Coherence of EU financial services legislation and

EPFSF Briefing – 24.9.2014
Coherence of EU financial services
legislation and challenges ahead
The financial crisis which began in 2007 provided impetus for unprecedented
reform, with policy makers worldwide grappling with how to ensure that taxpayers
and the financial system as a whole are protected from future crises. Since 2008,
successive G20 summits have laid the ground for an overhaul which in the words of
Commissioner Barnier was to leave “no financial product, no market and no territory
without appropriate regulation and effective supervision.”
In the European Union, this global agenda was implemented through many
individual pieces of legislation, such as the Alternative Investment Fund Managers
Directive (AIFMD), the Capital Requirements Regulation and Directive (CRR/CRD IV)
for enhanced levels of capitals and liquidity, the Bank Recovery and Resolution
Directive (BRRD), the European Markets Infrastructure Regulation (EMIR) and more.
In the US, a unified approach was chosen, through the Dodd Frank Act. Although
the Financial Stability Board (FSB) was strengthened to give weight to the
international political agreement and become the standard setter for regional and
national regulators, the scale of the reform agenda combined with the different
approaches to re-regulation has significant implications for the coherence of the
new framework.
Background
In the European Union, over 40 different pieces of
financial services legislation have been adopted
since 2008, ending with the 15 April plenary,
dubbed by some ‘ECON Super Tuesday’, due to
the historic number of substantive reforms voted on
that day, including the Single Resolution
Mechanism, the Bank Resolution and Recovery
Directive, and the Markets in Financial Instruments
Directive etc.
In the first half of 2013, the ECON committee of the
European Parliament held a consultation on
possible measures to enhance the coherence of
EU financial services legislation, prompting 86
written responses. The informal report adopted in
late January 2014, identifies several issues on basis
of the stakeholder responses around the
coherence of the new regulatory framework for
consideration by the next Parliament and
Commission. The report also seeks to take stock of
what has been achieved and to deliver on the
growth agenda. This paper highlights some of the
key themes for consideration.
EPFSF Briefing on the Coherence of EU financial services
legislation and challenges ahead – 24.9.2014
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Level 1 Issues
Level 2 coherence
The nature of the legislative process in the EU developing multiple pieces of legislation on related
issues all at the same time - inherently carries risks
of creating legal uncertainty while at the same
time opens the possibility for parallel treatment of
related files. Hence, consideration should be given
to ways to diminish the likelihood of overlaps and
uncertainty emerging. A first general approach to
deal with this would be more coordination
amongst the Commission’s services as to the
principles on key topics (such as transparency and
disclosures, product requirements etc.).
Such a significant number of level 1 measures
spawns an exponentially larger number of
initiatives at level 2. Ensuring coherence in
implementation with the spirit of what was agreed
at level 1 as well as coherence between the level
2 measures is important. On 10 July 2014, DG
Internal Market and Services published an
overview list of the level 2 legislative measures in
the area of financial services. The document runs
to 78 pages, listing several hundred implementing
measures. This will place significant strain on the
European Supervisory Authorities (ESAs), the
Commission, Council, and Parliament. In order to
ensure coherence of the implementing legislation,
it will be vital to provide the ESAs with enough time
to prepare technical standards and organize
meaningful consultations with market participants,
the other EU institutions, and other stakeholders.
There should be better defined periods as to the
publication of the Level 2 measures and their
national implementation. The report recommends
in particular that the ESAs should be given 12
months from the date of entry into force within
which to prepare draft technical standards. It also
invites the Commission to be more transparent visa-vis level 2 measures where it has chosen to
depart from an ESA's advice. Finally, it is important
to ensure that the ESAs act within their mandate
and that ESAs mandate sufficiently and clearly
reflects the wording and the spirit of the
democratic legislative process at the end of the
trilogue.
The principles should be set before the detailed
rules are so that the detailed rules have a common
guideline. More concrete suggestions have
included: ensuring that the full impact of
interactions between different pieces of legislation
is considered at the impact assessment stage
(including a reference to extraterritoriality effects);
establishing
clearer
timetables
for
the
development of new legislation; coordinating
timetables for legislative debates on regulations
with comparable purposes and scope; examining
whether it would be feasible or desirable to have
greater commonality of rapporteurs and shadow
rapporteurs to the files which comprise clusters of
issues; and ensuring that more consideration is
given to assessing the impact of changes
introduced by amendment to legislation once it
has been proposed by the European Commission.
The report invites the Commission to prepare for
the next mandate a schedule of reviews of the
different pieces of legislation.
In this light, the European Commission has recently
issued two public consultations on its stakeholder
consultation guidelines and Impact Assessment
(IA) guidelines respectively.
International coherence
The ECON report also highlights the need to
consider coherence not only within the EU acquis,
but also between the EU rules and those adopted
by major jurisdictions. In order to safeguard a level
playing field for EU financial services more
coordination and enhanced cooperation with the
non EU financial authorities is strongly desirable.
Industry views it important that there be more
effective international dialogue at the initiation of
proposals, coordination on regulatory timetables,
consensus on key terms such as “equivalence”
and agreement on deferring, where appropriate
to the rules of an equivalent jurisdiction.
EPFSF Briefing on the Coherence of EU financial services
legislation and challenges ahead – 24.9.2014
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Transatlantic consistency rightly gets the most
political attention, given the importance of the
business and capital flows between Europe and
the US. But recent frictions between the two
jurisdictions over the implementation of their
respective post-crisis reforms have exposed the
potential consequences that divergent rules can
have for markets.
While dialogue takes place in the Financial
Markets Regulatory Dialogue (FMRD), there is an
important discussion on whether financial
regulation should be brought within the scope of
the Transatlantic Trade and Investment Partnership
(TTIP). The TTIP discussions have already contributed
to increased attention to the FMRD process.
