Ministers assessed the progress made in implementing the roadmaps for financial stability, and decided on a general direction for amendments to important directives currently discussed.
The Council defined general approaches on four draft Directives, namely on deposit guarantee schemes, CRD, Solvency II and UCITS.
Ministers also assessed the progress made in implementing the roadmaps for financial stability, and decided on a general direction for amendments to important directives currently discussed.
General Approaches
Deposit Guarantee Schemes. The proposed amendments will rais the deposit guarantee level to EUR 50 000 from 30 June 2009 and harmonising the level at EUR 100 000 from 31 December 2011. It also extablishes a period of five working days to establish that a credit institution has failed to repay deposits which are due and payable, and of 20 working days, subject to extension by 10 working days, to make the repayment. The European Parliament vote is expected on 15 December (General Approach).
Capital Requirements. The amendments will strengthened supervision of cross-border banking groups among others by establishing colleges of supervisors, harmonising reporting requirements by 2012, and closer coordination among supervisors.
On securitisation practices due diligence and transparency obligations imposed on the originators of securitisation operations and on investors would be strengthened. Council proposes a 5 % retention rate. Council amendments also call for tighter control over exposure to a single counterparty, tighter control over liquidity risk and a uniform definition of bank capital. The European Parliament's vote is expected next April (General Approach)
Solvency II. The "group support" that appeared in the Commission's proposal no longer appears in the Council's general approach. Some progress has been made, however, on a number of points concerning group supervision:
Ø Creation of "colleges of supervisors": places for information exchange and discussion between the supervisors of parent companies and the supervisors of subsidiaries;
Ø Strengthening of the role of the Committee of European Insurance and Occupational Pensions Supervisors, which ought to ensure greater convergence of prudential practices and which should be consulted when disagreements between supervisors of a college need to be smoothed out;
Ø Recognition of mutual benefit insurance companies which, like the other groups, could draw advantage from diversification between the risks they bear.
The European Parliament is due to vote during the week of 15 December (General Approach).
UCITS. Council agreed to introduce a "European passport" for fund management firms will help improve the integration of the European market for asset management. The crossborder mergers of UCITS as well as the crossborder marketing of UCITS should be facilitated, and a standardised ‘key information for investors’ summary should be introduced (General Approach).
Finally, the Ecofin Council dealt with tax matters, reduced-rate VAT, taxation of savings income and a code of conduct for business taxation.
Council Document
Contribution to the European Council
The Council approved its contribution to the European Council with respect to the response to the financial crisis which includes the implementation of roadmaps concerning the Lamfalussy process regarding regulation and supervision of financial services.
Credit Markets and Recapitalisation Measures
To improve the functioning of the credit market Member States agreed on a common framework at EU level for the pricing of guarantees defining minimal benchmarks.
The Council urges the Commission, before the European Council and after further discussion with Member States, to adopt guidance on recapitalisation measures. The Council insists in particular on the following elements, which are key for the success of the support schemes and for restoring the functioning of the financial markets and increasing credit to the economy:
Ø a clear distinction should be made between fundamentally sound and distressed banks;
Ø this distinction should notably apply to the pricing of recapitalisations and dividend policy, in line with the ECB's recommendations. It is important not to discourage capital-raising from private investors, and to replace in due time state capital;
Ø decisions by the Commission should be fully consistent with the objective, shared by all, to ensure that banks provide appropriate financing to the real economy;
Ø restructuring measures are not expected from fundamentally sound and viable banks benefiting from recapitalisation measures.
Transparency issues
The Council encourages the industry to pursue its initiatives regarding the improvement of investor information and transparency in the securitisation market and on consistent and comparable implementation of CRD under Pillar III. The Commission and CEBS shall report on the progress achieved on transparency of financial institutions in spring 2009.
Credit Rating Agencies
Council agreed on the need to put into place a a European oversight of credit rating agencies. The Council welcomes the legislative proposal of the Commission and is determined to find an agreement on it before spring 2009.
Fair Value and IASB
The Council welcomes the IASB revised framework for reclassification of financial assets and the guidance on fair value measurement when markets become inactive. However, Council also urges the IASB to give urgent consideration to issues recently raised by the Commission and, where appropriate, to come forward with the technical solutions as requested in time for the publication of year-end results.
