Covid-19 & Banks: Emergency Response and Sound Management

The health crisis caused by Covid-19 and the economic and social consequences it has for banks oblige these financial institutions to inform their regulator of the specific measures, both internal and external, that they implement to address the situation.

Business Continuity – Regulatory Context

Given their essential role in the economic and financial system, banks are legally required to pay particular attention to the risks that are associated with a potential halt or slowdown of their activities.

This is an illustration of the banks’ more general obligation to have at all times adequate measures to ensure the maintenance or rapid restoration of their critical functions (Article 21, § 1st, 9°, of the Banking Act of 24 April 2014). This requirement results from the need for credit institutions to have a sound and prudent management in place.

  1. Contingency Plan

This obligation of continuity is reflected in the contingency, business continuity and recovery plan. This plan must be established by all banks on an annual basis under the responsibility of their Board of Directors. The contingency plan must demonstrate (and convince the supervisors) that the banks have the capacity to limit the operational, financial and legal consequences that would result from a disaster (we usually think of a fire at the head office, but also a severe computer bug, a terrorist attack or, in this case, a health crisis), or result from a prolonged unavailability of its resources leading to difficulties in ensuring the institution’s operations or, in the most serious cases, forcing the institution to interrupt its activities.

As risks are likely to change and evolve, credit institutions must of course regularly test their contingency plans to be able, in a given context, to document and analyse the shortcomings or errors that emerge during testing, and then update their plans accordingly.

  1. Preliminary risk analysis

The development and drafting of this contingency plan require banks to have first carried out a detailed analysis of their exposure to serious business disruptions and to have assessed how to address them, both quantitatively and qualitatively. It is the only manner for banks to be able to define their priorities and objectives should an incident occur.

The spectrum of risks that can hinder or even prevent the continuity of an institution’s activities is obviously very broad and depends above all on the activities carried out by the bank. The risks incurred by a private bank differ, at least in part, from those incurred by a bank whose main activity consists in granting mortgage loans to private individuals or by an institution specialising in export financing.

Covid-19: Emergency and continuity measures

The Covid-19 crisis is a severe test of the banks’ obligation of continuity and the accompanying duty of vigilance.

It is the duty of each bank to urgently establish and maintain, throughout the Covid-19 crisis, the necessary measures to ensure the continuity of their activities while protecting their staff and complying with the government measures.

The scenario of a health crisis of this magnitude and its important economic consequences was unlikely to be included in the banks’ contingency plans. Nevertheless, in theory, credit institutions must have appropriate tools to face it.

In practical terms, and without going into the details of each institution’s particularities, the following emergency measures are examples of what banks can do to deal with the current crisis – from a regulatory standpoint:

  • Raising staff awareness and implementing concrete measures to avoid the spread of the virus (teleworking, shift of teams, reduced flex-office, closure of branches, etc.);
  • Implementing reliable alternatives for customer communication;
  • Increasing IT capacity to cope with remote working;
  • Coordinating critical processes, resources as well as critical staff and their back-ups;
  • Reinforced assessment by the compliance of cyber-attack scenarios and implementation by IT of the measures internally (monitoring of operations) and externally (communication to customers). Risks of fraud such as phishing, identity theft, etc. increase in times of crisis;
  • Additional requirements for subcontractors performing critical functions (outsourcing). This is the case, for example, if customer data is stored in the cloud;
  • Setting up of a crisis committee that assesses the situation on a daily basis;
  • Communication of the measures implemented to the Board of Directors and possible convening of the risk committee and/or an exceptional audit committee;
  • Regular reporting to the competent financial supervisors (e.g. the National Bank of Belgium) on the implemented measures;
  • Assessment and possible adaptation of the emergency plan. This assessment is normally made on an annual basis, but it should also be carried out when the emergency plan is to be implemented.

Conclusion

Banks are subject to very burdensome and stringent regulatory requirements. These include the detailed assessment of their risks and the implementation of necessary measures to address the risks identified. This obligation is complex because the regulator requires a risk-based approach that is both concrete and detailed. However, it is in days like these, when a concrete risk arises that the full usefulness of these regulatory requirements becomes apparent. Afterwards, useful lessons will most probably be learned as to the effectiveness of the current regulatory framework in this respect, and possible modifications can be proposed.

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For any question or request for assistance, please contact Catherine Houssa or Philippe De Prez:
Catherine Houssacho@simontbraun.eu
Philippe De Prezphde@simontbraun.eu

Simont Braun assists AION in building the new next generation Challenger Bank

Brussels, 10 March 2020  |  Simont Braun successfully assisted AION in building an entirely digital and mobile bank, making it the first of its kind next generation Challenger Bank in Belgium. AION has officially launched its services on 3 March 2020.

