72 Financial services: resilience of
credit unions
| Committee's assessment
| Legally and politically important |
| Committee's decision | Cleared from scrutiny; drawn to the attention of the Treasury Select Committee
|
| Document details | (a) Proposal for a Regulation to improve the resilience of credit institutions; (b) Commission impact assessment for the proposed Regulation;
(c) European Central Bank Opinion on the proposed Regulation
|
| Legal base | (a) Article 114(1) TFEU; co-decision; QMV
(b) and (c) —
|
| Department
Document numbers
| HM Treasury
(a) (35781), 6022/14 + ADDs 1-4, COM(14) 43
(b) (35829), 6860/14 + ADDs 1-3, SWD(14) 30
(c) (36523), 15924/14, —
|
Summary and Committee's conclusions
72.1 In January 2014 the Commission proposed a Regulation to provide
for structural measures to improve the resilience of EU credit
institutions. The proposal was complemented by another proposal
for a Regulation, on securities financing transactions, already
cleared from scrutiny. The proposed Regulation was accompanied
by the Commission's impact assessment and in November 2014 the
European Central Bank issued an Opinion on the proposed Regulation.
72.2 The predecessor Committee considered the proposed
Regulation several times, noting the need to ensure safeguarding
of Part I of the Banking Reform Act 2013, to address a number
of other issues for the UK and to take account of the European
Central Bank Opinion.
72.3 When, in March, the predecessor Committee last
considered the matter it heard that, given divisions in both the
Council and the European Parliament on some of the fundamental
elements of the Commission proposal, it currently looked unlikely
to the Government that there would be a Council General Approach
or trilogues by May, although it expected the Latvian Presidency
to continue to push for this. The predecessor Committee kept the
documents under scrutiny
72.4 The Government tells us now that:
· the
Council did after all agree a General Approach on the proposed
Regulation, albeit only in June;
· the
text of the General Approach meets the UK's negotiating objectives;
· therefore,
the Government supported the General Approach, even though the
document was still under scrutiny; and
· it is
not yet known when the European Parliament will adopt its first
reading of the proposed Regulation, thus allowing trilogue discussion
to begin.
72.5 We note the satisfactory Council outcome
on this proposed Regulation and now clear the documents from scrutiny.
72.6 As for the breach of the Scrutiny Reserve
Resolution we accept that in the circumstances this was understandable.
72.7 However, we are concerned about another aspect
of the scrutiny process. The Government's letter informing us
of the developments we now report purported, but failed, to attach
two Council documents (which were, however, accessible to us on
the Council website). This is not acceptable. We expect the Government
to ensure a higher standard when reporting to us in the future.
Full
details of the documents:
(a) Proposal for a Regulation on structural measures improving
the resilience of EU credit institutions: (35781), 6022/14 + ADDs
1-4, COM(14) 43; (b) Commission Staff Working Document: Impact
Assessment accompanying the proposal for a Regulation on structural
measures improving the resilience of EU credit institutions and
the proposal for a Regulation on reporting and transparency of
securities financing transactions: (35829), 6860/14 + ADDs 1-3,
SWD(14) 30; (c) European Central Bank Opinion of 19.11.2014 on
a proposal for a Regulation on structural measures improving the
resilience of EU credit institutions: (36523), 15924/14, —.
Background
72.8 The Liikanen Report or Report of the
European Commission's High-level Expert Group on Bank Structural
Reform (known as the Liikanen Group) is a set of recommendations
published in October 2012 by a group of experts led by Erkki Liikanen,
governor of the Bank of Finland and European Central Bank (ECB)
council member. The Group's mandate was to determine whether structural
reforms of EU banks would strengthen financial stability, improve
efficiency and consumer protection in addition to the regulatory
reform of the EU bank sector. The Group recommended actions in
five areas, including mandatory separation of proprietary trading
and other high-risk trading and strengthening bank governance
and control of banks.[ 502]
72.9 With the proposal for a Regulation, document
(a), published in January 2014, the Commission suggested, in response
to the Liikanen Report, structural measures to improve the resilience
of EU credit institutions. The proposal was complemented by another
proposal for a Regulation, on securities financing transactions.[ 503]
72.10 With the proposed Regulation the Commission
suggested structural measures to improve the resilience of EU
credit institutions, with two main elements:
· a
ban on proprietary trading by certain categories of credit institution;
and
· a requirement
for competent authorities to review credit institutions falling
into certain categories and to determine whether to require them
to separate their deposit taking activities from their trading
activities.