Internationally, initiatives such as the IOSCO CrossBorder Task Force also constitute positive steps to
build and preserve international coherence.
However, the general goal of international
regulatory coherence should take into account
possible differences in market conditions, products
and/or consumer behaviours and hence allow
flexibility in legislative/regulatory approaches when
there are viable reasons to do so.
Coherence between the
regulatory framework and
growth expectations
The new Parliament and Commission have an
important opportunity to articulate, at the outset of
the legislative mandate, a high-level vision for
financial services legislation that Europe should be
working towards more broadly during the next five
years.
Prudential reform has fostered a greater reliance
on capital markets as a source of much needed
funding for the European economy (reversing the
over reliance on bank credit in Europe).
However there is a need to properly consider and
address the regulatory contradictions that may
limit the ability of capital markets to increase the
role they currently play, for example via the overly
restrictive prudential capital treatment of various
long-term assets, disincentives on investing in
securitization, the calibration of the net stable
funding ratio (NSFR), the impact of a future bank
structural reform at European level, the necessary
flexibility in the European Long Term Investment
Funds or the impact on capital market liquidity of
the potential Financial Transaction Tax.
Similarly, greater coherence should be sought
between policy objectives and secondary
legislation. Looking at recent policy papers such as
the Communication on long-term financing or the
White Paper on pensions, the European
Commission rightly highlighted the need to foster
long-term investments to boost economic growth.
It is crucial to align these objectives in the
subsequent Level I and Level II measures, including
on matters such as accounting or rules on
securitization or derivative instruments.
The European Commission published in May 2014 a
first attempt of an economic review of the
financial reform agenda developed over the last
five years, but a fully-fledged impact assessment of
financial regulation, that also takes into view the
quantitative aspects, notably on the financing of
the economy and on growth, is needed. The
European Court of Auditors highlighted the need
for such an impact assessment in a special report
published in July, mentioning that “consideration
should be given to using an external evaluator
who has the required expertise to conduct such a
complex exercise”.
Such an impact assessment should also factor in
the diversity of the financial services industry in the
EU which is a great strength of the industry.
Therefore, the assessment should try to ensure that
financial reform respects business model diversity.
As long as this impact remains unclear, policy
makers should carefully consider whether it is
advisable to take additional measures at such
critical moment in the economic cycle.
EPFSF Briefing on the Coherence of EU financial services
legislation and challenges ahead – 24.9.2014
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Briefing notes are prepared by the Financial Industry Committee to the European Parliamentary
Financial Services Forum. For further information on the subjects raised in the briefs please contact the
Secretariat or the Chair of the Financial Industry Committee.
Chair of the Financial Industry Committee
Peter De Proft, EFAMA Director General
Rue Montoyer 47, B-1000 Brussels
Tel: +32 2 513 3969 / Fax: +32 2 513 26 43
E-mail: [email protected]
Secretariat
Catherine Denis, EPFSF Director
Avenue des Arts 56, B-1000 Brussels
Tel: +32 2 514 68 00 / Fax: +32 2 514 69 00
E-mail: [email protected]
Financial Industry Committee
Steering Committee
Association for Financial Markets in Europe (AFME)
Banco Bilbao Vizcaya Argentaria (BBVA)
Banco Santander
Barclays
BlackRock
CitiGroup
Chartered Financial Analyst Institute (CFA Institute)
Citigroup
Commerzbank AG
Crédit Agricole
Danske Ban
The Depository Trust and Clearing Corporation (DTCC)
Deutsche Bank AG
Deutsche Börse AG
Euroclear
European Association of Public Banks (EAPB)
European Banking Federation (EBF)
European Central Securities Depositories Association (ECSDA)
European Federation of Accountants (FEE)
European Fund and Asset Management Association (EFAMA)
European Mortgage Federation (EMF)
European Payment Institutions Federation (EPIF)
European Savings Banks Group (ESBG)
European Structured Investment Products Association (EUSIPA)
Federation of European Securities Exchanges (FESE)
FIA Europe
Goldman Sachs International
HSBC
ICAP
ING
International Swaps and Derivatives Association (ISDA)
Insurance Europe
Intesa Sanpaolo
JP Morgan
KBC
KPMG
LBA – Lichtenstein Bankers’ Association
Lloyds Banking Group
LSEG – London Stokc Exchange Group
NASDAQ OMX
NVB – Dutch Banking Association
PensionsEurope
PricewaterhouseCoopers
Prudential Plc
Royal Bank of Scotland
Société Générale
Standard & Poors
Swiss Finance Council
State Street
UBS AG
UniCredit Group
Union Asset Management Holding AG
VISA Europe
Western Union International Bank
Zurich Insurance Company
Burkhard Balz MEP (SC Chair)
Philippe De Backer MEP
Herbert Dorfmann MEP
Frank Engel MEP
Elisa Ferreira MEP
Vicky Ford MEP
Ashley Fox MEP
Ana Maria Gomes MEP
Sylvie Goulard MEP
Roberto Gualtieri MEP
Roger Helmer MEP
Monika Hohlmeier MEP
Gunnar Hökmark MEP
Danuta Maria Hübner MEP
Othmar Karas MEP
Sean Kelly MEP
Philippe Lamberts MEP
Boguslaw Liberadzki MEP
Olle Ludvigsson MEP
Sirpa Pietikäinen MEP
Godelieve Quisthoudt-Rowohl MEP
Paul Rübig MEP
Theodor Dumitru Stolojan MEP
Kay Swinburne MEP
Michael Theurer MEP
Ramon Tremosa i Balcells MEP
EPFSF Briefing on the Coherence of EU financial services
legislation and challenges ahead – 24.9.2014
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