Finance and Capital Markets

Legislative and Regulatory Developments

ACTS COMMENCED SINCE THE AUTUMN HORIZON TRACKER

Bretton Woods Agreements (Amendment) Act 2022

Date signed into law: 1 November 2022

This act facilitates Ireland's participation in the International Monetary Fund’s ("IMF") New Arrangements to Borrow ("NAB") and enable grant contributions to IMF Trust Funds to deal with pressing global issues such as COVID-19, debt sustainability and vaccines. The NAB supplements IMF resources to forestall or cope with an impairment of the international monetary system.

Through the NAB, a number of member countries and institutions stand ready to lend additional resources to the IMF. In January 2021, a reform of the NAB took effect following consents from NAB participants, almost doubling the size of the NAB to SDR 361 billion (US$521 billion) for the period from 2021 to 2025. With this act, Ireland takes its place as a contributor to the NAB, which is another step in Ireland’s growth in stature on the international stage.

Commencement date: The whole act commenced on 5 November 2022

Credit Guarantee (Amendment) Act 2022

Date signed into law: 2 December 2022

This act was initiated as a bill on 27 October 2022 and signed into law on 2 December 2022. It gives ministerial powers to create a timebound credit guarantee scheme for loans to businesses impacted as a result of the invasion of Ukraine and to increase the aggregate liability for contributions committed to the Strategic Banking Corporation of Ireland ("SBCI") by relevant ministers to fund delivery of future SME loan schemes.

Commencement date: 8 December 2022

IRISH LEGISLATION PASSED SINCE AUTUMN HORIZON TRACKER 2022

Air Navigation and Transport Act 2022

Date signed into law: 7 December 2022

This act will facilitate reform of safety and economic regulatory oversight of the aviation sector in Ireland by merging the Safety Regulation side of the Irish Aviation Authority (“IAA”) with the Commission for Aviation Regulation (“CAR”) to create a standalone aviation regulator. The for-profit air navigation side of the IAA will become a separate commercial agency to be known as the Irish Air Navigation Service. It will also amend the regulation of airport charges in Ireland, strengthening regulation, governance and enforcement.

Latest stage: Certain sections were commenced on 22 December 2022 by SI 741/2022 and on 15 February 2023 by SI 65/2023; a number of remaining sections await commencement.

IRISH PROPOSED LEGISLATION

Fiscal Responsibility Act 2012 (Amendment) Bill

This bill has not been published but it is intended to seek Oireachtas approval to amend the European Stability Mechanism Act 2012-2021.

Latest stage: Heads of Bill in preparation.

Air Navigation and Transport (International Aviation Agreements) (Amendment) Bill

This bill has not been published but it is intended to make legal provision for the Beijing Convention 2010 and the Montreal Protocol 2014 in Ireland.

Latest stage: Heads of Bill in preparation.

Co-operatives Societies Bill 2022

This measure aims to establish a new legislative framework for co-operative societies. It will consolidate and reform current provisions and will introduce corporate governance, financial reporting, compliance requirements and requirements in relation to the creation and registration of security similar to those applicable to companies. Entities which register under the new legislation will be required to adhere to the co-operative ethos.

The new regime will:

simplify the procedure to establish and operate a co-operative society;
reduce the minimum number of founding members (from seven to three) and expand the categories of founding members to include bodies corporate;
permit virtual and hybrid participation at general meetings;
remove the requirement to obtain the consent of the Registrar of Co-Operative Societies and Trade Unions for co-operative societies seeking financing from sources other than bank loans, public bodies or share subscriptions of less than €30,000 in any period of six months;
require co-operative societies to register certain charges created by it, similar to the registration of security process applicable to companies; and
give co-operatives certain flexibilities in drafting their governing rules to reflect their requirements.

Latest stage: General Scheme published and undergoing pre-legislative scrutiny by the Joint Committee on Enterprise, Trade and Employment. Once this stage is complete, the Committee will produce a report and lay it before the Houses of the Oireachtas. The report will make recommendations on the bill based on that Committee's scrutiny.

