Greg Kilminster
Head of Product - Content
CP158: CBI proposes to update the Consumer Protection Code
The Central Bank of Ireland (CBI) has published a new consultation paper (CP) 158, which proposes a set of updated consumer protections in the Consumer Protection Code (Code). These proposals aim to align the existing Code with the current landscape of the financial services industry and to provide regulated firms with a clearer understanding of their obligations.
Key Proposals
The proposed changes include:
- Increasing clarity and predictability in firms’ obligation to secure their customers’ interests.
- Modernising the Code by reframing, clarifying, and enhancing consumer protections across a range of issues, such as digitalisation, effective informing, mortgage credit and switching, unregulated activities, frauds and scams, vulnerability, and climate risk.
- Integrating the regulatory format and structure of the Code by consolidating a range of existing rules and codes into the revised Code and converting it into two new CBI regulations.
- Improving the accessibility of the Code to support consumers, users, and firms in navigating the information they need through the use of digital tools, explainers, and guides.
Targeted Implementation Date
The consultation period will close on 7 June 2024. The CBI proposes a 12-month implementation period starting from the final date of publication.
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CFTC proposes recommendations on ETFs, T+1 settlement and digital asset taxonomy
The Global Markets Advisory Committee (GMAC) of the Commodity Futures Trading Commission (CFTC), sponsored by Commissioner Caroline D Pham, has put forward three recommendations aimed at promoting the resiliency and efficiency of US Treasury markets, providing resources on the upcoming transition to T+1 securities settlement, and publishing a first-ever digital asset taxonomy to support regulatory clarity in the United States and internationally.
The recommendations are:
Inclusion of US Treasury ETFs as eligible initial margin collateral: The GMAC suggests allowing US Treasury exchange-traded funds (ETFs) to be
included as eligible Initial Margin (IM) collateral under the CFTC Margin Rules for Covered Swap Entities. This would enhance the robustness and resilience of the collateral pipeline and provide end-users with a wider range of eligible IM. Moreover, allowing UST ETFs as IM collateral could help reduce the overall risk in the financial system and limit the potential for contagion arising from uncleared swaps.
Publication of resource document to support transition to T+1 securities settlement: The GMAC proposes publishing a resource document that would provide details on products covered by the transition to T+1 securities settlement, timelines for transition in various markets, and the benefits of the transition. The document would also highlight the implications T+1 has for various markets, particularly foreign exchange markets, and discuss its impacts on transaction processes for various products, including cross-border impacts. In addition, the document would provide a list of resources to help firms prepare for the transition.
Adoption of an approach for the classification and understanding of digital assets: The GMAC’s subcommittee has engaged digital asset stakeholders across the ecosystem to develop a common approach for classifying and understanding digital assets. This approach aims to set out consistent language for participants in the digital asset ecosystem to promote innovation, identify and address risk considerations, and enable effective regulatory understanding. The subcommittee will reassess any future developments to provide further recommendations to this approach based on the guidance of its members.
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Federal Reserve Governor Michelle Bowman challenges the effectiveness of bank regulation
Federal Reserve Governor Michelle Bowman recently delivered a speech at the Annual Economic Leadership Forum hosted by the New Jersey Bankers Association in New Jersey. During her address, she discussed bank regulation and supervision effectiveness and urged for enhanced efficiency, flexibility and fairness in the regulatory framework. Bowman shared her views on various developments, including bank mergers and acquisitions (M&A), liquidity regulation, and the current trends in bank supervision.
Regulatory reforms need to focus on efficiency and effectiveness
Bowman pointed out that the rapidly changing regulatory landscape suggests a lack of prioritisation in advancing the main objective of prudential banking regulation and supervision, which is to ensure a secure and stable banking system. She emphasised that regulatory reforms should prioritise efficiency and effectiveness, considering their impact on the banking market, economy, and users of banking services. According to her, the goal should be to create an appropriately tailored and calibrated banking framework.
