Welcome to Banking News, the KPMG Ireland Quarterly Banking Newsletter, which has been designed to bring together useful insights and developments that are relevant to the banking industry.

We hope you find the articles below of interest. If you would like further information on any topic or have any questions, please feel free to contact any member of the KPMG Banking team.

Recent updates

KPMG’s Banking CEO Survey highlights both challenges & growth opportunities in relation to FinTech, ESG and regulation in 2022. The survey found that several bank CEOs intend to develop further partnerships with FinTechs and enhance digital offerings. The majority of banks (64%) aim to reduce their geographical footprint as hybrid working expected to stay. Regulatory burden and talent retention are two of the banks’ biggest challenges with costs expected to increase to deal with both.

The ECB Banking Supervision recently outlined their three priorities for 2022-2024 are to ensure that banks:

  • emerge from the pandemic healthy;
  • seize the opportunity to address structural weaknesses via effective digitalisation strategies and enhanced governance; and
  • tackle emerging risks, including climate-related and environmental risks, IT and cyber risks.

For each priority, the ECB Banking Supervision has developed a set of strategic objectives and underlying work programmes, spanning the next three years, aimed at addressing the most material vulnerabilities identified during this year’s risks and priorities exercise.

On 05 October 2021, the EBA published its work programme for 2022. They outlined five strategic priorities:

  • prudential framework for supervision and resolution;
  • EU-wide stress-testing framework;
  • Banking and financial data;
  • digital resilience, fintech and innovation; and
  • Anti-money laundering and countering terrorism financing (AML/CTF).

The EBA have released their Risk Assessment of the European Banking System. The report provides an annual update on risks and vulnerabilities in the EU banking sector. It describes the main developments and trends that affect the EU banking sector and provide the EBA's outlook on the main micro-prudential risks and vulnerabilities. The assessment found that the average Common Equity Tier 1 (CET1) ratio has increased this year on the back of retained earnings and reserves and Banks have made some progress related to environmental, social and governance (ESG) risk considerations.

On 25 November 2021, the Central Bank of Ireland published the second Financial Stability Review (FSR) of 2021. The FSR outlines key risks facing the financial system and the Central Bank’s assessment of the resilience of the economy and financial system to adverse shocks. The review noted that the impact of the pandemic on the financial position of borrowers and the banking sector has started to dissipate as the economy has re-opened.

22 October 2021, the EBA published its advice to the EU Commission on funding in resolution and insolvency as part of the review of the crisis management and deposit insurance (CMDI) framework. The EBA response provides a quantitative analysis on banks’ capacity to access available sources of funding under the current framework and under various creditor hierarchies, and with regards to the minimum requirement for own funds and eligible liabilities (MREL).

For more information on how KPMG can help with assessing the impact of regulatory developments please visit the Regulatory Consulting or the Risk Consulting homepage.

Climate Change

The recent Climate Action and Low Carbon Development (Amendment) Bill 2021 (Climate Bill), newly published carbon budgets and Climate Action Plan 2021 (CAP 21) place Ireland as one of the most ambitious nations in the world on tackling climate change. On 17 November 2021, KPMG fashioned a thought leadership piece, What measures will Ireland take to meet its climate commitments?, on the stringent targets and mechanisms being put in place in the hope of staying within a 1.5C global warming scenario.

On 3 November 2021, the Central Bank set out their supervisory expectations of regulated firms regarding climate change and reaffirmed their own commitment to take action. The article outlines the pivotal role the financial system will play in serving the needs of consumers and the wider economy, as we transition to a carbon neutral future. It also details that addressing climate change is a strategic priority for the Central Bank. Governor Gabriel Makhlouf also wrote to regulated financial services providers to highlight the statutory obligations and related supervisory expectations relating to climate and sustainability issues.

KPMG published a blog on how Commitment & Collaboration are critical to save the planet. The article outlines that capital markets are expected to make further advances towards pricing in climate risks over the next three years, something capital markets have been slow to do so far.

For more information on how KPMG can help with assessing the impact of climate change developments please speak to Ian Nelson, Paddy Farrell or Russell Smyth.

Sustainable Finance

On 3 November 2021, the European Banking Authority (EBA) published its environmental statement in the context of the 2021 United Nations Climate Change Conference (COP26), highlighting its efforts to update and enhance the entire supervisory and prudential regulatory framework in the environmental, social and governance (ESG) domain. This will facilitate the transition of the banking and financial sector to a more sustainable economy and mitigate risks stemming from climate change and ESG factors.

KPMG produced An Analysis of Irish Companies’ ESG Reporting Readiness. The report analysed the readiness of Ireland’s 25 largest listed and 25 largest non-listed companies against the proposed requirements of the EU’s Corporate Sustainability Reporting Directive (“CSRD”). The aim of the report is to aid companies in developing an understanding of where they are in relation to their sustainability reporting journey and what they need to do in order to fully prepare for implementation.

For more information on how KPMG can help, please contact Ian Nelson.

Digital Finance

The European Central Bank (ECB) circulated a speech by Fabio Panetta, Member of the Executive Board of the ECB regarding Central Bank Digital Currencies. Panetta suggests that monetary stability and the smooth functioning of payment systems ultimately depends on everyone being able to widely access and use sovereign money and there is no reason why this should not hold true in the digital era. However, this requires central banks to evolve alongside changing technologies, payment habits and financial ecosystems.

The Council of the EU has published an "I" item note containing a mandate for negotiations with the European Parliament on the proposed Regulation on markets in cryptoassets (MiCA), the proposed Regulation on digital operational resilience for the EU financial sector (DORA) and the proposed Directive amending Directives. The proposals form part of the EU's Digital Finance Strategy. In the note, the Council suggests that its Permanent Representatives Committee (COREPER) agrees the negotiating mandate regarding the proposed MiCA, DORA and the corresponding parts of the Amending Directive.

The Bank for International Settlements (BIS) published a Working Paper on Central Bank Digital Currencies on 04 November 2021. The main focus is on their "reserves for all" aspect and the balance sheet issues for central banks, as well as the implications for monetary policy and financial stability. By contrast, in policy circles, the emphasis is on designing CBDCs to achieve public policy goals within the current two-tier payment system. This implies a division of labour between the public and private sector, thus keeping the footprint of the central bank limited.

The ECB published an Occasional Paper regarding Central Bank Digital Currency (CBDC) ‘functional scope, pricing and controls’. This paper discusses success factors for CBDC and how to avoid the risk of crowding out. The study emphasises the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience or reachability are unattractive for users.

For more information on how KPMG can help, please contact Ian Nelson and Matthew Green.

How can KPMG help?

KPMG has a large team of professionals with extensive knowledge and expertise in Financial Services, Banking, Aviation Finance, Insurance and Asset Management. KPMG Ireland can leverage a network of multidisciplinary professionals, stretching across Europe and beyond. Supported by this global network, KPMG Ireland can provide a broad range of support, advice and guidance on how to address the challenges you face.

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