17 Banking Union
| (a)
(34217)
13682/12
COM(12) 512
(b)
(34218)
13683/12
COM(12) 511
(c)
(34558)
17787/12
—
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Draft Regulation amending Regulation (EC) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards its interaction with Council Regulation (EU) No. .../... conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions
Draft Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions
European Central Bank Opinion on a draft Council Draft Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and a draft Regulation amending Regulation (EC) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) (CON/2012/96)
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| Legal base | (a) Article 114 TFEU; co-decision; QMV
(b) Article 127(6) TFEU; consultation; unanimity
(c) —
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| Deposited in Parliament | (c) 18 December 2012
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| Department | HM Treasury
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| Basis of consideration | (a) and (b) Minister's letter of 12 January 2013;
(c) EM of 9 January 2013
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| Previous Committee Report | (a) and (b) HC 86-xiv (2012-13), chapter 1 (17 October 2012);
(c) None
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| Discussion in Council | (a) and (b) 13 December 2012;
(c) None planned
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| Committee's assessment | Politically important
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| Committee's decision | (a) and (b) Cleared after debate on the Floor of the House[68]
(c) Cleared
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Background
17.1 In recent years various measures have been discussed,
and some introduced, to strengthen economic governance in the
eurozone and in the wider EU. Much of this activity has been
concerned with countering the present eurozone difficulties.
Measures advocated have included a "banking union".
In this context in September 2012 the Commission proposed the
first stage of a Banking Union, involving two draft Regulations.
One, document (b), would confer specific tasks on the European
Central Bank (ECB) concerning policies relating to the prudential
supervision of credit institutions — a Single Supervisory
Mechanism (SSM). The other, document (a), would amend consequentially
the Regulation establishing the European Banking Authority (EBA).
These documents were cleared from scrutiny following debate on
the Floor of the House in November 2012.[69]
The Minister's letter
17.2 The Financial Secretary to the Treasury (Greg Clark)
writes now to update us on the progress of negotiations on the
Banking Union, saying that:
- an agreement on the proposals for the SSM was reached by the
Council on 13 December 2012, after all-night talks between EU
finance ministers;
- the Chancellor represented the UK and, with likeminded
allies, secured an agreement that will preserve the single market
and protect the interests of those remaining outside the Banking
Union;
- the European Parliament will now be consulted
on the ECB Regulation, document (b) and the trilogue process has
commenced in relation to the amending EBA Regulation, document
(a);
- the Council's progress was endorsed by Heads
of Government at the European Council on 13-14 December 2012;
- the European Council also concluded that it was
imperative to break the vicious circle between banks and sovereigns,
and committed that "further to the June 2012 euro area Summit
statement and the October 2012 European Council conclusions, an
operational framework, including the definition of legacy assets,
should be agreed as soon as possible in the first semester of
2013, so that when an effective single supervisory mechanism is
established, the European Stability Mechanism will, following
a regular decision, have the possibility to recapitalise banks
directly. This will be done in full compliance with the Single
Market"; and
- the Conclusions also noted the Commission's intention
to adopt a proposal for a Single Resolution Mechanism for Member
States participating in the SSM during the course of 2013 —
this high-level commitment will ensure that the remaining elements
of the Banking Union remain on the political agenda in 2013.
17.3 The Minister comments that:
- the Government has worked hard
to ensure that the City of London's pre-eminence is maintained;
- Ministers have been very closely involved in
these negotiations, including on technical details for provisions
that could have a significant impact on UK financial services;
and
- consequently, as part of the Council agreement,
the Government has secured a number of strong protections against
potential discriminatory action against the UK's financial services
industry.
17.4 He then describes those protections as follows.
17.5 The Minister tells us that one of the most
significant protections that the Government has secured is the
principle of double majority voting in relation to key decisions
taken by the Board of Supervisors of the EBA, saying that this
is a landmark agreement that demonstrates how greater integration
between eurozone Member States need not mean the fragmentation
of the single market in future. He says that this principle will
be applied as follows — for key decisions, including those
relating to binding technical standards that will apply to firms
across the single market, current voting arrangements will be
supplemented with a requirement that any necessary majority must
include a simple majority of members of the Board of Supervisors
representing Member States participating in the SSM and a simple
majority of members representing non-participating Member States.
