The Conference of Presidents Group have held intensive talks with their EP negotiators on the state of SRM play. The result is firmly-worded missive sent today from their own current President, Martin Schulz, to Commission President Manuel Barroso, summary translations in bold italic: Continue reading
On 6 December 2013, the Presidency of the EU Council published its latest compromise proposal (17410/13) with respect to the single resolution mechanism (SRM). Changes to the previous compromise text (17055/13) are highlighted in bold and underlined. The Council has also published a Presidency report (17411/13) dated 6 December 2013 detailing key outstanding issues relating to the SRM Regulation including: Continue reading
On 2 December 2013, the Council of the European Union published a press release announcing that it has approved the Memorandum of Understanding (MoU) (15963/13) between the Council and the European Central Bank (ECB) relating to the single supervisory mechanism (SSM). A few days earlier on 30 November 2013, the Inter-institutional Agreement (IIA) between the ECB and the European Parliament on the implementation of procedures related to the SSM was published in the Official Journal of the EU (OJ).
On 12 September 2013, the European Parliament published a press release announcing the adoption of a package of legislative acts to set up a Single Supervisory Mechanism (SSM) for the Eurozone. The SSM legislation was adopted with very large majorities and will bring the EU’s largest banks under the direct oversight of the European Central Bank (ECB) from September 2014.
The SSM legislation consists of a proposed regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and a proposed regulation amending Regulation 1093/2010 (see this blog post for more details). The European Parliament has also published a document containing the provisional texts adopted which can be found on pages 105 and 50 respectively.
The Regulations will come into force following approval by the EU Council and publication in the Official Journal of the EU. The ECB will assume its supervisory role 12 months later.
On 25 April 2013, the Council of the EU published the final compromise texts of a regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and the proposed regulation amending Regulation 1093/2010 (which established the European Banking Authority). Together these texts establish the EU single supervisory mechanism (SSM).
Broadly, under the new regime, the European Central Bank (ECB) will assume responsibility for the supervision of “significant” credit institutions, with “less significant” credit institutions to remain subject to regulation by national supervisors. “Significance” is to be based on the following criteria:
- importance for the economy of the EU or any participating Member State; and
- significance of cross-border activities.
In addition, any credit institution will be regarded as “significant” if:
- it has total assets of EUR 30 billion or more; or
- the ratio of its total assets to the GDP of the participating Member State of establishment exceeds 20% (unless the total value of its assets is below EUR 5 billion); or
- the ECB considers it to be of significant relevance; or
- it has requested or received public assistance directly from the European Financial Stability Facility or the European Stability Mechanism;
- it ranks amongst the three most significant credit institutions in a participating Member State.
The ECB will assume responsibility for, inter alia:
- authorisations and withdrawal of authorisations;
- the administration of certain activities currently carried out by home state regulators, such as the establishment of branches in non-participating Member States;
- the assessment of applications for the acquisition and disposal of “qualifying holdings” (i.e. involving 10% or more of capital or voting rights);
- the regulation of own funds requirements, securitisations, large exposure limits, liquidity, leverage, and reporting and public disclosure of information on those matters;
- the enforcement of governance arrangements, risk management processes, internal control mechanisms, remuneration policies and internal capital adequacy assessment processes;
- conducting supervisory reviews and stress testing;
- consolidated supervision where parent companies are established in participating Member States; and
- supervisory tasks in relation to recovery plans, early intervention and structural changes required to prevent financial stress or failure (but excluding any resolution powers).
On 18 April 2013, the EU Council published a press release confirming that agreement had been reached with the EU Parliament on the establishment of the single supervisory mechanism (SSM) with respect to EU credit institutions.
The European Central Bank (ECB) will be responsible for administration of the SSM, but national supervisors will retain responsibility for takes not conferred on the ECB, such as consumer protection, money laundering, payment services and branches of third country banks. The ECB will assume its supervisory role with respect to the SSM either on 1 March 2013 or 12 months after entry into force of the legislation, whichever is later to occur.
