EU Financial Services Policy

To accompany the expansion of EU Issue Tracker’s policy coverage to include, among other things, Financial Services, here’s a handy outline of what is now a very active area of EU-level legislation.

Better and more centralised regulation and governance of Europe’s financial markets and institutions has been an EU priority since the outbreak of the economic crisis in 2008. To this end, several recent legislative proposals designed to deepen economic integration and achieve genuine monetary union have been put forward.

These proposals include establishing the Single Supervisory Mechanism in the EU to create common banking supervision across the Eurozone, strengthening rules on transactions and securities and introducing a financial transaction tax.

Context

It is now more than a decade since Economic and Monetary Union (EMU) was achieved. EMU involves the adoption of the euro, coordination of economic and fiscal policies and a common monetary policy.

The objectives of EMU include achieving an integrated internal market, making the movement of capital easier and lowering transaction costs.

The recent financial crisis however revealed a number of EMU’s weaknesses, and highlighted strong divergences among Member States over competitiveness, growth, unemployment, debt and internal payment imbalances. The recent proposed reforms aim to address these weaknesses and help Europe to counter the negative effects of the crisis.

Strengthening Banks and Investment Firms

The European Commission has already adopted - and still plans to adopt - several legislative proposals to regulate the financial sector. The aim is to achieve a better functioning of the internal market, as well as better protection of consumers following the financial crisis.

In this regard, the Commission plans to prevent future crises in the EU and safeguard financial stability by outlining rules on insolvency proceedings. These would cover failing banks and other institutions, as well as deposit guarantee schemes for account holders.

One of the most significant proposals is the creation of a Single Supervisory Mechanism (SSM), which would establish common banking supervision across the Eurozone. The package also includes amendments on the functioning of the existing European Banking Authority (EBA).

The Commission also wants to address issues affecting credit institutions by simplifying currently applicable rules under the so-called CRD IV package. It also intends to establish EU-wide rules for collective investment companies to use the European Venture Capital Fund, as well as provide retail investors with clear and understandable information to help them make informed investment decisions.

The Commission aims to further strengthen banking operations, and shadow banking in particular, along with consumer credit loans and credit agreements relating to residential property whose risks and benefits would be easily understandable to consumers.

With regards to consumers, the Commission intends to address information, fees, and access rules for bank accounts, as well as rules on card, internet and mobile payments with a view to boosting the EU market.
 
Initiatives in this area (partial list; see EU Issue Tracker client service for complete list):
• Legislative Initiative on Shadow Banking
• Bank Account Legislative Package
• Recovery and Resolution of non-Bank Financial Institutions
• Initiative on Single Bank Resolution Mechanism
• Single Supervisory Mechanism under Banking Union package
• Amendment of the EBA under Banking Union package
• Implementation of Consumer Credit Directive
• Mortgage Credit Directive
• Credit Institutions Activities and Prudential Supervision (CRD IV)
• Prudential Requirements of Credit Institutions and Investment Firms (CRR)
• European Venture Capital Funds
• Key Information Document (KID) Regulation
• Bank Recovery & Resolution
• Revision of Deposit Guarantee Schemes

Ensuring Safe Payments and Capital Movement

The Commission plans to secure competitively priced, user-friendly and reliable payment services in euros, as part of its endeavours to establish Single Euro Payments Area (SEPA). This includes a potential revision of rules on prevention of money laundering and terrorist financing.

Initiatives in this area (partial list; see EU Issue Tracker client service for complete list):
• Revision of the Directive on Prevention of Money Laundering and Terrorist Financing
• Initiative on Information on Payer’s Transfer of Funds
• Report on Requirements for Credit Transfers and Direct Debits
• Report on and revision of the Payment Services Directive
• Revision of the Electronic Money Institutions Directive
• Report on Cross-border Payments Regulation
• Legislative Initiative on Card, Internet and Mobile Payments
• Report on Prevention of Money Laundering and Terrorist Financing

Evaluating Financial Supervision

Under newly created rules on financial supervision, the Commission will evaluate the experience with functioning of the financial supervisory institutional scheme and strengthen the role of the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) under Omnibus II, also to update the latter to Solvency II.

Initiatives in this area (partial list; see EU Issue Tracker client service for complete list):
• Financial Conglomerates Directive
• European Banking Authority
• European Insurance and Occupational Pensions Authority
• European Securities and Markets Authority
• European Systemic Risk Board
• Strengthening powers to EIOPA and ESMA (Omnibus II)

Strengthening rules on transactions and securities

The root causes of the financial crisis originated mainly in the unregulated sphere of unclear transactions and securities. This is why the Commission aims to improve the safety and efficiency of securities settlement, regulate markets in financial instruments and investment services, increase transparency of securities issuers, and tackle the insider dealing and market manipulation.

The crisis has also exacerbated the credibility, responsibility, good governance, transparency and reliability of credit rating agencies. In order to tackle the overreliance on credit rating agencies, the Commission proposes to amend the rules on undertakings for collective investment in transferable Securities (UCITS) and alternative investment funds managers (AIFM). These include also compensation schemes for investors.

A much contested issue that has come forward is the expected new proposal for a Financial Transaction Tax (FTT). Only some Member States will participate in this action under the enhanced cooperation procedure.

Initiatives in this area (partial list; see EU Issue Tracker client service for complete list):
• Enhanced Cooperation on FTT
• Legislative Initiative on Benchmarks and Financial Indices
• Legislative Initiative on UCITS VI
• Initiative on Securities Laws
• Review of AIFM
• Report on Application to Microcredit Finance of Credit Institutions Directive
• Report on Prudential Assessment on Acquisitions of Holdings
• Technical Standards of OTC Derivatives (EMIR) 
• Central Securities Depositories (CSD)
• MiFID Revision: MiFID II  
• MiFID Revision: MiFIR
• Amendment of Transparency Requirements for Securities
• FTT
• Revision of Market Abuse Directive
• Revision of Market Abuse Directive
• Amendment of UCITS and AIFM (Reliance on External Credit Ratings)
• UCITS V
• Amendment of Credit Rating Agencies 
• Amendment of Investor Compensation Schemes
• Alternative Investment Fund Managers: Non-EU AIFM
• Alternative Investment Fund Managers: Opt-in Procedure
• Alternative Investment Fund Managers: General Implementing Rules

Insurance

Initiatives in this area (partial list; see EU Issue Tracker client service for complete list):
• Revision of Institutions for Occupational Retirement Provision (IORP)
• Recast of Insurance Mediation Directive