instruments which implemented the Omnibus Directive. Implementation of EU legislation will continue to be a focus for Prudential Banking Policy in 2012 in the context of CRD IV.
19 Omnibus II is designed to make Solvency II consistent with the new European regulatory architecture for financial supervision.
39
Box 9 Solvency ll Preparations in 2011 The Bank maintained a close engagement with industry and representative bodies throughout the year. In particular the Bank: Hosted two industry forums on Solvency II in May and November 2011 focusing on qualitative and quantitative aspects respectively; Conducted a survey of undertakings progress of their preparations towards Solvency II implementation; Published newsletter Solvency II Matters quarterly, which keeps relevant stakeholders up-to-date with important news; Contributed as a member of the IFSC Subgroup on Solvency II which includes representatives from the insurance industry, industry bodies and the Department of Finance; and Presented at a number of externally organised seminars, including the Society of Actuaries in Ireland, the Association of Chartered Certified Accountants in Ireland, the Irish Insurance Federation and the University of Limerick. Work continues to progress on developing enhanced supervisory processes to meet the extensive Solvency II requirements, new systems to deal with substantially increased reporting requirements and a programme for staff training on Solvency II has been developed.
Memorandum of Understanding
On 29 August 2011, the Bank signed a Memorandum of Understanding with the Insurance Authority of the Hong Kong Special Administrative Region of the Peoples Republic of China. This will facilitate mutual cooperation and exchange of information between the two regulators.
40
Internal Audit
Internal Audit
During 2011, the Internal Audit Division conducted a range of reviews across the regulatory/ supervisory areas. Topics covered included the authorisation framework for financial service providers, moneylenders register and consumer credit issues, risk governance panels and reporting transactions for MiFID firms20. The scope and objectives of these audits encompassed, among other things, the following: Assessing the key risks and testing of controls in place to mitigate those risks; Determining whether appropriate formal policies and procedures had been established and ensuring that these had been complied with; and Ensuring the adequacy and effectiveness of the authorisation process. Recommendations were made to local management on completion of these audits, which related to: The updating of, modification and adherence to procedures; The moneylenders inspection process; and The review of classification levels applied to fund service providers. All recommendations were taken on board and action plans were put in place to address the issues highlighted. Implementation dates were provided for each action proposed and these were agreed with Internal Audit. These recommendations are reviewed as part of Internal Audits regular follow-up process. Additionally, regular reports were made to both the Audit Committee and the Senior Management Committee on the outcome of these reviews. Both groups were also updated on progress made by Divisional Heads in implementing earlier recommendations. The Head of Internal Audit also met with the Governor regularly to discuss audit-related issues. Internal Audit met with senior executives from a number of newly formed divisions throughout the year in an effort to keep abreast of developments in these areas in terms of their changing roles and responsibilities. The knowledge gained as part of this exercise informed Internal Audit during its annual planning exercise.
20 Authorisation framework for financial service providers and reporting transactions for MIFID firms finalised in January 2012.
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Organisational Changes
Organisational Changes
The Banks statutory objective concerning financial regulation is the proper and effective regulation of financial institutions and markets while ensuring that the interests of consumers are protected. In keeping with those objectives, the Bank has continued structural reform of its supervisory framework and during 2011 and early 2012, the following changes were made.
Banking Supervision
During 2011 the Bank merged retail and wholesale supervision divisions into a combined Banking Supervision Division. At the same time the staffing and structure of the division was realigned in preparation for the implementation of PRISM and the operating and engagement models enhanced to further develop a culture in which those involved in supervision challenge one another and the institutions, exercise judgement in decision making and deliver outcome focused actions.
Corporate Finance
Part of the Banks project plan to unwind the delegation of parts of its statutory functions pursuant to the Prospectus Directive and the Transparency Directives to the Irish Stock Exchange included the establishment of the Corporate Finance Division which commenced operation on 4 July 2011.
42
Organisational Changes
Organisational Effectiveness
The Bank participated in an international review of the organisational effectiveness of financial sector regulators. Based on 2010 staffing levels, the review found that the supervisory resources in the majority of the supervisory areas were broadly in line with the Banks international peers. The reviews conclusions provided valuable input into the manpower planning process for 2012. Table 14 shows changes in staffing since 2010, while Table 15 provides information on income and expenditure. Table 14 Changes in Regulatory Staffing since 201021
Division (end year figure) Banking Insurance Credit Unions Funds Investment Services Providers Markets and Corporate Finance Consumer Protection Policy Enforcement Management Total 2010 Actual 114 77 34 60 60 35 56 25 38 8 507 2011 Actual 124 97 42 56 45 75 72 41 63 7 622 2012 Planned 139 113 42 58 47 95 79 61 73 7 714
21 Figures have been rounded. Figures may not be comparable from year-to-year due to organisation restructuring. 22 Includes subvention from the Bank but excludes prospectus fees payable to the Bank which were retained by the Irish Stock Exchange (ISE) to put towards the costs that it had incurred in undertaking the delegated functions under the delegation agreements. 23 Excludes contribution towards costs incurred by the ISE in the form of fees retained by the ISE for undertaking the delegation functions in the form of prospectus fees (as outlined in the footnote above).
