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Coronavirus - Dealing with the financial services regulatory challenges - Ireland

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The scale of the challenges faced by the financial services industry in Ireland (and globally) as a result of Covid-19 is, of course, enormous.

On 18 March 2020, the Banking and Payments Federation Ireland (BPFI) issued a statement, confirming that the five retail banks in Ireland had met with the Minister for Finance that day and they have agreed a joint plan to support businesses and individual customers through these challenging times. The joint plan includes e.g. a payment break, including for mortgages, of up to three months and deferral of court proceedings for three months.

As stated by the BPFI CEO in the press release, “The banking sector will support our customers and the economy, and work to protect the safeguards built up within the banking system in Ireland over the last ten years including capital, liquidity and operational resilience.”

It will be particularly challenging in the current environment for all types of regulated financial services firms to meet their regulatory requirements, in areas relating to, for example, operational resilience, capital, liquidity, treating customers fairly and governance.

We are working closely with our clients to assist them with these challenges. This brief note sets out some general guidance.

The regulatory response to Covid-19

Regulators internationally have indicated that they are willing to have some flexibility in dealing with this crisis situation. Thus, for example, on 12 March 2020, the European Banking Authority (EBA) issued a statement in which it recommended that national authorities “make full use, where appropriate, of the flexibility embedded in the regulatory framework to support the banking sector.” Also, the EBA recommended that national authorities:

“plan supervisory activities, including on-site inspections, in a pragmatic and flexible way, and possibly postpone those deemed non-essential. [National authorities] could also give banks some leeway in the remittance dates for some areas of supervisory reporting, without putting at stake the crucial information needed to monitor closely banks’ financial and prudential situation.”

Nevertheless, the fact remains that regulated financial services firms will be expected to ensure compliance with core regulatory requirements on them.

Thus, for example, in a statement issued on 4 March 2020 on Covid-19, the Central Bank of Ireland (CBI) stated that it expects regulated firms to have appropriate contingency plans in place to be able to deal with major operational events.

Similarly, the UK Financial Conduct Authority (FCA) issued a statement on 17 March 2020, in which it stated that it:

“expect[s] firms to be taking reasonable steps to ensure they are prepared to meet the challenges coronavirus could pose to customers and staff, particularly through their business continuity plans. We expect firms to provide strong support and service to customers during this period.  They should be clear and transparent and provide support as consumers and small businesses face challenges at this time. We also expect firms to manage their financial resilience and actively manage their liquidity. Firms should report to us immediately if they believe they will be in difficulty.”

It is likely that the CBI would have a similar expectation of the firms it regulates.

Practical steps regulated firms should take

It is essential for the Boards of regulated firms to ensure they are fully immersed in the issues facing their firms in the current environment and that they take appropriate action without delay. It can be expected that, in due course, the CBI will take action against firms and individuals where they have failed to perform their role to the level expected by the CBI.

  • Business Continuity Plan: It is essential that Boards of regulated firms very regularly review and update the Business Continuity Plan they have in place and that firms comprehensively monitor (probably on a daily basis) the implementation of measures that need to be put in place to ensure business continuity.

This will include ensuring that appropriate staff are in place to carry out all required functions and that they have the means to carry out their functions remotely if, as is likely, they cannot carry out their functions from an office of the firm. It will also include ensuring that back-up staff are available should the nominated individual(s) not be in a position to carry out their function(s).

In this regard, the CBI’s Guidance on the Fitness & Probity Standards provides that “in the most exceptional of circumstances” firms may appoint an individual to carry out Preapproval Controlled Function (PCF) roles on a temporary basis, provided this is agreed in writing in advance with the CBI.

The business continuity planning and implementation process will also need to ensure that appropriately effective governance procedures are in place, including ensuring that the three lines of defence model operates effectively as intended.

Firms should consider whether they will need to engage with the CBI to have in place temporary PCF role holders as a business continuity measure.

• Outsourcing: Firms will need to engage very closely with any providers of outsourced services they rely on, to ensure that the outsourced providers remain in a position to provide the outsources services to the required standard. Clearly, the CBI will hold the regulated firm, rather than the outsourced provider, accountable for any failings.

• Engaging with the CBI: It will be essential for a regulated firm to engage with the CBI at the earliest feasible stage where there is any concern that the firm might not be in a position to comply in full with their regulatory requirements or might have capital or liquidity issues. If there is to be any prospect of a firm benefitting from forbearance from the CBI in light of the crisis arising from Covid-19, it is imperative that the firm engages proactively and comprehensively with the CBI. The need for firms to engage proactively and co-operatively with the CBI was highlighted by Derville Rowland (CBI’s Director General, Financial Conduct) in a November 2019 speech launching the latest CBI Administrative Sanctions Guidance.

• Ensure customers are treated fairly: The CBI will expect firms to ensure that they are clear and transparent in their dealings with customers, particularly consumers (and most particularly, vulnerable customers) and that they treat them fairly, in full compliance with the Consumer Protection Code 2012, as amended. This is particularly important given the CBI’s much-expressed concern about the lack of a customer-focused culture in the financial services sector.

As stated in the 19 March 2020 CBI press statement on 19 March 2020, “The Central Bank expects all regulated firms, including banks, retail credit and credit servicing firms to take a consumer-focused approach and to act in their customers’ best interests.” Also:

“The Central Bank also emphasised [at the meeting with the BPFI] the provisions of the existing consumer protection framework, which is designed to ensure that consumers’ best interests are protected, particularly in times of financial difficulties. People who may be experiencing particular vulnerabilities as a result of the impact of COVID-19, for example, illness or loss of income, must be provided with whatever reasonable arrangements and/or assistance may be necessary in dealings with regulated entities.”

For support on legal issues facing your business in light of the outbreak of Covid-19, please visit our Coronavirus hub to get our latest information and guidance.

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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