Banking StandardsWritten evidence from HM Treasury

1. In the Commission’s letter to the Chancellor, further information was requested on how the Treasury would use specific proposed powers set out in the draft Banking Reform Bill, and a summary of relevant European legislation.

2. First, this note sets out the Government’s legislative approach and supplies further detail on those powers of which the Commission asked for more information. As requested, it then also sets out the proposed powers to amend primary legislation via statutory instrument in the Bill. Detail on how other ICB recommendations are to be implemented can be found at the end of this paper.

3. Annex A to this paper sets out the implementation vehicles for Independent Commission on Banking (ICB) recommendations. Annex B sets out detail on relevant EU legislation with regard to the draft Bill, as requested by the Commission.

The Legislative Approach taken in the Draft Bill

4. The draft Financial Services (Banking Reform) Bill makes provision for a number of the recommendations made by the Independent Commission on Banking (ICB). These are:

the ring-fencing of core1 activities;

a power for HM Treasury to make an order in relation to the debt component of Primary Loss Absorbing Capacity (PLAC), and;

the introduction of depositor preference.

5. The provisions within the draft Bill are mostly in the form of enabling powers. The regulation of banking, like regulation of other forms of financial services and markets is very complex, and highly technical. Regulation operates against a background of markets for financial products which are continuously developing, sometimes very rapidly.

6. In order to give regulators the tools to respond effectively to innovation within the sector, the Treasury believes that the most appropriate way in which to deliver a ring-fence that is robust and remains so over time is to set out in primary legislation the objectives and principles of the ring-fence, and to define the principal activity which should be within the ring-fence (accepting deposits), and the principal excluded activity but to determine the precise details of the ring-fence via secondary legislation.

Power to Exempt some Institutions from the Definition of a Ring-Fenced Body (142A)

7. As set out in the white paper, the Government believes there is a case for an exemption from the requirements of ring-fencing for certain firms. These are firms where ring-fencing activities would likely make only a small difference to the possibility of resolving those firms without taxpayer support, or insulating those activities from financial shocks, but potentially have a large marginal cost relative to other firms, and so affect their ability to compete effectively. The Government believes that the most appropriate measure would be the size of deposits which qualify as core for the purposes of ring-fencing

8. The Government believes that a threshold set at £25 billion of core deposits (or 1.8% of GDP) is an appropriate pro-competitive threshold below which firms would not be required to ring-fence their deposits from individuals and SMEs.

9. The Sound Banking paper set out that this power is proposed in order to deliver this de minimis exemption for smaller banks. In addition, secondary legislation made under this power would set out:

the final amount of core deposits which the Government thinks appropriate for the exemption;

the way in which this is to be calculated (for example whether set as a nominal cash amount or as a proportion of GDP, and/or whether as a point-in-time figure or (more likely) an average level over a set period); and

to establish the arrangements for banks that grow to be above the threshold level, requiring banks to have the ring-fence in place within a specified period of time after their core deposits exceed the minimum threshold. Flexibility over time is required in order to respond to changes in banking practice, and growth in the size of the deposit base.

Power to Specify the Circumstances in which accepting Deposits is not to be a Core Activity (142B)

10. The ICB referred to mandated activities, by which they meant those that had to be within the retail ring-fence. In the draft Bill, mandated is referred to as “core” activities. The Government agreed in the white paper that the only specified core activity at this time is the accepting of deposits and so only this core activity is on the face of the Bill.

11. Like the ICB, the Government believes that core deposits should be ring-fenced when:

A short term interruption of provision would have a significant impact on UK households and SMEs; and

Capacity cannot easily be substituted in the short term.

12. The ICB recognised that for some depositors, these conditions would not necessarily be met. The Government agrees that such depositors should be well-placed to make alternative provision and so intends to use this power to:

provide for deposits from larger companies to be held outside of ring-fenced banks if those customers wish; and

set a level of net worth, beyond which individuals may choose whether or not to place deposits in ring-fenced banks or non-ring-fenced banks.

13. This is not a requirement. Both corporates and high-net worth individuals (HNWI) will be entitled to place their deposits inside the ring-fence should they wish. Indeed, in the case of HNWI the default will be that they are inside the fence; they will be required to self certify that they are cognisant of the risks and benefits, in a process similar to that for individual investors under the Markets in Financial Instruments Directive (MiFID).

