1 Financial services:
prudential requirements
| (a)
(33052)
13284/11
+ ADDs 1-4
COM(11) 452, Parts 1-3
(b)
(33053)
13285/11
+ ADDs 1-2
COM(11) 453
(c)
(33657)
5876/12
—
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Draft Regulation on prudential requirements for credit institutions and investment firms
Draft Directive on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate
European Central Bank Opinion: Proposal for a Directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate
CON/2012/5
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| Legal base | (a) Article 114(1) TFEU; co-decision; QMV
(b) Article 53(1) TFEU; co-decision; QMV
(c) —
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| Deposited in Parliament | (c) 1 February 2012
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| Department | HM Treasury
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| Basis of consideration | (a) and (b) Minister's letter of 12 February 2012
(c) EM of 13 February 2012
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| Previous Committee Report | (a) and (b) HC 428-xxxvii (2010-12), chapter 1 (12 October 2011)
(c) None; but see footnote 3
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| To be discussed in Council | Possibly 13 March 2012
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Committee B
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Background
1.1 The Basel Committee on Banking Supervision (commonly referred
to simply as the Basel Committee) is a committee of banking supervisory
authorities, the aim of which is to enhance understanding of key
supervisory issues and improve the quality of banking supervision
worldwide.[1]
The Basel Committee frames
guidelines and standards in different areas. In June 2011 it published
a slightly revised version of its December 2010 "Basel
III: A global regulatory framework for more resilient banks and
banking systems" (commonly referred to simply as Basel
III).[2]
1.2 Directive 2006/48/EC relating to the taking up
and pursuit of the business of credit institutions and Directive
2006/49/EC on the capital adequacy of investment firms and credit
institutions, together known as the Capital Requirements Directive
(CRD), introduced a supervisory framework within the EU, designed
to ensure the financial soundness of credit institutions (banks
and building societies) and certain investment firms, while reflecting
the Basel II rules on capital measurement and capital standards.
Subsequently two packages of amendments, known as CRD II and CRD
III, were adopted in amending Directives 2009/111/EC and 2010/76/EC.
1.3 In July 2011 the Commission presented this draft
Regulation on prudential requirements for credit institutions
and investment firms, document (a), and this draft Directive on
access to the activity of credit institutions and the prudential
supervision of credit institutions and investment firms, document
(b), as a package known as CRD IV. The intention was to replace
the Capital Requirements Directive and to partly introduce Basel
III into EU law. The Commission explained that the overarching
aim of the package was to strengthen the effectiveness of capital
regulation in the EU and to contain adverse impacts on depositor
protection and pro-cyclicality of the financial system, while
maintaining the competitive position of the EU banking industry.
1.4 The Commission suggested that its proposal for
a Regulation aimed to address regulatory shortcomings related
to:
- the quality and quantity of
capital that banks hold in order to absorb losses effectively
as they arise;
- the management of liquidity risk linked to a
reliance on wholesale funding with short term maturity instruments;
- the treatment of counterparty credit risk arising
from derivatives, repurchase agreements (repo) and securities
financing activities; and
- the current divergences between Member States,
which prove burdensome for firms operating cross-border, create
an uneven playing field and lack legal clarity.
1.5 In relation to its proposal for a Directive,
the Commission suggested that it should build on the existing
Capital Requirements Directive by introducing four new elements:
- provisions on sanctions to
ensure compliance with EU banking rules to protect users of banking
services and to ensure the safety, stability and integrity of
banking markets;
- preventing overreliance on external credit ratings
that has lead to financial institutions and institutional investors
relying solely or mechanistically on ratings issued by credit
rating agencies, while neglecting their own due diligence and
internal risk management obligations;
- effective corporate governance and provisions,
a lack of which has been partly to blame for the excessive accumulation
of risk; and
- addressing the pro-cyclicality of lending, which
tends to follow the direction of and amplify the economic cycle.
1.6 The Commission's proposals in the draft Regulation
concern maximum harmonisation of prudential requirements, the
definition of capital, treatment of specific exposures, counterparty
credit risk, liquidity, leverage ratio, Basel I floor and commencement.
Those in the draft Directive concern powers of the competent authority
of the host Member State in relation to branches, parliamentary
oversight, sanctions, responsibility of the management body in
considering risk issues, corporate governance, a supervisory review
and evaluation process, capital buffers and commencement, transposition
and repeal.
