105th Brussels for Breakfast

18 December 2014

The event covered the Commission Work Programme for 2015, capital markets union and ELTIF.

Visit the BBA to see my new `Vlog' of B4B - hopefully setting the template for 2015! 

Commission Work Programme for 2015: A plan for 23 new initiatives had been announced – a long way down from the 300+ of a few years ago.

• CMU: Capital Market Union should be viewed as a package. It might well contain quite a number of legislative measures in the next few years. Some of these, such as securities law and insolvency, would be extremely complex and substantial. A `very Green’ paper is due in January and may be little more than a list of questions.
• Resolution of non-bank financial institutions: A proposal is due early in 2015 and the later discussion showed why it could be highly controversial.
• Tax: Re-launch of CCCTB – Common Corporate Consolidated Tax Base
• Withdrawn – `investor compensation scheme’: The Member States appeared to have no interest in it.
• Unclear: Implementation of the proposal based on the Liikanen Report. However, several subsequent discussions showed that banks may choose to split off activities under the pressure of capital requirements, the leverage ratio and the SSM’s drive for banks to be genuinely profitable so that they could actually serve their basic purpose of lending to the economy.

Banking Bonuses: The Advocate General ruled against the UK’s petition and the UK Government then withdrew its case rather than take it on to a hearing of the full Court. The UK case was not seen as strong but a wider debate was triggered. Should there have been a full impact assessment? Were politicians making up ideas as they went along – and was that risking a breach of the rule of law? The UK is now developing a track record for launching weak cases that are then dismissed. However, the FTT dismissal was on the grounds of being premature and may in fact have influenced the subsequent debate quite substantially.

ELTIF: The proposal for European Long Term Investment Funds was approved and the Commission’s motivation for the proposal was clear but the potential demand for the product was seen as uncertain. However, it seems that some pension funds have an internal requirement that they can only buy products that are open to retail investors. Nonetheless, this proposal is touted as a significant contribution to Capital Market Union - despite a clear risk of an unenthusiastic take-up.

The discussion in the securities segment centred on CCPs: ESMA’s Chairman had given a speech on measures to prevent another crisis and he wants more data on “super spreaders” of financial contagion. The concerns expressed about the risks of CCPs should be in the context that only 27% of CDS contracts are on CCPs even now. ISDA had published a set of principles to ensure CCPs cannot become `too big to fail’ and senior officials are querying if CCPs are actually resolvable in their current form.

Next events:     106^th - January 13^th      107^th – February 17^th

© Graham Bishop