Raad van Ministers keurt aanpak vier dossiers over financiële diensten goed (en)

The Council has today defined general approaches[1] on four draft amendments to Directives relating to financial services, namely bank deposit guarantee schemes, banks' capital requirements, solvency of insurance undertakings and undertakings for collective investment in transferable securities (UCITS).

These approaches will serve as a basis for the Presidency to continue negotiations with the European Parliament with a view to the adoption of the four Directives at first reading.

The aim of the legislative drafts is to meet the expectations of citizens and market players in relation to the international financial crisis, by raising guarantee levels and reducing repayment periods where a bank cannot pay back deposits, adequately protecting creditors' interests and overall financial stability, strengthening protection of insurance policyholders and facilitating cross-border mergers of UCITS.

Bank deposit guarantee schemes

The purpose of the draft Directive is to ensure confidence in the banking sector by strengthening depositor protection through an amendment to Directive 94/19/EC. Bank deposit guarantee schemes serve to prevent panic reactions among savers should a bank experience difficulties or lose public confidence.

The Council's general approach (16030/08 + COR 1) envisages:

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  raising the deposit guarantee level to EUR 50 000, rather than the present EUR 20 000, from 30 June 2009 and harmonising the level at EUR 100 000 from 31 December 2011. That harmonisation should make it possible to avoid the distortion of competition among banks which appeared during the financial crisis (in the form of massive deposit transfers from banks affiliated to a scheme offering a low coverage level to banks affiliated to a scheme offering a high coverage level);
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  a period of five working days to establish that a credit institution has failed to repay deposits which are due and payable, and of 20 working days, subject to extension by 10 working days, to make the repayment. The corresponding periods are at present 21 working days and three months, subject to two three-month extensions. Overall, the payout period could not exceed 35 working days, compared with 10 months at present.

The European Parliament's vote is expected during the week of 15 December.

Banks' capital requirements

The purpose of the draft Directive is to strengthen the rules on own funds requirements for banking institutions through a revision of Directives 2006/48/EC and 2006/49/EC[2].

The Council's general approach (16218/08) provides for amendments in the following five areas:

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  Strengthened supervision of cross-border banking groups: (a) decisions relating to risk assessment and additional capital requirements would be closely coordinated between the supervisor of the parent undertaking and the supervisors of its subsidiaries; (b) reporting requirements would be harmonised in 2012; (c) colleges of supervisors, chaired by the supervisor of the parent undertaking, would be established for all cross-border groups; (d) the role of the Committee of European Banking Supervisors (CEBS) would be strengthened; (e) the mandate of national supervisory authorities should be given a European dimension.

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  Framework for securitisation practices: as a response to the faults of the "originate to distribute" model revealed by the financial crisis, due diligence and transparency obligations imposed on the originators of securitisation operations and on investors would be strengthened. Investors should be able to assess the risks involved in structured products otherwise than solely by means of the rating given by agencies. Alongside these qualitative requirements, the draft adds one quantitative one - the obligation for originators to retain 5 % of risks transferred or sold to investors on their balance sheet - whose purpose is to increase incentives to conduct better risk assessment.
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  Harmonisation of the classification of banks' own funds and hybrid instruments, with a central role given to the CEBS in ensuring greater uniformity of supervisors' practices in this area.
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  Introduction of rules on liquidity risk management, in particular as regards setting up liquid asset reserves, conducting liquidity stress tests and establishing contingency plans.
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  Tighter supervision of exposure to a single counterparty ("large exposure"): the text establishes arrangements which place a greater restriction on the extent of exposure to a single counterparty, whatever its nature, including when it is a bank (in all cases, the limit is 25 % of banks' own funds). Within the current framework, concentration limits for bank counterparties are less restrictive than for "undertaking" counterparties, yet the financial crisis has shown that bank counterparties also present a risk of default.

Discussions on this draft Directive have been particularly fruitful, since the Commission's initial proposal was submitted on 1 October 2008. The European Parliament's vote is expected next April.