14. The secondary legislation will specify the measure at which an individual is classified as a HNWI. The Government set out in the white paper it believes that it should be between £250,000 and £750,000 of free and investable assets with a single bank. Further policy work is required to determine the final amount, which will be a matter for secondary legislation. An order under this power will also specify how this level of wealth is measured as there is no commonly accepted definition of “free and investable” assets. The Government does not intend to include illiquid assets such as residential property in this definition. The Government proposed in the white paper that individuals should only qualify as HNWI if their free and investable assets exceed the threshold for a period of at least 12 months. This is the approach used in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 with regard to defining a HNWI for the purposes of that Order.

15. An Order made under new section 142B will also set a threshold above which organisations should have the option (but not the obligation) to place their deposits outside the ring-fence. The white paper proposed to use the Companies Act definition of an SME as a basis for this threshold, using a threshold for annual company turnover between £6.5 million and £25.9 million. The Treasury is undertaking further analysis on the exact level, and the Order will specify the threshold. This includes:

how it is to be measured (for example over what period, and how calibrated for organisations to whom the definition of “turnover” in the Companies Act may not apply); and

the arrangements that should apply to organisations that either grow to be above the threshold (for example, requiring that banks wishing to invite such customers’ to move deposits outside the ring-fence provide them with full information about the proposed move, and obtain the customers’ written consent to any move), or

arrangements for those organisations which sink beneath the de minimis (for example, requiring that banks notify customers that they are no longer eligible to deposit outside the ring-fence and take steps to move or close their accounts within a specified period of time).

Power to Specify Circumstances in which dealing in Investments as Principal is not to be an Excluded Activity (142D(2))

16. Dealing in investments as principal (a regulated activity as per the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001) cannot be undertaken in the ring-fenced bank. This is as the ICB recommended, as they felt these activities impede resolution and directly increase the exposure of the ring-fenced bank to global financial markets. The Government agrees.

17. However, the ICB indentified ancillary activities, which are those necessary for the purposes of managing balance sheet risks, liquidity management and raising funding in the course of providing core activities. It was their view that ring-fenced banks must be able to undertake risk management: the accepting of deposits and extending of loans is inherently risky, and ring-fenced banks need access to suitable instruments in order to manage this risk. It is the Government’s intention to ensure that ring-fenced banks can manage liquidity, interest rate risk, credit risk and other risks which may require them to hold derivative products or other assets on their own account.

18. The draft Bill does not refer explicitly to ancillary activities, but rather provides for this policy intent through the power in new section 142D(2) to set out circumstances under which excluded activities could be undertaken by the ring-fenced bank. An Order made under this power will specify the circumstances in which excluded activities are permitted, and conditions attached to this permission. The Treasury is continuing to work on these conditions. For example, the secondary legislation may permit the holding of certain instruments that are held for the express purpose of meeting regulatory requirements to maintain a buffer of liquid assets. The conditions under which such exemptions may be granted include, for example that all derivative contracts permitted must be centrally cleared and/or be subject to specific collateralisation requirements. Similar conditions are discussed in more detail in the white paper (pp 21–23).

Power to provide for Activities, other than Dealing in Investments as Principal, to be treated as Excluded Activities and to create Exceptions to any New Excluded Activity (142D(4))

19. The ICB recommended that banks should not be allowed to deal in investments as principal—for example originating, trading, lending or making markets in securities, including equity securities, debt securities, derivatives and asset-backed obligations—within the ring-fence. The Government agrees and has made this an excluded activity, set out on the face of the Bill. The power set out here makes provision for the Treasury to exclude further activities from being undertaken within the ring-fenced bank. This provision gives the Treasury flexibility to respond to innovation in the financial sector over time—this is in part future proofing.

20. Further policy work is being undertaken to comprise the activities HMT would wish to exclude in addition to the exclusion on the face of the Bill. The ICB recommended that the following be excluded:

any service which would result in a trading book asset;

any service which would result in a requirement to hold regulatory capital against market risk;

the purchase or origination of derivatives or other contracts which would result in a requirement to hold regulatory capital against counterparty credit risk; and

services relating to secondary markets including the purchase of loans or securities.

