08 November 2016

今後の注目点は、英国の単一市場離脱、バーゼルⅢの進捗状況、CMU（資本市場同盟）、PEPP（汎欧州の個人年金商品）、銀行のガバナンス等

By Paula Martín/Graham Bishop

Highlights from the “Brussels for Breakfast” meeting

With newspaper headlines dominated by stories about “the enemies of the people”, the Article 50 debate was intense! By the next B4B, we shall have heard the Government’s opening position before the Supreme Court. In the absence of some new arguments, the three most senior High Court judges were so firm in their conclusion that the Government’s appeal may turn out to be a forlorn gesture. However, a key issue that was taken as `common ground’ by both parties at the High Court – that giving Article 50 notice was irrevocable – may be taken up by the Supreme Court. Otherwise, serving the Notice is, in practical terms, the end of UK EU membership. However, interpretation of the word `intention’ in Art 50 is a matter of its effect under EU law. Could the UK’s Supreme Court find a need to request the view of the European Court of Justice – as the German Constitutional Court does?

Eventually, the UK will need to conclude a trade deal with the EU – as opposed to the Exit deal under Art 50. The European Commission and Parliament have both released reports that cover the deals under negotiation by the EU and those already concluded. The EU is responsible for 31% of world trade in goods and services (versus 10% for the US and 8% for China), so it is an influential player. The map below shows that only 5 states do not already have either a trade deal with the EU or are negotiating one.

“Equivalence” is a key topic for the City’s future after Brexit. The discussion made it apparent that a broad-brush approach would be insufficient as some of the Regulations e.g. EMIR have many pages of technical detail that must be satisfied. So the Politiea paper by Barney Reynolds aroused much interest as his argument is that the UK should use its remaining time in the EU to push for “enhanced equivalence” which would be capped by a “deal” that included mutual recognition of each other’s Courts. On this author’s calculations, it might easily be 2025 before such a deal could be in force in the legal system of the EU27 – if it could be negotiated.

A speech by ESMA Director Verena Ross and a paper by CEPS’ Karel Lanoo both pointed in the direction of an enhanced regulatory role for ESMA, post Brexit. In any case, a successful Capital Markets Union must deliver investor protection first of all, as well as orderly markets and financial stability. So any re-thinking of securities market supervision is likely to point to an enhanced role for ESMA.

Events over the past month

The notes below are my choice of the key events in the unfolding story of Brexit and EU financial sector reform. The links will take you to the underlying stories in the categories to which you have subscribed.

Political

Brexiteers and Remainers held their breath while the High Court deliberated over the UK Governments’ ‘Royal Prerogative’ to trigger Article 50 of the Lisbon Treaty without a vote in the Parliament. The court’s ruling said MPs must be consulted before notification of the intention to leave, delivering a setback to Prime Minister Theresa May’s intention of firing the process of disconnection from the European Union by March 2017. This original timetable might be hampered and the PM’s inclination towards a ‘hard Brexit’ softened to win agreement in both Houses – given her thin majority in Parliament. Nonetheless, May’s office immediately reiterated the Government’s determination to “respect the result of the referendum” and to invoke Article 50 as planned, and informed that her office would appeal the court’s declaration. In any event, gathering parliamentary support for her Great ‘Repeal’ Act may be difficult and some authors have warned that this bill will leave Parliament sidelined and disempowered, in a movement that could enable the government to amend primary legislation without a vote in Parliament. Bruegel and CEPS considered the UK’s options for its future relationship with the EU

The court’s judgement was followed by the Bank of England’s decision to hold interest rates unchanged after concluding that the post-referendum economy and inflation were both stronger than expected and revising growth forecasts upwards.  Both announcements led sterling to surge to a four-week high after hitting a 30-year-low exchange rate for nearly a month after the October 7^th ‘flash crash’ – the day the pound fell 6% against the dollar.

The City UK’s latest report revealed that UK’s financial industry hit a new trade surplus record, up £185m year-on-year to reach £63.4bn in 2015, while Open Europe provided a guideline on how the UK’s financial services sector can continue thriving after Brexit. The think tank stated that “the Government’s primary objective should be to try and keep the CRD IV passport”: but the UK’s trade minister warned that passporting rights would be lost after a British exit and should be replaced with some other financial tool, such as a hybrid version of ‘equivalence’. This option could serve well the British financial firms’ interests if they are “expanded  and a procedural process is put in place for maintaining equivalence in the future,” lawyer Barnabas Reynolds explained in a report for think-tank Politeia in which the author said that The City should welcome the chance to escape the EU’s regulatory burden.

Nevertheless, as EY’s Julian Young wrote in the Financial Times, there’s more to Brexit than passporting rights: free movement of people is emerging as another crucial element that threatens UK fund management’s global influence. Moreover, borders after leaving the EU might be harder for products to pass than expected: the trade sector warned there is a risk of “major disruption” at the UK’s borders as Britain struggles to upgrade a troubled new computer system to cope with a huge increase in customs declarations.

