ECON had discussions with ECB President Trichet and Commissioner McCreevy. It also voted on the reports on Hedge Funds and Private Equity and on the Future Structure of Supervision.
ECON had discussions with ECB President Trichet and Commissioner McCreevy. It also voted on the reports on Hedge Funds and Private Equity and on the Future Structure of Supervision.
GoTo:
Equivalence decision on the Transparency and Prospectus Directive
Securities settlement systems and financial collateral arrangements
Monetary dialogue with Jean-Claude Trichet
Exchange of views with Mr. Jean-Claude Juncker
Exchange of views with Mr. Charlie McCreevy
Vote on Hedge Funds and Private Equity
Vote on Lamfalussy follow up - Future Structure of Supervision
Equivalence decision on the Transparency and Prospectus Directive
Co-rapporteur(s): Margarita Starkevičiūtė (ALDE/LIT), Peter Skinner (PSE/UK), Exchange of views on the basis of motion for a resolution
Both rapporteurs asked the Commission to come forward with a document or any other contribution stating the current state of play in the 3rd country equivalence with IFRS before they start drafting their document.
Responding to the rapporteurs, the Commission delivered the background reasons, as their proposal follows the advice from CESR.
The Commission clearly differentiates between two groups of countries, be they either equivalent or converging to IFRS. The United states and Japan, for example, did not full take over IFRSs, but are considered as equivalent, the Commission official explained.
The Commission also referred to the establishment of a Monitoring Group.
A discussion did not take place.
Timetable:
6 October – Draft document
Securities settlement systems and financial collateral arrangements
Rapporteur Piia-Noora Kauppi (EPP/FIN) presented her draft report on the Commission proposal amending the settlement finality and the financial collateral directives. The rapporteur proposes few substantial, as well as a number of minor, clarifications (see here).
Main issue within the Council and the European Parliament seems to be that some member states want to keep the notification requirements and notification systems. The rapporteurs proposal to introduce a ‘sunset clause’ might therefore be revised and become a ‘review clause’ only.
Consumer credits should also not become eligible credit claims, she said. Also the reference to SMEs, defined by a reference of 250 employees, is too high, she said. Mrs Kauppi also wants to include same of the amendments proposed by the ECB (see here) as these were not available at the time of drafting her report.
Pervenche Beres (PES/FR) noted that the amendments should not pre-judge any forthcoming evaluation, eg. on the Code of Conduct for Clearing and Settlement. On the remarks of John Purvis (EPP/UK) on the ‘netting out’, Mrs Kauppi referred to her amendment No.12 which clarifies that this “shall apply even in the event of insolvency proceedings”.
Timeline :
Deadlne for amendments – 24 September
Vote in Plenary – December
Draft report, Commission document
Monetary dialogue with ECB President Jean-Claude Trichet
ECON held its regular monetary dialogue with ECB President Jean-Claude Trichet. The outlook for euro area and global financial stability will increasingly depend on the interaction between macroeconomic developments and the financial system, and on how banks respond to a challenging operating environment, Mr Trichet said. The financial market correction could be gradually changing its nature and scope and evolve into a more traditional credit-cycle downturn. In such circumstances, it is more likely that the adjustment process will not abate as key participants in the financial system continue their efforts to strengthen their liquidity and capital positions.
According to the latest ECB staff projections the average annual inflation rate is foreseen between 3.4% and 3.6% in 2008 and between 2.3% and 2.9% in 2009, Trichet said, the average annual real GDP growth is foreseen in a range between 1.1% and 1.7% in 2008 and between 0.6% and 1.8% in 2009.
In particular, there is a very strong concern in the Governing Council that higher energy and food prices may lead to the emergence of broad-based second-round effects in price and wage setting, which in turn could add significantly to inflationary pressures. Much of the subsequent discussion focussed on ECB monetary policy, inflation, and economic growth.
Referring to the financial market, Mr Trichet reiterated to the Committee members that financial markets are still in the process of an ongoing market correction. There will, however, no going back to the ‘status-quo-ante’. A lot of transparency will need to be introduced and a lot of existing pro-cyclicality has to be eliminated.
Asked by Alexander Radwan (EPP/DE) and Daniel Dăianu (ALDE/ROM) about the ECB’s position on the optimal organisation of supervision in Europe, the ECB President underlined that his institution is very keen on pushing the different authorities in Europe to the maximum amount of intimate cooperation, and reminded that many Central Banks within the ESCB do possess supervisory functions.
