24 Financial services: shadow banking
| (35297)
13426/13
COM(13) 614
| Commission Communication: Shadow Banking: addressing new sources of risk in the financial sector
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| Legal base | ¯
|
| Document originated
| 4 September 2013 |
| Deposited in Parliament
| 11 September 2013 |
| Department | HM Treasury
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| Basis of consideration
| EM of 10 October 2013 |
| Previous Committee Report
| None |
| Discussion in Council
| None planned |
| Committee's assessment
| Politically important |
| Committee's decision
| Cleared |
Background
24.1 Shadow banking can be described as non-bank
credit activity conducted by entities that are outside the regulated
system, for example accepting funding with deposit-like characteristics,
performing maturity and/or liquidity transformation, undergoing
credit risk transfer and using direct or indirect financial leverage.
24.2 In March 2012 the Commission published a Green
Paper to launch a consultation on shadow banking, in which it
called for responses, particularly to 15 questions it posed, by
the end of May 2012. We reported the Government's response in
June 2012.[80]
The document
24.3 With this Communication the Commission follows
its Green Paper by summarising work it has undertaken so far and
setting out possible further actions in this area. The Commission
notes that:
· the measures it has
taken, which are aimed at financial entities, include reinforcing
requirements imposed on banks and insurance companies in their
dealings with the shadow banking system (Capital Requirements
Directive (CRD) and Solvency II legislation) as well as a harmonised
framework for alternative investment fund managers (AIFMD legislation);
· it has brought forward
measures aimed at market integrity — over-the-counter derivatives
legislation (EMIR) creates a framework for certain risk transfer
instruments, securitisation arrangements have been strengthened
(in CRD, Solvency II, AIFMD and Undertakings for Collective Investments
in Transferable Securities (UCITS) legislation) and the third
credit rating agency Regulation makes agencies more accountable
and discourages overreliance by market participants on their credit
ratings; and
· in association with
this Communication, it has published a draft Regulation on money
market funds.[81]
24.4 For the future, the Commission intends to:
· increase the transparency
of the shadow banking system through strengthened monitoring measures
— including supporting the IMF's Data Gaps Initiative, developing
central repositories for derivatives and implementing the Financial
Stability Board (FSB)'s Legal Entity Identifier;
· follow closely international
developments regarding the transparency of repurchase agreements
and securities lending;
· look at wider issues
concerning asset management as part of its review of UCITS regulation;
· consider a legislative
proposal on securities law in order to address risks associated
with securities financing transactions;
· consider whether an
extension of the scope of application of prudential rules might
be necessary to reduce arbitrage risks — to this end, an
assessment of the way in which the definition of a credit institution
is applied and the way credit institutions are identified will
be carried out;
· consider whether to
clarify the meaning of a credit institution through a delegated
act; and
· consider forthcoming
FSB recommendations on other entities from the shadow banking
system.
24.5 The Commission asks national and EU authorities
to continue to monitor activity and emerging risks in the unregulated
and less regulated aspects of the financial system.
The Government's view
24.6 The Financial Secretary to the Treasury (Sajid
Javid) says that:
· the Government is
supportive of efforts to ensure that systemic risks arising in
the unregulated and less regulated aspects of the financial system
are addressed in a targeted and proportionate manner;
· it is important that
any legislation brought forward in the EU is mindful of the beneficial
role played by the shadow banking sector as an alternative source
of credit to both the financial sector and the real economy, particularly
in times of economic stress; and
· the Government will
continue to monitor legislative plans concerning shadow banking
in the EU and will keep Parliament updated on any further developments.
Conclusion
24.7 Whilst clearing this document we draw it
to the attention of the House as a summary of where matters stand
in the EU in relation to shadow banking.
80 See (33781) 7988/12: see HC 428-lviii (2010-12),
chapter 6 (25 April 2012) and HC 86-vi (2012-13), chapter 12 (27
June 2012). Back
81
See (35298) 13449/13 + ADDs 1-2: HC 83-xviii (2013-14), chapter
12 (23 October 2013). Back
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