ECON discussed the amendments made to the Solvency II draft report prepared by MEP Skinner, and the draft report on the Future Structure of Supervision in Europe prepared by MEPs van den Burg and Daianu.
ECON held an exchange of views with French Finance Minister Christine Lagarde and a first consideration of the more than 800 amendments to the Solvency II draft report prepared by MEP Peter Skinner. It also discussed the report on the Lamfalussy follow up and held an exchange of views with the IMF.
Link to items discussed:
Exchange of views with Christine Lagarde
Solvency II
Lamfalussy follow up
Jaime Caruana - IMF
Exchange of views with Christine Lagarde
Finance Minister Christine Lagarde told the Economic and Monetary Affairs Committee she wanted of the Solvency II supervisory framework for the insurance industry to be in place by December, and progress made on banking and credit rating agency supervision. On the wider economy, she said “we are living through a great deal of instability on what I have called the ‘triple F’: finance, fuel and food.” The Council would look pragmatically at how to help those hardest hit.
Asked if President Sarkozy had been questioning the independence of the European Central Bank, she said: “I don’t think he has ever wanted to put in doubt the independence of the ECB in any way. I think he understands and respects its independence. But it is also legitimate for Member States to express themselves and have a dialogue with the ECB on economic policy.”
Commenting on the presentation ECON Chair Pervenche Berès said: “The French programme outlined to us lacks any strategic ambition on the financial measures to be considered in the event of fresh turbulence within Europe's banking system.”
ECON discussion on Solvency II
ECON Committee held its first discussion on the amendments on Solvency II
A total of 821 amendments to the rapporteurs draft report have been tabled. Amendments cover among others issues on the proportionality principle, investment rules, Minimum Capital Requirement, surplus funds, equity risk, information for policyholders, mutuals and mutual groups, group support, colleges of supervisors, and pension funds.
Rather than entering into a discussion on the amendments, MEPs outlined the main subjects future discussions will focus on, mainly on the treatments of equities and the calculation of the MCR, surplus fund, mutual funds and the incorporation of pension fund into the Commission proposal, but also on the issue of group supervision.
Committee members widely agreed that pension funds should not be incorporated into the directive at this stage out of various reasons, be it because of the variety of schemes or the strict time plan the institutions have to cope with, and MEP van den Burg suggested that members withdraw all amendments on this issue. Instead, the Commission should come up with a consultation on the topic and report back as soon as possible.
Views differed, however, on the legal status of the Level 3 Committees, in particular CEIOPS, and on how group supervision should be organized. MEP Bescey underlined that the different angles from countries acting as ‘service providers’ and those acting as ‘consumer countries’ should be taken into account if a compromise should be reached.
MEP Hökmark underlined that it is key that Solvency II stays tuned with the risk-based approach. MEP Bowles warned that the calculation of the MCR should be ‘simple’ as to avoid discussion this issue before the courts.
Committee members from all parties and legislations also were rather positive that a compromise could be reached. However, some MEPs warned that the devil is in the detail and the discussions had just begun.
Responding to the discussion the French council representative noted that on group supervision a first compromise seems to be underway in Council. This, however, will be far away from the original Commission proposal, he said without going into greater detail. Council sub-committees are currently discussion various issues, he said and announced a possible text to be available by end July or beginning September after the summer break.
Karel van Hulle, European Commission, explained that a consultation on pension funds issues is already underway. He also sees a convergence between the positions taken in Council and the European Parliament.
Timetable:
10 September – Second exchange of views in Committee
22 September – Exchange of views with Thomas Steffen, chair of CEIOPS
22 September – Discussion of amendments
7 October – Vote in Committee
Draft Report Skinner
Link to amendments
Lamfalussy follow up - Future Structure of Supervision
Rapporteur Daianu called for a holistic approach that next to supervisory issues also deals with the conflicts of interest. The originate-to-distribute model has to be rescued he said introducing the report. Rapporteur van den Burg stated that looking to the amendments made there seems to be a consensus among Committee members that something has to change and that there is a call for more cooperation and convergence. There seems to be agreement for a closer link between the three sectors, banking, insurance, and securities, although it is not yet clear how this should really look like. However, there seems to be no agreement on a separate system for cross-border operating companies, she said.
Opening the discussion MEP Kauppi was very positive about the report although some parts of the annex were much to detailed, she said. She supported the idea of mandatory colleges with a mediation mechanism among supervisors for the top 40 European financial institutions. “It makes a lot of sense to have a common body”, she said “with a mediation committee composed of representatives from the 3L3 Committees.”
She also agreed that the ‘stability arm’ should be separated. There is no need for a new she said and suggested that the BSC could fulfil this role. However, it is still unclear how the 3L3 Committees and the Oversight body should work together.
MEP Klinz warned against creating new Committees as these will increase bureaucracy and limit the efficiency. However, in the medium and long term a supervisory system equivalent to the ESCB should be established. The report however should re-focus on Lamfalussy and Supervision rather than covering broader issues.
Chair of the Committee Pervenche Beres supported the idea of transferring the Committees into agencies. However, rather than establishing a mediation committee on colleges she called for a ‘steering committee’.
Responding to the discussion, the Commission responsible criticized that the report is in some ways too overambitious as it tries to solve everything. “Self-regulation is sometimes quicker”, he said. He also warned against making things too complicated. New Committees may lead to duplication as many issues are already covered by existing Committees. The report also lacks to prioritise the issues and contains a whole catalogue of measures. In this regard, also the time constraints have to be considered.
Closing the debate, MEP van den Burg responded that the report only tries to solve those things that have gone wrong during the crises. Past events also show that self-regulation is not sufficient. Finally, she called the timing issue absurd as the Commission had enough time since last year to act.
Timeline:
17 September: Vote in Committee
October: Vote in Plenary
Draft Report
Discussion on the financial crises with Jaime Caruana - IMF
Challenges to the financial sector will continue due to the cyclical challenges and inflationary pressures stemming also from the rise in commodity prices adding to the sub-prime crises, Mr Curana said. US mortgage markets show still no sign of bottoming, he said, and data shows that monoliners are coming under increased stress.
The IMF recommendations to the financial market crises are threefold, he said. Financial institutions have to be well capitalized, the transparency in particular on the valuation of complex products has to be increased, and Central Banks have to provide the necessary liquidity to the market, he outlined.
In this regard he also underlined the important role the two American GSEs play as they are central institutions for the US housing market. Also, many international investors are heavily connected to these institutions.
© Graham Bishop