21. The ICB said that these restrictions would result in the following activities being excluded from ring-fenced entities:

structuring, arranging or executing derivatives transactions, as agent or principal,

investing in stock, corporate debt securities, convertible/exchangeable securities, convertible bonds, partnership interests, mutual funds, exchange traded funds etc,;

originating, trading, lending or making markets in securities; and

underwriting the sale of debt and equity securities, including private placements.

22. Many of these activities are captured under the regulated activity of trading in investments as principal. Where not, the Government will make additional exclusions to capture the intention of the ICB recommendations, and the activities described above.

23. Excluded activities need not be regulated activities.

Power to prohibit Ring-Fenced Banks from entering into Specified Transactions, establishing Branches in Specified Countries or Territories, or from Investing in Specified Companies (142E)

24. The ICB identified the interlinkages between different parts of the financial system as one of the key challenges to making banks resilient and resolvable. Consequently, they recommended that the ring-fence bank should be insulated more widely from the rest of the financial system. The Government agrees that the ring-fenced bank must be credibly and easily separable in a period of stress and able to demonstrate its operational independence at all times.

25. The proposed power here is intended for the Treasury to meet this policy commitment in three distinct ways.

26. Firstly, the ICB said that ring-fenced banks should be restricted in their dealings with financial institutions. The Government agrees that ring-fenced banks’ exposures to financial institutions should be restricted. It proposes to achieve this through the power granted under 142E(1)(a). The Government believes that at a minimum, secondary legislation made under this power would restrict dealings with:

non-ring-fenced banks, or banks that engage in otherwise prohibited activities;

investment firms;

funds and fund management companies; and

insurance companies.

27. However, where the potential costs are more finely balanced against the benefits, prohibition may not be appropriate, for example with friendly societies and small mutual insurers.

28. Orders made under this power will specify the definition of “financial institution” for the purposes of this prohibition: the white paper proposed that the definition be cast in terms of activities set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). An order under new section 142E(1)(a) could thus define a “financial institution” as any person who undertook any of a list of regulated activities, with exemptions for bodies such as friendly societies and small mutual insurers where appropriate.

29. Orders made under this power will also deal with circumstances where the prohibition does not apply, for example the facilitation of payments, which the ICB recommended be permitted as ring-fenced banks may be clearing banks for these types of firms.

30. The ICB noted that cross-border activities can pose a significant threat to resolvability. In order to reduce this threat, the Government proposes, through use of orders under 142E(1)(b) and 142E(1)(c), to ensure that ring-fenced banks should not carry out any banking activities through non-EEA subsidiaries or branches, where this would present risks to the resolution of ring-fenced banks. Where arrangements are in place that reduce such risks, such as mutual recognition of resolution decisions, a blanket prohibition would not be necessary. The Order is therefore likely to limit the ability of ring-fenced banks to have non-EEA subsidiaries or branches except in approved circumstances, and determine the way in which such subsidiaries or branches may be approved.

Powers to amend Primary Legislation via Statutory Instrument

31. The Commission asked about powers to amend primary legislation via statutory instrument in the draft Bill. The Government proposes two such powers.

32. The first is under Clause 4, S142K. This proposes that the Treasury “may by order make such amendments of the legislation as appear to them to be necessary or expedient for the purpose of ensuring that the carrying on of core activities by a ring-fenced body that is a member of a group is not adversely affected by things done or committed by other members of the group.”

33. The ICB identified circumstances under which a liability could be placed on a ring-fenced bank by action taken or not taken by the non-ring-fenced part of the bank. At the limit, this could be sufficiently severe to threaten the viability of the ring-fenced bank. The example given by the ICB was the existence of joint and several liability for VAT liabilities to which members of VAT groups are subject. There may be other cases where this applies, and the power assists with future proofing.

34. The second is Clause 6 on building societies. Having listened to the sector, the Government has agreed that in order to maintain the unique identity of building societies, they should be effectively ring-fenced through amendment to the Building Societies Act 1986, rather than this legislation. That Act already imposes restrictions on the activities which may be undertaken by building societies (in section 9A), preventing them, for example, from entering into transactions involving derivative investments except in specified circumstances. The Government proposes to align these restrictions with the provisions to be made in relation to excluded activities and prohibitions for ring-fenced banks.