Banking

The BIS issued its eleventh progress report on the adoption of the Basel regulatory framework, including risk-based capital standards, the leverage ratio, the LCR, the NSFR, the SIBs, Pillar 3 disclosure requirements, and the large exposure framework. Some of the Basel III standards continue to collide with EU banking regulation: the EBA called for a simplified and more harmonised large exposures regime and recommended that only investment firms identified as GSIIs and OSIIs be subject to the full CRDIV/CRR, whereas the EBF reported on the implementation of the Basel Committee’s standards on interest rate risk in the banking book into EU legislation. The EBA and ESMA launched a consultation to assess the suitability of banks and investment firms’ members of the management body and key function holders.

The EBF and FEE released their response to EBA on the implementation of the expected credit losses model. FEE members were concerned that the scope of application of the proposed guidelines was wider than the scope of the Guidelines issued by the Basel Committee on the same topic.

The EBA sought comment on technical standards on MREL reporting by Resolution Authorities and recommended a measure based on total liabilities as the target level of resolution financing arrangements.

Data analysed by the European Central Bank backed EU authorities’ position, confirming that the euro area banking sector consolidated further in 2015. The ECB’s 2016 Report on Financial Structures showed that banks’ capital ratios improved and that non-performing loan (NPL) ratios fell across the sector for the first time since the financial crisis.

The SEPA concluded its migration for non-Euro countries, signalling the obligation of using the SEPA Credit Transfer or SEPA Direct Debit schemes, managed by the EPC.  ANEC's Wilson provided the consumers’ perspective on the SEPA Instant Credit Transfer Scheme. The EPC responded to the EBA’s consultation on strong customer authentication and common and secure communication under the revised Payment Services Directive (PSD2).  

Digitalisation and crypto currencies are a big step forward but the ECB wants to retain controland has warned EU institutions they should not promote the use of digital currencies, making clear that Bitcoin and others lack the legal status of currency or money.  But the FT reported that Switzerland aims for de-regulation instead of greater control to become the central hub for financial technology in Europe.

Securities

IOSCO reportedon the implementation of G20/FSB recommendations to strengthen securities markets. ESMA Executive Director Verena Ross shared her thoughts on recent regulatory and supervisory developments in the EU and the challenges ahead, focusing on issues such as MiFID II, Capital Markets Union, PRIIPs, CFDs and data quality.

Karel Lannoo published a paper in CEPS calling upon the European Commission to undertake a radical upgrade of the Capital Markets Union, along the lines of the Single Supervisory Mechanism, but with a focus on strengthening the role of ESMA and the European supervisory authorities. Brexit may make this easier.

Insurance

Insurance Europe responded to a consultation by the International Association of Insurance Supervisors (IAIS) on the Insurance Capital Standard (ICS) 1.0. 

The Steering Committee of the EU-U.S. Insurance Project held a Public Forum to address the challenges of increased globalization of the insurance market and to define the areas of work for the coming year.

Asset management

The European Commission called for debate on the need for a pan-European pension product (PEPP) during a public hearing. Insurance Europe branded PEPP a 'poorly designed' initiative potentially unable to benefit consumers or the Continental economy, but EIOPA’s Bernardino supported the project.

A greater integration and homogeneity might be needed as Reuters disclosed that EU fund rules leave gaps in investor protection that may be seized by managers to circumvent regulation in their country that doesn’t allow charging specific fees, for example.

However, experts warned that the debate might complicate further thanks to the UK’s vote to leave the European Union and could resurrect the holistic balance sheet concept for pension funds. Paris is actively seeking to take the place of London as the leading European financial centre after Brexit: AMF and AFG produced a report that provided measures to promote the international development of the French Asset Management industry.

Corporate governance

EBA reviewed its guidelines on internal governance. The draft rules aim at further harmonising institutions' internal governance arrangements, processes and mechanisms across the EU, in line with the new requirements in this area introduced in the CRD.

ESMA identified the enforcement priorities for listed companies’ 2016 financial statements and highlighted the need for transparency in disclosing the potential impact of Brexit on issuers’ financial statements.

The IASB published its five-year work plan, confirming that a central theme for its activities until 2021 will be Better Communication in financial statements. 

Financial

The European Parliament reported that there are still various deals being negotiated all over the globe, but they can only enter into force if the Parliament approves them. 

Nicolas Véron wrote in Financial World arguing that EU banking union can only be complete if the vast amounts of domestic sovereign debt held by many banks are reduced. ECB's Cœuré explained that Europe needs reforms if its debtare to meet the multiple expectations society attaches to it, and reconciling these different expectations may require a degree of fiscal risk-sharing at euro area level.

Economic

MEPs welcomed the EU Commission proposal for a common consolidated corporate tax base (CCCTB)in a debate with Commissioner Pierre Moscovici.  ACCA warnedthat the coexistence of 28 tax systems - offering sometimes very diverse tax exemptions and deductions - makes it difficult to calculate the tax base of companies operating on a cross border basis.