This week in "Brussels"

28 September 2007

27 September 2007 EC take portability directive forward

The European Commission is breathing life into the recently-shelved EU pensions portability directive again through new proposals to the European Parliament. Speaking yesterday at the first day of ABP’s European Pensions Summit in Heerlen,  Nicolaas van der Pas, director general for employment, social affairs and equal opportunity at the EC said the commission has drafted a new proposal covering the protection of pensions against inflation and clearer rules about the ages at which rights can be claimed. “We have decided, and I think the European Parliament has encouraged us to do so, that transportability of those pensions is probably a bridge too far,” explained Van der Pas.

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26 September 2007 IASB update September 2007

The IASB released its latest update covering the results of the meeting in London on 18 – 21 September.  Issues discussed include:  IAS 24 Related Party Disclosures and Accounting standards for small and medium-sized entities• IFRS 1 amendments  IASB update September 2007

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26 September 2007 CESR-SEC protocol to facilitate implementation of the CESR-SEC work plan

CESR issued the CESR-SEC protocol to facilitate the implementation of the CESR-SEC work plan. The framework protocol covers the confidential exchange of information regarding dual listed issuers to be executed between the SEC and each individual CESR member, in order to further enable close co-operation between the staff of CESR members and the staff of the SEC on the application of US GAAP and IFRS in the European Union and the United States.

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26 September 2007 Central banks’ actions fail to calm money market

The European Central Bank faced a fresh surge in demand for liquidity on Tuesday when it allocated weekly refinancing funds at an average of 4.29 per cent, the highest spread over the minimum bid rate for almost five years.  The unexpectedly strong appetite suggests the ECB is again facing difficulties bringing interest rates in line with its 4 per cent main rate.  The pattern is likely to trigger unease among policy makers since it suggests the mood in the global money markets remains nervous, irrespective of the emergency actions taken by central banks in recent days.

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26 September 2007 China seeks retirement guidance from Pensions Trust

A delegation of Chinese government officials has met with officials at the UK’s Pension Trust to discuss how it might apply lessons learned from the European management of retirement provision.A party of 13 Chinese officials arrived in the UK last week as part of the EU-China Security Reform Co-operation Project. The project is designed to help the Chinese government improve its current financial policy and provide to a sustainable social security system for the future.

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25 September 2007 Commission final report on Business Insurance Sector Inquiry

The Commission adopted the final report of the competition inquiry on the business insurance sector. The final report raises concerns about the operation of two areas of business insurance. First, long-standing and widespread industry practices in the reinsurance and coinsurance markets involving the alignment of premiums, which may lead to higher prices for large risk commercial insurance.  The report leaves open the question of whether these constitute infringements of the prohibition on restrictive business practices (Article 81), but invites the industry either to justify the business practices concerned under the competition rules, or to reform them.

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25 September 2007 PWG Announces Private Sector Groups

The President's Working Group on Financial Markets announced the chairs, members and mission statements for two private sector committees, one comprised of investors and the other comprised of asset managers.   The first task of the committees will be to develop best practices using the PWG's principles-based guidance released in February. The committees will create and publicly release the best practices so market participants may enhance investor protection and systemic risk safeguards consistent with the PWG principles and guidelines.

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25 September 2007 ECMI newsletter 04-2007

ECMI issued its latest newsletter which includes two articles on the MiFID Directive. In a Policy Brief on “Suitability and Appropriateness under MiFID”, Alessandra Chirico sheds light on the implications of the MiFID conduct of business rules both upon investment firms and investors.  In a Commentary on “MiFID Revolution or Delayed Execution”, CEPS Chief Executive Karel Lannoo reports findings of huge diversity.

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25 September 2007 EC's business insurance enquiry ends quietly

The European Commission has buried the final part of its enquiry into business insurance, flagging up a handful of already-known problems with long-term contracts and intermediaries, but holding back from intervening with competition law instruments.   The final report to the investigation, originally launched in 2005, will be published later today without the fanfare of political support which the enquiry into energy or the tub-thumping against banks' “excessive profits” received.