ICB measures not in the Draft Bill

35. Two sets of recommendations are not included in the draft Bill. The first set are those recommendations which the ICB noted would be delivered through non-legislative means:

the Financial Services Authority (FSA) and the Bank of England are conducting reviews of the prudential and conduct requirements for new entrants to the banking sector. The reviews will reassess the prudential requirements of the new Prudential Regulation Authority (PRA) and the conduct requirements of the new Financial Conduct Authority (FCA) to ensure that they are proportionate and do not pose excessive barriers to entry or expansion for new entrants and prospective new entrants to the banking market. The conclusions of the reviews will be published when the FSA and the Bank of England set out the detail of the new supervisory models for the PRA and FCA. Where possible, the FSA and the Bank of England have committed to introduce these changes in advance of the new regulatory structure;

the Government actively engaged with the European Commission and Lloyds Banking Group (LBG) to ensure that the divestment of part of LBG’s business resulted in as strong a challenger bank as possible. The forthcoming sale to the Co-op will deliver this;

the Government has continued to hold the banking industry to account on its commitment to implement a new current account redirection service to enhance the process for individuals and small businesses who wish to switch their bank account to a new provider. To date, banks representing more than 97% of the current account market have committed to being ready to launch the seven day switching service in 2013. The service will be free to use and provide a guarantee that no customer will suffer any financial loss if any mistakes occur; and

the FSA has committed to carry out a fundamental review, in early 2013, of how it can promote greater transparency in the way it and its regulated firms operate in order to better serve the interests of consumers.

36. The second set are those which are legislated for in other ways than through the Banking Reform Bill:

the Government amended the Financial Services Bill, prior to introduction to Parliament on 27 January 2012, to recast the FCA’s efficiency and choice operational objective as “promoting effective competition in the interests of consumers” (the exact wording recommended by the ICB) and also retained the competition duty for the FCA.

A bail-in power will be delivered through the EU’s Recovery and Resolution Directive (for more on which, please see the separate note on relevant EU regulation). As the task of resolving large cross-border banks is complex, it is important that the UK works with other countries to design a broadly consistent bail-in tool which can work in relation to the resolution of cross-border institutions. HMT is working with European partners to develop a credible and usable bail-in tool that meets the ICB’s objectives as part of the RRD.

The ICB recommended that banks should hold both extra capital and loss-absorbing debt—in combination referred to as “primary loss absorbing capacity (PLAC)”. Following the ICB recommendation, the Government has agreed that large ring-fenced banks should be required to hold an equity capital buffer (3% of RWA) beyond the Basel III minimum standards (7% of RWA). The Basel III capital standards framework is to be implemented in Europe through the Capital Requirements Directive (CRD) IV and Capital Requirements Regulation (CRR)—the UK has secured agreement at the European Council level for member state discretion to set additional equity buffers of this size.

Annex A

ICB Recommendations and Implementation Vehicle

Structural reform
Ring-fencing of vital banking services	Banking Reform Bill
Loss-Absorbency
Equity requirements	European Capital Requirements Directive 4/European Capital Requirements Regulation
Leverage ratio	European Capital Requirements Directive 4/European Capital Requirements Regulation
Primary loss absorbing capacity	European Recovery and Resolution Directive, where there is disgression implemented in the UK via the Banking Reform Bill
Bail-in power	European Recovery and Resolution Directive
Depositor preference	Banking Reform Bill
Competition
Credible challenger from the Lloyds divestment	Sale of the divestment business “Verde” to Co-op Bank
Barriers to entry	FSA and Bank of England reviews which will be published before Christmas. Where possible, the FSA and the Bank will introduce changes in advance of the new regulatory structure.
Switching	Industry led. Banks representing more than 97% of the current account markate have committed to being ready to launch the seven day switching service in 2013.
Transparency	The FSA has committed to carry out a fundamental review in early 2013 of how it can promote greater transparency.
FCA competition duty	The Government amended the FS Bill prior to introduction so that the FCA now has an objective of “promoting effective competition in the interests of consumers”, the exact language recommended by the ICB
Market investigation reference	The ICB recommended that this should be made in 2015, should the other recommendations listed here not be achieved.

