Analytics, EU – Baltic States, Financial Services, Funds

Future EU relationships with the UK are presently quite unpredictable and difficult. Suffice it say that it is for the first time the process will be trigger…

However, the EU would like to hope the UK could remain a close partner. Until the UK leaves, it remains a full member of the European Union, with all the rights and obligations this entails.

At the same time, other 27 EU member states made it clear at a recent summit that any future agreement with the UK (now, as a so-called third country), would have to balance both rights and obligations.

Thus, for example, access to the EU Single Market would require the UK to accept all four freedoms: goods, services, capital and labour without exclusions and reservations (no cherry-picking).

That was the conclusion of the Commission Vice President V. Dombrovskis at the consultation with the European Parliament's Committee on Economic and Monetary Affairs (Strasbourg, 6 July 2016).

Reshuffling competences and making new perspectives

Following Brexit results, Commissioner J. Hill decided to stand down. In this situation, President Juncker decided to transfer Hill’s responsibility for dealing with issues of financial stability, financial services and the capital markets union to Commission Vice President V. Dombrovskis from 16 July.

As Vice President of the European Commission, Mr. Dombrovskis has been already responsible for coordinating part of Hill’s portfolio, including the Banking Union, policies related to deepening EMU and to prevent terrorism financing.

New approaches to the EU financial sector would include such issues as: financing the real economy; supporting investment; and sustaining Europe's social market economy.

In this way the EU and the states can support financing start-ups and SMEs; can help people to manage their finances effectively, save for education or retirement, or provide insurance against ill-health.

As a result of the crisis, the EU managed to strengthen the regulatory architecture of the financial sector. Today, Europe's financial sector is on a more solid footing than before the crisis: credit to the economy is improving steadily; the EU banks are stronger and better capitalised.

However, several Europe's banks, as well as insurers and investment firms face new challenges. In order to proceed, the EU needs to ensure a regulatory framework that strikes the right balance. This requires:

·         A strong and credible prudential basis, to weather difficult times;

·         Regulation that allows financing of the real economy, and maintains all elements of the chain needed for a well-functioning financial sector; and

·         A framework that is open to new economic, technological and societal developments, which encourages necessary restructuring.

Relationship between the euro-area and the EU

The EU remains a union with an internal market for all member states, including the euro-area countries now reaching 19. This competence is reflected in the current portfolio of the Commission Vice President responsible for the Euro; he is also coordinating the European Semester, which also involves all EU member states.

It is clearly important to complete the Economic and Monetary Union and to make it more resilient. It is also clear that the single market for financial services should build on the strength of all EU states with the Single Rulebook at its heart.

Building a resilient banking sector

Recent events sent shockwaves through the global financial system; this reminds of the importance of properly implementing and enforcing the EU's new regulatory framework in creating a more resilient banking sector, and to protect depositors and taxpayers.

The EU has almost accomplished the task by adopting the Bank Recovery and Resolution Directive (BRRD) and the Deposit Guarantee Scheme Directive. The Commission would keep up the pressure on all member states until they all implement the required novices.   

At the same time, the EU need to finish some of the “second level” legislation to bring the BRRD and other rules fully into effect, and to make sure that, in the coming months, the EU proposals on TLAC would fit intelligently with MREL.

Banking Union

It is important to keep the momentum to complete the Banking Union; the member states ministers have already committed to setting up a common backstop to the Single Resolution Fund and technical work on this will start very soon.

The EU proposal to put in place a European Deposit Insurance Scheme (EDIS) has formed the third pillar of the Banking Union; it is also part of a much broader plan to deepen the Economic and Monetary Union. Work on EDIS is now very much in the hands of the co-legislators and the European Parliament is Commission’s natural partner in sharing views on possible agreements to finalise it. Thus, EDIS will need to go in parallel with further measures to reduce risk in the banking sector.

Commission’s proposals on TLAC, the CRD and CRR will be on the table before the end of 2016. Besides, the Commission will continue to make sure Basel standards are applied in the EU; there is a need to ensure that European positions in Basel and other international organisations are fully coordinated.

Capital Markets Union

Building the Capital Markets Union aims at supporting growth and investment; this work is performed presently by Mr. Dombrovskis in cooperation with Vice President Katainen.

The possibility of Europe's largest financial centre moving outside the EU after Brexit, makes the case for deeper capital markets across the EU all the more urgent.

The Capital Markets Union is a Single Market project for all EU states; it will also make EMU more resilient, as integrated capital markets help to better absorb shocks.

The Commission will be reviewing progress on CMU in 2017 to see what follow ups are needed to already existing proposals and actions and to consider what more can be done. However, the EU immediate focus will be to reach agreement on existing proposals to create a prospectus regime that's simpler, faster and cheaper for all companies wanting to raise financing on public markets.

The progress is needed on the Commission's proposals on Simple, Transparent and Standardised securitisation with a priority to give consumers more choice and better quality in retail financial services.

The Commission is analysing presently responses to the consultation based on the Green Paper as “green finance” and fin tech are two areas to encourage institutional investors to take account of sustainability considerations in their investment policies.

Evidence-based and reducing risk policies

The Commission is committed to pursuing evidenced-based policymaking that ensures financial services to be safe and support growth. The call for evidence will be released to check that proposed legislation is working as intended and to make changes where the same prudential results can be achieved in a more growth-friendly way.

The Commission will complete financial sector reforms to address remaining risks in the system. For example, now that the member states have required more clearing of derivatives to be done through central counterparties - CCPs – there is a need for a system to resolve them if something goes wrong.