AION is the former Banca Monte Pasci Belgio and was purchased by the American fund Warburg Pincus in 2018 in order to transform it into a fully digital financial services provider. AION offers an unrivalled broad spectrum of financial products and services, and beyond banking services, benefitting from an impressive technology and IT support.

Simont Braun’s team has been involved for over a year in developing the new digital products and services in close and successful collaboration with AION’s team,” comments Philippe De Prez, Partner at Simont Braun in Digital Finance and Financial services. “We had the pleasure to collaborate with a very motivated and talented group of people at AION, all working towards an ambitious goal. It has been an intense ride during which we often explored innovative solutions which were so far not available on the Belgian market. This is a space where our team is at its very best. We would like to sincerely thank our clients for this great opportunity to both assist and learn.”

Simont Braun’s Digital Finance Team advised AION on the compliance of their services and products with the applicable regulation, was involved in numerous contract drafting, screen-by-screen compliance analysis and negotiations with the regulator.

The Simont Braun team was led by partner Philippe De Prez, with the assistance of partners Catherine Houssa and Axel Maeterlinck, counsel Thomas Derval, and associates Sander Van Loock, Charlotte De Thaye, Amine Chafik and David-Alexandre Sauvage.

For any question, please contact Nelly Chammas (Marketing & Communication Manager).

Simont Braun assists TransferWise with their arrival in Belgium

Simont Braun successfully assisted TransferWise, the global technology company that moves money internationally, in obtaining a licence as a payment institution in Belgium. TransferWise officially launched its Brussels operations in October 2019.

TransferWise is an international money platform. The company decided to establish as a payment institution in Belgium to continue serving their European customers as before, even in the event of a no-deal Brexit.

In this framework, Simont Braun’s Digital Finance Team assisted TransferWise with their licence application procedure before the National Bank of Belgium and the incorporation of their Belgian corporate entity. Simont Braun also advised the FinTech company on connected financial regulatory, corporate and labour law matters.

Our Digital Finance Team is happy to have contributed to this significant step in TransferWise’s development strategy in Europe. This licence is also the achievement of a fine-tuned collaboration, both with TransferWise and the National Bank of Belgium,” says Philippe De Prez, Partner.

The Simont Braun team was led by partners Philippe De Prez and Catherine Houssa (Digital Finance), with the assistance of partner Axel Maeterlinck (Corporate M&A).

From left to right: Philippe De Prez (Partner at Simont Braun), Catherine Houssa (Partner at Simont Braun), Gordon Youngson (Head of legal Europe at TransferWise), Axel Maeterlinck (Partner at Simont Braun), and Anna Doyle (EU Compliance lead at TransferWise).

Europe pushes companies one step further towards sustainable investments

The European Commission has underlined the importance for companies to publish sufficient, reliable and comparable sustainability-related information to effectively direct capital towards sustainable investments. Although disclosure of climate-related information by reporting companies has improved, the Commission finds that there are still significant gaps and that further improvement in the quantity, quality and comparability of disclosures is required.

The Commission’s guidelines on the disclosure of climate-related information

In March 2018, the Commission published the Action Plan on Financing Sustainable Growth. One of the three major aims was to reorient capital towards sustainable investment. As part of this objective, the Commission has published on 20 June 2019 new guidelines on the disclosure of climate-related information by companies. The Guidelines were adopted to meet the objectives set out in the 2015 Paris Agreement on Climate Change, the United Nations’ Sustainable Development Goals and the Special Report of the Intergovernmental Panel on Climate Change and are line with the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) of 2017.

The Guidelines supplement the following instruments:

  1. Directive 2014/95/EU regarding disclosure of non-financial and diversity information by certain large undertakings and groups (the “Non-Financial Reporting Directive”);
  2. the applicable national regulation transposing the Non-Financial Reporting Directive;
  3. the previous Guidelines on Non-Financial Reporting, published by the Commission in June 2017 which contain 6 key principles for good non-financial reporting, namely that disclosed information should be: (1) material; (2) fair, balanced and understandable; (3) comprehensive but concise; (4) strategic and forward-looking; (5) stakeholder-oriented; and (6) consistent and coherent; and
  4. the recommendations of the TCFD and, if necessary, the supplementary.

Companies in scope

The Non-Financial Reporting Directive is applicable to large undertakings which are public-interest entities with a balance sheet total of at least euro 20 million or a net turnover of euro 40 million and over 500 employees in average (and on a consolidated basis in case of a group). A definition of a public-interest entity is provided by Article 2(13) of the Statutory Audit Directive 2006/43/EC. Public-interest entities are listed companies whose securities are admitted to trading on a regulated market of the EU, credit institutions, insurance undertakings and entities which are designated as public-interest entities by a Member State, for instance entities that are of significant public relevance because of the nature of their business, their size or the number of their employees.