Solvency of insurance undertakings ("Solvency II")

The purpose of the draft Solvency II Directive is to update current legislative arrangements by recasting 14 Directives on insurance into a single legal act (16237/08 + COR 1), since current solvency rules are substantially out of date.

It aims to:

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  deepen the integration of the Community insurance and reinsurance market;
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  strengthen the protection of policyholders and beneficiaries;
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  enhance the international competitiveness of insurers and reinsurers in Europe;

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  reduce the pro-cyclical behaviours that aggravate the disturbances on the markets. The draft seeks to avoid a prudential system which requires an insurer to sell his assets when their prices are at their lowest; an insurer who has long-term commitments (retirement insurance, for example) must be able to keep his assets, including in a crisis period, if he is not obliged to sell them to pay the benefits he owes to policyholders.

As regards supervision of insurance groups, the "group support" that appeared in the Commission's proposal no longer appears in the Council's general approach.

The Council's approach does however represent some progress on a number of points concerning group supervision:

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  Creation of "colleges of supervisors": places for information exchange and discussion between the supervisors of parent companies and the supervisors of subsidiaries;
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  Strengthening of the role of the Committee of European Insurance and Occupational Pensions Supervisors, which ought to ensure greater convergence of prudential practices and which should be consulted when disagreements between supervisors of a college need to be smoothed out;
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  Recognition of mutual benefit insurance companies which, like the other groups, could draw advantage from diversification between the risks they bear.

In sum, the Council's approach is based on an idea of insurance-group supervision that is as ambitious as that which obtains for banks. This system should reduce risk of uncoordinated decisions between supervisors.

Parliament is due to vote during the week of 15 December.

Undertakings for collective investment in transferable securities (UCITS)

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  This proposal for a Directive seeks to modernise the regulatory framework applicable to European investment funds - undertakings for collective investment in transferable securities (UCITS) - which represent a market of EUR 6 000 to 7 000 billion. This financial product, in which millions of European consumers invest, has a European label of world quality.

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  The aim of revising the Directive is to modernise the regulatory framework applicable to these financial products in order to:

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  offer investors a greater choice of product at lower cost through better integration of the internal market;

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  provide investors with suitable protection through high-quality information and more efficient supervision;

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  maintain the competitiveness of European industry by adjusting the regulatory framework to developments in the market.

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  Against this background, the text has six objectives:

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  improve investor information by creating a standardised summary information document:"key information for investors"; this is an innovative approach aimed at making it easier for the consumer to understand the product: thus a fine balance has to be struck between the document's readability and the amount of information required (too often consumers are deluged with information); the document will be tried out with consumers before it is finalised;

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  create a genuine European passport for UCITS management companies - this is the last piece missing from the internal market as regards UCITS management: a management company located in a Member State will be able to manage funds in other Member States; this should enable substantial economies of scale to be made (up to EUR 700 million per year, according to the Commission) and ensure greater transparency for consumers as to the location of the management company; it should make for greater diversity in the products offered to consumers, which is essential in view of increasing requirements concerning retirement saving;

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  facilitate crossborder marketing of UCITS by simplifying administrative procedures: there will be immediate market access once the authorisation has been granted by the country of origin of the UCITS; the host country will be able to monitor the commercial documents but not to block access to the market;

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  facilitate crossborder mergers of UCITS, which will make it possible to increase the average size of European funds; the information given to investors about the merger will be monitored by the supervisor, who will not authorise the merger unless it is satisfactory; authorisation will be assigned to a single supervisor, in conjunction with the other supervisor concerned, so as to make the procedures more efficient;

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  facilitate asset pooling by creating a framework for the system of "master-feeder" arrangementswhereby a fund invests more than 85 % of its assets in another fund;

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  strengthen the supervision of UCITS and of the companies that manage them, by means of enhanced cooperation between supervisors: the Directive encourages the exchange of information between supervisors, harmonises the powers of supervisors, and allows for the possibility of on-the-spot investigation, consultation mechanisms and mutual-aid mechanisms for the imposition of penalties, in particular.

[1] The decisions were taken, without debate, at a meeting of the Economic and Financial Affairs Council.

[2] Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions; Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions.