The Commissioner for Financial Services, Valdis Dombrovskis, has warned the United States of consequences for the access of American financial institutions to the European market in the event that the financial and banking prudential rules are watered down in the US as a result of the announced re-examination of the American Dodd-Frank Act.
“On the review of the Dodd-Frank Act, there is a need to see the practical outcomes of the review. The decisions on equivalence are based on the assumption that the rules of third countries are achieving the same outcomes as EU law. If this changes, it will make us look anew as to whether our equivalence decisions still hold”, the Commissioner said on Tuesday 28 February, at a debate at the committee on economic and monetary affairs of the European Parliament.
The day before, the Commission published a working document taking stock of the functioning of the system whereby the Commission grants equivalence between the financial rules of third countries and European law (see EUROPE 11734). Welcoming this work, Bryan Hayes (EPP, Ireland) asked Dombrovskis about the need to develop an improved equivalence regime for the United Kingdom, once it is a third country. “After Brexit, the UK may apply for equivalence”, the Commissioner said. Without going into detail on the nature of the future relationship between the EU and the UK, which is home to Europe's largest financial centre, he acknowledged that the existing European rules had originally been designed for third countries “usually less interconnected than the UK”.
When asked by Pervenche Berès (S&D, France) about the impact of the forthcoming departure of the UK from the European Union on the reform of the banking prudential rules presented in November 2016 (see EUROPE 11674) he said that the definition of the bail-in could be affected by the definition of equivalence.
On this point, Dombrovskis reiterated that this legislative package also aimed to transpose into European law rules that had been put together at G20 level, such as the TLAC standard for capital requirements for globalised financial institutions, with which the UK must also comply.
NPL. Pedro Silva Pereira (S&D, Portugal) asked the Commissioner about the need for a European initiative to tackle the issue of non-performing bank loans, on the model of the recent proposals of the European Banking Authority (see EUROPE 11714). Dombrovskis referred to the reflection on creating a secondary market by granting licences for managers of these debts. The subject will be on the agenda of the informal meeting of European finance ministers, to be held in Malta in early April.
Lastly, in reply to Ashley Fox (ECR, UK), who asked him if sovereign debt was always without risk, the Commissioner said that the European Systemic Risk Board was examining a securitised financial products technique using sovereign bonds as the underlying asset. These instruments would create financial products that would give investors the benefit of “preferential treatment”, would provide new investment vehicles and help to break the bank/sovereign debt loop, Dombrovskis explained. He added that if it is possible to move forward in this direction, it will bring in the possibility of introducing “risk weighed for sovereign bonds”. (Original version in French by Mathieu Bion)