Your consultant

In topic Financial Markets:

Dr. Bert Van Roosebeke

Head of Division

+49 761 38693-230

vanroosebeke(at)cep.eu

Anne-Kathrin Baran

Policy Analyst

+ 49 761 38693-240

baran(at)cep.eu

Philipp Eckhardt

Policy Analyst

+49 761 38693-241

eckhardt(at)cep.eu

Financial Markets

As a consequence of the financial and euro crisis, the European Union is carrying out a thorough overhaul of the regulation of financial markets. This applies equally to banks and insurance companies as well as to other stakeholders. The focus is on more intensive regulation and the partial communitisation of the risks. The emphasis is on risk management by financial markets participants, the cooperation and integration of the supervisory authorities as well as investor protection. cep continuously monitors these proposals.

EU Deposit Guarantee Scheme in the European Parliament

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The European Parliament discusses the EU Commission's proposal to introduce an EU deposit guarantee scheme. The cepAdhoc assesses the European Parliament's draft report.

The European Supervisory Authorities – Room for improvement at Level 2 and Level 3

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This cepStudy examines the regulatory role of the European Supervisory Authorities (ESAs) and the EU Commission. cep makes ten recommendations for improving control and scrutiny of the ESAs' and the Commission’s activities at Level 2 and Level 3. These include calling on the Council to strengthen its monitoring structures. The ESAs should only be able to develop guidelines where Parliament and the Council do not object.

Prospectus Rules (Regulation)

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The Commission wants to reduce red tape with regard to the preparation of prospectuses which have to be published when securities are offered to the public or admitted to trading. This will give companies easier access to the capital markets. In cep's view, however, the proposal will result in distortions of competition and legal uncertainty.

Retail Financial Services (Green Paper)

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The European Commission wants to remove barriers to cross-border retail financial services and has submitted a Green Paper on the subject. The portability plans set out therein, particularly for life insurance and private health insurance, are, however, in cep's view, unrealistic.

European Deposit Guarantee Scheme

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The EU Commission's proposed Regulation on the creation of a European deposit insurance scheme has sparked heated debate. Although the European Deposit Insurance Scheme (EDIS) is initially only intended to apply to the eurozone, in the future it will also apply to Member States who will join the common banking supervision by the ECB. The main component is the creation of a joint Deposit Insurance Fund to provide payouts to depositors and contributions to resolution.

Reform of Securitisation Markets (Regulation)

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The EU Commission wants to revive the securitisation markets which collapsed during the financial crisis. The stakeholders involved in these markets will be subject inter alia to transparency and due diligence obligations. In addition, the EU Commission wants to create a label for simple, transparent and standardised securitisation (STS securitisation).

Action Plan on Capital Markets Union (Communication)

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The Commission wants to strengthen the internal EU market for capital by 2019. It therefore presents a detailed Action Plan to achieve this aim. It is planning to establish criteria for lending by certain investment funds and to reduce the capital requirements for infrastructure investment. It also wants to revive the European securitisation market and streamline prospectus obligations.

Completing Economic and Monetary Union 1: Economic Union

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The EU wants to strengthen "economic policy coordination, convergence and solidarity" in the eurozone. It therefore proposes the creation of four Unions: an Economic Union, a Financial Union, a Fiscal Union and a Political Union. This cepPolicyBrief deals with the Economic Union. Economic Union involves the creation of independent National Competitiveness Boards as well as stronger focus on employment and social policy.

Completing Economic and Monetary Union 3: Fiscal Union

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The EU wants to strengthen "economic policy coordination, convergence and solidarity" in the eurozone. It therefore proposes the creation of four Unions: an Economic Union, a Financial Union, a Fiscal Union and a Political Union. This cepPolicyBrief deals with the Fiscal Union which involves the establishment of a European Fiscal Board and the creation of a "macroeconomic stabilisation function".