Materiality and type of risks

Climate-related information must be disclosed if it is necessary for an understanding of the external impacts of the company from an environmental and social perspective or if affecting the financial value of the company whereas TCFD has a financial materiality perspective only. The Commission has taken a broad interpretation of materiality compared to the 2017 Guidelines which incorporate the definition of the EU Accounting Directive 2013/34 (“information where its omission or misstatement could reasonably be expected to influence decisions that users make on the basis of the financial statements”).

The result of such a broad definition is that most of the reporting companies will have to disclose climate-related information. Companies that conclude that climate is not a material issue are advised by the Guidelines to make a statement to that effect explaining how that conclusion has been reached.

Under the Non-Financial Reporting Directive, risks should be understood both as negative impacts on the climate (emission of greenhouse gases, use of fossil fuels, GHG emissions, etc.) and negative impacts on the company. A company might be impacted by transition risks (risks of litigation, reputational risks…) and by physical risks (weather-related events such as storms, fires, etc. or chronic physical risks such as temperature changes, rising sea level, etc.).

Content of the information

The recommended disclosure relates to the reporting areas listed in the Non-Financial Reporting Directive: business model, policies and due diligence processes, policy outcomes, principal risks and their management, and key performance indicators.

Disclosure on business model

  1. the impact of climate-related risks and opportunities on the company’s business model, strategy and financial planning;
  2. the ways in which the company’s business model can impact the climate, both positively and negatively; and
  3. the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios over different time horizons.

The aim of this disclosure is to make sure that stakeholders understand the company’s view of how climate change impacts its business model and strategy, and how its activities can affect the climate over the short, medium and long term.

Disclosure on policies and due diligence processes

  1. any company policies related to climate, including any climate change mitigation or adaption policy;
  2. any climate-related targets the company has set as part of its policies especially any GHG emissions targets, and how company targets relate to national and international targets and to the Paris Agreement in particular;
  3. the board’s oversight of climate-related risks and opportunities; and
  4. the management’s role in assessing and managing climate-related risks and opportunities and explain the rationale for the approach.

Information on the involvement of the board and management in relation to climate change informs stakeholders on the level of the company’s awareness of climate-related issues. A company’s policies and any associated targets that demonstrate its commitment to climate change mitigation and adaption may also be interesting for stakeholders. It will help stakeholders understanding the company’s ability to manage its business to minimise climate-related risk, limit negative impacts on climate and maximise positive impacts throughout the value chain.

Disclosure on policy outcomes

  1. the outcomes of the company’s policy on climate change, including the performance of the company against the indicators used and targets set to manage climate-related risks and opportunities; and
  2. the development of GHG emissions against the targets set and the related risks over time.


Disclosure on principal risks and their management

  1. the company’s processes for identifying and assessing climate-related risks over the short, medium and long term and disclose how the company defines short, medium, and long term;
  2. the principal climate-related risks the company has identified over the short, medium, and long term throughout the value chain, and any assumptions that have been made when identifying these risks;
  3. the processes for managing climate-related risks, and how the company is managing the particular climate-related risk that it has identified;
  4. how processes for identifying, assessing, and managing climate-related risks are integrated into the company’s overall risk management.


Disclosure on key performance indicators

Key performance indicators are measures that analyse the performance of a company and its activities. In particular, the company should disclose indicators and targets used by the company to assess climate-related risks and opportunities in line with their strategy and risk management processes. The indicators should either be integrated with other disclosures or in an additional table that presents all indicators.

Banks and insurance companies

The Action Plan on Financing Sustainable Growth insists on the systemic importance of banks and insurance companies in the transition to a low-carbon and climate-resilient economy. The Non-Financial Reporting Directive imposes the same requirements on all companies under its scope, regardless of the sector in which they operate. Hence, it does not impose additional requirements on banks and insurance companies compared to other companies. Banks and insurance companies should look at the aforementioned disclosures from the particular perspective of their business activities, including lending, investing, insurance underwriting, and asset management activities. Therefore, banks and insurance companies should disclosure certain sector-specific information. For example, it could be useful to include information about an investment, lending and insurance underwriting portfolio that contributes to climate change mitigation and adaptation, and any relevant target in this respect. The sector-specific disclosures do not apply to other financial sector companies, such as asset management companies or pension funds since those companies do not fall within the scope of the Non-Financial Reporting Directive.

Non-binding

The Guidelines are non-binding, which means that the companies falling in their scope may choose alternative approaches to the reporting of climate-related information provided they meet legal requirements. The content of climate-related disclosures may also vary between companies according to certain factors, such as the sector of activity and the geographical location.

Concluding remarks

The new Guidelines on the Disclosure of Climate-Related Information aim to increase transparency and provide for standardisation in relation to a company’s impact on the environment. Most of the reporting entities should consider that climate is material to them according to the Guidelines and adapt their reporting format to include climate-related information.