Annex B

Draft Banking Reform Bill and EU Law

Capital Requirements Directive and Regulation

1. The Commission issued proposals in July 2011 for the Capital Requirements Directive IV (CRD4) and a Capital Requirements Regulation (CRR)2, which will replace the current Capital Requirements Directive3 and transpose the Basel III rules into EU law. As the CRR is a regulation, its provisions will be directly applicable in all member states.4 The proposals are still under negotiation, but a Council “General Approach” was agreed in May 2012.

Rules on capital

2. The CRR sets out the “Pillar 1” own funds requirements which banks must hold in respect of certain types of risk (credit, market, operational and settlement risk). “Own funds” means the sum of Tier 1 capital, which consists of Common Equity Tier 1 (“CET1”) and Additional Tier 1 capital and Tier 2 capital5 and the requirement is to maintain a level of “own funds” equal to a total of at least 8% of risk-weighted assets (of which at least 4.5% must consist of CET1 capital)6. Banks are required to comply with the own funds requirements on an individual basis and, in specified cases, on a consolidated basis7.

3. In addition to the Pillar 1 requirements, CRD4 will require banks to maintain a capital conservation buffer and a countercyclical capital buffer consisting of CET1 capital, which aim to ensure sufficient capital is built up to absorb losses in stressed periods.

4. As part of its agreed General Approach, the Council has included in CRD4 a discretionary power for member states to introduce a “Systemic Risk Buffer” requirement8, consisting of additional CET1 capital. Under this provision, member states would be free to introduce an additional buffer requirement of up to 3% for the banking sector as a whole, or a subset of that sector, to prevent or mitigate long term systemic or macro-prudential risks, as long as certain conditions are met. Member States may only introduce a buffer above 3%, with the Commission’s prior approval (on the basis of assessments which may be provided by the European Systemic Risk Board and European Banking Authority). Subject to this provision remaining in CRD4 as finally adopted, it is intended that the “systemic risk buffer” should be used to implement the ring-fence buffer.

Pillar 2 requirements.

5. In addition to the Pillar 1 requirements and additional buffer requirements described above, competent authorities continue to have power to impose additional capital requirements on banks on an individual basis, following a supervisory review, where there are concerns that a bank does not have sufficient own funds to cover the risks to which it is exposed, and the risks which it poses to the financial system9.

6. The “Pillar 2” power to impose additional own funds requirements is limited in some ways:

(a)the power is intended to be used to impose additional requirements on an individual basis, following an individual supervisory review (although there is some scope to apply the process to a number of banks with similar risk profiles10);

(b)additional own funds requirements cannot be imposed on a permanent basis;

(c)the power can only be used if the relevant tests are met; and

(d)the power only includes the ability to impose additional own funds requirements to the extent that the risks, or elements of risks, are not covered by the Regulation.

7. The PRA, as the UK competent authority, will be responsible for applying EU rules on capital requirements to all banks authorised in the UK (including banks classed as systemically important financial institutions), as their home-state regulator. It will be able to impose additional capital requirements on such banks following a supervisory review of the bank in accordance with the Pillar 2 rules.

Liquidity

8. The CRD4 contains a general requirement that banks must have robust policies to deal with liquidity risk11. The CRR12 provides for a uniform liquidity coverage requirement to be introduced in 2015 by the Commission, after an initial review period during which banks will be required to ensure they have appropriate liquidity coverage in accordance with national law. Banks will be required to comply with the liquidity provisions in the CRR on an individual basis13. Under the Commission’s original proposals, competent authorities were required to waive this rule in relation to groups where certain conditions were met, but the Council has agreed in its General Approach that this waiver should be discretionary14. It should therefore be possible for the regulator to apply liquidity rules to ring-fenced banks on an individual basis. The CRR also imposes certain reporting requirements in relation to liquid assets and banks are also required to report on the availability of stable funding, in relation to which the Commission is expected to bring forward proposals for uniform rules on a net stable funding requirement by 2018.

Large exposure rules

9. A “large exposure” is defined as an exposure to a client or group of connected clients which is equal to or exceeds 10% of its “eligible capital” (CRR art 381). Under CRR “eligible capital” is the sum of tier 1 capital (including additional tier 1 capital) and tier 2 capital (see CRR art 4(23). The basic rule is that a bank may not incur an exposure to a customer or group of connected clients which exceeds 25% of its “eligible capital” CRR Art 384 (after taking into account the effect of applicable credit risk mitigation). There are rules giving smaller firms some flexibility in relation to inter-bank exposures.