43
Organisational Changes
Guidance Note on Completing and Submitting an Application for Authorisation under the European Communities (Markets in Financial Instruments) Regulations 2007 and Commission Regulation (EC) No 1287/2006 of 10 August 2006 Online Reporting System User Manual for Investment Firms FINREP for Irish Investment Firms Monthly Metrics Report Quarterly Client Funds Report
March 2011
July 2011 July 2011 July 2011 July 2011 July 2011 February 2011 June 2011 August 2011 October 2011
Requirements on Outsourcing of Administration Activities in Relation to Collective Investment Schemes Circular on Credit Union Liquidity and Investments Guidance Note on Investments by Credit Unions Circular on Credit Union Financial Year End 30 September 2011 Year End Approach Circular on Auditing of Annual Accounts of Credit Unions for the year ending 30 September 2011 (to Auditors)
Other
PRISM Explained How the Central Bank of Ireland is Implementing Risk Based Supervision
December 2011
44
Organisational Changes
26 Oct 2011
45
Appendix 1
Appendix 1
Progress Report on Strategic Plan 2010-2012
This section outlines the progress made against the strategies and actions in the Strategic Plan 2010-2012, appropriate to 2011.
High Level Goal 3 - Ensure proper and effective regulation of financial institutions and markets
Strategy 2010-2012 Strengthen the prudential supervisory framework for financial institutions through the implementation of new EU regulations Planned Action for 2011 Prepare for the implementation of new EU directives for credit institutions and investment firms: CRD IV and CRD V Indicator (Target Date or Outcome) Transposition Target date: CRD IV: January 2013 CRD V: Date not set by EU Progress During 2011 Attended all European Commission and Council meetings on CRD IV and provided expert advice to Department of Finance on recommended Irish positions in relation to revisions All current revisions in CRD IV and hence no proposed date for CRD V Implement new capital requirements: CRD II and CRD III CRD II implementation date 31 December 2010 CRD III implementation date 1 January 2011 and 31 December 2011 CRD II implementation nationally by Statutory Instrument No. 627 of 2010 CRD III implemented nationally by Statutory Instrument No. 625 of 2010 Introduce revised large exposure limits for systemically important credit institutions Awaiting specific rules at European level before progressing further. Study workshops were held. Awaiting specific rules at European level before progressing further
Prepare for the implementation of a new EU directive for insurance undertakings: Solvency II
Deadlines for implementation have changed. Current best estimate implementation start of 2014, transposition start of 2013
46
Appendix 1
Strategy 2010-2012
Progress During 2011 Transposition work is well advanced with the team working in conjunction with the Dept. of Finance Internal Model pre-application work has been progressed with 39 Internal Models in process
Prepare for the implementation of EU Directives for the funds industry: UCITS IV and Alternative Investment Fund Managers (2013)
UCITS IV implementation July 2011 Participate in ESMA AIFM groups established to provide advice by November Requirements regarding the minimum activities of Irish authorised investment funds to be undertaken in the State to be issued July
UCITS IV implementation achieved by target date of 1 July 2011 AIFM Directive participated in ESMA groups established and ESMA provided advice to the European Commission by the required date of 16 November 2011. Published Requirements on Outsourcing of Administration Activities in relation to Collective Investment Schemes in Annex II of UCITS and NU Notices in July 2011
Consultation Paper published February 2011 Revised UCITS Notices and related Guidance Notes published July 2011
Assist Government achieve a substantial downsizing of the banking system, through restructuring and deleveraging
Financial Measures Programme (FMP) 2011 published 31 March 2011 which included a Prudential Liquidity Assessment Review (PLAR). PLAR has resulted in deleveraging plans being put in place to meet forecast Loan to Deposit ratios of 122.5% for the Pillar Banks by end-2013. Established metrics for deleveraging of banks balance sheets and monitored performance against these
47
Appendix 1
Strategy 2010-2012
Planned Action for 2011 Raise capital and liquidity standards for credit institutions following a stringent forward looking assessment of needs
Progress During 2011 FMP including the Prudential Capital Assessment Review (PCAR) assessed the capital needs of the Pillar Banks under baseline and stress scenarios to end-2013, including using an independent loan loss forecast PCAR and PLAR completed in March 2011 as part of FMP
Monitor compliance with the capital and liquidity targets that have been set for each institution under phase 2 of PCAR and PLAP Processes Strengthen the banking framework Enhance banking supervision through improved data collection financial reporting, and credit risk assessments
Banking supervision updated approach strategy paper published in June 2011. Actions outlined therein on target. Requested enhanced quarterly data sets and developed improved financial and credit reporting of credit institutions for internal Risk Panels
Ensure banks adopt prudent policies to address the deterioration in asset quality
Issued new Impairment provisioning and Disclosure Guidelines Conducted Risk Committee reviews in high impact institutions. Reviewed compliance with Corporate Governance Code Standards, Regulations and draft Guidance were published on 1 September 2011 Final Standards and Regulations were published on 30 November 2011 and Guidance was published on 23 November 2011
Ensure banks enhance their capacity to measure financial risks through new senior appointments and training programmes Compliance with Corporate Governance Code New fit and proper standards to be issued September
48
Appendix 1
Strategy 2010-2012
Planned Action for 2011 Assist with the development of legislation relating to supervision, enforcement resolution, centralisation of credit information and personal insolvency
Progress During 2011 Contributed to the policy discussion surrounding the development of the Central Bank and Credit Institutions (Resolution) Act 2011 The Corporate Governance Code for Captive Insurers and Captive Reinsurers, the Feedback Statement and the FAQ documents were published on the Banks website on 16 August 2011 and effective from 1 September. Companies have until 31 May 2012 to be in compliance. The Guidelines on Annual Compliance Statement in accordance with Section 18 were published on 18 October 2011. It was decided to postpone work on corporate governance requirements for MiFID firms pending the outcome of CRD IV and MiFID II.