Completing Economic and Monetary Union 2: Financial Union

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The EU wants to strengthen "economic policy coordination, convergence and solidarity" in the eurozone. It therefore proposes the creation of four Unions: an Economic Union, a Financial Union, a Fiscal Union and a Political Union. This cepPolicyBrief deals with the Financial Union which comprises a Capital Markets Union and a Banking Union supplemented by a common deposit guarantee scheme.

Completing Economic and Monetary Union 4: Political Union

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The EU wants to strengthen "economic policy coordination, convergence and solidarity" in the eurozone. It therefore proposes the creation of four Unions: an Economic Union, a Financial Union, a Fiscal Union and a Political Union. This cepPolicyBrief deals with the Political Union which covers strengthening parliamentary control in the European Semester, the unified external representation of the eurozone in the IMF and the establishment of a "Treasury".

A Deposit Guarantee Scheme for the Eurozone

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The European Commission will put forward proposals for a Deposit Guarantee Scheme (DGS) for the Eurozone on 24 November 2015. The cep sets out six prerequisites such Eurozone DGS should meet.

A sovereign default regime for the eurozone

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The European requirements for economic reform and consolidation are being ignored in many capitals. The eurozone countries openly disagree on what role the market should play as a mechanism for ensuring discipline and coordination. To overcome this dilemma, the eurozone should agree on a sovereign default regime for its member states.

Capital Markets Union (Green Paper)

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The EU Commission presents its plans on the establishment of a Capital Markets Union. With this, it wants improve access to financing for, in particular, small and medium-sized enterprises (SMEs), increase and diversify the sources of funding for businesses and make capital markets more effective and efficient. The cep has taken a closer look at the Commission’s plans for a Capital Markets Union.

New Bank Liquidity Rules in the EU: A Blessing or a Curse?

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From October 2015, banks must meet additional liquidity requirements in the EU. The cep introduces the new rules and highlights their impact.

European Fund for Strategic Investments (EFSI) (Regulation)

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The Commission assumes an investment gap in the EU, as investments have fallen in the EU by 15% since 2007. Consequently, it wants to mobilise investments in the EU amounting to € 315 billion by creating a European Fund for Strategic Investments (EFSI).

 

 

Review of the ESAs

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In January 2011, the European Union established three European Supervisory Authorities (ESAs) for the financial sector: The European Banking Authority (EBA, in London), the European Insurance and Occupational Pensions Authority (EIOPA, in Frankfurt) and the European Securities and Markets Authority (ESMA, in Paris). Currently, the Commission is reviewing the regulations governing the three ESAs and will bring forward its proposals for amendments in early 2015.

Focussing on the Long-term Interests of Shareholders (Directive)

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The Commission wants decisions by stock companies to be based to a greater extent on long-term performance and less on short-term share price fluctuations. It therefore proposes measures aiming to ensure that decisions by stock companies take more account of shareholders' interests.

Occupational pensions (IORP II) (Directive)

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The EU Commission makes proposals for strengthening the internal market for occupational pensions. It wants to facilitate cross-border IORPs business, ensure effective supervision of IORPs and enhance governance. In addition it extends the obligations for providing information to members and beneficiaries and amends the investment rules.

Money Market Funds (Regulation)

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The Commission wants to increase the stability and transparency of money market funds.

Support for Crowdfunding (Communication)

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The EU Commission wants to promote financing by way of crowdfunding.

Long-term Financing of the European Economy (Communication)

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The EU Commission wants to increase the supply of possibilities for long-term financing, particularly for small and medium-sized enterprises (SMEs) and infrastructure projects.

The ESM's direct banking recapitalisation: Looking forward in backstop-questions

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cep analyses the plans enabling the ESM to directly recapitalise ailing banks in the Eurozone. Also, the further development of the ESM serving as backstop for the banking union in being analysed.

Banking structural reform (Regulation)

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The Regulation prohibits "proprietary trading" by larger banks and permits the banking regulators to prohibit "trading activities" so that the trading concerned is only carried out by companies which are separate from the bank.

Securities Financing Transactions (Regulation)

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The Commission wants to introduce a EU-wide reporting obligation for securities financing transactions, tighten rules on the rehypothecation of securities and extend the information requirements for investment funds.