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25 September 2007 CEBS publishes a Mediation Protocol between banking supervisors

CEBS published a Protocol for a mediation mechanism. In general, market participants were supportive of the proposed peer mechanism tool aimed at helping to solve supervisory disputes as they arise in a cross-border context. CEBS has taken note of some respondents’ doubts as to how effective the mediation tool will be in practice as the outcome of a mediation process is not, legally non binding and concerns that the mechanism may be too complex to operate smoothly.

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24 September 2007 EBF recommendations for common reporting

In a letter to the Committee of European Banking Supervisors the EBF outlined its recommendations for common reporting, noting that the framework implies a serious impediment for cross-border banking business and undermines the objective of EU market integration. “Many banks risk breaching the rules as there was simply not enough time to make the major IT adjustments required by CEBS’ framework”, EBF states. EBF therefore proposes a two-step approach. In the short term, we would ask supervisors to approach the CoRep requirements with a good deal of flexibility.

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24 September 2007 CEIOPS work plan for Solvency II

CEIOPS issued its work plan for Solvency II deliverables. It outlines the forthcoming steps to be undertaken with regard to the Solvency II until its entry into force in 2011.  CEIOPS will deliver the final QIS3 report to the Commission mid November this year.  The draft QIS4 specifications will be adopted on an extraordinary members meeting on 12 December to be sent to the Commission. The Commission consultation will then start on 21 December and last until 15 February 2008.

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24 September 2007 FESE Response to SEC proposal on acceptance from foreign private issuers of financial statements

FESE issued its response on the SEC consultation on the “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to US GAAP”.  FESE notes that the SEC’s proposal would only eliminate US GAAP reconciliation for companies that publish financial statements in accordance with IFRS as published by the IASB.  Although there is no material difference between IFRS as adopted by the EU and IFRS as published by the IASB, under the current wording of the SEC proposal, for EU companies, the reconciliation requirement would not be removed.

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24 September 2007 TARGET Working Group note on TARGET2

Three European banking groups released an educational note issued by the TARGET Working Group on TARGET2. The TARGET Working Group deals with the requirements of banks for the secure and efficient use of TARGET as a high value and individual payment system and the specification of user requirements for the development and future design of TARGET2.

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24 September 2007 IMF Global Financial Stability Report

The IMF published its latest Global Financial Stability Report noting that markets are likely to go through a protracted adjustment period following recent financial turbulence triggered by the collapse of the U.S. subprime mortgage market. The report said the turbulence represents the first significant test of innovative financial instruments and markets used to distribute credit risks through the global financial system, with markets recognizing the extent that credit discipline has deteriorated in recent years.  Central banks in several countries have stepped in to help stabilize markets and mitigate the impact on the broader economy.

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23 September 2007 City stars warn of months of turmoil ahead

Leading City figures have warned the credit crunch, which last week prompted Britain's first bank-run for 140 years, could continue for another 18 months. With London's markets still reeling from the Northern Rock crisis, a number of star fund managers, have warned that they expect the crunch to continue into 2008. The true scale of the crisis would become apparent only when UK and US investment banks reveal their fourth-quarter numbers.

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21 September 2007 CESR updated FAQ on Prospectuses

CESR issued a third update on frequently asked questions regarding Prospectuses. The consolidated ‘Q and A’ publication should provide market participants with responses in a quick and efficient manner, to ‘everyday’ questions which are commonly posed to the CESR secretariat or CESR Members.  CESR responses do not contain standards, guidelines or recommendations, and therefore no prior consultation process has been followed.

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21 September 2007 CEPS: Crisis puts spotlight on weaknesses

Commenting on the US subprime crises, CEPS Chief Executive Karel Lannoo notes that the unfolding crisis in Europe’s financial markets is presenting the EU’s regulatory and supervisory set-up with its first big test, revealing worrying differences in responses to stress, flaws in the enforcement of rules and gaps in the supervisory framework.  “There was a disturbing difference in the reaction on the part of the central banks, essentially the ECB and the Bank of England”, Lanoo says. “Whereas the former rapidly stepped in, the second stayed aside and reacted too late, triggering a much bigger problem, a bank run, something not seen in Western Europe for the last 15 years.”