1.7 When we considered these proposals, in October
2011, we heard of the Government's strong support for Basel III
and its belief that the EU should build upon the G20 agreement
to fully and faithfully implement it. However we heard also of
the Government's view that the Commission's proposals significantly
deviate from Basel III in crucial areas and that it believed the
proposals would breach the subsidiarity principle. We ourselves
said that:
- clearly the proposals in the
draft Regulation and the draft Directive would have significant
shortcomings in relation to Basel III;
- we would wish to recommend the documents for
debate when we had a clearer idea of what direction Council consideration
of the proposals was taking;
- so the documents would remain under scrutiny
— but, meanwhile, we shared the Government's concern about
whether maximum harmonisation of prudential requirements was consistent
with the principle of subsidiarity;
- accordingly we recommended that the House adopt
a Reasoned Opinion, as provided for in Protocol 2 of the TFEU;
- we wished the Government to respond to the concerns
we had set out in the proposed Reasoned Opinion, about the proposed
internal market legal base of the Regulation and the legality
of delegating powers to the Commission in Article 443 of the Regulation;
- additionally we had concerns about Article 60
of the draft Directive; and
- whatever the merits of the caveats suggested
in relation to parliamentary inquiries, it was completely outwith
the powers of the EU to attempt to impose rules on national parliaments
in the way suggested — we asked for the Government's comments
on this aspect of the proposed Directive.
The House adopted the Reasoned Opinion on 8 November
2011.[3]
The new document
1.8 The European Central Bank (ECB) Opinion, document
(c), comments on the Commission legislative proposals for CRD
IV, that is, documents (a) and (b). In the Opinion the ECB:
- welcomes the EU's commitment
to implementing international agreements on financial regulation,
while taking into consideration, where relevant, specific features
of the Union's legal and financial system;
- supports the timely and effective implementation
of the Basel III capital and liquidity standards;
- notes the leading role taken by the Commission
in delivering on the G20 commitment to adopt and fully implement
the Basel agreement, which will substantially increase systemic
resilience, contribute to the smooth functioning of the financial
system and ensure a stable and sustainable framework for the provision
of financial services in the EU;
- does, however, go on to make a number of recommendations
that would bring the Commission's proposals for CRD4 more in line
with the Basel accord.;
- strongly supports the development of a single
EU rule book in promoting the smooth functioning of the single
market and facilitating greater financial integration in the EU
— a single set of prudential rules mitigates regulatory
arbitrage opportunities and distortions to competition;
- notes that the involvement of the European Banking
Authority (EBA) in the development of draft technical standards
would help ensure a flexible regulatory framework that will effectively
underpin the single market in financial services; and
- recommends that it be consulted in due time on
any draft EU acts, including draft delegated and implementing
acts, falling within its fields of competence.
1.9 On macroprudential supervision and Member State
flexibility the ECB:
- emphasises the importance of
giving individual Member States the flexibility to apply more
stringent prudential requirements where systemic risks to financial
stability arise;
- says that this is because economic and financial
cycles are not completely harmonised across Member States, Member
States may face different types of systemic risk and there are
significant differences in the structural features of the financial
sectors across Member States;
- notes that the countercyclical capital buffer
allows for some adjustments of prudential requirements at national
level, as does the proposed extension of the scope of the supervisory
review process, but that this is largely a microprudential tool
to address risks originating from individual institutions rather
than a macro-prudential policy tool aimed at systemic risks;
- supports the expansion of the framework for the
adjustment of risk weights or other criteria to allow Member States
to impose stricter prudential requirements for macro-prudential
purposes at national level;
- notes that the scope of this framework should
be expanded to cover capital, limits on large exposures, liquidity
requirements and the leverage ratio following a notification of
the proposed measures to the European Systemic Risk Board (ESRB);
- notes that the ESRB could play an important role
in assessing financial stability concerns and possible unintended
spillovers from macroprudential measures undertaken by Member
States;
- concludes, overall, that application of more
stringent prudential measures by specific Member States may enhance
both financial stability and financial integration in the EU —
by mitigating systemic risks and protecting the single market
from the build-up of excessive systemic risks in a coordinated
way, authorities may effectively contribute to the smooth functioning
of the EU financial system and promote the sustainable provision
of financial services in the single market in the medium to long
term;
- supports the aim of addressing targeted risk
exposures through delegated acts that empower the Commission to
impose stricter prudential requirements, where necessary to address
changes in the intensity of micro- or macroprudential risks which
arise from market developments;
- recommends that the powers to adopt delegated
acts should be extended to prudential requirements on large exposures
and disclosure requirements as well; and
- says, however, that a timeframe of six months
or less for the imposition of stricter requirements would be insufficient
in many cases and would require a much longer timeframe, for example
two years or more, to be effective.
