In your view, what are the recent trends in bank regulation in your jurisdiction?
Banking & Finance (2nd edition)
The proposed amendments of the framework for capital requirements of credit institutions and investment firms by the European Commission shall strengthen the resilience of the banking sector by introducing more risk-sensitive capital requirements. Challenges arise in particular from the fact that these concepts designed for large institutions (“big players” and global systemically important banks e.g., TLAC and MREL) may not be applied to small institutes without making adaptations, as Austria has a particularly large number of small and medium-sized banks.
The implementation of the leverage ratio and TLAC standards are planned for introduction into the Republic of Cyprus. The Cyprus banking sector currently applies one of the most stringent compliance and know-your-client frameworks within the EU.
Recent trends in banking regulation consist of a shift from locally enacted legislation to direct application of EU Level 2 regulations or direct references to EU legislation in national law. Increased cooperation within the SSM and direct reliance on EBA guidance has also increased regulatory harmonization within the EU. The full implementation of the EU banking union, including the proposed common European deposit insurance scheme, will continue to shape the legislation with respect to co-operation in crisis management and the recovery and resolution of credit institutions. Financial stability and the CRD V/CRR II reform will continue to be topical in 2019.
Brexit – the UK’s exit from the European Union – will have an impact on the regulation of cross-border activities and local Finnish branches of UK financial institutions. Operative functions of EU credit institutions will be under closer scrutiny to prevent excessive outsourcing of functions to non-licenced UK entities. A government bill on transitional measures for UK investment firms currently offering investment services or carrying out investment activities in Finland is due to be enacted as law. If adopted, UK investment firms will upon registration with the FFSA be able to offer investment services in Finland during a transitional period after Brexit.
Following the move of the Nordea Bank Oyj headquarters to Helsinki, Finland's banking sector is one of the largest in Europe relative to the size of the national economy. Following the bank's redomiciliation, Nordea is now under the prudential supervision of the SSM. In practice, supervision duties are carried out in close collaboration between the ECB and the FFSA.
Indisputably, the implementation of the anti-money laundering and counter terrorist financing (AML) regu-lation by entities is the target of numerous inspections by the college of the ACPR which are often fol-lowed by disciplinary procedures in front of the Sanctions Committee. Banks custodians and digital as-sess service providers should also comply with the AML regulation in the view of the ACPR on transac-tions from crypto-currencies V. FIAT.
Furthermore, important challenges are coming with a possible new design of internal permanent control framework.
In line with the ongoing efforts to render the Turkish banking legislation compliant with the Basel requirements within the last decade, the BRSA continues to reflect the Basel requirements in local banking legislation by enacting new regulations or amending the currently in-effect legislation in order to harmonize the Turkish banking system with international banking standards and trends. The BRSA is expected to continue its efforts to implement increasingly stricter regimes in the Turkish banking sector to increase the profitability of Turkish banks and reduce the risks that the same may encounter with the aim of establishing a stronger banking system. Although the draft regulation on the determination and calculation of NSFR is available on the official website of the BRSA since January 2018, for such purposes, and the BASEL III requirements within this respect have entered into force as of January 2018; the BRSA has yet to enact the relevant draft regulation.
In addition, one of the main focus points of the recently enacted banking regulations is the protection of financial consumers. The BRSA strictly regulates the terms and conditions of the financial products and services (especially regarding consumer loans, vehicle loans and housing finance loans) to be extended to consumers by Turkish banks and the fees and expenses to be charged in relation to financial transactions conducted by consumers, with a view to protect the financial consumers against unjust banking practices that have been imposed on financial consumers through contractual terms of the financial agreements concluded between Turkish banks and financial consumers.
