Money Market Funds

In June the Committee of Permanent Representatives in the European Union (Coreper) agreed, on behalf of the European Council, a negotiating stance on a draft regulation on Money Market Funds (MMF). The Council confirmed Coreper’s negotiating stance and asked the Dutch Presidency to start trialogue discussions with the European Parliament, negotiations which the Slovak Presidency will now continue. The Parliament’s Economic and Monetary Affairs (ECON) committee approved its negotiating stance in March 2015. An important new element of the draft regulation is the introduction of a permanent category of low volatility net asset value (LVNAV) MMFs. These LVNAV MMFs will gradually replace most of the existing constant net asset value (CNAV) MMFs, which would be required to convert into LVNAV MMFs within 24 months of entry into force of the regulation. LVNAV MMFs would be allowed – to a limited extent and under strict conditions – to offer a constant net asset value.

STS Securitisation Proposals

The Irish Securitisation Industry Working Group, comprised of representatives of BPFI, the Irish Debt Securities Association and the Irish Stock Exchange, has compiled a position paper in response to initial amendments made by European Parliament MEPs Paul Tang, Netherlands and Pablo Zalba Bidegain, Spain to the European Commission’s two simple, standardised and transparent (STS) securitisation proposals. The two draft reports include numerous proposed amendments to the regulations initially tabled by the European Commission as part of its Capital Markets Union plan in 2015. BPFI participated in a key stakeholder event organised by MEP Paul Tang in Brussels in June and held meetings with Irish MEPs to voice the working group’s initial views on the proposed amendments.

ECB Recovery Planning

BPFI attended a European Central Bank (ECB) workshop in Frankfurt in June on recovery planning and benchmarking assessment. The ECB is focusing on developing a consistent methodology for the assessment and benchmarking of the recovery plans of its 140 directly-supervised banks. Some key takeaways from the workshop include:

  • The ECB expressed its key policy stance in favour of group recovery plans and is geared towards developing its internal capacity to assess recovery plans
  • The initial benchmarking was focused on a small sample of completed plans (21) and was limited to a few key areas including options, scenarios, and indicators
  • The size of the plans ranged from between 25 to 1800 pages which the ECB deemed operationally insufficient. 100-300 pages was deemed a reasonable size
  • The ECB evaluated and found between 20-50 deficiencies. Feedback letters will be given to banks showing deficiencies and in some cases include an action plan
  • Overall, the reviewed plans were seen to be 80-90% complete, with only some outliers.

The ECB has welcomed feedback from national associations on the areas with which banks have most problems and on which further guidance is sought. BPFI and the European Banking Federation are working to provide feedback in this regard.

Concerns over Capital Impact of CRD V / Basel IV

There is growing concern among the EU banking community in relation to the impact of the so-called ‘Basel IV’ – the successor to Basel III, and subsequent legislation in respect of the Capital Requirements Regulation and Directive (CRD V). The impact would be a significant increase in bank’s holdings of risk capital, estimated at up to 70% extra for operational risk, besides additional credit risk requirements and leverage ratio. The knock on effect of trying to raise such capital, especially given current market volatility, would be a reduction in banks’ ability to finance the real economy.

Divisions on European Deposit Insurance Scheme

With the September deadline approaching on a draft EU Parliament report on the European Deposit Insurance Scheme (EDIS), BPFI recently attended a European Banking Federation (EBF) briefing session on EDIS.  Also in attendance were Rapporteur Esther De Lange, MEP and Patrick Pearson, DG for Financial Stability, Financial Services and Capital Markets Union. For the Rapporteur a deal on EDIS is dependent on a number of factors including the phasing in of EDIS, the conditionality of the risk reduction and the content/design of EDIS. In her view no country should have their current levels of depositor protection eroded post-EDIS. For Patrick Pearson reinsurance is not enough to break the sovereign bank nexus. In his view EDIS is not a transfer system as it is based on risk-based contribution. Contrary to the EBF position he dismissed as impractical the idea of identifying and addressing any remaining significant risks on banks’ balance sheets through a Eurozone Asset Quality Review (AQR) pre-EDIS.

