mBank Group is an active participant and often a leader of changes introduced in expectation of and in response to developments in its environment, including the area of regulations and technology.
The Group employees spare no effort in proactively adjusting the offer and principles of operation to new challenges, always with an eye on building top quality relationships with stakeholders. Some of the requirements imposed on mBank and the Group subsidiaries do not affect clients directly, but still involve a heavy workload connected with adjusting internal processes. Below we discuss selected key developments significantly affecting mBank Group observed in 2020 or expected in the nearest future. Capital requirements and regulations on accounting and reporting standards have been addressed in dedicated sections of the report.
Legal and legislative amendments introduced in 2020 in connection with the COVID-19 pandemic, relevant to the bank
Legislators and regulators in Poland and the European Union took active steps to mitigate the impact of the COVID-19 pandemic. Such measures included actions preventing the spread of the contagion, such as temporary restrictions on the movement and assembly of people, border controls, and closing down of schools, shopping malls and other sectors of the economy. The scale of the lockdown depended on the spread of the pandemic, reaching its peak during the first and second wave of the contagion in the spring and in the autumn and winter, respectively. The key measures taken by the Polish government in order to cushion and mitigate the adverse impact of the pandemic on the economy and society were approved as a part of a legislative package known as the “anti-crisis shield”.
A milestone of late 2020 was the European Commission’s conditional approval of the first COVID-19 vaccine for trading across the European Union. The approval followed a positive scientific opinion issued for the vaccine by the Committee for Medicinal Products for Human Use of the European Medicines Agency. The strategic objective of the Polish National Vaccination Programme is to contain the COVID-19 pandemic by the end of 2021 subject to the highest safety standards in order to stabilise the economy.
Measures taken to mitigate the impact of the pandemic included steps in support of the financial system, including a cut of the reference rate of the Monetary Policy Council (RPP), a cut of the mandatory reserve rate to 0.5%, repo operations of the National Bank of Poland (NBP), as well as potential LTROs. Measures directly impacting the banking sector included a March 2020 recommendation of the Polish Financial Supervision Authority (KNF) to pay no dividend in order to strengthen the capital base. A related objective of releasing capital in order to support lending follows from the Regulation of the Minister of Finance of March 18, 2020 revoking the regulation concerning the systemic risk buffer, which was thus reduced from 3% to 0%. Certain supervisory obligations were postponed.
Selected banks support anti-crisis measures indirectly, for instance by implementing a system supporting microfirms, small and mid-sized enterprises under the umbrella of the Financial Shield of the Polish Development Fund (PFR). More information concerning measures taken by the Group in connection with the COVID-19 pandemic is presented in other sections of this Report.
On March 31, 2020, the Sejm passed a law amending the Act on special solutions aiming to prevent, counteract and combat COVID-19, other contagious diseases and resulting crises and certain other Acts, known as Anti-crisis Shield 1.0. The law provides among others for a cap on non-interest costs of consumer credit. The provisions of the law concerning the cap came into force on March 31, 2020.
On June 19, 2020, the Sejm passed a law on subsidies for interest on bank loans granted to protect financial liquidity of enterprises affected by COVID-19 and on simplified creditor arrangement proceedings in connection with COVID-19, known as Anti-crisis Shield 4.0. Anti-crisis Shield 4.0 introduced credit holidays. The credit holidays provisions came into force on June 24, 2020. Credit holidays authorise borrowers to request the suspension of a consumer credit agreement or a mortgage loan agreement or a loan agreement within the meaning of Article 69 of the Banking Law (if the borrower is a consumer). Eligible for the suspension of loan agreements are borrowers who lost their job or other principal source of income after March 13, 2020. An agreement may be suspended for up to three months. In the suspension period, borrowers may not pay amounts due under the agreement other than insurance bundled with the loan agreement. The suspension period is excluded from the crediting period. The crediting period and all deadlines under the agreement are extended by the suspension period. No interest or fees are charged in the suspension period other than fees defined in the confirmation issued by the lender to the borrower.
On March 20, 2020, the Minister of Health issued a regulation introducing the state of epidemic in the territory of the Republic of Poland, which imposed certain restrictions, orders and prohibitions on enterprises in connection with the state of epidemic. The first restrictions were imposed on businesses as of March 14, 2020. Subsequent regulations of the Council of Ministers imposing certain restrictions, orders and prohibitions in connection with the state of epidemic issued during the year limited to a certain extent economic activities and banned certain types of activities altogether.