Bank M&A regulatory initiatives should prioritise timeliness
Bowman also stressed the importance of timely processing of bank M&A applications and expressed concern that policy changes could create obstacles for regulators when approving these deals. She suggested that regulatory reforms in this field should prioritise speed and timeliness to avoid operational, financial, and reputational risks, as well as staff turnover and a decline in merger or acquisition activity that may hinder the healthy development of the banking system.
Coordination and research are crucial in updating liquidity requirements
Regarding regulatory reforms about liquidity requirements, Bowman emphasised the need for flexibility, taking into account factors such as risk, size, and funding needs. She stressed that implementing new requirements might restrict lending capacity and burden banks with significant costs. Bowman highlighted the need for coordination in revising the liquidity framework to ensure that it remains complementary and effective, particularly during periods of financial stress. According to her, any proposed changes should be grounded in thorough research, evidence, and data.
Due process and transparency can help accomplish supervisory goals
Bowman also expressed concern about the trends in bank supervision, which have been characterised by significant changes in bank examinations and heightened supervisory expectations. She attributed those changes to bank failures in the spring of 2023 and the subsequent banking stress and noted that “post-mortem reviews” conducted after bank failures had serious deficiencies and were solely relied upon as a basis for resetting regulatory and supervisory priorities. She emphasised the need for regulators to manage supervisory programs and teams to implement effective and consistent supervision within each firm. According to her, conducting supervision in a manner that respects due process and provides transparency around supervisory expectations can help accomplish these goals.
Bowman concluded: “Policymakers cannot fulfil the responsibility of promoting a safe and sound banking system if we ignore efficiency, tailoring, and appropriate calibration of requirements in the reform agenda. These tenets should be central to the reform process.”
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APRA’s superannuation performance test under review in Australia
The Australian government has launched a consultation to explore different design options for the annual superannuation performance test.
Background
The test has been conducted by the Australian Prudential Regulation Authority (APRA) since 2021 to assess the performance of a superannuation product based on its historical investment performance compared to a benchmark return, as well as the most recent administration fees compared to their peer group’s median fees. If a product fails the test, there are certain legal consequences, such as notifying affected members and closing the product to new members if it fails two years in a row. Funds that fail the test can also expect to receive increased supervision from APRA to ensure better outcomes for members.
However, after the government 2022 review of the Your Future, Your Super reforms (which include the test), stakeholders raised concerns about the current test, specifically how it affects the investment decisions of all funds and reduces long-term returns for members.
Proposals
To address these concerns, the CP outlines four broad options for consideration, including:
- Retaining the current testing framework but improving it.
- Exploring a different single-metric framework like the Sharpe ratio or a peer comparison
- Considering a multiple-metric framework that provides a more comprehensive assessment of performance,
- Alternative frameworks proposed by stakeholders.
Next steps
The consultation closes on 19 April 2024.
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APRA and ASIC issue final rules and guidance for FAR
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have issued final rules and additional guidance to help the financial services industry implement the Financial Accountability Regime (FAR). These materials follow a joint public consultation issued on 20 July 2023 and complement the FAR information package released on 3 October 2023.
Background
The FAR replaces the Banking Executive Accountability Regime (BEAR) and aims to improve the risk and governance culture of Australia’s financial institutions. It applies to authorised deposit-taking institutions (ADIs) and their authorised non-operating holding companies (NOHCs) from 15 March 2024.
Package content
The package includes the following items:
- Regulator rules that specify the information to be included in the FAR register of accountable persons. This includes the key functions information provided by ADIs in relation to their accountable persons.
- Transitional rules that prescribe the information that ADIs must provide regarding their existing accountable persons under the BEAR at the transition point to the FAR.
- Descriptions of ADI key functions to assist banking entities in the allocation of key functions.
- Reporting form instructions to assist banking entities in providing the required information to regulators
- A joint letter summarising key issues raised during consultation and their response, including the collection of information and data for the FAR register and the concept and application of key functions.
Implementation date and next steps
The FAR will come into effect for the banking industry on 15 March 2024 and for the superannuation and insurance industries on 15 March 2025. ASIC and APRA will soon consult on the proposed key functions for insurance and superannuation entities.
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