Strasbourg, 29/09/2005 (Agence Europe) - On 28 September, the European Parliament adopted the report by Alexander Radwan (EPP/ED, Germany) on the proposed directive on the capital adequacy of investment funds and credit establishments. The right of MEPs to inspect future application measures coming under the comitology procedure was the final bone of contention between the Parliament and the Council. The MEPs inserted a sunset clause, which authorises the Commission to take application measures in line with traditional comitology in the two years following the adoption of the directive, and up to 1 April 2008 at the latest. This solution foreshadows a definitive adoption of the text at first reading, as the Commission and the industry had hoped for. The vote in the Parliamentary committee on economic and monetary affairs last July allowed a political compromise to be struck on the main concrete provisions of the legislative proposal.
"This is a concerted amendment", obtained after "consultation with the other European institutions", said Alexander Radwan at the vote, with reference to the oral amendment tabled by the EPP/ED group, which brought a sunset clause in. The UK Presidency would have preferred a longer period of four years, but then decided that period of two years was acceptable. On the other hand, the rapporteur wanted an extension clause after one year, which would be 1 January 2007. During the debate in Strasbourg on Monday evening, Charlie McCreevy called on the two co-legislating institutions to find an acceptable solution, warning: "we need to be certain that the legislative process will not stop". The European Commissioner for the Internal Market took the view that a two-year sunset clause was "viable". He added: " bringing in this reduced period for the implementation powers- which is considerably shorter than the normal period of four years- clearly highlights the urgent need to find a solid, sustainable and balanced solution for the two branches of legislative authority to check on the Commission's powers of execution". Commissioner McCreevy also noted that in the first half of 2007, two sunset clauses would suspend the Commission's powers of execution for the directive 2003/6 on market abuses (11 February 2007) and directive 2002/87/EC on financial conglomerates (12 April 2007).
The Radwan report, as voted on by the Parliamentary committee, made the taking of execution measures for the modification of decision on 1999/468/EC subject to the execution competencies conferred upon the Commission, in order to take account of the European Constitution. The Constitution (which is obviously not applicable, because it has not been ratified), places the EP and the Council on an equal footing, authorising them to refuse to delegate the powers to adopt application measures to be Commission ("call-back right"). More, therefore, is at stake than simply the context of financial services. It refers to all fields of European competency which are changing rapidly and require the adoption of technical application measures. "We have a great need to find a solution", Mr Radwan told EUROPE, adding that the sunset clause represented "a huge step forward" for the Parliament. The UK Presidency took the initiative to set up a "Friends of the Presidency" group in the Council to launch the discussion within the Council on the Commission's 2002 proposal to modify the decision 1999/468/EC.
With the adoption of this directive, the European Union will be the first international organisation to implement the "Bâle II" agreement, which was finalised in June 2004 by the Bâle Committee on banking controls. "This is a good thing for our financial institutions, a good thing for our economy, for financial stability", said Charlie McCreevy in a press release. For his part, the rapporteur said that "the EP has proved its capacity to work quickly". The future directive is well balanced and "reflects the interests of major banking groups and of small and medium-sized enterprises", he added. Mr Radwan managed to rally a sizeable majority around his compromise amendments on subjects such as intra-group credit. "The draft directive, as amended by the EP, lays down the best balance currently imaginable between the responsibilities of the regulatory authorities of the country of origin and those of the host country", added Jean-Paul Gauzès (EPP/ED, France) in a press release.
The new regime will improve the provisions currently in force on the regulatory requirements in terms of own funds (see EUROPE 8748). It will be based on three pillars: requirements in terms of capital, which are mainly linked to the management of risks as practised by the financial establishments; and improvement of the control processes which are available to the authorities in order to assess the efficiency of the internal control systems of the financial establishments; new rules in terms of information, with a view to increasing transparency and market discipline. Various levels of risk assessment will allow the sum total of own capital which the financial establishments must have in order to ensure their own solvability to be established: a simple and intermediate approach applicable from the end of 2006, an advanced approach which will be applicable one year later to the more sophisticated financial establishments. For the first time, European legislation takes account of operational risks linked to such eventualities as human error. It reduces requirements for loans to SMEs and brings in greater flexibility for venture capital.
In December 2004, the Ecofin Council defined the general approach to the proposed directive (see EUROPE 8844). The Council is set to confirm the agreement, which was reached at the first reading of the EP, in the near future, in order to allow the directive to be adopted definitively before the end of 2005.
Representatives of industry expressed their satisfaction
The Banking Federation of the European Union (FBE) welcomed this "as a relief for the industry, given the long negotiations of recent weeks" on the comitology, and encourages "the Ecofin Council to accept the package adopted by the Parliament so that the industry may move forward in the implementation phase". Nonetheless, it regrets the fact that "the opportunity to implement a more efficient monitoring framework (...) was not taken. In the years to come, we must keep up the momentum in order to ensure that we are moving towards consolidated monitoring in Europe". The European Savings Banks Group also welcomed the vote. On the solution reached for the application measures adopted under the comitology procedure, the group says that it is "convinced that it is legitimate and appropriate to grant the European Parliament and the Council equivalent powers, particularly as they relate to the call-back clause". According to the Group, the period of two years contained within the sunset clause "provides the European institutions with an appropriate period in which to re-negotiate an inter-institutional agreement, which fully reflects the equivalent powers of the Parliament in the Council in the co-decision procedure".
In a joint press release, the Association of European Chambers of Commerce and Industry (Eurochambres), The Retail, Wholesale and International Trade Representation to the EU (EuroCommerce) and the European Union of Craft, Small and Medium-Sized Enterprises (UEAPME) "welcome the outcome of the vote". "Making (the) new requirements in terms of loans as simple and transparent as possible for small businesses is vital in order to ensure growth and innovation in this sector", said Hans Werner Müller, Secretary General of UEAPME. Among the considerable progress made, the three organisations referred to the increased transparency of the grading procedures for companies looking for funding, the extension of the eligibility of collateral, which takes greater account of the situation in reality for small businesses, particularly family-run businesses, and the simplification of procedures for low-level loans.