1.10 In relation to own funds the ECB:
- strongly supports the proposed
strengthening of the eligibility criteria for regulatory own funds
as well as the further harmonisation of deductions;
- recommends, in order to bring the Commission's
proposals in line with the Basel agreement, that 'capital instruments'
should be solely shares in companies as defined under national
laws, with the exception of mutuals, cooperative societies and
similar institution, and should qualify as Common Equity Tier
1 items only if they meet all the criteria defined in the proposed
Regulation;
- recommends that the Commission, through the adoption
of an implementing act, endorse the list of forms of the shares
eligible as Common Equity Tier 1 capital established by the EBA
in order to give the list a binding effect;
- says the EBA should also develop draft technical
standards and Member States should cooperate with the EBA in ensuring
compliance with those conditions on an ongoing basis;
- shares the view, in the context of Basel III
requiring significant investments in insurance undertakings, reinsurance
undertakings and insurance holding companies above a certain threshold
be deducted, that regulatory own funds within a banking group
should only be used to cover losses arising from banking risks
to avoid the double counting of capital;
- notes that eliminating the double use of regulatory
own funds at the sectoral level (by deducting significant investments
in insurance undertakings) and determining additional own funds
requirements at the level of the financial conglomerate (by using
one of the three methods as laid down in Annex 1 of Directive
202/87/EC) are not mutually exclusive; and
- notes, as a consequence, that any alternative
to the deduction approach should not result in higher regulatory
own funds at the level of the group of institutions and financial
institutions as referred to in Article 16 of the draft Regulation,
on methods for prudential consolidation.
1.11 On capital buffers the ECB:
- strongly supports the introduction
of the countercyclical capital buffer as part of a macroprudential
framework;
- supports reciprocity requirements, with the option
of voluntary reciprocity beyond a buffer of 2.5% of risk weighted
capital;
- thinks that national authorities should have
the ability to take into account any financial and economic variables
considered relevant to assess the build of up systemic risk in
setting the buffer rate; and
- says, however, that these variables should not
be structural in nature.
1.12 In relation to liquidity the ECB:
- welcomes the commitment in
the Commission's proposals to introduce both the Liquidity Coverage
Requirement and Net Stable Funding Ratio in line with Basel III
requirements;
- highlights, however, that there are a number
of overlaps between the items institutions are required to report
as liquid assets (Article 404 of the draft Regulation) and the
items subject to supplementary reporting, and therefore recommends
adopting a single and transparent list of the items to be reported;
- suggests that central banks should be involved
in determining the extent to which central bank reserves may count
towards the stock of liquid assets;
- highlights the importance of avoiding any possible
ambiguity in the implementation of the Net Stable Funding Ratio,
so addressing one of the key problems that financial institutions
faced in the crisis, which was the urgent funding need that resulted
from a high degree of maturity mismatch — many financial
institutions relied continuously on the roll-over of short-term
liabilities in the wholesale money markets, resulting in funding
problems that spilled over to the financial markets; and
- suggests, therefore, drafting changes to avoid
any possible ambiguity in the implementation of this Basel requirement.
1.13 On leverage the ECB welcomes the Commission's
commitment to introduce a non-risk based leverage ratio as a binding
requirement and suggests clarifying in the draft Regulation that
commitment.
1.14 In relation to supervisory reporting the ECB:
- recommends clarifying in the
draft Regulation the proposed common reporting framework, introducing
a clear legal basis for financial reporting and further specifying
the scope of the draft technical standards to be developed by
the EBA;
- recommends, in particular, the EBA and ESRB should
cooperate in defining the scope of financial information necessary
for macro-prudential oversight; and
- suggests introducing quarterly reporting at a
minimum and involving the ESRB for the development of the draft
implementing technical standards.
1.15 On enhancement of information-sharing arrangements
the ECB:
- recommends reflecting the enhancements
agreed by the recent reform of EU financial supervision in the
draft Directive and further improving the exchange of information
between supervisory authorities and central banks of the European
System of Central Banks (ESCB);
- calls for a review by the Commission, ESRB, EBA
and ECB of the effectiveness of these arrangements within two
years of them coming into force and them making recommendations
for its enhancement; and
- recommends an in depth assessment by the Commission
of the application of the adopted Directive and the adopted Regulation
with regard to EU cooperation with third countries.
