Banking

29.04.15

The EU Banking team within the Financial Services Division is tasked with representing Ireland’s interests at EU negotiations on the various legislative proposals for the EU banking sector. The team is also responsible for the transposition of the relevant Directives into national law, as well as adapting national law to take account of EU Regulations which have direct impact.

A number of legislative reforms are being put in place at present in response to the financial crisis of 2008. The core objective is to provide for a safer and more resilient banking system within the EU. Central to achieving this objective is the creation of a Single Rulebook for all EU member states which will mean a common set of rules on supervision, deposit insurance and resolution.

This approach has been reinforced by the establishment of a Banking Union in which all Euro area Member States including Ireland will participate. It will include the centralised supervision of banks carried out by the European Central Bank (ECB) working with national supervisors[1]. This is known as the Single Supervisory Mechanism.

In order to align the approach to resolution with the centralisation of supervision introduced in the Single Supervisory Mechanism (SSM), a resolution regulation known as the Single Resolution Mechanism (SRM) has been negotiated. The SRM is considered an integral part of the Banking Union package. It will use the underlying rules of the Bank Recovery and Resolution Directive (BRRD) which was developed to ensure a common set of rules on resolution is applied in all EU Member States.

The following are the main EU financial services files which the EU Banking team is responsible for:

 

Capital Requirements Directive (CRD IV) and Capital Requirements Regulation (CRR)

CRD IV/CRR is an integral part of the Single Rulebook which implements the Basel III agreement reached by the Basel Committee on Banking Supervision, endorsed by the G20 leaders. CRD IV/CRR contains important rules that make it mandatory for banks to hold more and better capital, strengthening banks’ resilience in times of crisis. It also aims to contain the pro-cyclicality of the financial system to ensure better protection for depositors and investors. Improved monitoring and governance rules will strengthen the effectiveness of financial regulation in the EU, which will in turn enhance financial stability. CRD IV has been transposed into Irish law by the European Union (Capital Requirements) Regulations 2014 and the European Union (Capital Requirements) (No.2) Regulations 2014. CRR is an EU regulation and therefore has direct effect.

Single Supervisory Mechanism Regulation (SSM)

The SSM Regulation establishes the new supervisory structure for the European banking union. Pursuant to this regulation the ECB is the central supervisor in the banking union. The ECB directly supervises the major European banks and national supervisors will continue to supervise medium and smaller banks. This reinforced supervisory framework aims to restore and maintain confidence in the health of banks in the Eurozone. The ECB took over responsibility for supervision on 4 November 2014. This is an EU regulation and therefore it has direct effect.  However, some amendments to domestic legislation have been required in order to ensure a smooth transition to the new regime.

Bank Recovery and Resolution Directive (BRRD)

The Bank Recovery and Resolution Directive sets out clear rules for dealing with bank failures. The objective is to establish a clear framework to ensure that if a bank is failing or likely to fail it can be resolved in an orderly manner with minimum disruption to the financial system and the wider economy. In order to ensure a level playing field across the EU, it lays the ground rules for resolution of banks for all Member States including those inside of the Banking Union. There is a requirement to transpose this by 31 December 2014.

Single Resolution Mechanism Regulation (SRM)

The SRM Regulation will establish a centralised EU body to coordinate resolution tools and actions within the Banking Union. This ensures that bank supervision and resolution are aligned and exercised at the same central level. The SRM will apply the rules set out in the Bank Recovery and Resolution Directive. This is an EU regulation and therefore will have direct effect.

Deposit Guarantee Schemes Directive (DGSD)

The Deposit Guarantee Scheme reimburses depositors of a failed bank up to an amount of €100,000 per depositor per bank. The recently agreed directive on Deposit Guarantee Schemes will ensure that rules for national deposit guarantee schemes are harmonised to a large degree, thereby ensuring that depositors throughout the EU are similarly protected in the event of a bank failure. The DGSD was published in the EU Official Journal on 12 June 2014 and is required to be transposed by 4 July 2015.

Regulation on structural measures improving the resilience of EU credit institutions:

This proposal will provide supervisors with the power to require the largest banks in the EU to separate potentially risky trading activities from their deposit taking business if these activities pose a threat to financial stability. It also proposes to completely ban these banks from engaging in certain types of trading activity. The overall objective is to further enhance the resilience of the EU banking system and ensure that the largest and most complex banking groups can be resolved in the event of a failure, thus reducing the severity of future financial crises.

The Payment Services Legislative Package - Payment Services Directive 2 (PSD2) and Multilateral Interchange Fees (MIF)

The Payment Services Directive 2007 provided the legal foundation for the creation of an EU-wide single market for payments. It established a set of rules applicable to all payment services in the EU and made cross-border payments more efficient and secure. Its aim was to improve competition by opening the market to new entrants and to foster greater efficiency at reduced cost. On 24 July 2013, the Commission adopted a further legislative package which proposes a revised Payments Services Directive (PSD2) and a Regulation on Multilateral Interchange Fees (MIFs). The objective of the updated proposals is the creation of a payments environment which will nurture competition, innovation and security to the benefit of all stakeholders and consumers in particular.

A significant update contained in PSD2 will see more types of transactions subject to the legislative framework, including those made to third countries and to currencies other than the euro. The MIF Regulation will see a new set of business rules for payment card schemes and the introduction of caps for interchange fees charged on all card transactions. These fees are collectively agreed between payment service providers and the intention behind the proposed caps is to harmonise payment rules across the EU.

Useful links

Link to the European Commission banking site:

http://ec.europa.eu/internal_market/bank/index_en.htm

Link to the European Parliament site on banking union:

http://www.europarl.europa.eu/oeil/popups/thematicnote.do?id=2055000&l=en

Link to the European Banking Authority’s Policy and Regulation website:

http://www.eba.europa.eu/regulation-and-policy;jsessionid=8EDDFFDABA5B2CCD45B5ACBEF5404EFC

Link to the Central Bank’s SSM page:

http://www.centralbank.ie/Pages/SingleSupervisoryMechanism.aspx

Link to Basel Committee on Banking Supervision site:

http://www.bis.org/bcbs/index.htm

Link to European Central Bank’s banking supervision site:

http://www.ecb.europa.eu/ssm/html/index.en.html

Link to the Central Bank’s DGS site:

http://www.centralbank.ie/paycurr/paysys/dgs/pages/about.aspx

Link to the European Payments Services site

http://ec.europa.eu/finance/payments/framework/index_en.htm

[1] The ECB will use the same supervisory rules (CRD IV and CRR) as national supervisors will apply to non-banking union Member States thus ensuring a level playing field between all EU Member States.

 [AM1]This should be the start of a new page / subsection, linked under ‘Financial Services Division 2 EU’ (Section above)