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21 September 2007 Fortis details remedies proposed to commission for ABN Amro

Fortis has detailed, in a trading statement, the remedies it has proposed to the European Commission in order to overcome antitrust objections in its acquisition of ABN Amro assets in the Netherlands. Fortis will be holding discussions with analysts and investors during the period of its rights issue. This statement sets out the results-specific information that may be covered during those discussions. Comments relate to the expected results for the nine-month period ending 30 September 2007, unless otherwise stated.

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21 September 2007 Fortis receives approaches for sale of assets in ABN Amro deal

Gilbert Mittler, Fortis' Chief Financial Officer, said the bank has received approaches from several international and Dutch banks regarding the assets the European Commission is demanding the bank sell to win antitrust approval for its ABN Amro purchase.   As part of the three-way acquisition of ABN Amro, the Royal Bank of Scotland will acquire the international banking business, Belgo-Dutch bank Fortis will buy the Dutch retail banking unit and Spain's Santander will swallow the Italian and Brazilian subsidiaries.   Mittler, on a conference call, said that while the exact scope of the asset sale had yet to be defined, the bank has “earmarked a portfolio of activities the European Commission considers we should divest.”

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21 September 2007 Gulf States vie over LSE

In the past three years, Clara Furse, chief executive of the London Stock Exchange, has received and spurned no fewer than five offers from four suitors on three continents. It is safe to say that she and fellow executives at Paternoster Square are used to being an object of affection. Yet the latest and certainly most intriguing chapter in the saga of the LSE and who, if anyone, will end up owning it, unfolded in extraordinary fashion yesterday when first Dubai, and just hours later Qatar, announced that they had bought major stakes in the exchange. At a stroke, the rival emirates became the top two shareholders in the LSE – controlling nearly half of its shares between them – reducing the London bourse in the process to a £3.3bn chess piece in a battle for regional supremacy in the Middle East.

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20 September 2007 OECD first economic survey of the EU

The OECD launched its first Economic Survey of the European Union noting that member states need to provide a fresh impetus to clear the rules and red tape which are stifling competition and blocking cross-border trade and investment. The report highlights good progress in financial markets but calls for changes to Europe’s fragmented banking industry. Establishing an effective single euro payments area (SEPA) to make it easier to transfer money from one country to another, needs to be accelerated. Chapter 3. Building competitive financial marketsEurope’s financial markets are undergoing a rapid transformation. The renaissance since 1996, when the Investment Services Directive came into force, has been impressive. Bond issuance has more than doubled; equity market capitalisation has tripled; and equity turnover and the value of derivatives have increased six-fold. In some niches, Europe has overtaken the United States.

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20 September 2007 Greenwich Associates: Credit Crisis fractures trust in Rating Agencies

Market developments on the back of the credit crunch have shaken pension funds and institutional investors’ confidence in credit ratings agencies, suggests a study by US consultancy Greenwich Associates. A survey of representatives at 251 Asian, European and North American institutional reports that trading in various credit-related products and asset classes has broken down entirely at certain times since the outbreak of the crisis. In addition, a large majority of plan sponsors report that recent market developments have shaken their confidence in credit rating agencies. "In perhaps the clearest indication of the severity and extent of the liquidity disruption, more than 60% of participants active in corporate bonds say they have experienced trouble getting a simple price quote from dealers on these usually liquid products," says Greenwich Associates consultant Tim Sangston. "It's hardly an exaggeration to call this a total market breakdown."

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20 September 2007 BaFin president to lose power in leadership revamp

Jochen Sanio, president of German financial regulator BaFin, is to lose authority as the government has approved a new leadership structure for the agency. Under the new structure, approved by the federal cabinet late yesterday, the BaFin will no longer be steered by the BaFin president but by a five-member executive board. The board’s decisions – and hence those of the BaFin – will be made by majority vote.Members of the board will include BaFin’s president, a vice president in charge of operations as well as the heads of banking, insurance and securities/asset management supervision. But Otto Bernhardt, an MP from the governing Conservatives who is their financial expert, disputed the notion the government wanted to reduce the power of BaFin’s president.