The Minister's letter
1.16 The Financial Secretary to the Treasury (Mr
Mark Hoban) tells us of developments on the draft legislation,
saying that:
- the Council's financial services
working group met on several occasions in October and November
2011 to discuss aspects of the Commission's proposals;
- given the timeframe for negotiations, progress
under the Polish Presidency focused on identifying the key issues
to be negotiated under the Danish Presidency — this culminated
with a presentation from the Presidency to the November 2011 ECOFIN
Council on the key issues to be negotiated under the Danish Presidency;
- following detailed written comments from Member
States, the Danish Presidency circulated its first compromise
text on 6 January 2012 — since then that text has been discussed
in the financial services working group; and
- under the guidance of the Presidency, the working
group focused on provisions relating to the key issues identified
by Member States, such as the flexibility for Member States to
implement more stringent prudential requirements on a permanent
basis or for macroprudential policy, deviations from the Basel
III agreement, in particular on the quality and quantity of capital
that institutions are required to hold, the introduction of liquidity
standards and the leverage ratio and the introduction of provisions
concerning the governance arrangements of management bodies and
diversity requirements for selecting members of the management
body.
1.17 The Minister comments that:
- of particular concern to Member
States, including the UK, remains the limited flexibility to implement
more stringent prudential standards on a permanent basis or for
macroprudential policy reasons;
- a number of Member States share the Government's
view that flexibly is required to respond in a timely manner to
systemic risks as they arise or to mitigate fiscal risk, since
Member States remain ultimately responsible for financial stability
in their jurisdiction;
- the Government will therefore continue to work
with likeminded Member States to enable the application of macroprudential
policy and ensure sufficient flexibility to implement more stringent
prudential requirements than the minimum, where justified;
- on the Commission's interpretation of the Basel
III accords, many Member States are generally content with the
provisions put forward by the Commission;
- in fact, there is significant pressure to further
weaken the liquidity provisions proposed by the Commission for
the observation period, which runs until 2015;
- many Member States have suggested that this is,
in part, due to the fact that the Basel Committee will not finalise
the calibration of the Liquidity Coverage Requirement until the
end of the year and EU liquidity legislation should not pre-empt
the Committee's final decision;
- furthermore, many Member States have indicated
a strong preference to implement the Liquidity Coverage Requirement
through a co-decision procedure, rather than through a delegated
act, as is set out in the Commission's proposals;
- the Government will therefore continue to make
the case for the full and faithful implementation of the Basel
III agreement in the EU;
- the Government maintains the view that the agreement
reached by the Basel Committee is one of the most important aspects
of the internationally agreed response to the financial crisis,
addressing many of the deficiencies of the financial system;
- although most Member States welcomed the intentions
of the new provisions on corporate governance, Member States were
generally of the view that provisions concerning the governance
arrangements of management bodies could have significant implications
for Member States with limited expertise in the financial sector;
- in addition, Member States questioned the rationale
for including diversity requirements for selecting members of
the management body in CRD IV, as the issue of diversity is not
limited to the financial sector;
- the ECB's Opinion, document (c), is closely aligned
with the Government's position on CRD 4; and
- in particular, the ECB highlight the importance
of giving individual Member States the flexibility to apply more
stringent prudential requirements where systemic risks to financial
stability arise and calls for a full implementation of the Basel
III requirements for capital, liquidity, leverage and capital
buffers.
1.18 Finally the Minister tells us that:
- the Presidency intends to circulate
a second compromise text in mid-February 2012 and to continue
negotiations in the financial services working group shortly after,
with a view to agreeing a Council position on 13 March 2012 for
trialogues with the European Parliament and the Commission; and
- the Presidency remains committed to finalising
an agreement on CRD IV in June 2012.
The Government's view of the new document
1.19 In his Explanatory Memorandum on the ECB Opinion,
document (c), the Minister first mentions subsidiarity, saying
that:
- in the context of the Government's
concerns about subsidiarity in relation to the Commission proposals,
as explained to us previously, the Opinion contains recommendations
that would address some of those concerns, in particular that
Member States should be able to impose stricter prudential requirements
for macro-prudential purposes; but
- the ECB does support empowering the Commission
to adopt delegated acts to impose stricter prudential requirements.