72.11 The proposed Regulation was accompanied by
the Commission's impact assessment, document (b), and in November
2014 the European Central Bank (ECB) issued this Opinion, document
(c), on the proposed Regulation.
72.12 The predecessor Committee considered the proposed
Regulation several times:
· hearing
that the Government expected a derogation in the Commission text
to allow the UK to continue the reforms in Part I of the Banking
Reform Act 2013;
· noting,
however, a number of other issues for the UK which the Government
wished to see addressed; and
· reminding
the Government that it did not accept the view that an opt-in
choice existed irrespective of whether the Commission had chosen
a Justice and Home Affairs (JHA) legal base for a proposal —
it commented that if the Government believed in this case that
there was a JHA issue it needed to seek a JHA legal base.
72.13 As for the ECB Opinion, the predecessor Committee
noted the Government's reservations and asked to be informed as
to how the Opinion was playing into Council negotiation of the
proposed Regulation.
72.14 When, in March, the predecessor Committee last
considered the matter it heard:
· about
developments in Council consideration of the proposal and that
the Latvian Presidency was aiming to reach a General Approach
by the ECOFIN Council in May, which would form the basis for trilogue
negotiations with the European Parliament;
· that,
on the basis of current negotiations, the Government's assessment
was, however, that reaching a broad compromise in the Council
looked unlikely;
· on the
ECB Opinion, that the Bank's concerns had been somewhat tempered;
· the
European Parliament was considering and discussing a raft of amendments
with a view to voting on them in late March; and
· that,
given divisions in both the Council and the European Parliament
on some of the fundamental elements of the Commission proposal,
such as the separation process, it currently looks unlikely to
the Government that there would be a Council General Approach
or trilogues by May, although it expected the Latvian Presidency
to continue to push for this.
72.15 The predecessor Committee kept the documents
under scrutiny.
The Minister's letter of 24 June 2015
72.16 The Economic Secretary to the Treasury (Harriett
Baldwin), reports that:
· the
Latvian Presidency did after all reach agreement on a General
Approach, at the 19 June ECOFIN Council; and
· as the
UK's negotiating objectives had been secured and the Government's
red lines met, set out in the Council document recording the General
Approach,[ 504] the
Chancellor supported the agreement.
72.17 The Minister then says that:
· she
recognises that UK support for the General Approach constitutes,
regrettably, a scrutiny override;
· given
that negotiations were not sufficiently advanced for the Government
to seek a scrutiny waiver or clearance ahead of Dissolution, and
that we had not been appointed ahead of the ECOFIN Council, we
had not had the opportunity to scrutinise this latest compromise;
and
· given
the importance of this matter for the UK banking sector, it was,
however, clearly in the national interest to support a text which
protected UK red lines at this time.
72.18 The Minister tells us that this text, which
has the backing of all Member States, will now form the basis
of the Council's position for trilogue discussions with the European
Parliament once it comes to a first reading position on the proposal.
