EUROPEAN UNION: Commission Publishes Results of Call for Evidence on EU Financial Services

Thursday November 24 2016

In response to the financial crisis, the EU undertook a complete overhaul of its rules on financial services, adopting 40 pieces of legislation since 2009. These reforms stabilised the markets, made banks better capitalised, restored trust and made the financial system in the EU stronger and more resilient. In its Call for Evidence, the European Commission assessed the interaction between the individual rules and their combined economic impact, and addressed unintended consequences, inconsistencies and gaps in the regulatory framework.

Based on a thorough review and analysis of all responses received to the Call for Evidence and discussions during the public hearing in Brussels in May 2016, the Commission has concluded that overall the financial services framework does not need to be changed. However, targeted follow-up actions to fine-tune the framework are proposed in the following four areas:

• Removing unnecessary regulatory constraints on financing the economy. In some cases, the same prudential objectives can be achieved in a more growth-friendly way. For example, while the CRR2 package adopted today will reduce risks in the banking sector, the Commission is proposing to implement the rules in a way that ensures banks` capacity to finance SMEs and other parts of the economy. It enables a proper functioning of EU trade finance activities and derivative markets designed to help end users manage their risks. The Commission will also review the prudential treatment of infrastructure and other long-term investment by insurance companies.
• Enhancing the proportionality of rules. More proportionate rules will help promote competition and enhance the resilience of the financial system by safeguarding its diversity and dynamism. The Commission is today proposing to ease reporting burdens for small and non-complex banks and to review EMIR clearing and margining requirements for non-financial companies, pension funds and small financial institutions (see below). The Commission will also look at ways to enhance the proportionality of rules without compromising prudential objectives in other areas, such as insurance and asset management.
• Reducing undue regulatory burdens. Rules should achieve their objectives at minimum cost for firms and, ultimately, end users and the wider economy. Among other measures, the Commission is committed to reducing duplication and excessive reporting requirements and will in due course undertake a comprehensive review how burdens can reduced and reporting consolidated and streamlined, without compromising regulatory objectives.
• Making rules more consistent and forward-looking. The call for evidence highlighted a number of unintended interactions and inconsistencies between individual rules. An example is the interaction between the bank leverage ratio and EMIR clearing obligation, which may undermine our objective to promote reduction of risks through central clearing, is addressed in today`s CRR2 proposal. As part of closing remaining gaps in the regulatory framework, the Commission will shortly adopt a proposal for the recovery and resolution of central counterparties (CCPs). To enhance investor and consumer protection, the Commission will publish an Action Plan in 2017 setting out steps to build a deeper single market for retail financial services.

The Commission will monitor progress in the implementation of the respective policy commitments and will publish its findings and next steps before the end of 2017.

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