17 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
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 (CON/2013/76)
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| Legal base | (a) Article 114 TFEU; co-decision; QMV
(b) —
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| Department | HM Treasury
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| Basis of consideration | Minister's letter of 22 March 2014
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| Previous Committee Reports | (a) HC 83-xiii (2013-14), chapter 19 (4 September 2013), HC 83-xxiii (2013-14), chapter 10 (4 December 2013), HC 83-xxv (2013-14), chapter 12 (18 December 2013), HC 83-xxvii (2013-14), chapter 5 (15 January 2014) and HC 83-xxxvi (2013-14), chapter 9 (12 March 2014)
(b) HC 83-xxiii (2013-14), chapter 10 (4 December 2013), HC 83-xxv (2013-14), chapter 12 (18 December 2013), HC 83-xxvii (2013-14), chapter 5 (15 January 2014) and HC 83-xxxvi (2013-14), chapter 9 (12 March 2014)
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| Discussion in Council | Possibly late spring 2014
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| Committee's assessment | Legally and politically important
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| Committee's decision | Cleared
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Background
17.1 In September 2012 the Commission published a
Communication about establishing a "Banking Union" and
two draft Regulations concerning supervision of the banking sector.[70]
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).
17.2 The ECB Regulation gives the ECB specified supervisory
tasks in relation to the prudential regulation of credit institutions
established in the eurozone, through a Single Supervisory Mechanism
(SSM). 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 is to carry out its tasks within
the existing EU supervisory framework and will not take over any
tasks from the EBA. The EBA will continue to work towards a single
rulebook, regulatory convergence and consistency of regulatory
practice.
17.3 Also relevant to establishing the Banking Union
is a 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.[71]
In June 2013 the ECOFIN Council agreed a general approach on the
BRRD[72] for discussions
with the European Parliament. Following those discussions a deal
was concluded with the European Parliament on 12 December 2013
and is now in the final stages of adoption.
17.4 As foreshadowed in its 2012 Communication, in
July 2013 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.
17.5 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.
17.6 On 15 January we continued our scrutiny of the
SRM proposal. We reported that the Government had told us that:
· the ECOFIN Council of 18 December 2013
had adopted a general approach on the proposal, which had been
endorsed by the December 2013 European Council and which was now
to be considered in trilogue discussions; and
· the ECOFIN Council had also agreed a draft
Decision of the eurozone Member States to draw up an Inter-Governmental
Agreement (IGA) covering the establishment of the Single Bank
Resolution Fund and draft terms of reference for that IGA —
membership of the IGA would be open to all Member States that
wished to be a Contracting Party, its provisions would only be
binding on participating Member States and all non-participating
Member States could participate as observers in the negotiations;
17.7 We noted the Government's claimed negotiation
successes, but said that:
· much seemed, however, to depend on both
the result of the Government's case in the Court of Justice in
relation to the Short Selling Regulation, Regulation (EU) No.
236/2012, and how the trilogues developed; and
· we wished to hear in due course how these
matters were turning out.
17.8 On 22 January the Court of Justice issued its
judgement on the Short Selling Regulation case.[73]
In the judgement the Court:
· found that, contrary to the UK's arguments,
the restrictions on the (European Securities and Markets Authority
(ESMA)'s powers to intervene in short selling in Article 28 are
sufficiently precisely defined and are therefore compliant with
the requirements in Case 9/56 of Meroni v High Authority;
and
· clarified additionally that, regarding
the UK's argument that Article 28 does not amount to a harmonising
measure under Article 114 TFEU, the use by the ESMA of its intervention
powers to address financial market or systemic stability risks
would amount to a harmonising measure across the EU.
17.9 Earlier this month we heard the Government's
view of the effect of the Court of Justice judgement, that is
that:
· there were two areas where the judgement
could impact on the SRM, the first being the legal base for the
proposal, that is Article 114 TFEU, and the second relating to
the proposed conferral of various powers on the new EU agency
to be established under the SRM, the Single Resolution Board (SRB);
but
· in practice, it currently appeared unlikely
that the judgement, in and of itself, would necessitate major
changes to the general approach text agreed by the ECOFIN Council
at the end of last year.
17.10 We noted this assessment of the implications
for the SRM proposal of the judgement and asked again to hear
in due course how this and other matters were turning out in the
trilogue discussions of the proposal. Meanwhile the documents
remained under scrutiny.[74]
The Minister's letter of 22 March 2014
17.11 The Financial Secretary to the Treasury (Sajid
Javid) writes now to update us in the light of what he describes
as recent rapid developments, saying that negotiations have been
taking place on two separate but closely linked tracks:
· trilogue negotiations between the Presidency,
the Commission and the European Parliament on the draft SRM Regulation;
and
· an Inter-Governmental Conference between
Member States on the IGA.
17.12 The Minister tells us that:
· in the SRM Regulation negotiations, after
a prolonged period earlier in the year where there was little
progress on the main issues, Ministers discussed the appropriate
stance for the Council to take in subsequent trilogues with the
European Parliament at the ECOFIN Council on 11 March, including
on the respective roles of the SRB's executive and plenary formations
and the threshold for majorities in plenary session;
· separately, Ministers met in Inter-Governmental
Conference format on the eve of the March ECOFIN;
· this meeting resolved almost all the outstanding
issues with the text of the IGA, although that text could not
be finalised in isolation from the negotiations with the European
Parliament on the SRM Regulation, given the closely related subject
matter of the two instruments;
· in addition, participating Member States
indicated their flexibility to speed up the pace of mutualisation
of contributions to the Single Bank Resolution Fund;
· these developments allowed highly productive
trilogue negotiations to take place on 12 March and on 19-20 March;
· the latter session agreed the outlines
of a possible deal; and
· a further trilogue was scheduled for 24
March which would aim to pin down outstanding details.