Regulating the card-based transaction market (Regulation)

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The Commission wants to restrict the level of interchange fees for card payments and eliminate anti-competitive business rules and practices.

Payment services: PSD II (Directive)

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With the proposal for a Directive on a 2nd Payment Services Directive, the Commission wants to promote the European payments market and encourage transparency, security and innovation in relation to payments.

State aid for banks (Communication)

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The Communication sets out the up-dated EU crisis rules for state aid to banks during the crisis from 1st August 2013. It replaces the 2008 Banking Communication and supplements the remaining crisis rules. Together, they define the common EU conditions under which Member States can support banks with funding guarantees, recapitalisations or asset relief and the requirements for a restructuring plan.

Long-term Investment Funds (ELTIF) (Regulation)

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With the creation of a new type of European investment fund (ELTIF), the Commission wants to channel "patient" capital from both professional and retail investors into infrastructure projects, property and non-listed companies.

Disaster Insurance (Green Paper)

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The Commission wants to increase the distribution of building insurance for elemental damage and ensure that industrial companies can afford to remedy environmental damage.

Bank Resolution in the SSM States (SRM) (Regulation)

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The Commission proposes that, in future, it will decide, together with a new Resolution Board, on the resolution of banks in SSM States. In addition, a Single Resolution Fund will be set up to finance the resolution costs.

Basic account for everyone (Directive)

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The Commission wants to grant all EU citizens the right to have a payment account with basic features (basic account), make it easier to switch banks, particularly across borders, and improve the transparency and comparability of fees.

Long-term Financing of the EU economy (Green Paper)

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The Commission initiates a discussion on a range of possible measures which could help to promote the long-term financing of investment. These include government-backed savings models, greater focus on the capital markets in relation to financing, more voting rights for long-term shareholders and investment funds aimed at long-term investors.

Enhanced Cooperation in the Area of Financial Transaction Tax (Directive)

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In 2011, the Commission proposed a Directive for an FTT for the whole of the EU but the required unanimous agreement of the Council could not be achieved. The Commission is now proposing to introduce the FTT by way of enhanced cooperation between eleven Member States. The FTT is intended to generate more tax revenue and increase stability in the financial markets.

Information Accompanying Transfers of Funds (Regulation)

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The Regulation is to ensure complete traceability of transfers of funds in order to facilitate the "prevention, detection and investigation" of money laundering and terrorist financing. The Commission wants the Regulation to implement the recommendations of the Financial Action Transaction Force (FATF) of 2012. The FATF is an international body which develops measures to combat money laundering and terrorist financing.

Bank Resolution (BRRD) Part 1 (Directive)

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The Commission is seeking to prevent banking crises, strengthen financial stability and ensure that taxpayers do not shoulder the burden of future banking crises by establishing a recovery and resolution regime for banks and investment firms. Part 1 of the CEP Policy Brief deals with recovery and resolution plans and with further crisis prevention measures.

Bank Resolution (BRRD) Part 2 (Directive)

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The Commission is seeking to prevent banking crises, strengthen financial stability and ensure that taxpayers do not shoulder the burden of future banking crises by establishing a recovery and resolution regime for banks and investment firms.

Insurance Mediation (Directive)

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The Commission extends the scope of the current directive by including direct selling of insurances. In the future, intermediaries have to disclose to clients the commission or any other remuneration they receive upon selling an insurance. Only those intermediaries abstaining from commissions can call themselves “independent”.

Investment Products for Retail Investors (PRIPS) (Regulation)

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The Commission wishes to introduce uniform key information documents on investment products (PRIPS) in order to strengthen investor protection and to create a level playing field for investment product manufacturers. The key information documents must be provided to retail investors before the acquisition of an investment product (e.g. an investment fund) and must have a standardised structure.

EBA Banking Supervision (Regulation)

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The Commission wishes to delegate key tasks of banking supervision from national banking au-thorities to the European Central Bank (ECB). The tasks of the European Banking Authority (EBA) and the voting rules in its supervisory council must be adjusted accordingly.

