10 Banking Union: single resolution
mechanism
| (a)
(35195)
12315/13
COM(13) 520
(b)
(35512)
15863/13
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Draft Regulation establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No. 1093/2010 of the European Parliament and of the Council
European Central Bank Opinion on a draft Regulation establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No. 1093/2010 of the European Parliament and of the Council (CON/2013/76)
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| Legal base | (a) Article 114 TFEU; co-decision; QMV
(b) —
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| Deposited in Parliament
| (a) 18 July 2013
(b) 13 November 2013
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| Department | HM Treasury
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| Basis of consideration
| (a) Minister's letter of 3 December 2013
(b) EM of 30 November 2013
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| Previous Committee Report
| (a) HC 83-xiii (2013-14), chapter 19 (4 September 2013)
(b) None
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| Discussion in Council
| 10 December 2013 |
| Committee's assessment
| Legally and politically important
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| Committee's decision
| Not cleared; further information requested
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Background
10.1 In September 2012 the Commission published a
Communication about establishing a "Banking Union" and
two draft Regulations concerning supervision of the banking sector.[31]
One draft, now adopted as Council Regulation (EU) No. 1024/2013
(the ECB Regulation), confers tasks on the European Central Bank
(ECB) concerning policies relating to the prudential supervision
of credit institutions. The other, now adopted as Regulation (EU)
No. 1022/2013 (the EBA Amending Regulation) amends consequentially
the Regulation establishing the European Banking Authority (EBA).
10.2 The ECB Regulation gives the ECB specified supervisory
tasks in relation to the prudential regulation of credit institutions
established in the eurozone. It has "direct oversight of
banks, to enforce prudential rules in a strict and impartial manner
and perform effective oversight of cross border banking markets"
— a Single Supervisory Mechanism (SSM) to enforce "strict
prudential rules in a strict and impartial manner" was identified
at the June 2012 European Council as a necessary precursor to
recapitalisation of banks through the European Stability Mechanism
(ESM). This transfer of responsibilities to the ECB is intended
to ensure an effective prudential supervisory mechanism within
the eurozone. There is an option for non-eurozone Member States
to participate in the SSM through a "close cooperation"
arrangement on an opt-in basis. Collectively eurozone Member States
and those choosing to opt-in would be known as "participating
Member States". The ECB would carry out its tasks within
the existing EU supervisory framework and would not take over
any tasks from the EBA. The EBA would continue to work towards
a single rulebook, regulatory convergence and consistency of regulatory
practice.
10.3 The accompanying Commission Communication indicated
plans for further legislative measures to follow in 2013. These
were expected to include:
· development by the
EBA of a "single supervisory handbook";
· a single resolution
mechanism, which would govern the resolution of banks in the Banking
Union and guarantee customer deposits within it; and
· coordination of the
application of resolution tools for participants in the Banking
Union.
10.4 Also relevant to establishing the Banking Union
is a draft Bank Recovery and Resolution Directive (the "BRRD"),
which would set the rules for dealing with the recovery and resolution
of credit institutions and investment firms in all Member States.[32]
On 26 June the ECOFIN Council agreed a general approach on the
BRRD[33]
for discussion with the European Parliament.
10.5 In July the Commission proposed this Regulation,
document (a), to establish, as the second pillar of the Banking
Union, uniform rules and a uniform procedure for the resolution
of credit institutions and certain investment firms, in the framework
of a Single Resolution Mechanism (SRM) and a Single Bank Resolution
Fund. The draft Regulation builds on the BRRD and sets out to
a degree how the BRRD should be applied within the participating
Member States. There are two main elements of the SRM proposal:
· transfer of responsibility
for bank resolution from the national to the EU level in participating
Member States; and
· creation of a Single
Bank Resolution Fund to assist in the financing of resolutions
under the SRM.
10.6 When we considered this proposal, in early September,
we said that:
· although the proposal
would not apply directly to the UK, clearly it would have implications,
perhaps significant, for the UK's financial services industry;
· so we might well wish
to recommend the draft Regulation for debate;
· but we would not wish
to decide on that until we had an indication from the Government
of how early negotiations were developing on the issues of importance
to the UK; and
· to that end we asked
to have such a report from the Government by the end of October.