17.13 The Minister continues by highlighting points
of particular interest to the UK, saying, first, that:
· the Government has successfully defended
the principle of equal treatment between participating Member
States and non-participating Member States set out in the Council's
December 2013 general approach;
· it now looks highly likely that all four
of the relevant provisions previously explained to us will be
included in the final version of the text without significant
changes to what was originally agreed; and
· the Government will continue to review
carefully the detailed technical drafting that emerges in the
next few days to ensure it meets UK concerns.
17.14 The Minister says secondly that:
· the IGA text includes detailed provisions
for a budget reimbursement mechanism that ensures non-participating
Member States are compensated for their share of any costs falling
on the EU Budget as a result of non-contractual damages payments
awarded against the Commission (or the Council) under the SRM;
· in particular, the current text ensures
a role for the Commission in administering the mechanism and a
right of recourse to the Court of Justice to allow non-participating
Member States to enforce their rights if necessary — this
ensures the UK will be fully protected from cost arising from
the SRM;
· to allow the Court to play this dispute
settlement role under the Agreement, the IGA will be designated
as a "special agreement" within the meaning of Article
273 TFEU;
· although the UK will not itself be a Contracting
Party to the IGA, the Government's intention is for the UK to
join the Contracting Parties in designating the IGA as a "special
agreement";
· this will allow the UK access to the Court
to enforce its rights under the budget mechanism in the event
that that should prove necessary;
· a "Bangladesh decision" will
need to be taken by the Council by unanimity to confer a role
on the SRB and the Commission under the IGA;[75]
and
· given it is very much in the UK's interests
for the Commission to administer the reimbursement mechanism the
Government intends to support this approach.
17.15 Next, the Minister says that the Government
has protected the provisions agreed in the Council general approach
conferring a strong role on the European Court of Auditors in
evaluating the use of the Single Bank Resolution Fund and the
work of the SRB, which will strengthen transparency and accountability
in relation to resolution decisions under the SRM. The Minister
continues, regarding potential conflicts of interest in the Commission,
that the Regulation will require the Commission to set out how
it will ensure organisational separation ('Chinese Walls') between
its resolution tasks under the SRM and its other executive and
legislative functions, thereby helping to protect equal treatment
between participating and non-participating Member States.
17.16 The Minister reports fifthly that:
· a compromise was reached on the role of
the Commission and the Council in the decision-making process;
· for Meroni reasons the Commission
will have discretion to object to the SRB's proposed resolution
scheme on discretionary aspects of the resolution scheme;
· the scope of the Commission's discretion
to object will be further discussed in the technical trilogue;
and
· the Council will be able to object to
the SRB's proposed resolution scheme, when acting on a proposal
of the Commission, on public interest grounds and/or to approve
or object to a modification by the Commission of the amount from
the Single Bank Resolution Fund provided for in the resolution
scheme of the SRB.
17.17 Lastly the Minister reminds us that there is
no appetite in the Council for, and very strong opposition in
the European Parliament, to changing the legal base of the SRM
Regulation from Article 114 TFEU and says that it is clear that
this will be the legal base for the Regulation.
17.18 The Minister then reports that, in the context
of the negotiations, the Government agreed the text of a political
declaration of the Member States in connection with the IGA, which
stresses the political commitment of the Member States to the
bail-in rules set out in the BRRD and the SRM Regulation and commits
not to support any changes to these rules which do not lead to,
at least, "the same and not less stringent result" unless
all 28 Member States agree. He comments that the Government regards
this as a useful means of adding to the credibility of the bail-in
rules.
17.19 Turning to the future the Minister tells us
that:
· following the trilogue on 19-20 March,
the Presidency intends to take forward urgently further technical
work with the European Parliament, with a view to putting the
emerging deal to COREPER for consideration at its scheduled meeting
on 26 March;
· if that indicates support for the deal
it is then likely to be voted on in the European Parliament's
ECON Committee by 8 April before being put to a vote in the European
Parliament's final plenary session on 13-17 April;
· the final text of the draft Regulation
would then be formally adopted by Council later in the year, probably
at some stage during the late spring; and
· the IGA would be opened for ratification
by Contracting Parties on a similar timescale.
17.20 The Minister comments that:
· the Government believes a deal along the
lines he describes to us represents a very good outcome for the
UK, with legally enforceable protection for UK taxpayers from
costs associated with use of the SRM and strong protections to
ensure a level playing field between participating and non-participating
Member States, protecting the integrity of the single market;
and
· given the judgement of the Court of Justice
in the Short Selling Regulation case and the Government's legal
analysis of the effect of this judgement, it has concluded that
the UK should accept the legal basis given the success the Government
has had in defending the UK's primary interests in this dossier.
17.21 The Minister concludes by asking that, although
it seems unlikely that the Government will need to take part in
a formal vote for adoption for some time yet, we now clear this
matter from scrutiny.
Conclusion
17.22 We note both the Minister's account of the
apparently favourable outcome emerging on the SRM proposal and
the associated IGA and his request that we now clear the issue
from scrutiny. Having no more questions to ask we now accede to
that request and clear the documents.
70 (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
71
(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
72
See http://register.consilium.europa.eu/pdf/en/13/st11/st11148-re01.en13.pdf. Back
73
See http://curia.europa.eu/juris/liste.jsf?num=C-270/12. Back
74
See headnote. Back
75
The term "Bangladesh decision" originates from a Court
of Justice judgment, in joined cases C-181/91 and C-248/91, which
provides that any use of an EU institutions outside the framework
of the Treaties (for example, under an international agreement)
must be authorised by the Member States acting by consensus. Back
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