72.19 Then turning to the substance of the proposal
the Minister explains that a final compromise was reached in the
Council following intense discussions on outstanding concerns
from France. She says that five further amendments were agreed:
· an
amended recital 26 highlighting the application of a proportionate
approach to both the scope of the proposed Regulation and to the
assessment of trading activity risk;
· an amended
recital 44 reinstating text to note that European Banking Authority
technical standards should not pre-empt supervisors' work on setting
excessive risk thresholds;
· an amended
recital 48 and Article 5a(5) to introduce European Banking Authority
guidelines on the occasion a Member State implements structural
separation in accordance with national law, such as the UK implementing
the Banking Reform Act, and applies relaxation of large exposure
limit rules; and
· a minor
amendment to the Council Minute Statement on the proposed Regulation
taking account of existing national legislation.
72.20 The Minister comments that:
· the
important debate between supervisory discretion versus more prescriptive
rules on structural separation has been and will no doubt continue
to be had in the Council and in the ECON Committee of the European
Parliament;
· the
Chancellor was pleased that the agreed text recognised the different
financial systems and pressures across Member States, and that
an accommodation had been found for the UK to implement tougher
structural measures to protect retail depositors; and
· he also
observed that the compromise illustrated the need to address different
eurozone and non-eurozone requirements and that it balanced the
ECB's logical desire for uniform regulation to manage 19 different
regimes in the eurozone whilst not imposing it on all 28 Member
States and therefore allowing the UK to take a tougher course.
72.21 The Minister continues that the Government's
key negotiating objectives will remain securing an accommodation
in the proposed Regulation for the Banking Reform Act and ensuring,
as far as possible, that the Government would not have to apply
a second regime for bank structural reform alongside the Banking
Reform Act, leading to excessive burdens for economic operators
and the Prudential Regulation Authority alike. She asserts that
the General Approach, whilst not perfect in all its detail, does
provide a solid basis for maintaining the Government's objectives
in forthcoming stages of the negotiation. She draws our attention
in particular to:
· Article
5a of the agreed text, which outlines the two routes for achieving
the aims of the proposed Regulation and that the 'Banking Reform
Act route' is set out under paragraphs 2a, 3a and 3b;
· the
negative scope thresholds in Article 4(1)(d) and the sub-paragraph
under Article 5a(2)(b) which will help scope out those entities
which fall below the BRA mandatory separation threshold of £25bn
and ensure that no entity will be subject to two regimes; and
· recital
33, Article 5a (end) and the amended Article 26ga which provide
safeguards for competent authorities operating the Banking Reform
Act and the 'banking structural reform route' when it comes to
managing of and cooperating on the regulation of banking groups
operating across Member States.
72.22 Finally the Minister tells us that, following
the inconclusive ECON Committee vote of 26 May on the rapporteur,
Gunnar Hökmark's, compromise amendments to the Commission
proposal, the European Parliament's political groups are still
deciding how to proceed and that they will certainly now note
the Council's General Approach as well.
Previous Committee Reports
Thirty-eighth Report HC 83-xxxv (2013-14), chapter
6 (5 March 2014), Second Report HC 219-ii (2014-15), chapter 5
(11 June 2014), Twenty-seventh Report HC 219-xxvi (2014-15), chapter
6 (17 December 2014) and Thirty-seventh Report HC 219-xxxvi (2014-15),
chapter 1 (11 March 2015).
502 See http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/report_en.pdf. Back
503 (35780), 6020/14 + ADD 1: see Thirty-eighth Report HC 83-xxxv(2013-14),
chapter 5 (5 March 2014), Second Report HC 219-ii (2014-15), chapter
5 (11 June 2014), Thirteenth Report HC 219-xiii (2014-15), chapter
20 (15 October 2014), Eighteenth Report HC 219-xvii (2014-15),
chapter 2 (5 November 2014), Twentieth Report HC 219-xix (2014-15),
chapter 5 (19 November 2014) and Thirty-seventh Report HC 219-xxxvi
(2014-15), chapter 1 (11 March 2015). Back
504 See http://data.consilium.europa.eu/doc/document/ST-10150-2015-INIT/en/pdf
and http://data.consilium.europa.eu/doc/document/ST-10150-2015-COR-1/en/pdf.
Back
| 
