This morning the Commission published a proposed Regulation on structural measures to improve the resilience of EU credit institutions. The proposal builds on the 2012 recommendations of the High-level Expert Group chaired by the Governor of the Bank of Finland, Erkki Liikanen and a subsequent Commission services consultation.
The proposal focuses on EU banks that are deemed to be of global systemic importance or those exceeding certain thresholds (€30 billion in total assets, and trading activities either exceeding €70 billion or 10 per cent of the bank's total assets). The proposal applies to EU banks and their Union parents, including their subsidiaries and branches wherever they are located. However, foreign branches operating in the EU would also be covered. The Commission believes that such a broad territorial scope is justified to ensure a level playing field and avoid circumvention by transferring potentially affected businesses outside the EU. However, the proposed Regulation also provides for the possibility for the Commission to adopt delegated acts to recognise third countries’ structural reforms as being equivalent when they meet certain conditions. This recognition, when materialised, would make it possible for third country banks operating in the EU or EU banks operating overseas to be exempted from the obligations of the proposed Regulation.
The proposed Regulation would prohibit a bank within scope, and any entity belonging to its group, from engaging, through dedicated desks and personnel using the bank's own funds or borrowed capital, in proprietary trading in financial instruments, trading of physical commodities and investing in hedge funds (with few explicitly spelled-out exceptions). The proposed Regulation also sets out proposals concerning the potential separation of certain trading activities. The proposal provides for a broad interpretation of what constitutes trading activities, potentially subject to separation from deposit taking entities. Other than traditional banking operations such as deposit-taking, lending, money broking and payment services, trading in EU sovereign debt instruments are excluded from the scope of activities subject to separation. The Commission may extend the scope of this exemption to other sovereign debt instruments if they conform to certain conditions.
To give banks time to adapt their structures the proposal provides for a transitional period before some of the most significant provisions take effect. The proprietary trading ban would apply as of 1 January 2017 and the effective separation of other trading activities would apply as of 1 July 2018.
The Commission has also published a proposed Regulation that is intended to increase transparency of certain transactions in the shadow banking sector to avoid that banks circumvent the new rules by moving certain activities to the shadow banking sector.
Further information on the banking structural reforms can be found on the Commission’s banking structural reform web page.
Further information on the proposal for transparency of securities financing markets can be found on the Commission’s shadow banking web page.