Introduce appropriate corporate governance requirements for MiFID firms and captive insurance undertakings, following public consultation
Issue statutory based requirements on credit institutions and investment firms based on CRD III and CEBS guidelines effective from - January
The Bank did not consult on its own requirements relating to remuneration since the remuneration aspects of CRD III and related EBA (formerly CEBS) Guidelines on Remuneration Policies and Practices were imposed on credit institutions and investment firms effective from 1 January 2011
49
Appendix 1
Strategy 2010-2012
Indicator (Target Date or Outcome) Consultation Paper published - March Requirements to be issued September
Progress During 2011 Consultation Paper on Fit and Proper Regime published March 2011 Standards, Regulations and draft Guidance were published on 1 September 2011 Final Standards and Regulations were published on 30 November 2011 and Guidance was published on 23 November 2011
A review of the boards of Statesupported credit institutions was commenced in June 2011 to see which directors would be remaining in place following 1 January 2012. Following the implementation of the Fitness and Probity Standards in December 2011, this review has focused on whether the directors remaining in place meet these Standards, and what, if any, actions it might be necessary to take under the fitness and probity powers contained in Part 3 of the Central Bank Reform Act 2010 A working group has been established comprising representatives of the auditing profession and IAASA to develop guidance for auditors on the provision on assurance over internal governance Published guidance regarding the use of property collateral valuations in credit risk management 31 December 2011
Consider the need for additional requirements in respect of internal governance and risk management when international initiatives in these areas are published, including EBA Internal Governance Guidebook which is due to be published in June.
Given the diversity of international initiatives in these areas, and varying time-frames associated with these, a project to develop and consult on an Internal Governance Code is scheduled to commence this year.
50
Appendix 1
Strategy 2010-2012
Planned Action for 2011 Examine the possibility of imposing sectoral concentration limits on financial service providers
Progress During 2011 A paper on Credit Limits was considered by the Banks Financial Stability Committee on December 2011. Following consideration of the issues raised, it was decided not to proceed with a public consultation Government established the Commission on Credit Unions to review the future of the credit union movement and make recommendations A paper on The Future of the Irish Credit Union Sector was completed and submitted to the Department of Finance and the Credit Union Commission
Complete a full assessment of credit unions loan portfolios. Develop a comprehensive strategy to enhance the viability of the credit union sector
To be completed by - April
401 credit unions inspected The Commission on Credit Unions published their interim report in September 2011 A Prudential Capital Assessment Review (CU CPCAR) was performed for each credit union individually as part of a sector wide stress test. This stress test, together with a high level liquidity assessment was completed by April 2011 Publication date of legislation extended by the External Partners to June 2012
To be completed by - May
To be completed by June
Assist the Department of Finance to develop legislation which will strengthen the regulatory framework for credit unions
To be completed by - December
51
Appendix 1
Strategy 2010-2012
Planned Action for 2011 Support the work of Credit Union Commission when established
To be completed for banks, insurers, largest credit unions, investment firms June
167 Risk Mitigation Programme Actions issued by Insurance Division 210 Inspection Findings issued by Insurance Division Completed for all banks
PRISM (risk model) designed, built and rolled out to Banking and Insurance supervision divisions in November 2011 Engagement model developed, agreed and rolled out in Credit Institutions and Insurance Supervision Directorate in Q4 2011.
Complete development of an engagement model for financial institutions based on their risk profile and the Banks policy of more intensive supervision, involving close engagement with firms and increased number of onsite inspections
Engagement model to be rolled out in two supervisory divisions by December and other divisions in 2012
Apply the appropriate intensity of supervision appropriate to the risk profile of the financial service provider
Resources realigned with impact and risk analysis Supervisory engagement details are set out in Table 4 Prudential On-site Inspections and Review Meetings
Ongoing
52
Appendix 1
Strategy 2010-2012
Planned Action for 2011 Improve the efficiency and effectiveness of regulatory processing
Indicator (Target Date or Outcome) Regulatory Transactions Division (RTD) to be established - July Migrate 2 functions from regulatory divisions December
Progress During 2011 RTD established July 2011 Automation of returns receipt process commenced -November 2011 On-line application system introduced for assessing the fitness and probity of proposed senior appointments in regulated firms December 2011
Ensure that new financial institutions entering the market are competently managed and have appropriate business models Provide compliance assistance to financial institutions
In accordance with legislative requirements and timelines Data on number of firms authorised published
The number of firms and funds authorised are set out in Table 3 Number of Authorisations Granted Guidance notes issued to firms are set out in Table 17 Circulars and Guidance Notes Following consultation with the auditing profession and a public consultation, the Bank published its Auditor Protocol on 6 December 2011 The Bank is represented on the newly created APB Irish Sub-Committee which met in April and November 2011 The Bank continues to be active in responding to national and international accounting and auditing developments directly and via European Supervisory Authorities
Influence the development of guidance and practice notes by other regulatory bodies
As needed
53
Appendix 1
Planned Action for 2011 Enhance Enforcement capacity and capability to support compliance
Indicator (Target Date or Outcome) Increase enforcement capability Develop and implement streamlined handover/referral process by - June Public consultations planned on use of administrative sanctions by - December Assistance provided to Dept of Finance on strengthening powers.
Progress During 2011 Staff resources complement increased Process finalised in March; relationship managers and supervisory divisions trained and first case clinics held by end-May Consultation Paper on Inquiry Guidelines issued on 25 November 2011 Assistance provided to Dept. of Finance on strengthening powers Proposal produced for the enhancement of the Banks legislative powers in the area of Financial Sanctions
Investigate alleged instances of unauthorised activity or non-compliance with regulatory requirements and take appropriate enforcement action, including use of supervisory directions and administrative sanctions Complete programme of special investigations arising from the financial crisis
Examinations were commenced during 2011 into a number of major investigations. An examination is on hold pending potential criminal action by the Garda Bureau of Fraud Investigation Regular liaison with Garda and ODCE took place during 2011 Significant engagement with and input to a private industry drafting group to facilitate its production of draft core guidance notes which were then submitted for approval to the Minister for Justice and Equality.