On 13 January 2013, the Presidency of the EU Council published a compromise proposal regarding suggested amendments to Articles 1 to 36 of the Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the “RRD”). The most noteworthy amendments are highlighted below.
Triggers to Early Intervention
Under Article 23 of the original RRD, it was proposed that a competent authority be authorised to take early intervention action when a firm does not meet, or is likely to breach, the requirements of the Banking Consolidation Directive. Under the newly published draft, it is proposed to extend this authority to circumstances whereby the firm in question also no longer meets, or is likely to breach, the authorisation requirements under Title II of the MiFID Directive. Two additional early intervention powers are also granted to competent authorities, being the power to:
- appoint a manager who:
- assumes certain tasks of the management of the institution, or
- monitors the decisions and tasks of the management of the institution, or
- is empowered to veto or authorize certain decisions of the management of the institution (note that this power appears to be separate from the “Special Management” powers granted under Article 24 of the RRD); and
- require changes to the firm strategy or to the legal or operational structures of the institution.
Amendments are proposed to Article 24 of the RRD in order to provide clarification that the appointment of a special manager shall not, of itself, make it possible for anyone to exercise any right or power to terminate, accelerate or declare a default or credit event under any agreement to which the institution is a party. In addition, it is specifically noted that any special manager shall have no liability arising from action taken or not taken in discharge of its functions unless guilty of gross negligence or serious misconduct.
Group Recovery and Resolution
Proposed changes to Article 7 of the RRD would mean that group recovery plans would only be required with respect to (a) the group as a whole, and (b) individually for significant entities. Previously, it was the case that all group entities would have been obliged to create a recovery plan. The requirement to update group resolution plans pursuant to Article 12 has also been amended slightly to clarify that plans should be updated at least annually, and after any change to:
- the legal or organisational structure of the parent company or of the group, or
- the business or to the financial situation of the group as a whole or parts of the group that could have a material effect on or require a change to the plans.
Recovery Plan Triggers
A new Article 8a has been proposed under which competent authorities must ensure that each recovery plan includes a trigger framework which identifies the points at which appropriate actions referred to in the plan will or may be taken. These triggers may be both quantitative or qualitative, must be forward looking and capable of being easily monitored, and should relate to the institution’s financial strength. The European Banking Authority is to draft regulatory technical standards regarding these indicators within twelve months from the date of entry into force of the RRD.
Contents of Resolution Plans
It is proposed to amend the contents of Resolution Plans, as detailed under Article 9 of the RRD, in order to include the following additional information:
- minimum amount of eligible liabilities required with respect to the exercise of the Bail-In Tool and a deadline to reach that level; and
- a description of the staff who are essential for maintaining the continuous functioning of the institution’s operational processes.
The Resolution Objectives under Article 26 of the RRP remain relatively unchanged except for the fact that the following have ceased to be ‘objectives’ and now appear as ‘general principles governing resolution’ pursuant to Article 29:
- ensuring the continuity of critical functions; and
- avoiding unnecessary destruction of value and seeking to minimise the cost of resolution.
In addition, it was previously the case that all Resolution Objectives were of equal significance. In contrast, were the proposed changes to be adopted, it would be for the authorities to balance the objectives as appropriate to the nature and circumstances of each case.
Principles Governing Resolution
It is a general principle under Article 29 of the RRD that ‘no creditor should be worse off than in insolvency’. However, in the latest draft of the RRD this principle only applies to the extent ‘not otherwise provided in this Directive’. At this stage, the extent to which this principle is truly affected is not clear.
Of possible concern to some financial market infrastructures are the amendments to the Sale of Business Tool pursuant to Article 32 and the Bridge Institution Tool detailed under Article 34. Broadly speaking, neither the purchaser of a business nor a bridge institution can be denied access to payment, clearing or settlement systems, stock exchanges or deposit guarantee schemes on account of the fact that they do not possess a particular rating or do not otherwise meet the relevant membership criteria.