The Council will examine the progress achieved and the need for further action concerning the IASB governance reform to ensure that there is appropriate accountability to the public authorities.
Further issues in 2009
ECOFIN expects the European working group on pro-cyclicality, consistent with the FSF and Basel Committee work, to deliver a first outline by end 2008 leading to a first report by March 2009 to be finalised no later than mid 2009. The Commission is invited to consider a possible proposal of legislative action by the Commission by end 2009;
Executive Pay: Ecofin asks the Commission to update its recommendation so as to promote a more effective control by shareholders, and encourage a stronger link between pay and performance, including on leaving pay (“golden parachutes”);
Financial crisis management: Consistency between national tools and rules for asset transferability should be considered. The Council welcomes the intention of the Commission to deliver a white paper on early intervention by mid 2009;
Credit Default Swaps: The Council welcomes the positive step taken by the Commission to accelerate work and make progress in early 2009;
Supervision / Lamfalussy process: the recommendations of the high-level group chaired by M. de Larosière are expected in March 2009, in view of considering further actions in this field by the end of 2009;
Ensure safe and sound European post-trade infrastructures in order to prevent systemic risks from spreading over the financial system, and to increase transparency on the OTC derivatives markets.
TIMELINES:
Before spring 2009
Commission proposal on Credit Rating Agencies
March 2009
European working group first report on pro-cyclicality
Recommendations of the de Larosière group
Spring 2009
Commission and CEBS to prepare a progress report on the transparency of financial institutions
Mid 2009
European working group final report on pro-cyclicality
Commission white paper on early intervention on financial crisis management
End 2009
Commission to consider a possible proposal of legislative action on pro-cyclicality
Considering further actions based on recommendations of the de Larosière group
Further work at the G20 level:
The Council requests that the EFC start working in particular on the following issues and to report back to the Council:
by January/February 2009
Ø reviewing the adequacy of the IMF’s resources and the IMF lending instruments in the light of short-term policy needs related to financial packages to be developed by the IMF;
Ø IMF relations with other fora and IFIs;
by March 2009
Ø an overall assessment of progress made with the key short-term work priorities outlined in the report, and an assessment of the causes and lessons of the present and previous financial crises in further detail; and, on the basis of these, and taking into account the overall financial stability situation in the markets, propose updated short-term and long-term work priorities;
Ø standard setting and surveillance of financial institutions at global level as set out in the Declaration of the G20 summit and the Council's (Ecofin) roadmaps;
Ø progress in sharing information with non-cooperative jurisdictions;
in the course of 2009
Ø strengthening of IMF surveillance, including how the IMF should develop early warning mechanisms which would build on swift identification of systemic vulnerabilities thanks to a stronger integration of bilateral and macro-financial surveillance and on strengthened joint IMF/World Bank Financial Sector Assessment Programs (FSAP);
Ø reviewing the mandate and governance of IFIs.
Contribution to the European Council
Council Conclusions on clearing and settlement
ECOFIN underlines the need to strengthen the safety and soundness of both Central Counterparty clearing and securities settlement systems. Supervisory authorities should make sure that effective, timely and robust supervisory solutions are put in place so that systems can operate without affecting systemic risk and prudential safety is ensured. Appropriate initiatives should also be taken at the European level.
ECOFIN also invites the ESCB and CESR to adapt the existing draft Recommendations on CCP so as to explicitly address also risks of OTC derivatives and coordinate with CPSS-IOSCO Recommendations in order to ensure global consistency as soon as possible, without affecting neither the ongoing supervision/oversight by competent authorities for CCPs which extend their current services in this area nor the scope of the current exercise and the agreed deadlines.
Regarding the need for a European clearing system, the Council supports the Commission on the creation of one or more European CCP clearing capacities in OTC derivatives markets, and encourages coherence with parallel initiatives at global level. The Council also notes the need for post-trade clearing systems in the European Union where “supervision, rules and the level of risk management applying still differ critically”.
Concerning the solutions to the Giovannini barriers, the Council recalls the Commission to present by early 2009 a way forward for those barriers where it finds current actions are insufficient.
Council Conclusions on Clearing and Settlement
Finally, the Ecofin Council dealt with tax matters, reduced-rate VAT, taxation of savings income, a code of conduct for business taxation, banking mobility, and clearing and settlement issues.
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