Liaison with Garda and Office of Director of Corporate Enforcement to continue as needed
Assist with the prevention of money laundering and financing of terrorism (AML CTF)
Assistance provided to Money Laundering Steering Committee on comments arising out of Public Consultation Process - by April.
54
Appendix 1
Strategy 2010-2012
Progress During 2011 Significant engagement with and input to the Dept. of Finance and the Dept. of Justice and Equality with respect to their review of the draft core guidance notes
19 inspections planned
All 19 on-site inspections completed with additional 19 off-site inspections. Details set out in Table 4 Prudential On-site Inspections and Review Meetings 36 control failure cases reported to the Authorities. Details are included with other regulatory actions in Table 13 Regulatory Actions 2 cases referred to enforcement and administrative sanctions procedures commenced in respect of both cases E-mail alert system introduced and rolled out to regulated entities and the public Prior Authorisation of Payments assessed and responded to within target deadlines Engaged with Dept. of Finance and other external agencies as required
As cases arise
Sanction financial institutions with inadequate risk management and control mechanisms
55
Appendix 1
Strategy 2010-2012 Prepare for the unwinding of the delegation of functions to the Irish Stock Exchange as mandated by the EU
Indicator (Target Date or Outcome) The Prospectus Directive requires that the Bank unwind the delegation arrangement with the Irish Stock Exchange no later than 31 December 2011 The Market Abuse Directive does not specify a date for the ending of the delegation arrangement with the Irish Stock Exchange however the Bank expects to end the delegation during Q1 2012 The Transparency Directive requires that the Bank unwind the delegation arrangement with the Irish Stock Exchange no later than 31 December 2012
Progress During 2011 This project was successfully concluded on 12 December 2011
A project was initiated in March 2011 A new technology platform and regulatory process is being developed The delegation is expected to end in Q4 2012
Supervise monitoring of transactions by Irish Stock Exchange Undertake investigations of suspicious transactions under the Market Abuse regulations.
Publish number of Market Monitoring reports Publish number of Investigations under Securities Law
Number of Market Monitoring reports published Table 6 Number of Investigations under Securities Law published Table 7 Number of Prospectus Approvals published Table 8 Number of Company Information Disclosures published Table 9
Monitor issuers disclosure of information, disclosure of major shareholdings and voting rights under the Transparency regulations
56
Appendix 1
High Level Goal 4 Ensure that the best interests of consumers of financial services are protected
The strategies and actions taken in 2011 to achieve this goal are:
Strategy 2010-2012 Strengthen the consumer protection supervisory framework for financial institutions Planned Action for 2011 Issue revised Minimum Competency Requirements (MCR) Indicator (Target date or Outcome) Requirements to be issued by - June Progress during 2011 Revised MCR approved by the Commission June 2011 Published September 2011 along with Fitness and Probity requirements to which the MCR is closely linked Roll out presentations to stakeholders October to December 2011 Implementation 1 Dec 2011 Issue revised Consumer Protection Code Requirements to be issued by September Additional public consultation necessary published July 2011 Revised Code approved by the Commission 29 September 2011 Published 19 October 2011 along with Feedback to Consultation Paper 54 Roll out presentations to stakeholders October to December 2011 Updated guidance to be published before 31 December 2011 Effective 1 January 2012 Participate in consumer protection focused reviews of EU Directives on Markets in Financial Instruments, Insurance Mediation and Packaged Retail Investment Products, Consumer Credit Directive MiFID Insurance Mediation Directive December Packaged Retail Investment Products December Provide comments to Dept. of Finance In February 2011, Bank issued response to European Commissions Consultation Paper on Review of MiFID Responded to requests for input on matters pertaining to consumer protection
57
Appendix 1
Planned Action for 2011 Undertake a programme of themed inspections to monitor and enforce compliance with the Consumer Protection Code and other consumer protection regulations
Indicator (Target date or Outcome) 11 themed inspections and 1 mystery shop exercise on switching bank accounts planned and findings published.
Progress during 2011 10 Themed Inspections completed (including 1 mystery shop) and findings published Refer to Table 11 Themed Consumer Focussed Inspections Some inspections do not result in the general publication of findings but issues are followed up bilaterally with firms
Consider applications for bank charges under Section 149 of Consumer Credit Act
22 notifications from credit institutions received. Of these 11 were approved in full and 11 were partially approved Prepared guidance on the completion of S149/S149A notifications to assist in streamlining the notifications process
Undertake a review of a specified charge/product and publish a paper on the Banks assessment of the charging level and the impact on customers and banks Investigate alleged instances of unauthorised activity or non-compliance with regulatory requirements and take appropriate enforcement action, including use of supervisory directions and administrative sanctions
Review paper published A Review of Personal Current Account Charges Dec 2011
Ongoing All queries received in relation to alleged unauthorised activity responded to within threshold deadlines. Regulatory actions taken are detailed in Table 13 Regulatory Actions
Cooperate and share information with Financial Services and Pensions Ombudsmen and National Consumer Agency
As required
As required
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Appendix 1
Strategy 2010-2012
Planned Action for 2011 Liaise with representative bodies: IBF, IIF, PIBA, IBA and IMAF
Indicator (Target date or Outcome) At least two formal meetings per annum
Progress during 2011 IIF 4 quarterly meetings IBF 3 meetings PIBA 2 meetings PIBA/IBF/IMAF 2 meetings
59
60
High Level Goal 3 Ensure proper effective regulation of financial institutions and markets
Stress Testing
The implementation of the Financial Measures Project (FMP) 2012 will include comprehensive analysis of the Irish banks assets and liabilities supported by an extensive data collection process that will be implemented in 2012. Together with the Asset Quality Reviews (AQRs) and consideration of policy options such as portfolio workout strategies, this will provide the foundation for a stress test that incorporates a rigorous loan loss forecast. Key outputs for 2012 will be the development of the Banks data analysis capability for transaction level data and the development of loan loss forecasting models. These outputs will have significant long-term benefits for the assessment of risk within individual institutions and across the banking sector.