See further commentary on the Co-Operative Societies Bill 2022 here.

Insights: Co-Operative Societies Bill 2022 From a Financing Perspective.

DEPARTMENT OF FINANCE CONSULTATIONS

Consultation on the transposition of the Credit Servicers’ and Credit Purchasers’ Directive

On 24 January 2023, the Minister for Finance published a public consultation on the transposition of Directive (EU) 2021/2167 on credit servicers and credit purchasers. The directive entered into force in December 2021 and member states are required to transpose the directive by 29 December 2023.

The purpose of the directive is to promote a secondary market for non-performing loans. The directive:

lays down a common framework for the sale and management of bank originated non-performing loans which are transferred or sold after 29 December 2023;
provides for a new EU wide authorisation and regulatory framework for credit servicers to be overseen by national competent authorities;
permits authorised entities to passport credit servicing activities across the EU; and
amends the Consumer Credit Directive 2008 and the Mortgage Credit Directive 2014.

The directive contains a number of discretions which can be exercised by member states. The purpose of the consultation is to seek the views of the public on these discretions so as to inform the Minister for Finance’s decisions in transposing the directive.

Latest stage: The consultation closed on 8 March 2023.

See further commentary on the Credit Servicing Directive here.

EU DRAFT LEGISLATION

Proposal for a Regulation on the Law Applicable to the Third-Party Effects of Assignments of Claims

Procedure reference: 2018/0044 (COD)

Date published: 12 March 2018

This regulation proposes to set down uniform rules on the ownership of claims and securities in cross-border transactions. It seeks to designate which national law will designate the ownership of a claim after it has been assigned on a cross-border basis. It forms part of the legislative package to establish the Capital Markets Union with the aim that legal certainty will promote cross-border investment, access to cheaper credit and market integration.

Latest stage: First reading in European Parliament and Council.

EU Green Bond Standard

See Sustainable Finance section for a summary of the legislation and further commentary here.

Proposal for a Regulation amending Regulations (EU) No 648/2012, (EU) No 575/2013 and (EU) 2017/1131 as regards measures to mitigate excessive exposures to third-country central counterparties and improve the efficiency of Union clearing markets

Procedure reference: 2022/0403 (COD)

Date published: 7 December 2022

This proposal forms part of an overall series of proposed measures published by the European Commission on 7 December 2022 to further develop the EU's Capital Markets Union. While the title of the regulation suggests a focus on central clearing, the proposal extends beyond clearing and makes a number of other amendments to the European Market Infrastructure Regulation (EU) 648/2012 ("EMIR") as part of a broader review of EMIR known colloquially as “EMIR 3.0”.

Proposed amendments to EMIR include (i) requiring firms subject to the clearing obligation to clear at least a certain proportion of the services identified as of substantial systemic importance through active accounts at EU central counterparties ("CCPs") and to report on such clearing and (ii) the removal of the equivalence decision condition in order to benefit from the intragroup clearing and margin exemptions and its replacement with a list of third countries for which an exemption should not be granted. Other proposed changes include amendments to the way CCPs are authorised and monitored on an ongoing basis and the recognition of third country CCPs.

Latest stage: First reading in the European Council

EU DIRECTIVES AWAITING IMPLEMENTATION

Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU (the "Credit Servicing Directive")

See above under Department of Finance Consultations.

See further commentary on the Credit Servicing Directive here.

EU REGULATIONS

Central Securities Depository Regulation

The Central Securities Depositories Regulation (Regulation (EU) No 909/2014)("CSDR") was introduced in 2014 to harmonise how transferable securities, and proprietary interests in them, are represented over their life cycles, both at issuance and in secondary market trading. Article 3 of the CSDR aims to increase the safety of settlement and efficiency of transactions concerning in-scope securities by requiring them to be recorded in book-entry form by way of:

immobilisation – the act of concentrating the location of physical/“certificated” securities in a central securities depositary ("CSD") in a way that enables subsequent transfers to be made by book entry; or
dematerialisation – the act of registering securities solely in electronic book-entry records.

