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03 February 2016

Deepening EMU – Round-up of Key Events – January 2016

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Ahead of the Euro Summit in which a deal on EU reform is expected to be reached, Cameron continues his diplomatic efforts as the banking and financial sector keeps on warning of the dramatic effect of a Brexit. Solvency II entered into force, and ECON agreed its report on IORP II.

By Paula Martín Camargo, Editor


With the renegotiation of the terms of UK’s EU membership now at full throttle, has anybody really gauged the effective legal and regulatory consequences a Brexit would entail? Graham Bishop points to the importance of the UK laws being `Equivalent’ to all the post-crisis EU regulatory structure, a particularly inconvenient truth for ‘Brexiteers’.

The UK Parliament’s Treasury Select Committee listened to three heads of financial services associations who told lawmakers that Britain leaving the EU would probably bring "massive disruption" to mutual funds sector, which could lose market access without gaining regulatory freedom. The House of Lords Select Committee headed to Brussels as part of its inquiry on the EU referendum, only to be told that the EU would punish the UK if it votes to leave, forcing a draconian exit to set an example and tackle further disintegration of the European Union.

The banking sector is also deeply concerned that an exit from the EU would leave the UK relying on 'kindness of strangers' given the country’s large current account deficit, as the Bank of England Governor Mark Carney was reported to say. But there isn’t a wide consensus among banks on what to say or do publicly ahead of the EU referendum – The City has gone mute until the banking sector has learnt what the agreed reforms will imply for their biggest clients.

Nevertheless, the Financial Times backed the campaign to stay in a reformed Europe, saying that an independent UK would lose the full benefits of the single market – especially those benefits paramount for British financial services sector, with financial services constituting 25% of UK services exports to the EU (worth £20.2bn in 2014) - as shown in a Britain Stronger In Europe report on the Single Market.

However, public opinion and small business seem to believe they are not affected by the big numbers: a recent YouGov poll shows that SMEs owners are now more eurosceptic than big business. This might be due to the ‘In’ campaign failing to appeal to hope.

This and other crucial matters have left the EU with little choice but to move forward swiftly to the next stage of integration through treaty change, as Andrew Duff argues in his latest pamphlet 'The Frankfurt Protocol'.

The beginning of the year saw also a new hurdle for the EU negotiations on a Financial Transactions Tax: a split in the government coalition could push Belgium out of the discussions.



The EBF responded to the EBA consultation on criteria for a preferential treatment in cross-border intragroup financial support under LCR. Bruegel suggested that EU-wide security of savings must be considered to take banking union seriously. The eurozone recovery is being curbed by bad loans, an issue the ECB plans to address telling banks how to better manage bad loans.

The BCBS reviewed its market risk framework to ensure it delivers credible capital outcomes and promotes consistent implementation of the standards across jurisdictions – this regulation, along with the work programme for the Basel Committee was endorsed by its governing body. BCBS’ revised Trading Book Framework was responded to by GFMA, IIF and ISDA, which were concerned that the rules may have a negative effect on banks’ capital markets activities and reduce market liquidity.  

Basel III – finalised by the BCBS in January - fundamentally changes how asset managers are connected to the financial system as highlighted in an AIMA report. The cost of this new regulation has been estimated at €40m-€120m per bank.

New technologies applied to payments are becoming increasingly popular: the Financial Times reported that mobile payment transactions are soaring in the US and the UK, and contactless cards are now being used for one in seven sales in the UK. ECB's Mersch talked about card payments innovation and the EPC updated the SEPA cards standardisation volume.


ICMA Quarterly Report concluded that CMU may also have a microeconomic impact through its reforms of the structure of capital markets. The FESE responded to ESMA on indirect clearing arrangements under EMIR and MiFIR agreeing with the need for clients to be offered a choice of account types. ESMA is to cooperate with Canadian and Swiss regulators on CCPs, and to that purpose it has established three MoUs under EMIR.

The ECB published the results of the December 2015 survey on credit terms and conditions in euro-denominated securities financing and OTC derivatives markets, and the Global Financial Markets Association said it has concerns about the integration of the proposed BCBS rules on haircut floors for non-centrally cleared securities financing transactions into the overall capital framework.  The ISDA Credit Derivatives Determinations Committees voted to change DC rules to further strengthen the process for determining whether a credit event has occurred in the credit derivatives market.  Securities lending was reported by the Financial Times as an area of growing concern to global regulators who are worried about potential risks to financial market stability.  