10.7 We also commented on a number of legal issues
the Government had mentioned to us, including some relating to
fundamental rights, and in turn, invited comment from the Government.[34]
The new document
10.8 In this Opinion, document (b), the ECB comments
on the draft Regulation on a SRM. It fully supports establishing
the SRM. The ECB considers both the SRM and the SSM to be essential
parts of the integrated financial framework of the Banking Union,
which will help break the link between banks and sovereigns in
the Member States concerned and reverse the current process of
financial market fragmentation. The ECB strongly supports the
proposed timeline for the SRM, under which it would enter into
force by the middle of 2014 and would become fully operational
by 1 January 2015.
10.9 The ECB notes the ongoing assessments made by
Member States as to whether Article 114 TFEU is the appropriate
legal basis for the proposal, without giving its view on the matter.
10.10 The ECB sets out a number of principles with
which the SRM should comply, outlines its vision for the mechanism
and calls for further detail in some areas, as follows. First,
on scope it says that the SRM should encompass all credit institutions
established in participating Member States.
10.11 Secondly the ECB comments that:
· a strong, independent
Single Resolution Board (SRB) is required, with sufficient decision-making
authority to take resolution action in the interest of stability
within the eurozone and the EU as a whole;
· a single mechanism
is better placed to guarantee optimal resolution outcomes as opposed
to a network of national resolution authorities; and
· the SRB should have
adequate powers, tools and financial resources to resolve institutions,
as provided for in the forthcoming BRRD.
10.12 Thirdly, in relation to decision-making, the
ECB says that:
· it welcomes the fact
that under the Commission's proposal no party, specifically national
resolution authorities, will have power of veto in the decision-making
of the SRB;
· the responsibilities
of authorities involved in the resolution process should, however,
be more precisely defined; and
· the process should
allow for timely and efficient decision-making, if necessary,
within a very short time, such as a few days or, where necessary,
a few hours.
10.13 Fourthly, on SRB resolution financing, the
ECB says that:
· the SRB should have
access to resolution financing, through a Single Bank Resolution
Fund, which should be financed by ex ante risk-based contributions
from all banks subject to the SRM, to be complemented by ex
post contributions where necessary;
· moreover, a temporary,
fiscally neutral, public backstop should be available, which could
be provided in the form of a credit line to the Fund; and
· it supports implementing
bail-in earlier than the 2018 target date.
10.14 Fifthly, on institutional coordination, the
ECB:
· welcomes the envisaged
close cooperation between supervisory authorities and resolution
authorities;
· recommends, however,
that references to the ECB's tasks and responsibilities in the
proposed Regulation should refer, where appropriate, to the ECB's
tasks and responsibilities as conferred on it by the ECB Regulation
(establishing the SSM); and
· says that the framework
envisaged for the SRM should provide for close coordination between
the SRM's resolution function and the SSM's supervisory function,
while adhering to and respecting the respective institutional
responsibilities.
The Minister's letter of 3 December 2013
10.15 The Financial Secretary to the Treasury (Sajid
Javid), in his very belated response to our September requests,
says:
"Many of the issues
you raised ... are the subject of ongoing consideration within
Government. Nevertheless, I wanted to provide you with an update
on our thinking on the points you raised as well updating you
on progress in the negotiations to date, as you requested.
"Ministers discussed
the Single Resolution Mechanism in detail at ECOFIN on Friday
15 November. In that meeting, the Presidency reconfirmed the European
Council's agreement to reach a general approach in Council before
the end of the year. To enable an agreement to be reached by that
deadline, the Presidency mandated working groups to continue examining
the proposal and consider, in particular:
· The
scope of the Single Resolution Mechanism, including whether there
could be a greater role for national resolution authorities in
participating Member States.
· The
governance structure of the proposal, including the voting modalities
in the Single Resolution Board and possibilities for exploring
a greater role for the Council.
· The
structure of the Single Resolution Fund, how it will be built
up and options for handling the transitional period.
· Options
for resolving the issue of non-contractual liability and equality
of treatment of participating and non-participating Member States.
"Following further consideration
of these issues, the Presidency currently aims to reach a general
approach at ECOFIN on 10 December.
"Regarding the first
three strands of follow-up work, we are broadly content for SRM
participants to take judgements on the detailed design of the
SRM provided it is consistent with the principles of the Bank
Recovery and Resolution Directive (BRRD).
"The fourth area of
further work listed above reflects concerns from a number of Member
States outside the euro, including the UK. The Government will
continue to work for an outcome to the negotiation that provides
appropriate safeguards for the UK and other non-participants from
any fiscal liability accruing to the EU Budget in relation to
SRM actions. We will also look to negotiate arrangements that
ensure equality of treatment as between the Commission (in respect
of SRM participants) and national resolution authorities in the
context of European Banking Authority decisions.