Preparations continue in advance of Payments Account Directive

The Department of Finance last week published its decisions on the national discretions afforded under the Payments Accounts Directive. BPFI is now working with members to understand their implications and we continue to work on a number of working assumptions, where possible, on the provisions of the Directive, ahead of its transposition in September. The Directive, which must be transposed by 18 September, contains a package of measures to facilitate greater comparability and transparency of fees, easier account switching and access to basic bank accounts.

Introduction of AnaCredit Moves Closer

The introduction of AnaCredit – the ECB’s project to set up a dataset on individual bank loans in the euro area – moved a step closer in June when the ECB published its final Regulation on AnaCredit. The Regulation includes a number of national discretions including timeframe, derogations that may be given to reporting agents and how double reporting by foreign branches will be managed. BPFI understands that a number of issues affecting these discretions are still under discussion at European level.  The Central Bank provided credit institutions in June with an overview of AnaCredit, including its approach on discretions.

The ECB is expected to publish in August the AnaCredit manual – which will provide guidance on the preferred approach to meeting the AnaCredit reporting requirements.  The Central Bank will be the main channel for queries and comments on the manual, but BPFI is also engaging with the European Banking Federation and the European Mortgage Federation on this to ensure consistency across countries. BPFI will also attend an ECB workshop on the manual in July.

BPFI Submission on Marcoprudential Rules

BPFI is preparing an industry submission following the Central Bank’s call for evidence-based submissions on loan-to-value and loan-to-income regulations for mortgages. The focus of this consultation is to examine the impact of the macroprudential measures introduced in the mortgage market in 2015. The deadline for responses is 10 August 2016 and Central Bank Deputy Governor Sharon Donnery has stated that “the evidence threshold to justify adjustments to these rules is significant”.

Brexit

Following the final result of the UK’s referendum on membership of the European Union, the European Banking Federation spoke for banking associations and their member banks across Europe in reassuring customers and businesses that their banking services will continue as normal.

In Brussels European Commission President, Jean Claude Juncker, has imposed a ban on any discussions between EU staff and UK officials until “notification of Article 50”. Following the resignation of the UK’s Lord Jonathan Hill from the portfolio of Financial Services and Capital Market Union the portfolio will now be managed by Latvian Commissioner Valdis Dombrovskis and the understanding is that this may lead to a change in the political direction and management of this mandate.

Meanwhile, the European Council  has established a Brexit Task Force and appointed Belgian official, Didier Seeuws, to lead the negotiations. The European Parliament will also have to consent to the final agreement. Finally, it is important to note that until such time as the UK leaves the Union, EU law continues to apply.

Slovakia Poised to Take Over EU Presidency

From July the Council of the EU will have a new Presidency when the Slovakians take the reins from the Dutch until December 2016. The overarching policy themes of the incoming Presidency are “An Economically Strong Europe, a Modern Single Market, Sustainable Migration and Asylum Policies and a Globally Engaged Europe”. However with Brexit now dominating discussions in Europe, these may be subject to change. It is still unclear what role the rotating Presidency will play in the forthcoming negotiations but the expectation is that resources could be seriously constrained. A meeting in early July between Financial Services Attachés and the Slovakian Presidency should shed some light on the situation.

With many calls for business to continue as usual, key on the Presidency agenda should be finalising agreement with the European Parliament on the Prospectus Regulation and the Money Market Fund (MMF) Regulation if possible. The Presidency will also be closely monitoring any progress in the Parliament on the Simple Transparent and Standardised (STS) Securitisation Regulation with a view to possibly beginning discussions. New proposals on Venture Capital and Social Entrepreneurship Funds, as well as an expected legislative proposal amending the Anti-Money Laundering Directive, are also likely to feature.

However, the work of the Slovakian Presidency depends heavily on progress in the European Parliament where many files risk being delayed as UK MEPs begin to relinquish their rapporteurship/shadow rapporteurship posts which will need to be refilled.