European Banking Authority
PSD2 – EBA publishes peer review on authorisation – 11 January 2023
The European Banking Authority (EBA) has published its peer review on the authorisation of payment institutions and e-money institutions under the revised Payment Services Directive ((EU) 2015/2366) (PSD2), taking into account the EBA guidelines on authorisation issued in 2017 in support of PSD2. Overall, the EBA found that national competent authorities (NCAs) have largely or fully applied the guidelines, thus contributing to consistency and
in the authorisation process. However, the peer review identified divergent practices in relation to the assessment of business plans, applicants’ governance arrangements and internal control mechanisms. It also highlighted differences in applicants’ compliance with PSD2 requirements on ‘local substance’, i.e. the need for payment institutions to have their head office in the member state where they are seeking authorisation and to conduct part of their activities there.
The report also shows that the average duration of the overall authorisation process varies significantly across NCAs, ranging from four to 20 months or more. The quality of applications and applicants’ timeliness in addressing issues identified appear to be key reasons for delay, but different timelines set out in national laws, and different procedural approaches in the acceptance and assessment of applications, also cause variations in the duration of different jurisdictions’ authorisation processes.
The EBA has set out follow-up measures for NCAs, which it will review in two years’ time, and some best practices which might benefit NCAs. These follow-up measures include targeted measures for specific NCAs to strengthen consistency and effectiveness, as well as follow-up measures for all NCAs, which include:
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reviewing their authorisation resources and processes to ensure that they remain adequate to scrutinise applications within a reasonable timeframe;
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ensuring that applicants have a ‘three lines of defence’ model that includes the functions of risk management, compliance and internal audit, where the nature, scale and complexity of their activities makes this appropriate; and
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ensuring that applicants are effectively managed and controlled from the jurisdiction in which they seek authorisation.
EBA: Report on the peer review on authorisation under PSD2
Press release
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National financial education initiatives – European Supervisory Authorities publish joint report – 12 January 2023
The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) (together, the European Supervisory Authorities (ESAs)) have published a joint thematic report on national financial education initiatives, with a focus on cybersecurity, scams and fraud (the Report).
The Report identifies twelve ‘best practice’ suggestions which national competent authorities and other public entities can follow when designing and implementing their financial education initiatives. These include: publishing a clear blacklist of fraudulent providers; engaging in non-digital channels to reach technologically-averse customers; working closely with teachers and education providers; and packaging financial education initiatives targeted at younger users appropriately to ensure they fully engage the target audience.
ESA Report
Press release
Prudential Regulation Authority
UK deposit takers and international banks – PRA’s 2023 supervisory priorities – PRA publishes Dear CEO letters – 10 January 2023
The PRA has published two Dear CEO letters. The first letter is from David Bailey, Executive Director of UK Deposit Takers, and Charles Woods, Director of UK Deposit Takers on the PRA’s 2023 supervisory priorities for UK deposit-takers. The second letter is from Nathanaël Benjamin, Executive Director of Authorisations, Regulatory Technology and International Supervision, and Rebecca Jackson, Director of Authorisations, Regulatory Technology and International Supervision, on the regulator’s 2023 supervisory priorities for international banks.
UK deposit takers - PRA’s 2023 supervisory priorities
The PRA’s 2023 priorities for the supervision of UK deposit takers include the following:
- Credit risk: The PRA's assessment of firms' credit risk management will include a focus on traditionally higher risk areas, including retail credit card portfolios, unsecured personal loans, leveraged lending and commercial real estate. The regulator will also look at firms' early warning indicator frameworks. Firms should expect increased engagement, including targeted requests for enhanced data and analysis.
- Financial resilience: Areas of focus will include the impact of evolving retail and wholesale funding conditions as well as scheduled maturities of drawings from the Term Funding Scheme. The PRA expects firms to proactively assess the implications of the evolving economic outlook on the sustainability of their business models.
- Risk management and governance: Firms continue to unintentionally accrue large and concentrated exposures to single counterparties, without fully understanding the potential risks. The PRA will continue to assess firms' risk management and control frameworks, focusing on their ability to monitor and manage counterparty exposures, particularly to non-bank financial institutions.
- Operational risk and resilience: The PRA will continue to maintain its focus on operational risk and resilience, including through the assessment of firms against the PRA’s operational resilience rules. Firms are expected to be ready for the introduction of ISO 20022 messaging in CHAPS in June 2023.
- Model risk: The finalised model risk management (MRM) principles for banks are expected to be published by the PRA in H1 2023. The PRA will continue to focus on three key workstreams: (i) the implementation of Internal Ratings Based (IRB) hybrid models; (ii) the IRB roadmap for non-mortgage portfolios; and (iii) IRB aspirant firm model applications. The regulator will also increase its focus on new Fundamental Review of the Trading Book (FRTB) models and firms' intended methodologies.
International banks – PRA’s 2023 supervisory priorities
The PRA’s supervisory priorities for 2023 in relation to international banks include the following:
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Financial resilience: firms are expected to take proactive steps to assess the implications of the changing economic outlook. The PRA will maintain focus on financial resilience through ongoing assessments of individual firms’ capital and liquidity positions, as well as how these may evolve in light of potential headwinds.
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Operational risk and resilience: The PRA will continue to maintain its focus on operational risk and resilience, including through the assessment of firms against the PRA’s operational resilience rules. By now, firms are expected to have identified and mapped out their important business services, set impact tolerances for these services and commenced a programme of scenario testing. The PRA will focus on the tests that firms are conducting to assess whether they can remain within their impact tolerances for each important business service during ‘severe but plausible disruptions’ to their operations. The PRA also expects firms to have fully understood the impact on their operational resilience of offering crypto products.
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Data: Firms are expected to consider the thematic findings set out in the PRA’s communications on regulatory reporting to inform how best to improve their data submissions going forward. The PRA will continue to use skilled persons reviews in this area.
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Financial risk arising from climate change: The PRA refers to its October 2022 letter on climate-related financial risk. Firms are expected to be able to demonstrate capabilities to meet the PRA’s supervisory expectations.
PRA Dear CEO Letter: UK deposit takers supervision 2023 priorities
PRA Dear CEO Letter: international banks supervision 2023 priorities
Competition and Markets Authority
Retail banking market investigation – CMA issues roadmap completion decision – 12 January 2023
The Competition and Markets Authority (CMA) has confirmed that the six largest banking providers in the UK (Barclays, HSBC UK Bank plc, Lloyds Banking Group, Nationwide Building Society, NatWest Group and Santander) have fully implemented the standards required of them under the Retail Banking Market Investigation Order 2017 (the Order).
The Order contained a package of remedies, most notably the open banking initiative which enables customers and small/medium sized businesses (SMEs) to share their bank account data securely with trusted third parties who are then able to provide tailored advice and services to save the account holder time and money. The programme has been well-received and currently has over six million active users in the UK.
The CMA has stated that the Open Banking Implementation Entity (the OBIE) will conduct ongoing monitoring of the six banking entities’ continuing obligations. The OBIE will also continue its work to ensure that the three remaining major banking providers in the UK which are required to implement the provision of the Order but have not yet done so (Allied Irish Bank, Bank of Ireland and Danske Bank), do so as soon as feasible. The CMA will consider enforcement action as appropriate to ensure this happens in a timely manner.
Roadmap completion decision
Press release
