COVID-19: Planning for financial services providers
26 March 2020
In addition to regulatory considerations during COVID-19, financial services firms should consider their commercial agreements and their ability to comply with their contractual obligations, their data management policies, data protection issues and ensure that they continue to keep certain information confidential. We outline below some of the key issues to consider from a regulatory perspective.
Pandemic Planning – plans need to be sufficiently flexible to address a range of issues that could arise during the course of a pandemic and be capable of rapid readjustment. Regulated firms should consult and engage with the Central Bank of Ireland and where required produce details of their plans to the Central Bank. Of critical importance is that regulated firms also need to continue to comply with regulatory requirements, including governance and conduct risk.
Governance – consideration should be given to implementing a crisis management team and key roles and senior management should be identified together with a list of individuals who can take over key functions at short notice. With regard to compliance with fitness and probity requirements, it should be noted that, in exceptional circumstances, it is possible to permit a person to perform a PCF role on a temporary basis and while we are not aware that the Central Bank of Ireland has officially pronounced COVID -19 as exceptional circumstances for such purposes, we must assume it will accept it as such.
Conduct Risk – firms need to consider how the pandemic impacts their ability to comply with regulatory conduct of business obligations. The Central Bank will expect firms to take sufficient measures to ensure the continued delivery of financial services where possible – the customer must remain front and centre of their pandemic decision making and regulated firms must continually communicate with their customers/clients.
Regulators’ Statements – a number of regulators have issued communications regarding COVID-19, which are summarised below:
The Central Bank
According to a statement published by the Central Bank on 4 March 2020, it expects regulated firms to have appropriate contingency plans in place be able to deal with major operational events. It is working with the financial sector to ensure that firms are responding effectively to the evolving situation.
The European Central Bank – Banking Supervision (ECB-BS)
On 12 March 2020, ECB-BS announced a number of measures designed to provide banks directly supervised by ECB-BS with temporary capital and operational relief in reaction to COVID-19. These include allowing banks to use capital and liquidity buffers fully and to partially use capital instruments that do not qualify as Common Equity Tier 1 capital to meet Pillar 2 Requirements (for example Additional Tier 1 or Tier 2 instruments).
ECB-BS is also discussing individual measures with banks, such as adjusting timetables, processes and deadlines.
European Banking Authority (EBA)
The EBA published a statement on actions to mitigate the impact of COVID-19 on the EU banking sector on 11 March 2020. The EBA’s statement provided, inter alia, that:
- The EU-wide stress test exercise is postponed to 2021 to allow banks to prioritise operational continuity, including customer support. For 2020 the EBA will carry out an additional EU-wide transparency exercise in order to provide updated information on banks’ exposures and asset quality to market participants and
- Competent authorities (including the Central Bank of Ireland) should plan supervisory activities, including on-site inspections, in a pragmatic and flexible way and possibly postpone those deemed non-essential. Competent Authorities could also give banks some leeway in the remittance dates for some areas of supervisory reporting.
European Securities and Markets Authority (ESMA)
On 11 March 2020, ESMA recommended a number of actions by financial markets participants for COVID-19 impact to include:
- Business Continuity Planning: all financial market participants, including infrastructures, should be ready to apply their contingency plans, including deployment of business continuity measures, to ensure operational continuity in line with regulatory obligations and
- Market Disclosure: issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospectus or financial situations in accordance with their transparency obligations under the Market Abuse Regulation.