Brussels, 29/08/2014 (Agence Europe) - The European Parliament's economic and monetary affairs committee will resume work after the summer break on Wednesday 2 September. Some of the big issues awaiting the committee may see a fresh start and, in this article, we focus on three items of draft legislation that had previously been left on the back burner.
Following the scandals about manipulation of the LIBOR and EURIBOR inter-bank benchmarks, the Commission took a number of initiatives. After reviewing its market abuse directive, it unveiled a regulation in September 2013 on formulating and managing the two bank benchmarks that are used to decide on the interest rates for millions of mortgages. The proposal has four objectives: - improving governance and control over the process of forming benchmarks, especially by tackling conflicts of interest; - improving the quality of data provided and the methodology used; - ensuring that managers are subject to suitable controls and allowing national authorities to require bodies providing data used to form benchmarks to continue to supply data; - ensuring suitable protection for clients and investors using the benchmarks via greater transparency and the option of lodging appeals, along with analysis of how the service provided matches the investor's profile.
For the member states, the question of banking union has overshadowed benchmarks. In the economic and monetary affairs committee, the matter was handed to UK ALDE MEP Sharon Bowles, who used to chair the committee. She reduced the regulation's scope, saying that the Left wanted it to cover commodities, for which the Right suggested a different approach. The Greens/EFA and S&D then unveiled proposals returning to this principle. The EPP wants to await the outcome of current investigations into possible manipulation of foreign exchange markets. Bowles supported the EPP's call for the question to be postponed until the next (now current) term of parliament (see EUROPE 11034). Management of the question is expected to be given to an ALDE MEP.
The proposal on money market funds unveiled in the meantime has suffered the same fate (see EUROPE 11034). Money market funds are an important source of short-term finance for financial institutions, companies and public administrations. Various demands have been made relating to portfolio diversification and transparency. Seeing these funds as endangering financial stability, the Commission plans to require CNAV (constant new assets value funds) to have a liquidity buffer of 3% of their assets. Internal Market Commissioner Michel Barnier decided to stop following the recommendation by the European Systemic Risk Council that CNAV be turned into various net asset value funds (VNAV). Barnier explained that investors like CNAV play a useful role and were appreciated by investors. Some commentators argue that forcing them to have such a liquidity buffer would have the same outcome because it would lead to their disappearance.
Despite the efforts of the former rapporteur, Saïd El Khadraoui (S&D, Belgium), the economic and monetary affairs committee did not reach a common position on the question. It suggested keeping the idea of a liquidity buffer and building up to the 3% level recommended by the Commission over five years. The buffer should stand at 1.8% of assets by the end of the third year. The Commission and ESMA would then be commissioned to evaluate whether a buffer of that size was enough (or too much). Khadraoui said a “vociferous” minority headed by an Irish MEP from the EPP toppled the plans. The ECR Group wants closer consideration of the question and joined the calls for it to be postponed. Khadraoui says this is just an excuse because the draft legislation had been completed for a long time. Bowles then backed the call for a postponement in order to win a large majority on the question. The Council of Ministers has not yet studied the question at ministerial level. Many money market funds are based in Ireland and Luxembourg, which may drag their feet on the matter.
Management of the question is expected to be handed to an MEP from the S&D Group.
Hiving off different types of banking. Barnier suggested on 29 January that the risks posed by big European banks be tackled head-on (see EUROPE 11007). He suggested banning proprietary trading in financial instruments and commodities (but not sovereign debt) for 30 or so big banks. In the second arm of the proposal, the Commission suggests giving national supervisory bodies the option in some cases of requiring a bank to hive off risky trading (market-making, complex derivatives, complex securitisation and loans to capital investment funds) into legally and economically separate subsidiaries. The proposal is in deadlock at the level of the member states due to strong criticism from France and Germany, whose legal systems do not go as far as this. The Commission is also criticised for being soft on the United Kingdom. At the EP, the Greens/EFA called for stronger measures to deal with loopholes and legal vacuums. Management of the question is expected to be handed to an MEP from the EPP Group. (EL)