The standardisation of the format and content of climate-related disclosure is needed to enable comparisons between the reporting companies, from both a financial point of view and a social and environmental point of view.  The new Guidelines set out precisely which climate-related information should be disclosed. However, the fact that Guidelines on the Disclosure of Climate-Related Information are non-binding may impede the level of standardisation that the Commission aims to reach.

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UBO Register – Updated guidelines published on 19 July 2019

On 19 July 2019, the Federal Public Service of Finance published a new version of its FAQ on the register of Ultimate Beneficial Owners (UBO Register). The previous update was made on 2 April 2019. In addition to answering some technical issues, the newly updated FAQ mainly provides clarification for listed companies, associations and foundations, formalities of requests for derogations and declarations of spouses. The deadline of 30 September 2019 is maintained.

1. Deadline

The deadline for registration of the ultimate beneficial owners (UBO’s) is maintained. The information on the UBO’s must be transmitted to the UBO Register by 30 September 2019 at the latest.

Thereafter, all modifications must be recorded within a one-month period.

2. Exemption for listed companies

Companies do not have an obligation to register their beneficial owners if they are listed on a regulated market subject to disclosure requirements consistent with EU law or subject to equivalent international standards which ensure adequate transparency of ownership information.

The updated FAQ thus now provides for an exemption for listed companies, in line with article 3 § 6 of the EU 4th Anti-money laundering directive and with its implementation by other EU countries.

3. Non-profit associations and foundations

A. Natural persons in whose interest the entity was founded or operates

Associations and foundations also have to transmit information on the (categories) of natural persons in whose main interest the entity was founded or operates.

The FAQ clarifies that general target groups can be registered. A reference to the articles of association may be sufficient.

B. Any other natural person that otherwise exercises the ultimate control over the entity

Where applicable – as a residual category –, associations and foundations also have to submit information on any other natural person that otherwise exercises the ultimate control over the entity.

This only concerns persons who do not fall within one of the other categories of beneficial owners such as natural persons having the authority to represent the entity, but whose capacity has not been published, or members acting in concert.

4. Formalities for derogation requests

The updated FAQ clarifies some aspects of the formalities for requesting a derogation to the access by the general public to the information concerning a UBO.

The request may be filed either by the UBO (or a duly appointed proxyholder) or by the legal representative of the relevant entity when it makes the registration.

A request for a derogation for exposure to disproportionate risk, risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation must be accompanied by supporting documents, such as:

  • A reasoned derogation of another country with a similar register
  • A conclusion of a risk analysis report of an independent third party
  • A complaint filed with the police, a conviction or judgement, protective police measures
  • Any other document evidencing one of the abovementioned risks.

In case of a negative decision, legal action may be initiated before the Council of State.

For minors, the derogation automatically granted will last until they reach majority.

5. Declaration of spouses

The updated FAQ sets out guidelines for UBO declarations of spouses.

For interests falling within the marital community, the UBO will, in principle, be the spouse mentioned in the share register of the company or which exercises the voting rights. If both spouses do it jointly, they must be jointly registered with an equal number of shares or voting rights.

In other cases, one should analyse which spouse exercises in practice control over the entity.

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The updated FAQ document is available on the website of the Federal Public Service of Finance.

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For any question, please contact the authors: Sandrine Hirsch and Tine Bauwens.

Our Digital Finance Team interviewed on the latest FinTech Trends

Catherine Houssa, Partner in our Digital Finance Team, was interviewed on the latest FinTech trends by La Libre Belgique in a special edition dedicated to the take-off of tech in Brussels.

An opportunity to also highlight the advantages of Brussels as a set-up point for FinTechs willing to reach all of Europe.

The full article is available here.

The “Löber” case in the era of digital banking

In the era of digital banking, does it still make sense to use the localisation of a bank account to settle conflicts of jurisdiction?

In its recent case “Löber”, the ECJ decided that tort claims against the issuer of a misleading prospectus may be brought before the courts of the investor’s domicile provided that his or her investment originated from a bank account localised in the same jurisdiction and that ‘other specific circumstances’ also contribute to the jurisdiction of these courts. A decision which goes against the current digital flow? Discover Thomas Derval‘s opinion on this case in the Journal de droit européen: http://bit.ly/lober-ecj (in French – reserved to subscribers).

UBO Register – Important updates in the FAQ document

An important update of the UBO Register FAQ document has been published by the Federal Public Service Finance on 2 April 2019. It provides a number of clarifications on the scope of the regulations, notably with respect to the notion of senior managing official, the situation in case of a usufruct / bare ownership, co-ownership, shareholders’ agreements… It also confirms that UBOs will have the right to know who consults their data. The updated FAQ document is available here: http://bit.ly/QandA-ubo

For any question, please contact Sandrine Hirsch or Nikita Tissot.