10. There is an exemption from the large exposure limit in (CRR art 389(1)) for exposures to counterparties listed in para 6 or 7 of article 108 CRR if they would be assigned a risk weight of 0% under the standardised approach. This includes other members of the same group if certain conditions are met (and subject to the approval of the regulator).

(a)the counterparty is an institution or FHC (etc) subject to appropriate prudential standards;

(b)the counterparty is included in the same consolidation s the bank or investment firm on a full basis;

(c)the counterparty is subject to the same risk evaluation, measurement and control procedures as the bank or investment firm;

(d)they are established in the same MS;

(e)there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the bank.

11. But the regulator will have discretion as to whether to assign a 0% risk weight. If it does not, the exposure is treated as a third party exposure.

12. In addition, CRR art 389(2)(c) permits the regulator to exempt exposures to other members of the group fully or partially, where they are covered by supervision on a consolidated basis or equivalent standards enforce in third country.

13. The intention is that limits on intra-group exposures for ring-fenced banks should be treated as if the exposure was to a third party, rather than a member of the same group. The regulator has power to apply this principle under the rules on large exposures in CRR.

Disclosure

14. The CRR imposes various public disclosure requirements on banks (which include requirements to disclose information on risk management, own funds, capital requirements, exposure to counterparty credit risk, capital buffers, credit risk adjustments, ECAIs, exposure to market and other risks, and remuneration policies).15 In addition, credit institutions are subject to requirements to report every large exposure they have to the regulator in accordance with Article 383. Additional or more frequent reporting requirements may be imposed by the regulator under Pillar 2.

Recovery and Resolution Directive

(a) Bail-in

15. The Recovery and Resolution Directive (RRD), as published, will make provision for a bail-in tool.16 As currently drafted, it will require Member States to ensure that the resolution authorities (in the UK, primarily the Bank of England, though the Treasury also has some resolution powers) have powers to bail in17 institutions; and to ensure that institutions maintain a sufficient aggregate amount of own funds and eligible liabilities. The RRD will also determine what liabilities are to be subject to the bail-in tool; provide for a minimum requirement for such liabilities and set out rules for the implementation of the bail in tool (determining, for example, the hierarchy of such claims to be applied, and how liabilities arising from derivatives are to be treated).

16. Clause 142J of the Bill gives the Treasury power to set conditions on the regulator’s powers to require banks to issue debt instruments, or debt instruments of a particular type. This would enable the Treasury to ensure that UK banks (including those banks which are ring-fenced bodies) are required to issue debt instruments which are eligible for being bailed in. It will also enable the Treasury to ensure that the UK banks are required to issue a sufficient quantity of debt instruments to improve their loss absorbing capacity in line with the ICB recommendations. However, in exercising that power, the Treasury will need to comply with its obligations under the RRD, when that directive comes into force. It would not be possible, for example, for the Treasury to provide that the regulator could not require UK banks to issue the minimum eligible liabilities requirement set by the RRD.

(b) Depositor preference

17. Article 99(2) of the RRD as initially proposed provided that “Member States shall ensure that, under the national law governing normal insolvency proceedings, the deposit guarantee schemes rank pari passu with unsecured non-preferred claims.” The effect of this provision would be to make it impossible to give effect to depositor preference in the way recommended by the ICB. Under the rules of the financial services compensation scheme (the FSCS) (which is the deposit guarantee scheme for the UK), depositors will assign all claims to their deposits to the FSCS (in some case the FSCS may be subrogated automatically to the depositors’ claims)18. When the FSCS is bringing a claim in insolvency, it benefits from any preference given to the depositor. This would be prohibited by Article 99.2. The government is seeking an amendment to the directive to remove this provision. In the event that this amendment is not accepted, it would be necessary to amend the Bill to remove clauses 7 and 8.

Free Movement of Capital

18. Under Article 63 of the Treaty on the Functioning of the European Union, all restrictions on the movement of capital between member states and between member states and third countries shall be prohibited. Article 65 provides for exceptions to this principle in relation to measures taken by member states, inter alia, to prevent infringements of national law and regulations in the field of the prudential supervision of financial institutions, or measures which are justified on grounds of public policy or public security. Under paragraph 3 of Article 65, it is made clear that such measures may not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments.

12 November 2012