Risk Analytics
In 2012, there will be further development of loan loss forecasting methodologies to be used as part of the PCAR stress tests/analysis beyond 2012. The Bank will also begin to develop approaches for extracting information from the new data platform so as to identify particular outliers/areas of concern to aid in risk based supervision. The Bank will conduct a review of banks calculations of risk weighted assets under the IRB approach outline principles to which banks should perform.
Credit Register
The Bank will determine the scope of the credit register with regard to credit institutions, products, phasing etc. This will be undertaken having due regard to the report of the inter-agency working 61
group and the current level of activity. The Bank will also assist in the finalisation of Draft Heads of Legislation, in partnership with Department of Finance and contribute to the on-going legislative process with the Department of Finance and Attorney General so that the Bill is published by the end of September 2012. The Bank will contribute to the Regulatory Impact Assessment - this public consultation exercise will be under the stewardship of the Department of Finance. Furthermore, the Bank will engage with credit institutions, industry representatives, potential credit registers providers and the Department of Finance with a view to agreeing on data specification/ requirements for the Credit Register. The Bank will develop a detailed set of instructions, giving guidance on how the Credit Register will operate, and will undertake preparatory work around the expected tendering process to appoint a Credit Register operator.
Special Resolution
The Bank will undertake resolution action as necessary on distressed credit institutions. Where appropriate, any resolution action in respect of credit unions will consider the recommendation of the Credit Union Commission. In consultation with industry and the Department of Finance, the Bank will develop and issue guidelines on Recovery Plans for credit institutions. The Bank will continue to contribute and influence developments at an EU level regarding crisis management and resolution, and in line with such developments, further develop and refine the procedures surrounding the operation of the suite of resolution tools available to the Bank.
Bank Restructuring
During 2011, there was extensive restructuring of the banks in Ireland following the completion of the 2011 PCAR, resulting in the establishment of two Pillar Banks and the integration of EBS into the AIB group. The focus will continue on the deleveraging by the Pillar Banks and also on the restructuring of the Irish Life & Permanent Group banking operations following the split with Irish Life Group. A 62
significant focus in 2012 will be on the credit portfolios of the Irish banks especially on the mortgage portfolios where arrears levels significantly increased during 2011.
Continue Execution of MOU Actions arising from the External Partners Programme
The Bank will continue to receive specific allocated actions arising from each quarterly review and assessment process carried out by the External Partners during 2012 and will deliver as requested. As the Bank is entering the second year of a three-year programme, the main reporting processes are now developed, having been refined during 2011.
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Corporate Governance
The final deadline for the implementation of the Corporate Governance Code for Credit Institutions and Insurance Undertakings was 31 December 2011 and insurers must now be in full compliance with Code. The Bank will carry out a number of Governance Reviews in 2012, targeting High Impact firms in particular. Where firms are found to lack appropriate governance arrangements and/or be in breach of the Code, the Bank will take appropriate measures.
Stress Testing
PRISM requires that regular stress tests are carried out in respect of High Impact firms. The Bank will ensure that the balance sheets of insurers will be stress tested under multiple scenarios in order to ensure that both assets and reserves are robust and adequate.
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Markets Supervision
Markets Supervision
By Q2 2012, the Bank will conduct further audits of reported data to review the effectiveness of the enforcement actions taken in 2011. All reporting firms should conduct audits of transaction reporting quality on a regular basis to ensure that adequate systems and controls are in place to satisfy transaction reporting obligations. The Bank expects the level of serious transaction reporting breaches to fall in 2012 because of the enforcement cases taken and reports will be monitored closely. The Bank will also be involved in two significant I.T. projects to increase the server capacity and to improve the technical quality and stability of its transaction monitoring software and will also continue a long term project to develop its order book monitoring capacity. The Banks market abuse investigation team will concentrate on training staff following the ending of the market abuse delegation arrangement with the Irish Stock Exchange. It will further refine its procedures and criteria for the investigation of cases while continuing to pursue a number of cases which are at various stages of investigation.
Corporate Finance
A project is being commenced within the Bank to conclude the delegation agreement in place with the Irish Stock Exchange regarding the Transparency Directive (TD). It is envisaged that the TD delegation will be unwound by end-December 2012 and, in any event, no later than 19 January 2013.
Investment Service Providers Supervision Integrate the supervision of investment firms and payment institutions into PRISM
A key facet of PRISM is the standard level of supervisory engagement associated with the risk impact ratings of individual firms. Commencing in end-May 2012, the supervisory engagement with ISPS firms will fall within the parameters of PRISM. In the interim, the Bank will reconfigure its supervisory focus and resources to ensure consistency with PRISM. Central to this reconfiguration is the utilisation and interrogation of the now electronically-submitted data arising from the 2011 Returns and Receipts Project.
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Consumer Protection
High Level Goal 4 Ensure that the best interests of consumers of financial services are protected
Consumer Protection
At end 2011, the Consumer Protection Directorate developed its strategy in the context of its mission of Getting It Right for Consumers. The strategys priorities are captured in the framework below and referred to as the 5 Cs:
Confidence:
Informing consumers, consumer bodies and other key stakeholders of the Consumer Protection Directorates role and remit; taking action to deal with risks and existing potential consumer detriment. Changing culture in the financial services industry; building and understanding of consumer protection at home and abroad. Coherent consumer protection framework; financial sector compliance support; monitoring and enforcing compliance and inspections. Develop internal challenge processes; challenging firms in how they deal with consumers. Identifying and understanding consumer risk; representing the consumer interest.
