On May 4, 2017, the European Commission (‘Commission’) published a legislative proposal to overhaul the European framework for derivatives. Building on feedback received via the call for evidence on the European regulatory framework for financial services, the Commission proposes to review the European Market Infrastructure Regulation (EMIR) to ensure the proportionality of reporting requirements.
While the legislative proposal streamlines requirements for all counterparties, it also provides specific measures for non-financial counterparties and small financial counterparties, which will only be required to report on their activities in specific asset classes when they reach a certain threshold. In addition, pensions funds could also benefit from a three-year temporary exemption from central clearing.
The Commission considers that streamlining reporting requirements will reduce administrative costs and the reporting burden for market participants without negatively affecting financial stability.
The legislative proposal will now go through the ordinary legislative procedure, requiring both the European Parliament and the Council of the European Union to agree on the text before it can become effective.
Together with the legislative proposal to amend EMIR, the Commission published a communication announcing another legislative initiative to be launched in June 2017 regarding the supervision of systemic central counterparties (‘CCPs’), particularly important in the context of Brexit. The Commission indicated that it is considering options including strengthened supervision as well as location requirements.
Financial Stability Board reports on shadow banking growth On 10 May 2017, the Financial Stability Board (‘FSB’) published its 2016 global shadow banking monitoring report. The report builds on the results of the sixth annual monitoring exercise, which has been conducted in 2015 across 28 jurisdictions, accounting for approximately 80% of global GDP.
According to the FSB, the shadow banking sector shows continuous growth. The report uses a so-called ‘narrow measure’, which focuses on non-bank credit intermediation that may lead to financial stability risks. Based on this narrow measure, the FSB estimates that the shadow banking sector represented $34 trillion in end-2015, which is 3.2% more than in 2014, and accounted for 13% of the total financial system.
The FSB especially draws attention to credit intermediation associated with collective investment vehicles, which increased by 10% over the past four years and represents 65% of shadow banking. Non-bank financial entities engaging in loan provision also represents a significant share of shadow banking activities.
Looking at the interconnectedness between shadow banking and banks, the FSB notes that banks’ credit exposure to shadow banking continued to decline in 2015, even though they remain higher than the pre-crisis level.
G7 commits to pursue international cooperation against tax crimes Meeting in Bari, Italy, on 12 and 13 May 2017, Finance Ministers and Central Bank Governors of the G7 adopted a communiqué which underlines the importance of working towards inclusive growth and to deal with challenges brought by technological change. Participants committed to strengthen their cooperation to fight the financing of terrorism via enhanced information sharing and regular cooperation across national financial intelligence units. They also welcome the forthcoming signature of the OECD Multilateral Convention, planned fro 7 June 2017, to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS). The communiqué notes participants’ determination to implement fair and transparent tax systems.
Importantly, the G7 Finance Ministers and Central Bank Governors simultaneously adopted a declaration on the fight against tax crimes and other illicit financial flows. Participants indicate that they will continue to cooperate via enhanced exchange of information on tax crimes, beneficial ownership and illicit financial flows. They committed to ‘fight corruption in all its forms’ and to further engage in international cooperation to advance tax fairness.
Finally, G7 Finance Ministers and Central Bank Governors expressed strong support for the work conducted by the Financial Action Task Force (‘FATF’) to fight illicit financial flows and encouraged the ongoing efforts to strengthen the FATF’s institutional basis, governance and capacity.