ALFI's position on the draft report of the EU Parliament on Shadow Banking

21 September 2012

The European Parliament issued on August 14th 2012 a draft report by MEP Saïd El Khadraoui on Shadow Banking. ALFI's position paper on this draft report focuses on the matters that are of particular relevance for the industry.

This draft own initiative report, to be adopted first by the ECON Committee and then in Plenary Session in the form of a Resolution, will represent the contribution of the European Parliament to the ongoing work of the FSB, the European Commission and other international bodies aiming at better monitoring and/or regulating shadow banking entities and activities. The vote of the report by the ECON Committee is currently scheduled for 22 October 2012 and its adoption in Plenary Session for 19 November 2012.

Amongst a number of other recommendations, the draft report of MEP El Khadraoui contains three proposals which - ALFI believes - are of particular relevance for the industry, in relation to repos and securities lending, Money Market Funds and ETFs.

Indeed, while recognising the importance and benefits of these institutions/activities for the economy, the draft report invites the Commission to:

• adopt measures (by the beginning of 2013) to increase the transparency of the repo and securities lending markets as well as to allow regulators to impose minimum haircuts or margin levels for the collateralised financing markets;
• submit a legislative proposal (at the beginning of 2013) requiring Money Market Funds either to adopt a variable asset value with a daily valuation or, if retaining a constant value, to be subject to capital requirements;
• submit a legislative proposal (at the beginning of 2013) to tackle potential structural vulnerabilities of ETFs (complexity, counterparty risk, liquidity risk and possible regulatory arbitrage).

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