CEGBPI/BANK/06/2013 Minutes of the 2 nd meeting of the Expert Group on Banking, Payments and Insurance (Banking section) Brussels, 23 rd September 2013 INTRODUCTION BY CHAIRMAN Mr. Mario Nava, Acting Director of Financial Institutions in DG MARKT, and Chairman of this meeting, welcomed participants to the 2nd meeting of the Expert Group on Banking, Payments and Insurance. The agenda was outlined by the Chairman and approved by the Members. ADOPTION OF RULES OF PROCEDURE The Commission presented the key rules of the expert group: (i) (ii) (iii) (iv) The Commission representative convenes and chairs the meeting. The Commission acts as secretariat for the group, i.e. sends out documents, drafts minutes, etc. Invitations for a meeting should be sent at least 3 weeks in advance. Documents should be sent 2 weeks in advance. Both time limits can be shortened if necessary. The meetings of the group are not public. However, documents relating to the work of the group are governed by the access to information rules and will be as a rule disclosed (only limited exemptions apply, such as protection of personal data, business secrets, etc.). In addition: (i) (ii) Members of this group are national administrations, not the invited persons in their personal capacity. National administrations are free to nominate different persons depending on the agenda topics to be discussed. This group has advisory functions, i.e. the Commission is not bound by the outcome of the discussions. The expert group advises on Delegated Acts and according to the conditions of the Lisbon Treaty, the European Parliament is invited to such meetings. The European Banking Committee (EBC) will continue to discuss Implementing Acts and in such cases the European Parliament is not invited. The Commission confirmed that given the group's advisory role, it would rarely be called upon to vote. One amendment to the rules of procedure was agreed in order to include the competent ministries as participants of the group. The Commission is open to receiving general interest agenda suggestions from 1
members of the group. Finally, it was agreed that it would be preferable to have meetings focused on only one sector of banking, payments or insurance at a time. The rules of adoption were formally adopted by the members of the expert group. CRD IV PRESENTATION The Chairman introduced the CRD IV package and noted that the Member States and the Commission face many challenges concerning the short timing of only six months for transposition but that the Commission would offer guidance to Member States as far as possible. The regulation will apply from 1 st January 2014 as agreed. The Commission then presented the Implementation Plan, which is a general requirement launched by the Commission to assist in the transposition of newly adopted directives. The Commission asked Member States to indicate how far they have progressed in transposition and to identify the challenges that they have encountered so far. State of transposition Many Member States commented on the short time given to implement the requirements however, in spite of this, the majority of Member States gave positive feedback on the timely transposition of the CRD IV package. A few Member States however expected transposition after the date of 1 st January 2014. Challenges The Commission noted that there have been several errors in certain linguistic versions of the text. Member States had been given until 13th September to highlight any significant errors and the Commission thanked Member States for comments already received. The Corrigendum process, which will be published by the end of the year, will update the texts accordingly. Many Member States highlighted that new laws had to be created at primary and/or secondary level. Some Member States noted that their political situation or structure sometimes caused delays to the approval of new laws. The most recurrent and difficult issues raised were as follows. Remuneration: The Commission stated that the principles should apply at group and individual institution level. Article 92 CRD4 refers to the principle of proportionality: competent authorities have a margin of flexibility to determine the extent to which the principles should apply to different categories of institution, depending on their size, internal organisation and nature, the scope and the complexity of their activities. The Commission invited the group to provide information on how the Member States are dealing with the implementation of the principle of proportionality in the field of remuneration. Discretions: concerns were raised on the difficulties of application. EBA currently has a technical standard in consultation on supervisory disclosure which lists the national discretions. There are 2/3 more weeks of consultation and EBA called for comments from the 2
Member States. On the issue of administrative fines (art 65 and 66): the Commission noted that the aim is to allow authorities to apply serious sanctions which will be standardised. Delegated power: the Commission recognised that this could cause problems/delays in the political process but noted that delegated acts are set in EU legislation and cannot be changed. Delegated acts are obliged to have a justification which should provide sufficient detail for Member States requirements. Correlation tables: one Member State noted the incompleteness of correlation tables. The Commission replied that all points can be correlated, bar a few which the Commission will try to address in the corrigendum process. The Commission asked all Member States to highlight any issues on correlation tables. SSM: need clarity on its implications for the CRD IV package. The Commission agreed but noted that the fact that SSM does not come into force until September which could limit discussion. This does not preclude that the SSM could be discussed further at an expert group meeting. 1) Article 24 CRD on applicable accounting standards one Member State asked whether national accounting standards can be the applicable accounting framework during a transitional period for banks using IFRS for accounting but not for supervisory reporting. The Commission would need some more information before taking a position on this. The ESRB has issued a recommendation on macro prudential supervision including which body should be the macro-prudential supervisor. The Commission confirmed that ESRB has issued a recommendation, but an ESRB recommendation is not a law like the CRR/CRD which allows the Member States to designate as the macro-prudential supervisor either the competent authority or the designated authority. The Commission urged Member States to highlight problems to ESRB. The Commission proposed a bilateral chat on the IFRS issue. 