Culture:
Compliance:
Challenge:
Consumer:
As part of the Banks strategy development, there was engagement with a number of key stakeholders including those who also share and contribute to the key objective of protecting consumers. This comprehensive engagement process proved very beneficial and has resulted in the development of an ambitious, consumer-focused strategy that strives to build on and enhance sustainable consumer protection, now and in the future. This new strategy will be rolled out over the next three years. Some of the key messages and priorities coming forward from those discussions for consideration in the development of the Banks new consumer strategy included mortgage arrears, over-indebtedness of consumers, the complexity of financial products, low levels of awareness among consumers of protections available, a need for more targeted consumer information, issues relating to overcharging and mis-selling of financial products, incentives for selling financial products and the potential impact of developments in mobile technology for consumers of financial services. In meeting the Banks consumer strategy during 2012, its key priorities and focus will be on the following: i) Mortgage arrears: continuing the Banks work on Mortgage Arrears Resolution Strategies (MARS) for each of the lenders in order to ensure that lenders are delivering appropriate solutions to consumers in mortgage arrears.
ii) Policy agenda: to undertake reviews of the statutory Switching Code, the Code of Conduct on Mortgage Arrears (CCMA), the Code of Conduct for Business Lending to Small & Medium Sized Enterprises (SME Code) and to continue to contribute to the domestic and EU regulatory agenda in relation to consumer issues. 66
Consumer Protection
iii) Themed inspections: continue to use the themed inspection model as a tool to test compliance of regulated firms with the Banks suite of consumer protection rules. During 2012, these themed inspections will include regulated firms readiness for the implementation of the revised Consumer Protection Code, mortgage arrears, payment protection insurance and the best execution of investment transactions to ensure investment firms are meeting the minimum standards; and, themed inspections in the retail intermediaries sector to assess compliance with consumer and prudential requirements. iv) Retail Intermediaries: strengthen the Banks supervisory approach to the retail intermediary sector in order to identify and understand the specific risks that the retail intermediary sector poses for consumers including the introduction of an on-line reporting mechanism for this sector. v) Advocacy: continue to advocate for and represent the consumer interest through ongoing engagement with the Banks many stakeholders and continued input and involvement on many initiatives including the development of a regulatory regime for debt management companies and the roll-out of a basic payment account. In addition, the Bank will develop how it can provide information directly to consumers, highlighting the protections available to them under the Banks consumer protection role.
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Enforcement
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Authorities in the areas of governance and accounting and auditing policy with a view to influencing international policy development in these areas. The Bank will review and assess the European Commissions proposal for an EU Regulation on specific requirements regarding statutory audit of public-interest entities and the Proposal for a Directive of the European Parliament and of the Council amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts to identify those issues which impact the Bank. The Bank will continue to monitor, review and support the implementation of the Corporate Governance Code for Credit Institutions and Insurance Undertakings and the Corporate Governance Code for Captive Insurance and Captive Reinsurance Undertakings. Those areas of the Supervision and Enforcement Bill 2011 of relevance to auditors and auditing processes will be assessed.
Markets Policy
The Banks objectives for 2012 are to: Prepare the transposition of Directive 2010/73/EU, which amends both the Prospectus Directive and Transparency Directive; Assist Department of Finance in the relation to MiFID II and EMIR; Prepare for the implementation of the Alternative Investment Fund Managers Directive in 2013; Participate in discussions concerning proposals for new EU legislative measures which will revise the UCITS Directive; and Participate in development of EU Regulations for Venture Capital and Social Entrepreneurship Funds.
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Regulatory Transactions
In 2012, the Bank will commence the implementation of its Regulatory Transactions strategy. The objectives of the strategy are to: Reduce regulatory and reputational risk through improved information quality; Improve process efficiency through centralisation, standardisation and automation; and Improve process effectiveness through the implementation of a stakeholder engagement model, which will address issues such as consistency of decision making and improved turnaround times.
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Appendix 2
High Level Goal 3 Ensure proper and effective regulation of financial institutions and markets
Strategy 2010-2012 Strengthen the prudential supervisory framework for financial institutions through the implementation of new EU regulations Action Prepare for the implementation of new EU Directives for credit institutions and investment firms: CRD IV and CRD V Introduce revised large exposure limits for systemically important credit institutions Prepare for the implementation of a new EU Directive for insurance undertakings: Solvency II Planned Action for 2012 Assist Department of Finance in drafting Statutory Instruments to transpose CRD IV nationally Indicator (Target Date or Outcome) Final CRD IV text proposed for Q3 2012, to be implemented by 1 January 2013 Revised large exposure limits introduced Note: Deadlines for implementation have changed. Transposition start of 2013, Implementation start of 2014 National legislative proposal implemented 1 June 2013
Awaiting specific rules at European level before progressing further Complete relevant supporting activities leading to implementation and transposition, including appropriate EIOPA engagement
Pre-Applications to be progressed to meet target completion date Revised Supervisory Review Processes to be finalised in advance of implementation date of Solvency II Prepare for the implementation of EU Directives for the funds industry: UCITS IV and Alternative Investment Fund Managers (2013) Prepare for the implementation of the AIFMD and related level 2 measures into Irish law.