Moreover, the Turkish foreign exchange legislation has seen piecemeal and significant amendments over the past year. As such, the Decree No. 32 has been amended with a view to re-regulate ability of Turkish residents to obtain foreign currency loans. In parallel with the amendments introduced to the Decree No. 32, the Capital Movements Circular dated January 2, 2002 has been abrogated in its entirety and has been replaced by the CBRT with the Capital Movements Circular dated May 2, 2018 (the “Capital Movements Circular”). Accordingly, Turkish residents are no longer able to utilize foreign currency indexed loans from abroad or within Turkey. Also note that Turkish resident individuals are prohibited from obtaining foreign currency denominated loans from abroad or within Turkey; however, Turkish resident legal entities with foreign currency income (i.e. income generated from export, transit trade, sales and deliveries deemed as export, foreign exchange generating services and transactions, as determined under the relevant legislation) may obtain foreign currency loans from abroad or within Turkey. Nevertheless, Turkish companies which do not have foreign currency income may still obtain foreign currency denominated loans; provided that such company and/or the respective loan fall within the scope of exemptions listed under the Decree No. 32 and the Capital Movements Circular.
Furthermore, upon the BRSA’s recently adopted conservative approach, there is a restrictive trend in the factoring sector with respect to cross-border factoring transactions to be conducted between foreign factoring institutions and Turkish residents. Although the BRSA’s approach has not been clearly reflected in the relevant legislation and is implemented through administrative letters issued by the BRSA, the restrictions on cross-border factoring transactions and the licensing requirement thereunder have made a significant impact on the ongoing supplier financing programs conducted between non-Turkish resident factoring institutions and Turkish residents. It should, however, be noted that due to the BRSA’s restrictive approach on supplier finance programs, foreign banks and financial institutions have recently tended to conduct draft purchase programs.
We currently see three trends in Swiss bank regulation:
- The further (de)regulation in the area of FinTech to allow innovation, disintermediation, and techno-logical developments;
- fine-tuning of restructuring measures (bail-in tool etc.); and
- revision of the depositor protection regime.
Furthermore, in November 2018, the Swiss Federal Council has instructed the Swiss Federal Department of Finance and the Swiss Federal Department of Justice and Police to prepare a new draft legislation addressing several topics in the DLT | Blockchain area (including tokenization of shares and other finan-cial instruments, regulation of trading platforms for crypto assets, and segregation of digital assets in insolvency).
We can see steady focus on protection of consumers and further inflow of EU legislation. In our view the regulatory focus shifted also on new risks such as cyber risk and crypto currencies seems to increase. Furthermore, there is a tendency towards reporting single data cubes instead of aggregated reports.
In our view the banking regulatory innovation in Germany is driven by two major topics. One topic is the regulatory handling of new market participants in the FinTech sector and associated phenomena such as crypto currencies and token-generating events. These innovations by now have the full attention of regulatory and legislative bodies. It is fair to expect that legislation in relation to crypto assets will be enacted in the near to medium term.
The second topic area is Brexit. It appears likely that Germany as a location for the financial industry will gain importance after Brexit. As a consequence, several financial institutions are in the process of establishing or broadening their existing presence in Germany. These movements create a significant challenge for the German regulatory authorities and the ECB and necessitate the allocation of significant resources.
The recent trends in banking regulation in Israel include the ongoing implementation of reforms already legislated like the "Shtrum Reform" which will separate between the two leading Israeli banks and their controlled credit card companies. The reform had changed the credit card and payments industry in Israel. The two leading banks are in the process of selling their credit card owned companies and shall issue new credit cards through other companies and executed new credit card issuance agreements with the other credit card companies.
The Israeli banks have already invest resources in their new payments applications, which may change Israeli payments system, while leading foreign players might be also involved in the developing Israeli payments industry. We shall face also other reform announced recently which shall aim to lead to more competition in the banking sector, the adoption of new fintech technologies and also the competition from new fintech companies.
The Israeli banks are implementing efficiency plans which shall be resulted in lowering their numbers of employees and branches.
The banks will have also to implement the CRS regulation to check and report the tax status of their clients, which shall continue the efforts and investments they made as to FATCA regulations.
In the last few years, MAS has been focusing its attention on technology, both in terms of the threat posed by technology to conventional banking operations, as well as the disruptive effect on conventional banking services that arise from technology enabling new ways of doing business and service offerings.