The ECB President also stressed that with regard to banking surveillance the “potentialities” have not all been exploited and could be further developed. But he also noted that his institutions will carefully listen and analyse all proposals currently discussed in Parliament, and the Governing Council as well in the academic realm.
Commenting on questions by Robert Goebbels (PES/LUX) and Eoin Ryan (UEN/IRL) on the development of oil prices and the influence of speculation on commodity prices in general, Mr Trichet said that “anyone who says that there is no influence of financial investors on commodity prices is wrong.” However, one cannot necessarily talk of speculation in this case as this development could also reflect possible structural changes. Therefore, one has clearly to analyse the market functions and what is going on, he said.
Mr Trichet did not want to comment on questions posed by Karsten Hoppenstedt (EPP/DE) and Piia-Noora Kauppi (EPP/FI) on the latest developments in the US, in particular the decision on Fanny Mae and Freddy Mac. However, he welcomed the decision ‘taken into account the exceptional circumstances’. “Would Mr Paulson not have taken the decision we would now be in a completely different universe”, he said.
Full speech
Exchange of views with Mr. Jean-Claude Juncker, President of the Eurogroup
The chair of the Eurogroup Jean-Claude Juncker said that the "volatility in exchange rates and the strong appreciation of the euro are not good for growth. The recent fall in the euro is in the right direction, but we still think it is overvalued."
MEPs raised with Mr Juncker some of the same questions asked of Mr Trichet. They were particularly interested in the US decission on Fanny Mae and Freddy Mac and the Lender-of-Last-Resort function of the ECB and supervision in the EU. Some were concerned that the Eurozone is not sufficiently prepared to withstand and cope with a crossborder crisis situation. On financial market supervision, Mr Juncker said he does not support the idea of a single supervisory body but called for greater cooperation between national authorities.
Exchange of views with Mr. Charlie McCreevy, Commissioner for Internal Market and Services
The financial turmoil has exposed a chronic lack of private sector discipline and competence and some weaknesses in the global financial regulatory framework, Commissioner McCreevy said and announced a number of initiatives for the forthcoming weeks:
Transparency: By the end of October, the industry is expected to adopt guidelines which will promote consistent and comparable disclosures by firms when they publish their first quarter 2009 results. Industry initiatives aimed at strengthening investor information are progressing as well.
Valuation methods, in particular illiquid assets: Work is being led by the Basle Committee and the IASB. Advice is expected by the end of the third quarter of 2008. The IASB is also working on off-balance sheet items and will come forward with proposals on reviewing consolidation rules under IFRS expected in 2009.
Capital Requirements Directive: The Commission will adopt two Comitology Directives and one Co-decision proposal in early October. Changes are targeted at the management of large exposures; harmonising the treatment of hybrid capital; the supervision of cross-border banking groups; improving liquidity risk management, and addressing the shortcomings in the 'originate to distribute' securitisation business model.
- The two Comitology Directives, containing purely technical changes in line with Article 150 of the CRD, will be submitted for vote to the European Banking Committee on the 24th of September and then transmitted for scrutiny to the European Parliament. Adoption is foreseen for early 2009.
- The Co-decision proposal, covering issues related to crisis management, colleges, large exposures, hybrids, minimum capital for securitisation, liquidity, and waivers for banks affiliated to a central institution, is scheduled for adoption by the Commission in early October 2008.
- The European Council has given its full backing to the project and has underlined the importance of striving for an agreement between the European Parliament, the Council and the Commission, by April 2009.
Credit Rating Agencies:
The Commission will come forward with a proposal in late October. It includes a set of substantive requirements CRAs need to respect for the authorisation and exercise of their activities in the EU. CRAs will have to register and become subject to supervision in the EU. Further issues include conflicts of interest, ensuring sound rating methodologies and increasing the transparency of their rating activities.
Supervision
The Commission will revise the Commission Decisions establishing CESR, CEBS and CEIOPS. Committees should be involved in the exchange of information between supervisory authorities, delegation of supervisory tasks and the oversight of the operation of supervisory colleges. They ahould monitor and report potential risks to the stability of the financial systemand develop a common supervisory culture. The Commission also considers including the obligation to apply Qualified Majority Voting coupled with a “comply or explain” requirement.
Solvency II
Outstanding issues to achieve a political compromise include: group supervision, the capital charge for equity, minimum capital requirements, surplus funds, and the pension overlap.
Investment funds
CESR will provide its advice by the end of October.
EU-US regulatory dialogue
The Commission is working with the US on mutual recognition in the field of securities. The main remaining hurdle is to agree on a method to assess equivalence of the US and EU frameworks.
