16 April 2019

POLITICO: Financial agencies revamp, capital rules and fund sales all pass European Parliament

Europe’s banking, insurance and market agencies will get a limited boost to their powers, as Parliament passage confirms a compromise with negotiators for national governments. The measure will be enacted once the Council of the EU formally adopts the legislation.

Overhauls of capital standards for banks and investment firms also cleared the assembly, sealing other deals with the Council. The lawmakers backed another measure agreed with governments, on opening up cross-border sales of investment funds. Today’s votes keep those on track to become law once approved at a future Council meeting.

The Parliament also backed the creation of a form of securitized government bond, although the Council has no plans to follow suit.

— The banking package: The measures include a rewrite of capital requirements to put Basel III global measures into force, as well as international standards for how to resolve failing banks. Both included a directly binding regulation plus a directive that takes effect once written into EU countries’ national laws.

“The credit crisis is still something we remember,” Dutch liberal MEP Caroline Nagtegaal said in Monday night’s plenary debate. “But thankfully we have this package … to avoid these situations arising again. The banks in the future will have to have larger reserves. These buffers will be increased, and this is a good thing.” [...]

Financial regulators

— European Supervisory Authorities: The ESA revamp will bolster the powers of the European Banking Authority (EBA) to help police money laundering and terrorist financing across the bloc. The European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) received more limited new mandates, in areas such as guarding the interests of consumers. Lawmakers turned down proposals for the agencies to take on more direct supervision of companies in their sectors, as well as moving decision-making and funding from national hands.

Legislation to amend the ESAs’ statutes, plus a host of laws setting out their roles on money laundering, investment funds, benchmark indexes and securities prospectuses, passed by 521 to 70 with 65 abstentions. [...]

The ESAs review also amends the setup of the European Systemic Risk Board (ESRB). The economic-risk watchdog won’t gain rulemaking power but could put a timeline on policy recommendations to other authorities. Among other changes, the top banking supervisor at the European Central Bank, currently Andrea Enria, and the head of the Single Resolution Board, now Elke König, will take seats on the ESRB’s general board. [...]

— Investment firms: The initiative intends to ease capital rules for most investment managers. But if the firms hold assets exceeding €15 billion, then the bloc’s banking rules will apply.

The rules became political thanks to Brexit. London firms will face stricter criteria to regain access to the EU, with ESMA scrutiny and fees. [...]

— Cross-border fund sales: Asset managers will get streamlined procedures for offering funds in other EU countries, although the measure kept national safeguards in place for marketing documents. [...]

— Sovereign bond-backed securities: Parliament backed the idea of pooling together government bonds into a “safe asset” for banks to hold, breaking the so-called doom loop when they hold too much domestic debt amid a national crisis. The proposal won a 448-199 majority, with 8 abstentions.

But the vote for “ESBies” will have little practical impact as Council quickly abandoned the file last summer. Many EU capitals objected that the securitization of their bonds could open the door to debt mutualization.

© POLITICO