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20 September 2007 Testimony Paulson on recent events in the credit and mortgage markets

In a testimony held before the House Committee on Financial Services Treasury Secretary Henry Paulson presented the Treasury Department's perspective on the recent events in the credit and mortgage markets and their impact upon consumers and the economy. With the current credit market reappraisal which started in the subprime mortgage market the performance of subprime mortgages deteriorated, as a result of higher than expected delinquencies and defaults, Paulson explained. “This introduced greater uncertainty regarding both the future prospects of subprime mortgage-backed securities and the methodologies the credit rating agencies used to rate these securities”, he continued.  According to Paulson the recent reappraisal of risk could result in some modest penalty to economic growth. “But in my view the underlying strength of the economy should allow for continued growth”, he said.

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20 September 2007 LSE faces fresh bidding war

Nearly 50 per cent of the London Stock Exchange is now in the hands of two rival Gulf states battling to be their region’s leader in the global consolidation of exchanges. Qatar Investment Authority and Borse Dubai now own 48 per cent of the LSE following a complex series of deals in which ownership of Europe’s exchanges is being realigned. Borse Dubai secured 28 per cent of the LSE as part of a wider deal with the US-based Nasdaq designed to settle their long-running battle for control of the Nordic exchanges and technology operator OMX. The Dubai group bought most of Nasdaq’s 31 per cent stake in the LSE for £14.40 a share in cash. In return, it will take a 19.9 per cent stake in the combined Nasdaq/OMX group and receive cash. However, the move enraged the Qatar Investment Authority, which until Tuesday night believed it was close to clinching a deal to buy much of the LSE stake for itself.

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20 September 2007 Council issued Common Position on Consumer Credit Directive

The Council adopted a consolidated modified proposal on the Consumer Credit Directive taking due account of the position expressed in the European Parliament’s first-reading opinion and incorporating 110 of the 152 amendments proposed therein.  The Council shared the view that the directive should ensure a high level of harmonisation in substantial areas covered by its scope and should represent a "European added value" for the internal market, consumer choice and consumer protection. The Council identified five main areas in which such a "European added value" should be achieved.

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20 September 2007 Deregulation unlikely, NAPF seminar told

Minimising regulatory requirements for pension funds would be a good thing to do but it is unlikely to happen, delegates at a National Association of Pension Fund (NAPF) seminar agreed. Introduction of principles-based regulation was one of the key suggestions made by the external reviewers of pension regulation. "The outcome should be prescribed, not how to get there," said Chris Lewin, former head of Unilever UK pensions.Lewin and Ed Sweeney from the Amicus trade union were appointed by the Department for Works and Pensions last year to conduct deregulatory review. Delegates from pension funds and companies at the NAPF seminar on the outcome of this review characterised it as "courageous" and "noble". However, the majority of those present agreed olitical will and a consensus for changes were lacking. NAPF chief executive Joanne Segars noted the call for principles-based regulation had been made more than once before.

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17 September 2007 EDHEC: Three Early Lessons from the Subprime Lending Crisis

Introduction of IFRS standards and Solvency II on insurance companies are more likely to increase liquidity risk on investment markets than tightening the regulation of hedge funds, according to EDHEC business school.Responding to to comments from French president Nicolas Sarkozy and German chancellor Merkel suggesting hedge funds were to blame for the recent credit crunch, the study notes that “to suggest that hedge funds are to blame for this crisis is simplistic but tempting, as their speculative, unregulated, and opaque nature make them easy targets”.“Centring criticism on hedge funds and on their purported need for greater transparency may divert the attention of regulators and investors from the much greater problem posed by inappropriate regulation”, Noel Amenc, professor of finance and director of the research centre notes.

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© Graham Bishop