On Tuesday, 15 April the European Parliament approved several new reforms to manage banking sector risk and ensure that shareholders, not taxpayers, pick up the tab for the next crisis.
Now the political work is done, the MEPs are busy campaigning, and it’s up to the industry and ESAs to work out how to deliver it within 18 months to meet very aggressive deadlines.
This will be no mean feat. The three “Banking Union” reforms, are, in total, 936 pages. For those of you that have been following our MiFID II/ MiFIR, BAD, PRIPPs KID and UCITS V (which did pass on 15 April as well), CRD IV, AMLD IV and other coverage, it is important to realise that these directives complement the rest of the market reform. As if that isn’t enough, we also had PSD 2, Omnibus II, MAD 2/MAR and CSDs …
So what is the sum total of these Banking Union reforms? In a nutshell, the reforms outlined below are set to have a major impact on the financial services industry – both within and outside the European Union – at the same time as other regulations are also being implemented. Clearly, firms of all shapes and sizes will be navigating choppy waters as they are hit with several different waves of political demand for a fairer market that catalyses growth.
Watch this space, as JWG will be providing fresh analysis on all these new reforms in the coming days …
With the overall aim of enhancing discipline within the banking sector, the BRRD will provide national authorities with more comprehensive and effective arrangements to deal with failing banks.
The single most important provision of the 562-page BRRD is the EU’s commitment to preventing large-scale use of public funds to bail out failing banks. Instead, the resolution ensures that “stakeholders and debt holders will bear an appropriate share of the losses in the event of a failure”. The BRRD bail-in system will come into effect as of 1 January 2015.
While the BRRD will merely provide support to national resolution authorities, the SRM, outlined in a 343-page law, will provide a centralised decision-making body as well as a Single Bank Resolution Fund to all member States within the EU. The benefits of the SRM will be a small, elite crew with the ability to intervene swiftly in developing crises (within 32 hours), as well as being providers of critical cash.
The SRM will complement the new oversight system, the Single Supervisory Mechanism (SSM) that is due to become operational under the ECB in November 2014. The SRM is due to roll out alongside the BRRD, beginning 1 January 2016.
This directive confirms that the current level of deposit protection in the EU of €100,000 is sufficient, however it seeks to simplify the current DGSs in order to “provide greater transparency for investors, faster verification of claims by the DGS, and in turn quicker reimbursement in the event of bank failure”.
The 31-page revision aims to reduce the amount of time depositors will have to wait after a bank failure in order to receive their money back, with the timeline shortened from 20 days to 7 working days from 1 January 2024.
What this all means for financial services
This latest set of regulatory reforms pushed through by the European Parliament on ‘Super Tuesday’ will undoubtedly provide further headaches for the financial services sector. Firms have just a couple of months before EMSA, EBA and EIOPA consultations begin and the hard job of getting from ‘what does it say’ to ‘what does it mean’ begins.
As Darwin noted, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change”. Clearly, if you are in the EU FS markets and figure out how you’re going to comply now, you’ll have the best chance to ride the waves of change to prosperity …