The Minister comments that:
- this protects against the risk
that participating Member States will systematically impose a
common view on other Member States by requiring a majority of
those outside the Banking Union to approve decisions in the EBA;
and
- there will be a review of voting arrangements
if and when there are four or fewer non-participating Member States
and a report would be submitted to the Council, the European Parliament
and the European Council for discussion.
17.6 Next the Minister says that:
- the Government has secured
a non-discrimination clause that will protect the single market;
- this requirement, stating that "no action,
proposal or policy of the ECB shall, directly or indirectly, discriminate
against any Member State or group of Member States as a venue
for the provision of banking or financial services in any currency",
is a significant achievement and guards against any restriction
of the UK's role as a financial centre in the single market, including
on euro-denominated banking services;
- there is also an assurance that the scope of
the new SSM will only cover banking and not other financial services
institutions such as central counterparties, which are explicitly
excluded.
17.7 The Minister continues that:
- the Government has secured
agreement to the principle that there must be symmetry of treatment
between the ECB and other supervisors, including the Prudential
Regulation Authority;[70]
- all competent authorities will
be treated equally for the purposes of EBA mediation between supervisors,
and all competent authorities will have the same powers of intervention
within and beyond their jurisdictions; and
- the independence of the EBA from the ECB has
also been preserved as a result of the omission of the provision
enabling the Chair of the EBA to participate as an observer on
the ECB's Supervisory Board and there is agreement that appointments
in the EBA (including its Chair and Vice-Chair) must be geographically
balanced.
17.8 The last protection the Minister tells us
about is that the agreement provides a statutory footing for a
bilateral memorandum of understanding between the ECB and the
Prudential Regulation Authority, which will secure coordination
of supervision of cross-border banks and activities.
17.9 The Minister comments that:
- the Government's priority throughout
these negotiations has been to ensure the unity and integrity
of the single market is maintained;
- consequently its focus has been on securing protections
for those Member States, like the UK, which will remain outside
the Banking Union; and
- the Government, has however, also been at the
table for discussions on the ECB Regulation — it considers
the deal reached is fair and balanced.
17.10 The Minister comments further on the ECB
Regulation that:
- it is important that there
are governance arrangements within the ECB that clearly separate
monetary and supervisory functions, as well as provide for equality
in decision-making between eurozone and non-eurozone Member States
that are participating;
- the ECB Regulation aims to achieve this through
an express requirement for the ECB to conduct its supervisory
tasks separately to its other tasks and through establishment
of a Supervisory Board, with decisions of this board deemed adopted
unless they are actively rejected by the ECB's Governing Council;
- membership of the Supervisory Board will consist
of representatives from national competent authorities in each
participating Member State, as well as a Chair, Vice-Chair and
four representatives of the ECB, all of whom will have voting
rights;
- there will also be a review panel to ensure the
procedural and substantive legality of decisions taken by the
ECB and ultimately decisions of the ECB may be referred to the
European Court of Justice under Article 263 TFEU;
- the ECB will also have obligations towards national
parliaments — parliaments in participating Member States
may invite the Chair or a representative of the Supervisory Board
to participate in an exchange of views in relation to the supervision
of credit institutions in that Member State together with a representative
of the national competent authority; and
- all these measures have been agreed without recourse
to Treaty change.
17.11 The Minister concludes that:
- these details, of course, remain
subject to the outcome of discussions between the Council and
European Parliament;
- the Council has agreed that the two Regulations
must be agreed together; and
- this will maximise (presumably as the ECB Regulation
is subject to unanimity) the Government's ability to ensure the
whole package represents a good deal for the eurozone and a good
deal for the UK and the whole single market.
The new document
17.12 In this Opinion, document (c), the ECB
comments on the two draft Regulations, welcoming the proposals
to establish an SSM and to make amendments to the EBA Regulation.
The ECB says that:
- it recognises that the EU architecture
needs to be strengthened in order to break the link between banks
and sovereigns and to reverse financial market fragmentation in
the eurozone;
- the SSM should help to restore confidence in
the banking sector, revive interbank lending and cross-border
credit flows, promote the effective application of the single
rulebook and advance supervisory convergence;
- Article 127(6) of the Treaty is an appropriate
legal basis for the proposal to establish the SSM; and
- it supports an integrated financial framework
and notes that a single resolution mechanism, focused on a European
Resolution Authority, is a necessary complement to the SSM and
that clear deadlines for its establishment should be agreed.