1.20 On the policy background the Minister:
- reminds us that the Government
believes that the Basel III agreement was one of the most important
aspects of the internationally agreed response to the financial
crisis, with the agreement reached addressing many of the deficiencies
of the financial system;
- says that, to protect financial stability, avoid
unnecessary international arbitrage and reinforce market confidence
in EU banks, it is vital that the EU builds upon the G20 agreement
to fully and faithfully implement the Basel III agreement through
the rules on prudential requirements for credit institutions and
investment firms;
- comments that the Commission's proposals significantly
deviate, however from the Basel III agreement in crucial areas,
thereby weakening the agreement reached by the Basel Committee;
- says that, in doing so, the proposals risk regulatory
arbitrage, diluting the minimum standards agreed internationally
for global banks, and increasing the taxpayer's potential exposure
to future losses;
- notes that establishing minimum prudential requirements
for credit institutions and investment firms across the EU presents
a valuable opportunity to complete the single rulebook on banking
requirements;
- comments, given that the Commission suggests
that a maximum harmonised Regulation is necessary to complete
the single rule book on banking, that it is possible, however,
to have a set of harmonised definitions and minimum requirements
throughout the EU, without preventing Member States from implementing
stricter requirements;
- continues that it is also important that Member
States remain ultimately responsible for financial stability in
their jurisdiction;
- says that, therefore, the Government is very
concerned that maximum harmonised requirements would considerably
constrain the ability of Member States to respond flexibly and
in a timely manner to systemic risks in their jurisdiction or
to mitigate fiscal risk, through requiring higher levels either
for the application of system wide macroprudential policy or for
higher prudential standards on a permanent basis; and
- makes clear that the Government welcomes this
ECB Opinion, which is closely aligned with its policy in these
areas, in calling for a full implementation of the Basel III requirements
for capital, liquidity, leverage and capital buffers and emphasising
the importance of giving individual Member States the flexibility
to apply more stringent prudential requirements where systemic
risks to financial stability arise.
1.21 The Minister then turns to more detailed aspects
of the ECB Opinion, commenting in terms similar to those he made
to us in his earlier Explanatory Memorandum on the draft legislation,
documents (a) and (b). He says first, of macroprudential supervision
and member state flexibility, that:
- the Government welcomes the
ECB view that, while the single rulebook and common standards
are essential for the safe conduct of financial services activities
in the EU, this should be complemented with a EU framework, based
on the established purpose of the ESRB, to allow countries specific
national flexibility to further protect EU economies and taxpayers
from financial instability when necessary;
- since these measures would only apply to a Member
States' own institutions, they would allow authorities to take
early action at national level without threatening the single
market;
- the ESRB has highlighted that the effectiveness
of macroprudential policy depends on national macroprudential
frameworks of Member States and has called for safeguards that
competent national authorities are equipped with broad discretion
to take early action at national level;
- the ESRB has also reiterated that that giving
Member States the flexibility to tighten prudential requirements
above those provided for in EU legislation based on local economic
conditions was possible without jeopardizing the single market;
- overall, the ECB concludes that application of
more stringent prudential measures by specific Member States may
enhance both financial stability and financial integration in
the EU, by mitigating systemic risks and protecting the single
market from the build-up of excessive systemic risks in a coordinated
way, and authorities may effectively contribute to the smooth
functioning of the EU financial system and promote the sustainable
provision of financial services in the single market in the medium
to long term;
- the ECB does, however, support empowering the
Commission to adopt delegated acts to impose stricter prudential
requirements;
- the Government believes the inclusion of Article
443 of the draft Regulation, which would allow the Commission
to adopt delegated acts to impose stricter prudential requirements
for example in relation to a particular Member State, is inappropriate
and goes beyond the objectives of the proposal; and
- furthermore, this is a significant deviation
from the Basel III agreement, in which prudential requirements
are only minimum requirements, allowing Member States the possibility
to impose higher prudential requirements.
