On July 27, the Council of the European Union adopted new rules on credit rating agencies, bank capital requirements, cross-border payments and e-money, and a Community program to support activities in the fields of financial services, financial reporting and auditing.

The new regulation regarding credit rating agencies establishes a common framework for credit agencies within the European Union, and provides a legally-binding registration and surveillance system. Goals of the regulation include:

  • ensuring that credit rating agencies avoid conflicts of interest in the rating process, or at least manage them adequately;
  • improving the quality of methodologies used by credit rating agencies and the quality of their ratings; and
  • increasing transparency.

The directive setting new capital requirements for banks is intended to accomplish five main objectives:

  • strengthen the supervision of cross-border bank groups;
  • improve the framework for securitization transactions by imposing due diligence and transparency obligations;
  • harmonize the classification of “tier 1” capital for banks and hybrid instruments;
  • introduce rules on liquidity risk management, in particular with regard to liquid asset reserves, conducting liquidity stress test and establishing contingency plans; and
  • tighten the supervision of exposure to a single counterparty.

The regulation on cross-border payments is aimed at achieving a single market for payment services in Euros without a distinction between cross-border payments and payments made on a national basis. The directive on electronic money is aimed at promoting new innovations for secure electronic money services while fostering competition between market participants. Finally, the Community financial services program enables the Community to fund European and international bodies to ensure that the European Union’s policies in the financial services sector are effective.