Brussels, 18/10/2011 (Agence Europe) - On Thursday 16 October 2011, the European Commission will publish draft legal penalties for insider dealing and price-fixing. The legislation will be part of an update of the MiFID rules (see EUROPE 10456) and amend EU Directive 2003/6/EC on insider dealing itself and encouraging such behaviour. A European source explained that this was the first time that EU legislation will force member states to make the most serious cases a crime. There is no law in Bulgaria outlawing insider dealing or conflicts of interest and there are very limited penalties in six member states (Austria, Estonia, Finland, the Czech Republic, Slovenia and Slovakia). Member states will be free to decide on the details of the legal sanctions and penalties.
MiFID II. On Thursday, EU Internal Market Commissioner Michel Barnier will unveil his ideas on how to deal with problems generated by the Big Bang of the MiFID Directive (2004/39/EC), like the problems with collecting commercial information due to the sheer complexity of the stock exchanges these days. The new rules aim to ensure that no stakeholders or trading system can wriggle out of the transparency requirements. The Commission wants exactly the same transparency rules to apply pre- and post-market on regulated markets and over-the-counter. By standardising the information to be provided, it hopes to encourage competition in the data supply industry and is planning measures to cut the risk of “dark pools” of liquidity, ie less regulated trading platforms where massive trading volumes are carried out automatically, the price of which only be published after the deal has gone through. Stock markets and national supervisors will be required to monitor the dangers of automatic trading (generated when rates reach a certain level).
Bank restructuring. In the next few weeks, the European Commission will unveil a draft directive on dealing with failed banks. This, along with the draft “CRD IV” rules on increasing banks' capital (see EUROPE 10424 and 10420), is described by a European source as one of the most difficult issues because it aims to tackle the moral hazard head on and the idea that some companies are too-big-to-fail. It is also closely related to international work being carried out at the International Monetary Fund's Financial Stability Committee.
The aim is to give national supervisors ways of restructuring banks that can be implemented as soon as possible whenever a bank is found to be about to go under. The restructuring tools include a ban on the payment of dividends and bonuses, the forced sale of assets and sacking the managers. An EU source suggests that these bail-in methods should be more effective than bailing out. Unlike bailouts that typically involve public finance, bail-ins use funds from elsewhere in the struggling bank and turn debt into capital. The Commisison wants to give the European Banking Authority (EBA) more power due to the fact that big banks operate in more than one country.
Rating agencies. The Commission is fine-tuning a third piece of legislation to beef up EU rules governing credit rating agencies registered in the EU. The new rules will reduce the reliance of EU legislation on bank capital on credit ratings. In order to reduce potential conflicts of interest between rating agencies and their clients, the Commission is considering the idea of a ban on rating agencies rating companies which own its shares and requiring regular rotation of rating agencies.
EU rules require rating agencies active in the EU to apply for autorisation and also require EU supervision of pan-European rating agencies. Jean-Paul Gauzès (EPP, France), the European Parliament rapporteur on both items of legislation, recently criticised the way the Big Three rating agencies have not been authorised in the EU and are therefore not supervised.
Audits. When it comes to auditing, Barnier seems to have decided to throw a cat amongst the pigeons early next month when he announced joint auditing whereby the accounts of multinationals quoted on the stock exchange must be audited by several companies working together. Auditors will have to be rotated because they will only be allowed to work for one company for nine years (see EUROPE 10459).
The Commission is preparing legislation to encourage risk capital for European companies working in the social sector. (MB/transl.fl)