17.13 The ECB sets out six principles with which
the SSM should comply, outlines its vision for the mechanism and
calls for further detail in some areas:
- effectiveness — the ECB
should be able to carry out the tasks assigned to it effectively
and rigorously and without risks to its reputation. It therefore
welcomes the specific tasks it has been allocated, as well as
the powers which will enable it to discharge its duties;
- independence — the ECB will ensure that
its role in the SSM will not compromise either its performance
in other areas or its institutional standing;
- separation between monetary policy and supervision
— effective governance structures within the ECB will be
needed in order to ensure that monetary policy and supervision
remain strictly separate and to prevent conflicts of interest;
- cooperation with national supervisory authorities
— the ECB will need access to the knowledge, expertise and
operational resources of national supervisory authorities including
access to in-depth qualitative and reliable quantitative information.
The SSM should preserve the unity of the supervisory system at
the same time as implementing appropriate decentralisation procedures;
- consistency with the single market — the
SSM and EBA must ensure that the new framework is consistent with
the single market. This will be achieved by ensuring that Member
States entering into close cooperation with the SSM do so with
the same rights and obligations as eurozone Member States and
ensuring that the governance structures and powers of the EBA
provide equal treatment to national supervisory authorities and
the ECB (while not compromising the ECB's independence); and
- democratic accountability of the ECB —
the ECB supports establishment of accountability and reporting
mechanisms to cover its supervisory mandate under the SSM.
17.14 The ECB stresses the importance of the
SSM being implemented over the course of 2013 and calls for further
enhancements to the proposed SSM Regulation relating, for example,
to sanctions, precautionary measures and the single rulebook,
to help the ECB fulfil its supervisory tasks.
The Government's view of the new document
17.15 In his Explanatory Memorandum the Minister
says that the Government has consistently supported a well-designed
banking union as a contribution to resolution of the eurozone
crisis and establishment of a SSM is a first step towards this.
17.16 The Minister comments further that:
- the UK will not participate
in the Banking Union;
- the Government's priority is therefore to represent
the interests of the wider single market and to ensure that the
UK retains its influence over policy development and rule making,
not least in the EBA;
- in this respect the consequential changes proposed
to the EBA Regulation are particularly important and the Government
shares the ECB's view that the governance and powers of the EBA
should secure equal treatment of national supervisory authorities
and the ECB in its capacity as a supervisory authority;
- the Government notes the ECB's view that it will
be necessary for the functioning of the SSM for the ECB to ensure
that national competent authorities of Member States participating
in the SSM assume mutually consistent positions in the EBA;
- to protect the single market it is therefore
essential that voting arrangements in the EBA are amended to ensure
that converging interests of the SSM do not override the needs
and positions of non-participating Member States;
- the Government welcomes the ECB's Opinion and
its focus on the principles which it envisages will underpin the
SSM — in particular it calls for further refinement of the
proposal to address areas of uncertainty;
- the ECB is right not to underestimate the task
of establishing an SSM and how the various elements of this will
work in practice — the current aim is for the ECB to assume
in full the tasks conferred under the SSM on 1 March 2014 or 12
months after the entry into force of the ECB Regulation (whichever
is later);
- consistent with the ECB's Opinion, the Government
notes that the SSM is the first pillar of a proposed banking union;
and
- the two remaining pillars are a single deposit
guarantee scheme and a single resolution authority — the
Government awaits legislative proposals from the Commission on
both elements.
Conclusion
17.17 We are grateful to the Minister for
this account of the Council outcome on the two draft Regulations.
We draw it, and the ECB Opinion, which we clear from scrutiny,
to the attention of the House as information on further developments
in establishing the Banking Union.
17.18 In doing so, however, we ask the Minister
to write back to us addressing how the concerns of the Council
Legal Service over the legality of document (b) delegating the
Treaty- based powers of the ECB to the SSM have been met. This
was something which Members of the Committee raised in the Floor
debate on 6 November 2012, and it is not clear to us from the
Minister's letter how it has been resolved.
68 HC Debs, 6 November 2012, cols. 805-833. Back
69
Ibid. Back
70
In April 2013 the Prudential Regulation Authority, as part of
the Bank of England, will become the UK's prudential regulator
for banks, building societies, credit unions, insurers and major
investment firms. Back
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