2) Liquidity provisions in CRR. ECB provisions for credit institutions should be in line with CRR/CRD. 3) RTS process. A Member State called for an open process to discuss the regulatory technical standards. The Commission reiterated that their role is to ensure that the agencies stay within the limits of the mandate. The Commission noted that it would be difficult to open discussions on technical standards in the expert group but if there is a big issue with one of the mandates, some of the issues could be addressed. Summary The Chairman thanked the Member States for the detailed state-of-play. The Commission was pleased to hear that most Member States are on track for a timely transposition of the CRDIV package. Noting that some areas/issues still needed clarification, the Chairman invited all participants to provide the Commission with any further comments on the draft implementation plan within the next 2 weeks. The Chairman invited Member States to provide information on how they are dealing with the implementation of the principle of proportionality in the field of remuneration. 3
Further to comments from certain Member States, the Commission explained that the requirement for Member States to send explanatory documents in English is not a requirement and the aim is to facilitate the workflow. In response to certain concerns, the Commission agreed that 'draft' transposition measures need not be submitted in the short-term but that Member States are obliged to send their final transposition measures. The shared Commission-EBA Q&A process was highlighted as a tool for Member States. Questions have to be answered within 2 months which should facilitate Member States progress. LEGAL OBSTACLES TO THE FREE MOVEMENT OF FUNDS BETWEEN INSTITUTIONS WITHIN A SINGLE LIQUIDITY SUB- GROUP Article 8 of CRR obliges the Commission to report to the European Parliament and Council (by 1 January 2014) on legal obstacles for institutions to enter into contracts providing for a free movement of funds between them. The Commission therefore requested the co-operation of the members of the group to identify concrete legal obstacles in order to compile the report. The Commission draft paper first analyses the general principle of free movement of capital in the EU. The Commission noted that there should not be any obstacles that derive from national laws which would directly prevent entities from circulating funds within groups on a cross-border basis as this would be against the Treaty obligation of free circulation of capital. Member States may have company law related legislation ensuring that the parent company cannot abuse its subsidiary. They may be considered an obstacle but the Commission does not intend to address in detail structural company law principles in this report. Obstacles The majority of Member States pointed out that they agreed with the framework in CRR/CRD and they could not identify any specific obstacles at this time that could hinder capital flow. One Members State noted the sensitivity of the issue and in particular referred to the issue of the potential liability of a manager signing such contracts. There could also be dangers in relation to financial stability. Supervisory measures that may create obstacles In the draft paper the Commission had identified the following four measures as potential obstacles to the free movement of capital across borders. 1. Pillar 2 2. The large exposures regime 3. Precautionary measures and emergency situations and 4. National liquidity frameworks. The members of the group gave their opinions as follows. 4
Member States noted that Pillar II measures and large exposures regime are in place to ensure financial stability and should not be considered as obstacles. The liquidity group is not operationally possible without the large exposure waiver. Several Member States stated the importance of flexibility and margins for supervisors to enable their work which should not lead to greater restraints as there are sufficient provisions in the EBA regulation. Several Member States noted that analysis should be carried out on a case-by-case basis when deciding whether or not to grant the waiver. It was however noted that the treatment on a case-by-case basis was not always undertaken. Some Member States were puzzled by the reference to branches in paragraph 29, as branches were not part of single liquidity sub-groups. The Commission explained that the inclusion of this issue was justified in view of the related discussion on liquidity requirements and ring-fencing measures but agreed that it is not of direct relevance to the waiver discussed in Art. 8 CRR. National liquidity frameworks are clearly authorised in the CRR until 2018/2019 and do not constitute an obstacle. The Commission clarified it was not suggesting the removal of Pillar 2 and other discretions but that perhaps further legal limits should be defined to be implemented in instances of misuse. Some member states questioned the need for emergency situations to remain in place even when they are no longer needed and it was suggested that supervision was at times misused and too extensive and invasive. It was highlighted by a Member State that at some point the focus should not only be on existing rules but also on upcoming legislation where restriction of capital flows may be possible. It was concluded that a number of measures are taken in practice that may have an impact on the liquidity flow but Member States did not see obvious reasons for proposing legislative changes to the CRDIV package. The Chairman recognised that very few obstacles had been identified and asked Member States to confirm if they were in favour of substantive changes to directives and regulations or alternatively preferred changes to processes. One Member State indicated it would send some comments in the coming days on possible solutions and in particular on the roles of the three agencies in the process. A number of Member States indicated that there should be backup measures to stop the flow of funds if there was a threat to an institution. It was agreed that the pros and cons need to be assessed and a clear distinction made between normal and recovery/resolution situations in order to determine the correct measures. 5
