Financial Services: 2019 Banking Highlights and a Theme of Green

The Irish economy and new bank lending continued to grow during the first half of 2019. Overall, the outlook for growth in the economy remains positive. However, the Central Bank Quarterly Bulletin for Q4 2019 outlines that significant external risks and uncertainties threaten that view, largely due to the Brexit process. The takeaway is that, while Brexit remains the most significant risk to economic growth, if a no deal Brexit can be avoided, solid future economic growth remains likely.

Financing Sustainable Activities

A key theme for 2019 was sustainable finance. This will remain high on the priorities list for 2020 and beyond. This prioritisation of climate action is reflected in the Irish Government’s 2025 Ireland for Finance Strategy. It is clear that this is also a global priority, as evidenced by the appointment of Mark Carney (the current governor of the Bank of England) as the United Nations’ Special Envoy for Climate Action and Finance.

Over the next 15 years, it is estimated that the world will need to invest around US$90 trillion in sustainable infrastructure assets. Nationally, Sustainable Nation Ireland estimates that the figure required

to fund Ireland’s clean energy transition is in excess of €40 billion. As outlined in our previous briefings, the financial system has a pivotal role to play in financing the investment of sustainable activities.

Energy markets should be structured in a way that retains as much of the current investment sources as possible, while also innovating to attract new investors into renewable energy markets. The Irish Government’s Renewable Electricity Support Scheme, designed to help the state meet its renewable pledges up to 2030, seeks to balance best value for the consumer with reasonable market based pricing and returns for the investor.

The Central Bank will increasingly embed climate risk issues into its financial stability assessments and supervision and in 2019 joined the Network for Greening the Financial System with other Central Banks and Supervisors.

In June 2019, the European Commission’s technical expert group on sustainable finance (TEG) published three reports, namely, a Taxonomy report, an EU Green Bond Standards report and a Benchmarks report. The reports illustrate the European Commission’s commitment to publishing guidance materials so as to bring about an economic neutral economy which will ensure policy makers, companies and investors have a reliable measure of how “sustainable” an investment will be. To allow for feedback and on-going consultation on these reports, the Commission has now officially extended the mandate of the TEG until the end of 2019.

Purchasers of Loan Sales – The Consumer Protection (Regulation of Credit Servicing Firms) Act 2018

The Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 commenced in 2019. It expanded the activity of credit servicing, to include ownership of legal title to credit granted under a credit agreement and associated ownership activities. If a loan is now transferred, the holder of the legal title to the credit must be authorised by the Central Bank as a credit servicing firm.

Previously, purchasers of loan portfolios tended to avoid any need to be licenced by the Central Bank by appointing a regulated credit servicer, which in turn is subject to rules protecting borrowers. Under the new regime, purchasers of legal title to relevant loans are required to become regulated.

Landlords and Banks: Guarantors of Rates on Commercial Properties?

We previously wrote about the Local Government (Rates) Bill 2018, and its enactment as The Local Government Rates and Other Matters Act 2019 (the Act). This gave rise to concerns, particularly under Section 13(1), that a receiver appointed over a property, a landlord, or a mortgagee in possession must, before completing a sale, pay any rates imposed under the Act on that property together with accrued interest that had not been paid by occupiers.

Clarification has since been provided by the Department of Housing Planning and Local Government that the wording of the provision does not align with the intention of the legislature and confirmed that on receipt by it of legal advice, it intends to remedy the provision by way of a legislative amendment. The Department also confirmed that it does not propose commencing the provision until that amendment is made.

Conclusion

The takeaway from 2019 is that the regulatory environment continues to develop and is sensitive to the expediencies of the political environment. This is evidenced by the continued fragmented legislating of the management of loan portfolios. Also, while the Brexit process looks like it will “get done” in early 2020 – the process then moves onto formulating the type of trading relationship that will exist in the future between the UK and Europe, which is both an opportunity and a threat for Ireland.

Consumer protection, accountability and operational resilience will remain a priority for regulators.

Financial services will continue to see an expansion of green and sustainable financial services across banking, capital markets, insurance and investment funds in order to fully address the requirements of the Paris climate agreement. We anticipate sustainable finance moving increasingly centre-stage and influencing investment decisions, driven by both shareholder, regulatory and public opinion pressures to step up the fight against climate change.

For more information, contact a member of our Financial Services team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.