"Progress has been made
during the autumn in Council working group negotiations on a number
of issues, including ensuring that there are clear provisions
on the face of the Regulation ensuring an equivalent application
of State aid rules to the Single Resolution Fund (SRF) and to
national resolution financing arrangements. Ensuring the rigorous
and non-discriminatory application of State aid controls is a
matter of considerable importance in ensuring a level playing
field across the internal market.
"Important improvements
have also been made to the text in relation to an explicit requirement
that the Commission and Single Resolution Board (SRB) cannot discriminate
against non-participating Member States; the relationships between
the SRB and Commission with resolution authorities in non-participating
Member States; and symmetry of powers as between the Board/Commission
on the one hand and resolution authorities in non-participating
Member States on the other.
"Nevertheless, apart
from the specific points listed above, further work is still required
in a number of areas, including securing safeguards for the UK
and other non-participants from any fiscal liability accruing
to the EU Budget in relation to SRM actions and ensuring full
alignment between the Regulation and the draft Bank Recovery and
Resolution Directive, which remains in trilogue discussions with
the European Parliament.
"The Government has,
of course, registered with the Presidency that the Regulation
remains under parliamentary scrutiny in the UK.
"Turning to your questions,
you asked what I intend to do regarding challenging the choice
of legal base and whether, in due course, the Government would
consider bringing proceedings before the Court of Justice (CJEU).
"The Government is continuing
to consider the strength of the rationale presented by the Commission
for its choice of Treaty base and the suitability of the Treaty
base for the necessary content of the proposal. A final
decision on whether to oppose the use of Article 114 TFEU will
only be taken when the shape of the final outcome of negotiations
is much clearer. However, the Government has already raised questions
about the choice of legal base in the course of Council negotiations
to date.
"In terms of alternative
Treaty bases for some or all of the proposal, the Commission has
not indicated any intention to bring forward a proposal on an
alternative Treaty base.
"Secondly, you asked
what action I propose to take in respect of the Commission's role
in triggering a resolution of a bank in the absence of enabling
Treaty powers. In this context the UK has emphasised two points
during Council working group discussions:
· the
importance of developing a workable resolution mechanism for participating
Member States;
· that
the proposed conferral of executive power on the Commission using
secondary legislation is unprecedented. Under the proposal the
Commission would take on the role of recovery and resolution decision-maker
for banks in participating Member States, in addition to its existing,
EU-wide roles, as competition authority, trade negotiator and
single market enforcement authority. Apart from these executive
roles, the Commission would also continue to enjoy the sole right
of legislative initiative, including for single market issues
in respect of recovery and resolution.
"If the Commission takes
on a new role as decision-maker on recovery and resolution issues,
the Government will seek to work with other Member States and
the Commission to mitigate the potential for conflicts of interest.
This could be done through reform of the Commission's internal
decision-making procedures and increasing the transparency of
its decision-making. The case for specific audit and review arrangements,
perhaps involving a role for the European Court of Auditors, should
also be considered. A greater involvement of other EU institutions
such as the Council could also help address conflicts of interest
by reducing the concentration of tasks in a single institution,
but would need careful consideration to ensure that any approach
is legally and operationally workable.
"Thirdly, you asked
what measures should be put in place to ensure that the SRB operates
in a way which complies with the Meroni judgement. At an
early stage in Council negotiations, the Council Legal Service
(CLS) provided advice setting out which provisions in the proposal
were, in its view, incompatible with Meroni. The Opinion of the
CLS is in the public domain so I can therefore inform you that
they indicated a number of areas of concern on the proposed roles
for the SRB, including in relation to resolvability assessments
(and matters to remedy impediments to resolvability) (Articles
8), the resolution scheme (Article 16), and matters relating to
the financing and management of the SRF (Articles 54 to 71).
"The Government broadly
agrees with this analysis. As a result of this advice and subsequent
discussion in Council working groups, considerable progress has
now been made to reduce the discretion of the SRB in the exercise
of a number of its functions, including those listed above.
"Finally, you asked
about making the proposal comply better with the Charter on Fundamental
Rights. As set out in the EM, the Government considers that the
draft Regulation, as proposed, is already broadly compliant with
the Charter. The key point here is the need to ensure the Regulation
provides for proper due process and transparency in decision-making.