Continue to participate in the development of the required Level 2 implementation measures. The Bank will also participate in an AIFMD transposition workshop to be organised by the European Commission
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Strategy 2010-2012
Action
Planned Action for 2012 Assist the Department of Finance in the development of proposed EU legislation regarding European Venture Capital Funds and European Social Entrepreneurship Funds Funds
Indicator (Target Date or Outcome) Participate at meetings of the European Commission Working Party on Financial Services, organised to discuss the proposed Regulations, commencing 11 January 2012 30 Nov 2012 Quarterly monitoring against metrics 30 Nov 2012 Reporting and stress test results Monitored under MOU with IMF/EU
Assist Government achieve a substantial downsizing of the banking system, through restructuring and deleveraging Raise capital and liquidity standards for credit institutions following a stringent forward looking assessment of needs Monitor compliance with the capital and liquidity targets that have been set for each institution under phase 2 of the Prudential Capital Assessment Review and new Prudential Liquidity Assessment Process Strengthen the banking framework Enhance banking supervision through improved data collection financial reporting, and credit risk assessments Ensure banks adopt prudent policies to address the deterioration in asset quality Ensure sound bank lending and risk management
Implement Financial Measures Programme 2012 Continued monitoring and reporting to External Partners Implement Financial Measures Programme 2012 Continuation of Financial Measures Programme in 2012 Continuation of Financial Measures Programme
Complete planned actions in updated banking supervision strategic approach Continued development of data received Monitor compliance with new impairment provisioning and disclosure guidelines Ensure implementation of Risk Mitigation Plans in accordance with timelines established by The Bank Publication of the Banks Stakeholder Consultation Policy
30 June 2012
Enhanced detail and granularity of data Review provisioning and disclosures in 2011 Financial Statements Ongoing
Publish a Consultation Policy relating to consultations with the Banks stake holders that will be consistent with best practices in European supervisory institutions
30 June 2012
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Strategy 2010-2012
Action Introduce appropriate corporate governance requirements for MiFID firms and captive insurance undertakings, following public consultation
Planned Action for 2012 Continue to monitor the development of CRD IV and MiFID II
Monitor compliance with corporate governance requirements for captive insurance undertakings
It was decided to postpone work on corporate governance requirements for MiFID firms pending the outcome of CRD IV and MiFID II Ongoing
Continued participation on the EBA Task Force including any follow up action as required e.g. on data collection exercises and EU implementation study Issue FAQ on new Fitness and Probity Standards Review of boards of banks to be completed.
Q1 2012 All directors of State-supported credit institutions reviewed and investigations under Part 3 of the Central Bank Reform Act 2010 initiated where considered warranted. Ongoing
Consider the need for additional requirements in respect of internal governance and risk management when international initiatives in these areas are published, including EBA Internal Governance Guidebook which is due to be published in June.
Pending the conclusion of the Working Group on auditor assurance (comprising representatives of the auditing profession and IAASA), additional guidance over and above that included in the EBA and EIOPA Guidelines may be produced. The group will also bring forward the implementation of the Comptroller and Auditor General as set out in December 2009 regarding the provision of positive assurance by auditors on the internal governance of financial institutions Contribute to the final report of the Credit Union Commission by providing papers and input into the direction of the reports and its recommendations Commissions final report to be completed
Ongoing
March 2012
March 2012
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Appendix 2
Strategy 2010-2012
Action Develop a comprehensive strategy to enhance the viability of the credit union sector
Planned Action for 2012 Contribute to the final report of the Credit Union Commission by providing papers and input into the direction of the reports and its recommendations Commissions final report to be completed
March 2012
Assist the Department of Finance to develop legislation which will strengthen the regulatory framework for credit unions
Work with Department of Finance to develop legislation to be submitted to the Oireachtas to strengthen the regulatory framework for credit unions Work with Department of Finance to support the enactment of legislation
June 2012
December 2012
Final report of the Credit Union Commission to be completed Review and assess the recommendations on the future structure of the sector Develop work programme as a result of the review and work towards its implementation
March 2012
Arising from legislation to be presented to the Oireachtas by end Q2 2012, develop drafts for input to consultation paper on key areas of Prudential Rulebook Issue a consultation paper on fitness and probity for the credit union sector Arising from legislation to be presented to Oireachtas by end Q2 2012, prepare draft consultation paper on governance for credit unions Implement recommendations of taskforce to review the regulatory regime for the safeguarding of client assets
December 2012
Ensure fitness and probity within credit union sector Develop governance practice for credit unions
December 2012
December 2012
Implementation of taskforce recommendation to commence Q2 2012. Implementation process will depend on external stakeholder and work is expected to continue into 2013.
Ongoing
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Appendix 2
Strategy 2010-2012
Action Develop the risk model to target the deployment of supervisory resources
Planned Action for 2012 PRISM to be further developed and enhanced for release to all supervision divisions
Indicator (Target Date or Outcome) Release B of PRISM to be rolled out to all supervision divisions in Q2 2012. Release C (enhancements) due in Q4 2012
Complete development of an engagement model for financial institutions based on their risk profile and the Banks policy of more intensive supervision, involving close engagement with firms and increased number of onsite inspections Apply the appropriate intensity of supervision appropriate to the risk profile of the financial service provider Develop risk model management information set
Engagement model for financial institutions based on their impact and risk profiles to be rolled out to the remaining supervision divisions.