The FSA is reforming its supervisory and monitoring approaches from a rule-based approach, which was formed after the financial crisis of the 1990s, to a principle-based, forward-looking approach more suitable for the recent environment of Japanese banks. The FSA changed certain organisational structures in 2018 and plans to abandon the FSA’s rule-based Inspection Manuals to suit the new approach.
In June 2018, a study group in the FSA published an interim report, which proposes to reform the fundamental financial regulatory framework from the current industry-by-industry approach (e.g., banks, broker-dealers, fund transfer service providers and money lending business providers) to a functional or service-by-service approach (e.g., lending, deposit taking, securities businesses and fund transfers) to further facilitate FinTech innovations. This overhaul of Japanese financial regulations is subject to further discussion, but is expected to accelerate the unbundling and re-bundling of financial services, leading the banking industry to an entirely new world.
The CBO continues to work on strengthening regulatory oversight as well as safeguarding consumer and investor protection in line with regional and international standards and practices. Oman is committed to a strict implementation of anti-money laundering rules and regulations preventing other nefarious practic-es (i.e. credit card frauds and similar) and to ensuring that the local banking infrastructure and ﬁnancial sector is protected in every way.
The recent trends in bank regulation move towards the implementation of the EU regulations and direc-tives into Georgian legislation.
Over the last years FinTech and blockchain related regulatory efforts have been dominant and remain a topical matter. On a legislative level the so-called blockchain act has been brought under way, which is a major legislative project covering all kinds of legal aspects of blockchain related business models. This trend continues on the supervisory level, where the FMA has installed a specialized practice group for FinTech-related financial services (www.fma-li.li/en/regulation/fintech-in-liechtenstein.html).
Other trends are widely influenced by European financial markets regulation and supervisory activity.
The regulation is likely to follow and adapt to technological innovation and new ways of doing business, such as outsourcing, big data analytics, cloud computing, artificial intelligence and distributed ledger technologies.
The examples are as follows:
- the implementation of directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market ("PSD 2") into Luxembourg law by way of law of 13 June 2017 amending the law of 10 November 2009 on payment services and facilitating the entrance of new, innovative operators into the financial sector;
- the adoption of law of 27 February 2018 on interchange fees, implementing Regulation (EU) 2015/751 of 29 April 2015 on interchange fees for card-based payment transactions and amend-ing several laws relating to financial services, and capping interchange fees;
- bill 7363 amending law of 1st August 2001 on the circulation of securities, as amended, was lodged with the Luxembourg parliament; the bill introduces a new article 18Bis allowing account holders to register securities with secure electronic devices such based on the blockchain tech-nology.
Financial regulation in Luxembourg is also evolving to better accommodate the financing of sustainable solutions. Accordingly, the Financial Sector Law was amended by the law of 22 June 2018 in order to create a legal framework governing renewable energy covered bonds. In this respect, it is of note that the Luxembourg Stock Exchange (LuxSE) is highly focused on the issuance of green bonds and other climate finance instruments.
Since Portugal is Member of the European Union and that Banco de Portugal is part of the Eurosystem and the European System of Central Banks, there is no room left for innovation by the Portuguese Legislator (as well as Banco de Portugal) for establishing new trends. Portuguese banking regulation only imitates, reflects, absorbs or mimics European legislation and instructions from the European Banking Authority.
The MFSA closely follows EU banking regulation and strives to implement this locally in a timely manner. All Maltese banks are expected to comply with guidelines and standards issued by EU bodies, which are generally endorsed by the MFSA as soon as they are issued. From a practical perspective, the MFSA is mindful to deploy its supervision and enforcement strategy in a manner which is proportionate to the nature, scale and complexity of Maltese banks.
As the regulatory landscape remains in a state of flux, institutions are likely to retain their focus on risk and compliance initiatives specific to the banking regulatory framework but also pay close attention to data protection issues (including data quality and automation) as well as cyber threats, in light of the incumbent general data protection regulation. Similarly, banks in Malta are currently adapting to the new anti-money laundering framework which requires a novel risk-based approach to customer due diligence.
