Brussels, 22/04/2009 (Agence Europe) - MEPs debated initiatives launched at European level to improve the regulation of financial markets on Wednesday 22 April. They opened the way for the first reading adoption of the Solvency II directive on the activities of insurance and re-insurance companies, and will do likewise on Thursday for the regulation governing the registration and supervision of credit rating agencies at European level. These two proposals, which make considerable advances on the current situation, illustrate the difficulty of putting in place genuinely European supervision of financial players. Even though the European Parliament and the Commission want to make strides towards a truly European supervision structure, it must to be recognised that, generally, it is the Council position that prevails and forms the basis for the political compromises negotiated between the European institutions.
Solvency II. MEPs adopted, as a whole, the political compromise on the draft directive updating European rules on the activities of insurance companies, rejecting all the amendments put down by the GUE/NGL group. Codifying 13 directives, the future legislative act is built on three pillars: - calculation of capital requirements will be based on the economic assessment of the risks run; - cooperation among national regulators responsible for supervision will be increased through the creation of colleges of supervisors for each cross-border insurance group and the appointment of a group controller (the regulator of the member state in which the group has its headquarters); - disclosure requirements will be toughened to promote market discipline.
During the plenary session debate, rapporteur Peter Skinner (PES, UK) said that the Solvency II directive had been forged to respond to the financial crisis, even though the initial proposal dated from summer 2007. He said the legislation would allow companies to make savings because they would only have to report once to regulators grouped in colleges. Referring to the interest in these rules that he had noted in a recent visit to Washington, he argued for the levelling of differences between member states so that the new rules could become an international model.
The political agreement, the fruit of an inter-institutional compromise, does not include arrangement on group support backed by the Commission, Parliament and the industry (see EUROPE 9870 and 9864). This mechanism would have given responsibility for important supervision decisions (approval of the internal model, imposition of additional capital requirements) to the group supervisor in exchange for a written undertaking from the parent company to come to the assistance of a subsidiary in the event of difficulty. Council rejected this because of the opposition from some dozen, mainly Central and Eastern European, member states, which refused to grant extended powers to the supervisor from the country of origin over the activities of insurance companies active on their soil. The Parliament had noted some movement from the Council to ensure that national interests were protected, Skinner said. The EP pushed it into a corner, he went on, but unfortunately did not receive the hoped-for support at the start. He did, however, welcome the rendezvous clause on this issue, set for three years after the directive comes into effect in October 2012. This clause will allow another look at group support once progress has been registered on financial supervision on the basis of the de Larosière report, said Internal Market Commissioner Charlie McCreevy. Welcoming the advances made with this directive, the Commissioner said, however, that arrangements on equity risk that authorised the calculation of capital requirements based on duration and not on risk could be detrimental to investor protection. This method was brought in at the request of France whose insurance companies are major institutional investors on equity markets. After formal adoption of the directive at May's Ecofin Council, the Commission will consider implementation measures for the principles set out in the framework legislation.
Sharon Bowles (ALDE, UK), Karsten Friedrich Hoppenstedt (EPP-ED, Germany) and John Purvis (EPP-ED, UK) also regretted that the group support arrangements had been left until later. Margarita Starkevièiûtë (ALDE, Lithuania) called for “a sharing of responsibilities between the supervisors of the country of origin and the host country”. Welcoming the fact that the Solvency II directive took account of the specific nature of friendly societies, French Socialist Pervenche Berès set out several ways the legislation could develop: harmonisation of colleges' prudential practices, application of the rules to pension funds, creation of deposit guarantees for the sector, the requirement that securitised assets be retained on the balance sheet, as is being negotiated currently for banks. Sahra Wagenknecht (GUE/NGL, Germany) felt that minimum capital requirements (MCR) and solvency capital requirements (SCR) were not enough. The SCR will be calculated according to a risk-based approach, with the MCR forming a percentage, somewhere between 25% and 45% of the SCR.
Credit Rating Agencies. From 2010, for the first time, credit rating agencies will be required to register and to be supervised to be able to operate in the European Union. These agencies issue opinions on the ability of a rated entity to repay its debts. The future regulation, adopted only six months after the initial proposal was presented, imposes strict rules on transparency (publication of specific annual report, differentiated presentation of ratings of complex financial products and publication of additional data), governance (periodic rotation of analysts) and the quality of methodologies used. It envisages two possibilities for the use of ratings issued outside the EU: - the European subsidiary of a group from a third country will assume responsibility for another entity's rating, and - third country agencies whose ratings can be used in the EU if the Commission deems that there is equivalence between the third country's legislation and the future European regulation and if supervisors cooperate with one another. “The crisis has shown the need for credit rating agencies to be regulated,” said rapporteur Jean-Paul Gauzès (EPP-ED, France) during the plenary session debate, and he said he thought the EU should have “exemplary, effective and pragmatic regulation”.
Under the Commission's initial proposal, the Committee of European Securities Regulators (CESR) was to be the single point of entry for requests for authorisation from agencies, the supervisor of the country of establishment of the agency being responsible for granting (or refusing or revoking) authorisation and supervising the agency's activities (see EUROPE 9781). The EP committee, supporting a more European architecture, gave the CESR responsibility for deciding on authorisation and supervision (see EUROPE 9868). Ultimately, the option that prevailed was the Council's, which adopts the Commission proposal and brings in the creation of colleges of national supervisors, as a platform for the exchange of information and coordination of the supervision of agencies (see EUROPE 9883). Gauzès said that this supervision system was only set up on a temporary basis, with the Commission having to report by July 2010 on the usefulness of putting in place a more European mechanism.
Gianni Pittella (PES, Italy) said that the EP had done everything so that the regulation could come into force “as quickly as possible” - nine months after its publication in the Official Journal - and “not two years as member states wanted”. Supported by his Dutch colleague Ieke van den Burg, he said that, because of the lack of political will, the opportunity had been lost to put in place a single supervision body for credit rating agencies. Wolf Klinz (ALDE, Gerùmany); said that the risk of conflicts of interest that could result from a model where agencies were paid by companies calling on their services had been overcome. Arrangements on the use of ratings issued outside the EU were “to restrictive” he felt, denouncing a certain stubbornness on the part of the legislator in setting up too detailed rules of governance. Werner Langen (EPP-ED, Germany) railed against the initial stance of the Commission and the United Kingdom, which refused all regulation of credit rating agencies. Antolín Sánchez Presedo (PES, Spain) called a European agency, an idea expressed for the first time by the Parliamentary committee. Jean-Pierre Audy (EPP-ED, France) put forward the idea of “a worldwide public agency for rating states” under the authority of the IMF and which would assess the quality of state public finances, given that states have provided guarantees, taken shares and took on debt to save the European financial system.
Reporting on mergers and divisions. MEPs adopted the report by Renate Weber (ALDE, Romania) on the legislative proposal amending certain reporting obligations in the event of the merger or division of companies contained in three directives (77/91/EEC, 78/855/EEC and 82/891/EEC). Noting that the cost of compliance with reporting requirements would be 10 times higher for SMEs than for large companies, Weber said that €44 million could be saved annually as a result of the new European rules from July 2011. Member states will have greater flexibility in deciding which reports they need, removing requirements for the same report to be produced twice and authorising, if necessary, publication of certain information in local press - requirements removed to lighten the administrative burden on European companies. Manuel Medina Ortega (PES, Spain) said that Parliament had brought amendments to increase efforts to simplify matters. (M.B./transl.rt)