Summary The Commission noted that the point of the report was to check that there were not legal obstacles to the proper functioning of contracts in single liquidity sub groups. The Chairman stated that, after consultation, if the conclusion is that significant obstacles cannot be identified, then the presumption that these contracts are functioning properly is reinforced and confirmed that single liquidity subgroups are working well. The European Parliament, as observer, noted that the waiver for a single liquidity sub-group was a Council construct and the Parliament position was in favour of liquidity rules at consolidated level. One Member State noted that in the Council compromise package which included safeguards such as contracts that should work and therefore there were no obstacles to contracts ensuring this. There are however a number of conditions before a waiver can be granted, but this does mean there should only be liquidity management on a consolidated basis. The Chairman (Dominique Thienpont) noted the general lack of comments and requested written contributions from participants within two weeks, on what concretely should or should not be done, in order that the Commission could complete the report. REVISED BASEL III LEVERAGE RATIO FRAMEWORK AND DISCLOSURE REQUIREMENTS The Commission introduced the Consultative Document published by the Basel Committee on Banking Supervision in June 2013 and noted that it seeks to do two things: - Raise the awareness that the Commission has to prepare a timely Delegated Act (preferably before 30 June 2014) to modify the CRR text to accommodate the final changes to the Leverage Ratio exposure measure that the Basel Committee will decide by the end of this year. - Seek views from Members on a couple of specific technical modifications that are proposed in the Basel Committee consultation that ran until 20 September (50 comments have so far been received). Members' views will help to find broadly shared policy views that the Commission can bring to the Basel negotiations. The Leverage ratio is designed as a simple, non-risk based measure to act as a back stop capital requirement in addition to the risk sensitive capital requirements and a tool to prevent the building up of excessive leverage during an economic upswing. One Member State made the general point that the leverage ratio has two objectives: to constrain leverage in the banking sector and to form a backstop to the risk weighted capital requirements. These objectives are somewhat contradictory so the Member State noted that every question can be answered from one or the other perspective. A number of Member States agreed that there were problems surrounding the inconsistencies of the two objectives. A discussion followed on the various levels of leverage ratios. The Commission replied that the Basel Committee, contrary to the CRD IV, has not yet given a clear definition of leverage risk and that indeed there is a hybrid of objectives and 6
concepts. The Commission reiterated that a definition would need to first be determined, if based on the Quantitative Impact Study (QIS) the proposed Leverage Ratio would be too binding then it is possible to go back to the Basel Committee and discuss. The Commission noted that there was a clear possibility to have different leverage ratios and noted that all political parties during the trilogue had been in favour of having different leverage ratios. Consolidation One Member State pointed out that the Leverage Ratio exposure measure in the Basel consultation paper did not succeed in excluding all the exposures between an entity that is included in the accounting consolidation but not in the regulatory consolidation, and other entities included in the scope of the Leverage Ratio. Written credit derivatives Some Member States noted their agreement with the Commission s approach. One Member State pointed out that the response would be according to the objective of the Leverage Ratio; a backstop or preventing Leverage. One Member State suggested that the original exposure method could be used for smaller banks. SFTs for the Leverage Ratio exposure measure The Commission noted that SFTs are causing a lot of concern with industry. One Member State noted that there would be negative impacts. Netting One Member State thought that accounting netting should be allowed as not allowing it is not feasible for prudential supervision. Banks should disclose the amount of netting. Another Member State confirmed industry concerns that the proposed prohibition of netting of cash receivables and payables for REPO and reverse REPO transactions with the same counterparty would have negative impacts for the functioning of REPO market. The Commission confirmed that the results of the QIS would be made available and taken into account by the Basel Committee. Disclosure Most Member States supported the more granular breakdown of the main items of the onbalance sheet exposures in the exposure measure. However it was noted that this should not lead to an additional administrative burden and therefore should be based on a reporting framework: a view that was supported by the Commission. One Member State however noted that the breakdown by exposure classes is confusing because although exposure classes serve to distinguish levels of loss risk they do not simply show the levels of loss risk as a distinction by risk weights would show; and more generally a distinction by levels of loss risk 7
is not sufficient because it does not consider whether the business model depends on long term or short term refinancing. FINAL SUMMARY The Chairman thanked the participants for an interesting discussion. He recalled the general agreement for another meeting to discuss further the issues surrounding CRD/CRR transposition. This meeting would likely take place in the first week of November. Member States should precisely indicate topics for discussion that are of general interest to all. These topics should be sent to the Commission within the next 2 weeks. The Chairman reminded participants to provide the Commission with any further comments on the draft implementation plan within the next 2 weeks. The Chairman called for comments by Thursday on the draft EBC info letter, which had been circulated during the meeting, The Chairman thanked everyone involved in the meeting and called the meeting to a close. 8