Moreover, during the past year, Malta has positioned itself as a key player in the world of Distributed Ledger Technologies and Digital Assets. To this effect, local regulators and stakeholders have adopted a broad and open collaborative approach so as to strike a balance between safeguarding Malta as a jurisdiction of financial stability, albeit while fostering an environment in which innovation may thrive. The newly introduced regulatory framework has indeed bolstered Malta into an advantageous, first-mover position, rendering it a jurisdiction of choice for innovators. For instance, the Virtual Financial Assets Act (the “VFA Act”) constitutes the cornerstone of the regulatory framework as it introduces a regulatory regime which encompasses a new class of digital assets as well as ancillary services and product offering relating thereto, including ICOs, Crypto-Exchanges, VFA Agents and VFA Service Providers. The VFA Act constitutes a gateway to the digitalisation of the economy and provides an avenue for new streams of digital alternative finance and investment opportunities. Hence, will be interesting to keep track of the development of virtual financial innovations and assess how certain developments and changes in market trends, tastes and preferences will indeed affect the banking industry.
Banking regulations have become more aware of the threats of cybersecurity, particularly since the hacking of Qatar News Agency in May 2017. Consequently, more banks are enhancing their security teams, including Qatar Central Bank, which assembled a team dedicated to dealing with cyber-attacks.
NBR is aligning local regulations of its competence with EU regulatory framework.
However, banks are facing regulation from other sectors, such as tax and consumer protection, that may affect their activity and profitability.
Bank consolidation trend is present in our jurisdiction, through mergers, preceded by the sales of shares of the bank to the new owner. Also, bank operations are regulated through the application of the Basel III framework, with the application of EU standards.
There has over recent years been an increase in EU-driven bank regulation as the European response to the financial crisis has been implemented, often by directly effective EU regulation. It remains to be seen what the post-Brexit position will be.
After several years of post-crisis regulatory reform and related implementation by banking organizations organized or operating in the US, there is now increased focus on ensuring that policies, procedures and systems work efficiently and effectively. Banking organizations are seeking to streamline, simplify and centralize their policies, procedures and systems, where possible, so they work operationally and allow the banking organization to identify and minimize risk across the organization and to simplify the challenges to successful resolution in the event of insolvency.
Growing concerns with respect to cyber attacks and information technology breaches suggest that there will be no relaxation in regulatory scrutiny with respect to those areas. Finally, there has been an increased discussion of a need for an adjustment of the countercyclical capital buffer requirements for banks, though no rulemaking has yet materialized.
In our view, the bank regulation in Italy will provide new regime on Fintech market and crypto currencies and will continue to regulate the phenomena of the alternative lenders.
Financial institution regulations reform has been implemented by BoT since 2018 to support digital financial service system and in order to be able to use technology in the financial system more fully which will continue to develop financial innovation, to increase financial service efficiency and to reduce the cost and burden on consumers.
In supporting digital financial service system, BoT relaxes its regulations on granting approval for utilizing technology and new types of financial services e.g. Cloud computing, etc, as well as to improve guideline on regulatory sandbox to be more efficient.
In addition, the BoT has the plan to support Small and Medium Enterprises (SMEs) such as relaxing the criteria on granting loan and security.
Biggest trend in regards to the ownership of the Slovenian banks is privatization, as currently the largest Slovenian bank NLB is still in the sale process with 65% of shares already being sold and an additional 10 percent minus one share on sale by the end of the year 2019, in the consequence of which Slovenia will remain the owner of 25 % minus one share of NLB.
On the other hand, Slovenian banking sector strictly follows the trends set forth by the EU banking sector. Namely, on January 13th, a Directive No. 2015/2366 (“PSD2”) came into force, which represents an initiative of the European regulator for the innovation and will open the door to the banking market for FinTech and other innovative banks business models. Slovenia is currently transposing the respective directive in its legislation.