ECB Banking Supervision (Regulation)

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The Commission wishes to delegate key tasks of banking supervision from national banking au-thorities to the European Central Bank (ECB). The tasks of the European Banking Authority (EBA) and the voting rules in its supervisory council must be adjusted accordingly.

Central Securities Depositories (CSD) (Regulation)

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According to the Commission, the costs and risks of cross-border securities transactions are too high compared to national securities transactions, the access of market actors – among them trade venues, central counterparties and central securities depositories – is limited and the competition between central securities depositories insufficient. The Commission wishes to address these deficits by measures to increase the safety of securities transactions and to open national securities markets. 

Shadow Banking (Green Paper)

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The Green Paper serves for the Commission as a basis for discussion. It wishes to find out what exactly shadow banking entities are, which activities they exercise and which benefits and risks are related to them as well as what a future regulation of shadow banking could look like. 

Card, Internet and Mobile Payments (Green Paper)

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The Commission aims to implement a fully integrated payment market in the EU. In its Green Paper, the Commission presents action plans for the market integration.

Audits (Regulation)

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The Commission wishes to boost competition on the audit market by the obligation to change auditors regularly (“rotation rule”). A prohibition of non-audit services (e.g. tax advice) is to strengthen the independence of auditors. 

MiFID (Directive)

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The Commission wishes to improve the transparency of financial market transactions, move derivatives trading to organised trading venues and strengthen supervision and competition. Moreover, it intends to strengthen investor protection. 

MiFIR (Regulation)

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The Commission wishes to improve the transparency of financial market transactions, move derivatives trading to organised trading venues and strengthen supervision and competition. Moreover, it intends to strengthen investor protection. 

Credit Rating Agencies (Regulation)

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The wishes to limit the term of the contracts entered into by credit rating agencies and issuers as well as the participation volume in credit rating agencies in order to strengthen the independence of credit rating agencies. In future, structured finance instruments will be subjected to ratings by at least two credit rating agencies. Moreover, the Commission wishes to prescribe civil liability for credit rating agencies. 

Criminal Sanctions for Insider Dealing and Market Manipulation (Directive)

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The Commission proposes to introduce EU-wide minimum rules regarding criminal sanctions for insider dealing and market manipulation. It wishes to harmonise the offences yet not the levels of penalties. To date, there are only administrative sanctions. The Commission’s aim is to increase the deterrent effect of national sanctions. 

Financial Transaction Tax (Directive)

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The tax is to apply to transactions with financial instruments, both in the organised markets and over-the-counter trading. It is to generate revenues for the public purse and to increase the stability of financial markets. The Commission expects EU-wide tax revenues of roughly 57 billion Euros a year. They are to flow wholly or partly into the EU budget through an own resources system of the European Union.

Capital Requirements (Basel III) (Regulation)

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Additional own funds buffers are to strengthen the banking sector’s resistance to losses and to smooth credit lending to economic cycles. The introduction of a binding leverage ratio and stricter liquidity requirements is to be examined. Infringements of rules are to be subjected to EU-wide sanctions. 

Capital Requirements (Basel III) (Directive)

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Additional own funds buffers are to strengthen the banking sector’s resistance to losses and to smooth credit lending to economic cycles. The introduction of a binding leverage ratio and stricter liquidity requirements is to be examined. Infringements of rules are to be subjected to EU-wide sanctions.

Insurance Guarantee Schemes (White Paper)

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With its White Paper, the Commission instigates a discussion on how to provide policyholders with comprehensive protection that is harmonised at EU level for the event of insurance companies becoming insolvent. Similar to the bank deposit guarantee scheme, the Commission’s aim is to establish a European guarantee scheme for insurances covering both life and non-life insurances. 

Mortgage Loans (Directive)

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The Commission proposes a Directive serving to contribute to a “smoothly functioning internal market with a high level of consumer protection” for mortgage lending. Herein the Commission focuses on consumer protection and rules for the activities of credit intermediaries.