An internal appeals board for decisions made by the SRB is an
important part of this. Additionally the points raised above in
terms of the need to improve the Commission's internal decision-making
process are also relevant here, to help ensure that UK individuals
(as well as institutional shareholders and investors), who would
consider themselves to have been adversely affected by a resolution
decision of the SRB or Commission, have sufficient information
as well as an accessible mechanism to challenge those decisions.
Of course it is also important that rigorous arrangements are
established for the assessment of any compensation payable following
resolution action under the SRM consistent with the requirements
to which non-participating Member States will be subject under
the Bank Recovery and Resolution Directive."
10.16 The Minister concludes:
"Hopefully the information
provided to the Committee will mean the Government is able to
freely support the proposal at ECOFIN should a positive outcome
be reached in the final stages of negotiations."
The Government's view of the new document
10.17 The Minister in his Explanatory Memorandum
says that:
· the Government notes
the ECB's overall opinion and agrees that a well-designed SRM
can make a significant contribution towards greater stability
in the eurozone; and
· the Government has
been clear that the measures proposed under Banking Union should
aim to strengthen the single currency, whilst protecting the integrity
of the Single Market.
10.18 The Minister continues that there are, therefore,
a number of issues raised by the ECB Opinion which the Government
notes, as follows. He says first that:
· it is in the UK national
interest for the SRM proposal to be operationally sound;
· the design of the
SRM is primarily for participating Member States to determine;
but
· it will be important
that all SRM authorities act in the interests of the EU as a whole
and that they do not discriminate against any Member State, regardless
of their participation in the Banking Union.
10.19 Next, on institutional coordination the Minister
comments that:
· supervisory and resolution
authorities must be able to coordinate their activities quickly
and effectively in order to avoid negative impacts on the financial
stability of other Member States;
· the Government believes,
therefore, that it is critically important that the SRM adheres
to the overall framework in the BRRD; and
· in addition, it agrees
with the ECB on the importance of the SRM proposal being clear
on how all authorities from either participating or non-participating
Member States will interact with one another.
10.20 The Minister tells us that:
· the Government agrees
that the application of State Aid rules should not delay, duplicate
or hinder the resolution process;
· it strongly believes,
however, that the proposal should respect equal treatment for
participating and non-participating Member States; and
· substantive State
Aid rules should apply uniformly across the Single Market.
10.21 Finally, on judicial review, the Minister notes
that the ECB has stated that it would be helpful for the Regulation
to specify that it is without prejudice to the competence of national
courts to review the actions or omissions of national resolution
and other competent authorities when implementing the SRB's decisions
made within the resolution procedure pursuant to Article 16 of
the draft Regulation.
Conclusion
10.22 It seems possible that the Presidency will
attempt to secure a general approach on the draft Regulation,
document (a), at the ECOFIN Council on 10 December and the Minister
asks us to give him a free hand, by clearing the document from
scrutiny, to acquiesce in such a general approach if he deems
it appropriate. However, we have received his responses to our
questions so late that we have been unable to analyse them satisfactorily
before the Council meeting, let alone consider whether we wish
to recommend a timely debate. So in these circumstances we do
not clear the document from scrutiny and we advise the Minister
that, given the importance of the issues at stake, we would regard
an abstention in a vote on a general approach at the forthcoming
Council as merely a token regard for parliamentary scrutiny.
10.23 We should like the Minister to report back,
promptly, on the outcome of the Council, before we consider further
scrutiny of the document.
10.24 As for the ECB Opinion, document (b), since
it relates so closely to aspects of the draft Regulation still
being negotiated, we hold it too under scrutiny.
31 (34217) 13682/12 (34218) 13683/12 (34231) 13854/12:
see HC 86-xiv (2012-13), chapter 1 (17 October 2012), HC Debs,
6 November 2012, cols. 805-833 and HC 86-xxxiv (2012-13), chapter
14 (6 March 2013). Back
32
(34012) 11066/12 + ADDs 1-2 (34560) 17849/12: see HC 86-vii (2012-13),
chapter 7 (4 July 2012), HC 86-xxx (2012-13), chapter 5 (30 January
2013), HC 83-iv (2013-14), chapter 15 (5 June 2013) and HC 83-v
(2013-14), chapter 15 (12 June 2013). Back
33
See http://register.consilium.europa.eu/pdf/en/13/st11/st11148-re01.en13.pdf. Back
34
See headnote. Back
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