1.22 In relation to own funds the Minister says that:
- the ECB's position is closely
aligned with the UK in respect of the need to ensure that shares
should be the sole form of instrument to qualify as Common Equity
Tier 1 capital and that the double counting of capital held in
insurance undertakings, reinsurance undertakings and insurance
holding companies should be prevented;
- the Basel Committee and the G20 agreed that instruments
that count as Common Equity Tier 1 capital for joint stock companies
must meet the legal form of ordinary shares and the 14 substantive
criteria;
- the legal form of ordinary shares was chosen
because they were the instruments that were proven to be the most
loss absorbent and transparent during the financial crisis;
- yet the Commission's proposals would allow anything
that counts as equity under national law standards, in accordance
with Article 22 of Directive 86/635/EEC to meet the legal form
required of Common Equity Tier 1, as long as they meet the substance
of the 14 criteria agreed by the Basel Committee;
- this approach misses key lessons of the financial
crisis and is inconsistent with a single EU rule book on banking,
making it possible to have 27 different instruments eligible as
Common Equity Tier 1;
- similarly, the inclusion of Article 46 of the
draft Regulation, with respect to deductions for capital held
by banking groups in insurance subsidiaries, could provide considerable
discounts from what would be the minimum Basel III capital requirements
for certain institutions;
- Basel III calls for investments in these subsidiaries,
above an agreed level, to be fully deducted from their own capital;
- the Commission's proposals would allow alternative
treatments to these investments which market analysts suggest
could be significantly less prudent and allow a significant capital
advantage to bancassurers (banks offering insurance);
- in particular, this could mean lower capital
requirements for certain global systemically important banks;
- this opt-out goes against the concept of a single
rule book on banking with consistent minimum standards —
it would create the potential for huge deviations in basic minimum
standards for global banks with similar business models;
- as a compromise, the Basel Committee has agreed
that alternative approaches must be proven to be at least as prudent
as deduction;[4] and
- the Government welcomes the ECB's call for a
full and faithful implementation of Basel III in this area.
1.23 On liquidity the Minister says that:
- the Commission's proposals
do not contain a legally binding commitment to implement the Net
Stable Funding Ratio;
- the Government therefore welcomes the ECB's comments
on the importance of international liquidity standards and shares
its view that CRD IV should fully commit to the introduction of
both the Liquidity Coverage Requirement and the Net Stable Funding
Ratio;
- banks funding themselves from unstable sources
was one of the key contributors to the financial crisis;
- when short term inter-bank markets closed in
autumn 2008 due to financial turmoil, banks that funded themselves
disproportionately from these sources were unable to access funding
and quickly suffered acute liquidity problems; and
- this led to a contraction of credit into the
real economy and an overreliance on the provision of central bank
liquidity.
1.24 In relation to leverage the Minister tells us
that:
- one of the key characteristics
of the build up of the financial crisis was the unsustainable
build-up of leverage in the financial system, including in the
EU;
- this excessive leverage was enabled by a combination
of inaccuracies in the regulatory risk weights attached to the
assets held by banks and insufficient investor and supervisory
oversight;
- although there is some commitment in the Commission's
draft Regulation to migrate the leverage ratio to a Pillar 1 measure
in Recital 68, the recitals by themselves are not legally binding;
and
- the UK Government has therefore argued the need
for a firm commitment to migrate to a binding Pillar 1 measure
in 2018 and welcomes the ECB's recommendation that there is clarification
in the Regulation of the legislator's commitment to introducing
this requirement.
1.25 On capital buffers the Minister says that the
ECB's position aligns with the Government's on the countercyclical
capital buffer, which supports national authorities' flexibility
in setting buffer levels in response idiosyncratic systemic risks
of a cyclical nature in their jurisdiction.
1.26 Finally, the Minister summarises the Government
view, saying that it welcomes this ECB Opinion on CRD IV and in
particular its emphasis in the importance of giving individual
Member States the flexibility to apply more stringent prudential
requirements where systemic risks to financial stability arise
and its recommendations in several areas to ensure a full and
faithful implementation of Basel III.
Conclusion
1.27 We are grateful to the Minister for the information
he gives us, in both his letter and the Explanatory Memorandum,
about developments on the CRD IV proposals. As foreshadowed in
our earlier report, we now recommend the documents for debate,
in European Committee B. This debate should take place before
adoption of a Council general approach on the draft legislation,
which presently appears planned for 13 March 2012.
1.28 In addition to exploring with the Minister
progress on solving the various important issues the Government
has highlighted to us, in the debate Members might ask to hear
answers to the unanswered points we put to the Government in our
previous Report, namely:
- our concerns, set out in
the Reasoned Opinion, about the proposed internal market legal
base of the Regulation and the legality of delegating powers to
the Commission in Article 443 of the Regulation; and
- our concerns about Article 60 of the draft
Directive, that is the attempt to impose rules on national parliaments
in the way suggested.
1 See http://www.bis.org/bcbs/about.htm. Back
2
See http://www.bis.org/bcbs/basel3.htm. Back
3
See HC Deb, 8 November 2011, cols 196-212. Back
4
http://www.bis.org/publ/bcbs211.htm. Back
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