The following discussion focused mostly on the two reports – Hedge Funds and Private Equity, and Lamfalussy procedure - adopted by the Committee the same day. The Commissioner made clear that he will respond to in due course. However, commenting on a question posed by Ieke van den Burg (PES/NL) on the supervisory architecture he said that one has to be realistic with what can be done and what is achievable. Already the Commission proposal will come into ‘heavy whether’.
Responding to John Purvis (EPP/UK) on securitisation issues he underlined that he supports the idea that a certain percentage should be held with the issuing institution.
Full speech
Vote on Hedge Funds and Private Equity
ECON voted unanimously in favour of the introduction of EU-wide minimum standards in the financial sector until the end of the year. A number of compromise amendments were adopted ‘en bloc’. “This resolution is a fair compromise between the Socialists, the Conservatives and the Liberals and I am very satisfied that we have everyone on board”, said Poul Nyrup Rasmussen, rapporteur of the report.
EPP rapporteur Kurt Joachim Lauk (EPP/DE) made clear that financial market instruments like hedge funds or private equity shall not be restricted but the risks involved must be minimized and become more transparent.
The Commission is now requested to provide a respective legislative proposal. It should not only cover, unlike originally intended, regulations for hedge funds and private equity, but be expanded to all relevant actors in financial markets.
Capital requirements should apply to investment firms on the basis of risk rather than the particular type of entity. The interests of investors and loan originators should be aligned, either by obliging originators to retain a portion of securitised loans on their own books or by measures with equivalent effect. MEPs want to see principles based legislation on the valuation of illiquid financial instruments and better transparency requirements on prime brokers and call for a harmonised EU-wide framework for venture capital and private equity, especially to ensure cross-border access to capital for SMEs.
Committee also wants to see a European Private Placement Regime which would allow for the cross border distribution of investment products, including alternative investment vehicles, to eligible groups of sophisticated investors. This would involve disclosure of their general investment strategy, leverage, risk-management and portfolio valuation methods, the source and amount of funds raised, rules for transparency on top executives remuneration and registration of shareholders beyond a certain proportion. Compensations and benefits for the management must reflect both real profits and losses.
Measures should be introduced where needed to avoid unreasonable asset stripping of companies taken over by private investors. Capital rules should ensure the level of leverage is sustainable for both the private equity firms and the target company and there should be no unfair discrimination between different types of fund using similar strategies.
Credit rating agencies should separate their rating business form any other services they offer, such as advising on structuring transactions. The effects of market concentration in the financial services industry should be given a general review by the Commission’s Competition Directorate General, and assess among other things, whether there is legislation favouring incumbents which needs to be removed. They should be subject to financial market supervision either on EU level or by a better national coordination.
Employees of companies which are taken over should always have the same rights to information and consultation under EU law, including when private equity investors or hedge funds are involved. Employees or staff representatives of pension funds should get informed about how their pensions are invested and the associated risks.
The consolidated text as adopted is attached below
Vote on Lamfalussy follow up - Future Structure of Supervision
Co-rapporteur(s): Ieke Van Den Burg (PSE/NL), Daniel Dăianu (ALDE/LIT)
ECON adopted the report on the future structure of financial supervision which calls on the Commission to come up with significant proposals to improve the supervisory architecture for financial services in Europe.
The report includes recommendations on the structure of the 3L3 Committees and on the present mechanism for managing systemic risk.
Voluntary arrangements are insufficient to streamline the fragmented structure of European supervisors, the report argues. The structure of supervision needs to have a solid legal basis in line with the increased complexity and dynamics of the market.
Colleges of supervisors dealing with cross-border institutions should become mandatory with a fairly fixed division of competences and a system of qualified majority voting between the supervisors which enables them to make decisions.
MEPs in the committee encourage the Level 3 Committees to work towards better cross-sector and cross-border integration and coordination.
Micro- and macro-prudential and market supervisors should combine their knowledge of developments in the market. The European System of Central Banks would get a central position to coordinate and to take leadership if necessary.
The division of information and tasks should also be streamlined to improve the voice of the European Union at international level, says the report. The EU should have a clear voice in the G8 and the Financial Stability Forum, which would avoid it being outstripped by the United States within, for example, the Banking Committee in Basel.
A consolidated text is attached below.
Not covered issues:
Vote: Value added tax on the treatment of insurance and financial services
Rapporteur: Joseph Muscat (PSE)
Vote: Protecting the Consumer: Improving consumer education and awareness on credit and finance
Draftsman of Opinion: Jean-Paul Gauzès (EPP/FR)
Link to all Committee documents
© Graham Bishop