From 1 January 2023, Irish issuers of certain transferable securities that are traded, or admitted to trading, on European Economic Area ("EEA") trading venues will be required to represent new issuances in book-entry form. Following this first phase, issuers will have until 1 January 2025 to convert legacy in-scope securities still existing in certificated form into book-entry form.

Applies from: 1 January 2023

EU REPORTS

Report on the Functioning of the Securitisation Regulation

On 10 October 2022, the European Commission published its report on the functioning of the EU securitisation regulation (the “Securitisation Regulation”). This review, which was mandated pursuant to Article 46 of the Securitisation Regulation, was originally due to be published by 1 January 2022, but was delayed by the COVID-19 pandemic among other things.

The review was not accompanied by a proposal for a legislative amendment to the Securitisation Regulation and concluded that the current framework is overall fit for purpose. However, the European Commission acknowledged that there was room for “fine-tuning” and issued certain clarifications and recommendations, such as:

inviting the European Securities and Markets Authority ("ESMA") to review the currently published Article 7 templates and drawing up a dedicated reporting template for use in private securitisation transactions;
confirming that EU institutional investors’ due diligence obligations under Article 5 of the Securitisation Regulation require them to verify that a securitisation complies with the transparency requirements under Article 7, even where such securitisations are issued outside the EU;
suggesting that the European Parliament, in its ongoing negotiations over the EU Green Bond Standard ("GBS"), should seek to ensure that the GBS is suitable for use by securitisations, echoing an earlier report by the European Banking Authority.

LOAN MARKET ASSOCIATION GUIDANCE

On 23 February 2023, the Loan Market Association (the "LMA") together with the Loan Syndications & Trading Association and the Asia Pacific Loan Market Association published updated versions of the sustainability linked loan principles and associated guidance and the green loan principles and associated guidance.

Sustainability Linked Loan Principles ("SLLP")

Highlights include:

Selection of key performance indicators ("KPIs"):

The updated SLLP highlight that KPIs must be relevant, core and material to the borrower's overall business, have strategic significance to its business strategy and address relevant ESG challenges of the borrower's industry sector. The guidance notes that best practice is for a borrower to seek to benchmark its KPIs by undertaking a materiality assessment of itself and its industry.

Calibration of sustainability performance targets ("SPTs"):

SPTs must be set in good faith and remain relevant (so long as they apply) and ambitious throughout the life of the loan. A key update is the recommendation that an annual SPT be set per KPI for each year of the loan term. Exceptions to the annual frequency of SPTs can be agreed between borrowers and lenders where "strong rationale" is provided as to why it is not appropriate to set annual SPTs.
SPTs must not only be set beyond a "business as usual" trajectory, but also beyond "regulatory required targets" i.e. that they must not be set lower than the performance historically achieved by the borrower or what is required by law. The guidance notes that comparisons can be made against any publicly available peer targets and also states that both KPIs and SPTs should be selected with local context taken into consideration.
For a loan to be considered or referred to as a SLL, the KPIs and SPTs (and all other core components of the SLLPs) must be documented at origination. In some exceptional circumstances, the parties may agree to set KPIs and SPTs post-origination but that this should take place no later than 12 months post-origination. In such cases, the guidance includes a recommendation that unanimous lender consent be required to agree those SPTs and KPIs other than where the size of the syndicate makes this impractical.

Reporting and verification:

Borrowers should provide the lenders with a sustainability confirmation statement annually with a verification report attached, outlining the performance against the SPTs for the relevant year and the related impact, and timing of such impact, on the margin.

Green Loan Principles ("GLP")

Highlights include:

The provision of further detail and guidance on eligible green projects categories;
A recommendation that the management of proceeds should be attested to by the borrower in a formal internal process linked to the borrower's lending and investment operations for green projects;
A recommendation that borrowers appoint an external reviewer to consider the alignment of green loans and green loan projects with the four core components of the GLP.