Hello everybody and welcome to this week’s financial services updater.
In the updater this week the two highlights concern the European Commission’s legislative proposals for EU banking union and the new FSA consultation paper on regulatory reform.
Turning first to EU banking union which has attracted a lot of press comment. The European Commission has published legislative proposals for a single supervisory mechanism for banks in the euro area. The Commission’s proposals comprise of three things.
First, a draft Regulation conferring powers on the European Central Bank (ECB) for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis.
Second, a draft Regulation aligning the existing Regulation on the European Banking Authority to the new supervisory structure for banking.
Third, a Communication outlining the Commission’s overall vision for the banking union, covering the single rulebook and the single supervisory mechanism, as well as the next steps involving a single bank resolution mechanism.
Under the Commission’s proposals the ECB is assigned specific tasks necessary for the supervision of EU banks, notably all key tasks related to financial stability. However, those tasks not spelt out in the draft legislation will remain with national supervisory authorities. Under the proposals national supervisory authorities will remain responsible, for example, on issues of consumer protection, supervising banks from third countries establishing a branch or providing cross-border services in the EU, supervising payments services and preventing money laundering.
It will be interesting to see how the draft Regulation conferring powers on the ECB develops over the coming months. All 27 EU countries must agree to empower the ECB with bank supervisory powers, going beyond its current treaty mandate to oversee financial infrastructure. Obviously, the need for unanimity gives national governments more leverage in seeking carve outs.
It’s worth remembering that in the Communication the Commission states that the legislative proposals are an important first step and that further measures will be adopted. This includes a proposal for a single resolution mechanism which would govern the resolution of banks and coordinate the application of resolution tools to banks within the EU banking union.
Interestingly, the day after the proposals were published the European Parliament issued a press release concerning a resolution it had adopted on the Commission’s legislative proposals. Whilst the resolution welcomed the proposals it also raised a number of concerns. In particular the European Parliament is concerned that it only has a consultative role for the draft Regulation conferring supervisory powers on the ECB. However, the press release also notes that the Council of the European Union must await the European Parliament’s opinion before it can adopt the Regulation.
The second highlight is a new FSA consultation paper on regulatory reform. The FSA has published Consultation Paper 12/24: Regulatory Reform: PRA and FCA regimes relating to aspects of authorisation and supervision (CP12/24).
It is generally expected that subject to the passage of the Financial Services Bill legal cut over from the FSA to the Prudential Regulation Authority and the Financial Conduct Authority will take place in April next year.
The FSA's approach to amending its Handbook ready for the legal cut over is based on making only those changes that are required to implement the Financial Services Bill. A key component of this approach is that when the PRA and FCA acquire their powers the provisions in the existing FSA Handbook will be adopted by the PRA, FCA or both to form the new PRA and FCA Handbooks.
As a result of this approach the FSA believes that the majority of the provisions in the current FSA Handbook will be carried forward into the new regulators' Handbooks. From legal cut over the PRA and FCA will then amend the provisions within their Handbooks in line with their respective objectives and functions.
However, certain substantive changes need to be made to the current FSA Handbook in order to align the Handbooks of the PRA and FCA with their future objectives and functions. In CP12/24 the FSA sets out for consultation some of the substantive changes. In particular it covers proposed changes concerning applications to vary and cancel permissions and requirements, controllers and close links, reporting requirements and insurance transfers of business.
The deadline for comments on CP12/24 is 12 December 2012.
We will of course be tracking further developments on regulatory reform in our online technical resource, Phoenix.
That’s the highlights this week. I hope you find the updater helpful, good-bye.