Other laws and regulations
In December 2020, the Chairman of the Polish Financial Supervision Authority (KNF) published a proposal of a systemic solution to the risks related to FX mortgage loans based on voluntary arrangements between banks and clients. The banks reviewed this proposal at the turn of the year. mBank is a party to court cases concerning FX loans initiated by the borrowers. Description of mBank Group’s approach to the proposal of the PFSA’s Chairman, an estimated potential impact of the conversion plan on mBank and detailed information about court proceedings are available in note 32 to the mBank S.A. Group IFRS Consolidated Financial Statements 2020. The Group’s approach to the calculation of legal risk provisions relating to indexation provisions in CHF loan agreements is described in note 4 to the mBank S.A. Group IFRS Consolidated Financial Statements 2020.
The Trade and Co-operation Agreement between the European Union and the European Atomic Energy Community and the United Kingdom of Great Britain and Northern Ireland signed on December 30, 2020 governs the relations between the EU and the UK as of January 1, 2021. The Agreement was approved on December 24, 2020. Although the UK formally left the European Union on January 31, 2020, a transitional period was in effect until December 31, 2020, when internal market and customs union regulations continued to apply. The Trade Agreement facilitates future trade between the parties compared to the rules of the World Trade Organisation which would apply otherwise. However, the Agreement notwithstanding, Brexit will affect trade between the EU and the UK as well as the freedom of movement between the parties.
Given that the United Kingdom is a third country for the European Union as of January 1, 2021 and no longer a member of the European Economic Area (EEA), the provision of financial services from the UK in the EU is subject to certain regulations applicable to third countries in the member states. The European Commission decided on September 21, 2020 to extend the equivalence of UK central counterparties (CCPs) which will continue to serve their EU clearing members until June 30, 2022.
At mBank, we monitor developments related to Brexit and its consequences on an ongoing basis. We inform about events that will affect our clients. We have not noticed a notable negative impact of Brexit on our financial servicing of the corporate clients. In the case of Private Banking clients, we have applied the adequate rules for services during the transition period. We have also adapted them to the arrangements applicable after the end of the transition period, depending on the type of product and service, as well as the status and the place of residence of the client.
EBA issued the Guidelines on loan origination and monitoring on May 29, 2020. The Guidelines supplement the legal regime for creditworthiness assessment in banks, among others concerning the pricing of credit products taking into account the cost of risk and integrating ESG factors in the process. The Guidelines focus on prudential aspects and consumer protection in the credit process. The Guidelines need to be implemented by supervisory authorities by integrating them into their processes and procedures. The Guidelines should also be implemented by banks in their business.
The mandatory dematerialisation of shares introduced in an amendment of the Commercial Companies Code of August 30, 2019 was designed to ensure that shares of all joint-stock companies and limited joint-stock companies are only represented by electronic records while certificated shares become null and void as of January 1, 2021. Shares will only be uncertificated, either entered into a shareholder register or dematerialised i.e. recorded in Krajowy Depozyt Papierów Wartościowych S.A. (Central Securities Depository of Poland, “KDPW”). A shareholder register will be set up, where all registration shares and rights attached to such shares will be disclosed. Registration shares include both registered shares and bearer shares. Transfer of ownership of shares will require an entry in the register. The deadlines for the dematerialisation of shares have been extended under Anti-crisis Shield 3.0. As a result, certificated shares will become null and void and entries in the shareholder register will come into force as of March 1, 2021. Companies were required by September 30, 2020 to select a register operator, sign an agreement with the operator, and issue the first call to their shareholders to deposit certificated shares.
On October 9, 2020, the Polish Financial Supervision Authority issued Recommendation Z concerning internal governance in banks. The Recommendation supplements and expands the legal regime of the internal governance in banks. It covers among others the suitability assessment of the supervisory board, the management board and the key position holders including their knowledge, skills and experience, regular reviews of the suitability policy, determination of the relationship of remuneration of members of the management board to remuneration of other bank employees reflecting the obligations and responsibilities of individual members of the management board. The Recommendation imposes requirements regarding transparent and objective rules of recruitment and promotion in banks. Banks are required to align their policies and procedures with the Recommendation by the end of 2021.
The Polish Financial Supervision Authority published the Methodology of the suitability assessment of members of authorities of supervised entities on January 27, 2020. The Methodology clarifies regulations and supervisory requirements concerning the transparency and predictability of the suitability assessment process among others by providing a set of assessment forms for individual criteria as well as examples of process maps. The supervisory expectations and good practice covered by the Methodology relate among others to the criteria of individual and collective assessment, specific positions and functions, as well as tools supporting the process. The requirements have to be integrated into internal processes of suitability assessment and into applications filed with the Polish Financial Supervision Authority.