Omnibus II (Directive)

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The Commission wishes to introduce a number of amendments to the Prospectus and Solvency II Directive. The aim is to extend the powers of the EU supervisory authorities (ESMA and EIOPA) to develop technical standards, to substantiate their arbitration powers and to introduce transitional periods for the Solvency II Directive. In addition, the Commission’s power to adopt implementing measures, which are still based on the legal position of the Treaty of Nice, are to be adapted to the Lisbon Treaty.

Audit Policy (Green Paper)

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The Commission submits a Green Paper in order to discuss the future role and scope of an audit in the “general context of financial market regulatory reform”. Governance rules and an improved supervision are to contribute to more competition and increased stability in the financial system.

Resolution of Financial Institutions (Communication)

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In Spring 2011, the Commission will be publishing a “European resolution framework”. This framework is to allow credit institutions to fail whilst avoiding costs to taxpayers and without endangering financial stability. 

OTC Derivatives (Regulation)

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The Commission is changing the rules regarding derivatives which are concluded and traded directly between counterparties (“over-the-counter“, OTC). It wishes that having OTC deals be cleared by central counterparties (CCPs) seated in the EU. Different regulations for financial service providers on the one hand and undertakings on the other hand, and a distinction between speculative OTC derivatives and those serving to hedge real corporate risks are to help improve the stability of the financial system.

Deposit Guarantee Schemes (Directive)

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The Commission intends to restrict the maximum repayable amount of EU deposit guarantee schemes to € 100,000 in future. Deposit guarantee schemes are being obliged to mutually grant loans.

In the middle of the financial crisis the Council and the European Parliament decided to increase the minimum coverage level to Euro 50,000 and – by the end of 2010 – up to 100,000. Issues such as the EU-wide harmonisation of the financing of deposit guarantee schemes and the establishment of a European deposit guarantee scheme were postponed to 2010.

The latest plans face substantial opposition. Several national parliaments intend to file a subsidiarity complaint, a procedure newly introduced by the Lisbon Treaty, in order to force the Commission to reassess the Proposal.

Credit rating agencies (Regulation)

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Since 2009, the Rating-CR regulates the registration and supervision of credit rating agencies at an EU-wide level. National supervisory authorities are key to this procedure. Now, the Commission wishes to change this: In September 2009, the Commission proposed to establish the European Securities and Markets Authority (ESMA) which is to be responsible for the supervision of credit rating agencies in future.

Prospectus (Directive)

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The amendment of the Prospectus Directive is part of a simplification programme by the Commission to cut administrative burdens. Against this background, the Commission wants to make it easier to issue securities in the EU. Also, it aims at increasing legal certainty and lowering costs.

European Supervisory Authorities (EBA, ESMA and EIOPA) (Regulation)

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Since the onset of the financial crisis the EU Financial Market Supervision, which is still very nationally-oriented, is up for discussion. Now, the Commission proposes the establishment of three European supervisory authorities (ESA) which are to ensure an improved prudential supervision of banks, insurances and investment firms.

European Systemic Risk Board (Regulation)

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Since the onset of the financial crisis the EU Financial Market Supervision, which is still very nationally-oriented, is up for discussion. Now, the Commission proposes that the ESRB is to monitor the stability of the entire European financial system. Moreover, three European Supervisory Authorities are to ensure an improved prudential supervision of single financial institutions.

Derivatives Regulation (Communication)

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Both the EU and the USA are currently debating how to design derivatives markets in a more transparent and panic-proof manner. Similar to the USA the EU Commission proposes to improve the collateralisation of derivatives transactions and to standardise the OTC trading through central counter party (CCP) clearing to be located in the EU.

Single Euro Payments Area (SEPA) (Communication)

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When Euro notes and coins were introduced on January 1st 2002, this created a single payments area for cash transactions. For cashless payments like credit transfers, direct debits and card payments a Single Euro Payments Area (SEPA) is currently being developed. In its communication the Commission presents the next measures that have to be taken by market participants in the period from 2009-2012 in order to ensure successful implementation of the SEPA-project. The Commission hints that by this amongst others it understands the full replacement of all established national payment schemes with SEPA-Schemes.