Apply the appropriate intensity of supervision applicable to the risk profile of the financial service provider Supervision Support Team formed
Programme of review meetings and inspections undertaken Supervision Support Team to provide best practice guidance for supervision by Q4 2012 having undertaken 2 supervisory reviews Publish target turnaround times for the approval of persons to perform pre-approval controlled functions in regulated entities June 2012 Automation of Returns Receipt process completed September 2012 Migrate other functions from regulatory divisions December 2012
Review the Banks approach to the supervision of Low Impact Firms Ensure that new financial institutions entering the market are competently managed and have appropriate business models Authorise new financial institutions in accordance with the relevant regulations
Review the Banks approach to the supervision of Low Impact Firms Authorise new financial institutions in accordance with the relevant regulations
Q2 2012
In accordance with legislative requirements and timelines Data on number of firms authorised published
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Appendix 2
Action Issue guidance on regulatory issues Influence the development of guidance and practice notes by other regulatory bodies
Continue to work closely with the auditing and accounting professions Achievement of full Enforcement complement Continued input to Department of Finance via Legal Division on strengthening of powers Proposal in relation to the confidentiality provision for Whistleblowers in the Supervision and Enforcement Bill to be submitted to the Department of Finance
Ongoing
Q4 2012 Ongoing
Proposals finalised in conjunction with the Department of Finance for submission to the Office of the Parliamentary Counsel to the Government Supervisory directions and administrative sanctions applied as appropriate
Investigate alleged instances of unauthorised activity or non-compliance with regulatory requirements and take appropriate enforcement action, including use of supervisory directions and administrative sanctions Complete programme of special investigations arising from the financial crisis Assist with the prevention of money laundering and financing of terrorism (AML-CTF) Perform statutory obligations as competent authority for credit and financial institutions under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (CJA 2010)
Investigate alleged instances of unauthorised activity or noncompliance with regulatory requirements and take appropriate enforcement action, including use of supervisory directions and administrative sanctions Progress examinations currently underway during 2012. Provide feedback through implementation of a communications strategy which will assist credit and financial institutions in applying relevant measures under CJA 2010 Undertake programme of 20 AML/ CTF inspections Take appropriate enforcement action against credit and financial institutions with inadequate risk management and control mechanisms
Progression of cases to the extent possible. Increased awareness amongst industry of responsibilities under CJA 2010 Q4 2012 Enforcement action taken as appropriate
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Appendix 2
Strategy 2010-2012
Action Perform statutory obligations as competent authority for Financial Sanctions regime
Planned Action for 2012 Implement a communications strategy to engage with industry on applicable sanctions and related legislation
Indicator (Target Date or Outcome) Increased awareness amongst industry of responsibilities under applicable sanctions and related legislation Deliver presentations at external seminars Engage with Department of Finance and other external agencies as required Queries from members of the public and/or regulated entities responded to within target deadlines
Prepare for the unwinding of the delegation of functions to the Irish Stock Exchange as mandated by the EU
Unwind Market Abuse delegation agreement by end 2011 Unwind Transparency delegation by end 2012
Delegation agreement to be unwound by 31 January 2012 Delegation must end by 19 January 2013 The Bank will endeavour to unwind the delegation by Q4 2012
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Appendix 2
Strategy 2010-2012 Ensure that market participants act in a fair and transparent manner
Action Supervise monitoring of transactions by Irish Stock Exchange Undertake investigations of potential instances of Market Abuse. Review, approve and passport prospectuses submitted for approval pursuant to the Prospectus Directive 2003/71/ EC
Planned Action for 2012 Supervise monitoring of transactions by Irish Stock Exchange Undertake investigations of suspicious transactions under the Market Abuse regulations Review and approve prospectuses on a timely basis and within the timeframes set out in the Prospectus Adviser Agreement and/or legislation as appropriate. Ensure that the quality of disclosure within the documents meets with the statutory requirements of the Prospectus Directive
Indicator (Target Date or Outcome) Publish number of Market Monitoring reports Publish number of investigations Publish statistical data on the following; Number of prospectus approvals Number of passport requests (inward and outward) Number of final terms filed
Establish a Stakeholder Consultative Group to liaise with on matters relating to the Prospectus Directive, Transparency Directive and Market Abuse Directive. Assist with relevant supporting activities leading to the implementation and transposition of the Amending Directive Continue to liaise with Department of Jobs, Enterprise and Innovation on the drafting of the amending legislation Update Prospectus Handbook Update internal controls, systems and procedures
Q2 2012
Prepare for the implementation of the amendments to the Prospectus Directive 2003/71/ EC pursuant to the Amending Directive 2010/73/EU
1 July 2012
Continue to assist with drafting of the technical standards for the Short-Selling Regulations
Continue to progress work relating to proposed Market Abuse Regulations Engage with Stakeholders to promote compliance with key aspects of the Market Abuse Directive
Continue to provide direct assistance to DJEI regarding the Market Abuse Regulations Consult with market participants on the handling of inside information under the Market Abuse Directive.
to be determined.
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Appendix 2
Strategy 2010-2012
Action Identify and investigate instances of non-compliance with the Transparency Directive.
Planned Action for 2012 Monitor issuers disclosure of information, disclosure of major shareholdings and voting rights under the Transparency Regulations
Indicator (Target Date or Outcome) Publish statistical data: Number of suspensions Number of annual reports, half yearly reports Number of Interim Management Statements Number of number of major shareholding notifications filed
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Appendix 2
High Level Goal 4 - Ensure that the best interests of consumers of financial services are protected
Strategy 2010-2012 Strengthen the consumer protection supervisory framework for financial institutions Action Mortgage Arrears and Development of a Mortgage Arrears Resolution Strategy Planned Action for 2012 Ensure there is a robust framework in place in all mortgage lenders to deliver appropriate solutions to people in mortgage arrears and pre-arrears which treats customers fairly and which is sustainable from the lenders perspective in terms of cost. Codes to be reviewed during the year Switching Code SME CCMA Q2 2012 Commence in Q4 2012 Commence in Q4 2012 Indicator (Target date or Outcome) End 2012
Participate in consumer focused reviews and input into key policy areas including; Development of a Basic Bank Account Regulation of Debt Management firms
Ongoing
Strengthen approach to identify, understand and deal with specific risks across the sector through themed inspections, monitoring of sector data received through on-line returns and dealing with non-compliant firms; Embed and review on-line reporting mechanism.
Ongoing
Q4 2012
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Banc Ceannais na hireann Bosca OP 559, Srid an Dma, Baile tha Cliath 2, ire Central Bank of Ireland PO Box 559, Dame Street, Dublin 2, Ireland Telephone +353 1 224 6000 Fax +353 1 671 6561 Web www.centralbank.ie Email enquiries@centralbank.ie