In its Communication of January 23, 2020, the Polish Financial Supervision Authority introduced new definitions of disclosure, encryption and outsourcing to a computing cloud. The objective is to address doubts in interpretations of supervised entities in the financial sector. It is a priority of the Polish Financial Supervision Authority to protect the processing of information critical to the processes or activities of supervised entities and information which is legally protected. According to the recommendations, data processing centres should be located in EEA member states. The deadlines for alignment with the Communication were extended due to the outbreak of the COVID-19 pandemic. On 26 March 2020, the Polish Financial Supervision Authority extended the deadline for the implementation of the regulation to 1 November 2020. Entities using computing cloud services are required to notify the Polish Financial Supervision Authority thereof within 30 days of initiating such operations.
In its Communication of March 26, 2020, the Bank Guarantee Fund (BFG) announced measures to be taken with regard to the Minimum Requirement for own funds and Eligible Liabilities (MREL) in connection with the COVID-19 pandemic. MREL update will include the elimination of the systemic risk buffer. The first binding mid-term MREL target is set for January 1, 2022. The final MREL deadline under BRRD2 was extended by one year to January 1, 2024.
The Regulation will replace the 2004 Regulation by adding electronic seals referred to in eDIAS to electronic signatures which are already available. The Regulation also allows for keeping of records of banking operations in a decentralised, distributed database. The Regulation defines requirements for the protection of documents. The Regulation of March 9, 2020 comes into force six months after publication.
On February 17, 2020, the Polish Financial Supervision Authority (KNF) issued a letter to banks which outlines KNF’s expectations concerning legal opinions on derivatives agreements. In KNF’s opinion, in order to net debits arising from derivatives with their clients and to apply reduced risk weights, banks are required to provide KNF with legal opinions for each master agreement. Only those agreements whose legal opinions are approved by KNF may use reduced risk weights.
In December 2020, the Polish Financial Supervision Authority authorised GPW Benchmark as the administrator of the critical reference benchmark WIBOR. WIBOR is a critical benchmark entered into the European Commission list, broadly used in contracts and financial instruments. According to the requirements of the EU Benchmark Regulation (Regulation 2016/1011 of June 8, 2016, “BMR”), GPW Benchmark became a licensed benchmark administrator. The harmonisation with BMR, including the development and implementation of a system for automated contribution of input data based on market transactions, was completed with active participation of Fixing Participants including mBank.
The Regulation of the European Parliament and of the Council on sustainability‐related disclosures in the financial services sector came into force on December 29, 2019 and takes effect as of March 10, 2021. The Regulation imposes the requirement of sustainability‐related disclosures in the context of offered financial products and made investment decisions. The objective is to improve the quality of information concerning environmental, social and sustainable investments. The European Supervisory Authorities (ESAs) will draft regulatory technical standards to further specify the content, methodologies and presentation of information in relation to sustainability indicators by December 30, 2021. mBank participates in the consultation of indicators defined in the Regulation as one of the participants of the Polish financial market.
Regulation of the European Parliament and of the Council (EU) 2020/852 of June 18, 2020 on the establishment of a framework to facilitate sustainable investment, amending Regulation (EU) 2019/2088 (Taxonomy), published in the EU Official Journal on June 22, 2020, comes into force in December 2021. It harmonises at EU level the criteria of assessment of business activities as environmentally sustainable. The Regulation authorises the European Supervisory Authorities to define the scope of sustainable investment disclosures in regulatory technical standards.
Banks are following closely the efforts of the European Banking Authority (EBA), including the EBA Action Plan on Sustainable Finance, which focus on the expected impact of environmental, social and governance factors (ESG). In 2020, we consulted the document concerning a single definition of ESG risks and their potential integration into supervisory assessments of financial institutions. mBank monitors and aligns with regulations, guidelines and good practice of sustainable development, as demonstrated by the fact that mBank’s ESG strategy is an integral component of its business strategy.
In 2020, a legislative amendment of the Act on the Bank Guarantee Fund, the deposit guarantee scheme and bank recovery and resolution and certain other Acts was discussed in order to transpose BRRD2 to the Polish legal system, and the transposition of CRDV/CRR2 was underway through an amendment of the Banking Law and other Acts.