Capital Requirements Directive (Basel II) (Directive)

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The Capital Requirement Directive (“Basel II“), which is mainly based on negotiations held by the international Basel II Committee of the Bank for International Settlements, constitutes the core of banking regulation. The Commission's new proposals aim at improving the effectiveness of the existing Directive and at increasing the stability of financial markets. The Commission's proposal focusses on inter-bank credits, securitisation and the restructuring of supervision. With its Proposal the Commission expedites the process: It is no longer willing to await the results of the Basel II Committee. The amended Directive is scheduled for adoption for early June.

Remuneration Policies in the Financial Service Sector (Recommendation)

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The financial crisis has led to a controversial public debate about bonus payments to staff members of the financial industry. The EU-Commission is responding by submitting a Recommendation which has public appeal but is legally non-binding and which is to be regarded above all as a political signal. However, for the banking sector the Commission announced that it would be proposing in June 2009 amendments to the Directive on capital requirements for banks (“Basel II”), which should allow the inclusion of remuneration practices into capital requirements for financial service providers.

European Financial Supervision (Communication)

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The EU Commission is of the opinion that EU financial supervision needs to be adjusted. According to the Commission, particularly the system of national supervisory models is no longer capable of keeping pace with the challenges emerging from financial firms operating across borders. To this end, the Commission wishes to establish a European system of financial supervisors (ESFS) and a European systemic risk council (ESRC).

Alternative Investment Funds (Directive)

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In the end there seemed to be too much political pressure. Shortly before the EU-Elections the Commissioner for the Single Market McCreevy presented a proposal for the regulation of alternative investment funds (AIF), in particular of hedge funds and private equity funds.

Packaged Retail Investment Products (Communication)

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The Commission criticizes the fact that – depending on their legal form and distribution channel – similar  retail investment products are subject to different rules. It wants to introduce the concept of “standard investment products”, to which identical selling rules and requirements on key investor information apply.

Financial Supervision Committees (Decision)

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In response to the financial crisis the EU-Commission strengthens CEBS-, CESR- and CEIOPS-Committees and provides to them additional funding. The Committees are to enhance closer cooperation between national supervisory authorities and to strengthen the stability of the financial system.

Credit Rating Agencies (Regulation)

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According to the EU Commission, all credit rating agencies in the EU should be registered and should fulfil certain requirements on their independence and transparency. Banks and other regulated financial service providers should be allowed to use ratings from such agencies only, when calculated the own funds they must retain.

Deposit Guarantee Scheme (Directive)

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On 7 October 2008 the Council called for an increase of the coverage level for deposit guarantee schemes. Depositor confidence which was severely damaged through the bank crisis should be restored by such measures. The proposal submitted by the Commission first provides for an increase in the coverage level of EUR 20,000 to EUR 50,000 retroactively as of 15 October 2008 and then for an increase to EUR 100,000 effective as of 1 January 2010.

Cross-Border Payments (Regulation)

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Payment service providers must not charge higher fees for cross-border payments than for national payments. Thus, the EU Commission intends to cheapen cross-border payments and to improve payment transactions in the EU. The existing principle of equality of charges for credit transfers and cash card services is to be extended to direct debits.

Electronic Money (Directive)

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The EU Commission wishes to promote the circulation of electronic money by simplifying the legal requirements for the institutions concerned. The issuance of money is to be supervised according to its actual economic risk potential. Hence, the Directive treats institutions licensed to issue e-money different from credit institutions. Moreover, e-money institutions will be entitled to engage in further business activities. 

Revised Capital Requirements for Banks (Basel II) (Directive)

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Following the October 2008 amendments of the Capital Requirements Directive a new amendment has been proposed once again. This time the capital requirements for the trading book and for re-securitisations are raised and the remuneration models of banks are reviewed.

Investment Funds (UCITS) (Directive)

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The EU Commission has proposed an amended version of the existing directive for harmonised investment funds ("UCITS"). The proposal contains new rules simplifying cross-border marketing and mergers of investment funds. Moreover, investor information on UCITS shall be presented more concisely in the future.

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