Solvency II entered into force on 1st January 2016, and Fitch Ratings said that the new rules’ metrics are not comparable between insurers due to their different calculation approaches and will therefore not be a direct driver of ratings. EIOPA suggested a consistent approach to the methodology of the group solvency calculation – its opinion is of relevance for insurance groups that use the combination of methods, in particular those comprising undertakings situated in third countries whose solvency regimes are considered equivalent to Solvency II.

On G-SIIs, EBA published its revised final draft technical standards and Guidelines on methodology and disclosure for G-SIIs, whereas Insurance Europe issued a response to the FSB consultation on effective resolution strategies for G-SIIs.

FEE proposed some refinements to IASB's approach to the application of the IFRS 9 Financial Instruments with IFRS 4 Insurance contracts that FEE considers as necessary to ensure that final standard would address those issues.

Insurance has started to catch-up with new technologies applied to financial services - the CBI/PwC Financial Services Survey shows that financial services firms focused on the development of new products and services, although there are still huge concerns around IT resilience and cyber threats. Forbes reported optimistic experts professing to see some carriers experimenting with Fintech innovation, and the Financial Times informed about insurers committing $1bn to tech start-ups.

Asset Management

The European Parliament agreed a reformed IORP II draft that was welcomed by PensionsEurope as ‘more practicable, proportionate and less prescriptive’.

EIOPA published the results of the first EU stress test for occupational pensions, presented by its chairman Bernardino as an important insight into vulnerability to market shocks. However, EIOPA’s approach to stress tests was challenged by the Dutch pensions industry and by PensionsEurope, which warned that the results do not necessarily give the correct picture of an IORPs’ ability to cope with stress scenarios.

The BIS’ Committee on the Global Financial System and the Markets Committee released reports on fixed income markets. The AMF published a guide to help management firms navigate the ELTIF regulation that took effect on January, and ESMA published a letter from the European Commission on AIFMD passport.

Corporate Governance/Accounting

The IAESB produced guidance material to support the implementation of a learning outcomes approach for professional accounting education. The IASB’s Hoogervorst exchanged views with the ECON, where he talked about the upcoming Leases Standard, IFRS 9, Insurance Contracts and the Conceptual Framework. IMA and ACCA published a joint report that emphasizes the role of accountants in the integrated reporting framework.

Financial Services Policy

ECON issued a report on the impact and the way forward towards a more efficient and effective EU framework for Financial Services Regulation and a CMU. The ESAs wrote to the European Commission on cross-selling of financial products in the EU: the cumulative impact of regulation subject to a Call for Evidence by the EC was also responded by ICMA, whose letter focuses principally on the issue of market liquidity.

EIOPA published a document setting out its strategic approach to risk-based and preventive conduct of business supervision. The CFA Institute President Paul Smith called for a professional code of conduct for investment management practitioners.


EP’s Vice-President Dombrovskis outlined the main issues discussed at ECOFIN meeting, such as the European Semester; the deepening of EMU and therefore completing Banking Union with measures such as implementing SRF, DGS, BRRD, and EDIS; and VAT fraud. CEPS published a report with policy recommendations addressing the implementation issues of the Bank Resolution rules that entered into force in January 2016.

Commissioner Moscovici highlighted the Eurogroup main topics, such as the IMF’s latest review of the euro area economy, growth and jobs, and diverging national insolvency frameworks across the euro area. The Commission is tackling this through the CMU Plan, the Single Market Strategy and the Banking Union. Moscovici told MEPs that 2016 should be the year of corporate tax reform and fiscal transparency at an ECON hearing.

The EBF and FEE published their responses to the EC's public consultation on the relaunch of the CCCTB saying that an EU-wide corporate tax base should be optional, a demand backed by Insurance Europe as well.

ECB's Lautenschläger claimed for a Single Supervisory Law, arguing that the current state of affairs hampers the work of banking supervision, is at odds with the objectives of banking union, and inhibits the establishment of the Single Market. The CEPS issued a strategy paper focusing on making the most of the EU single market – it should be adapted to the Internet Age, and therefore MEPs voted on a report setting out the European Parliament's vision of a Digital Single Market.

The UK financial watchdog FCA is considering the return of commission payments for selling certain retail products and has denied that its approach has become “soft” on the banks.

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