EU financial services lawmakers face a staggering autumn workload with twenty nine legal texts currently being negotiated or expected to be tabled by the European Commission (EC) in the near future. To make any progress, legislators will need to prioritise but agreeing these priorities may not be straightforward in all areas. If some dossiers fail to make the priority list, we could end up with in incomplete regulatory regimes, and possibly market distortion, for years to come.
Which dossiers will make the priority list? Does being on the list ensure the legislation is adopted in time? Those that do not pass the crucial ‘first reading’ milestone before the European Parliament (EP) elections next year face a very uncertain future. The looming EP elections are putting extreme pressure on all the EU legislators over the coming eight months, but most particularly the Lithuanian Presidency.
There is no doubt - and no debate – that creating the Eurozone Banking Union legislation and its EU-wide underpinning tops the list. The Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) will be built on the foundations provided by the Capital Requirements Directive/Capital Requirements Regulation (CRD IV/CRR) and the Bank Recovery and Resolution Directive, respectively, both creating the ‘single rule book’ applicable across the EU. The fate and timing of the deposit guarantee scheme, the third pillar to theBanking Union, remains in some ways an open question.
The Council agreed the Lithuanian Presidency’s priorities in July 2013. In addition to those mentioned above, their priorities include:
The Lithuanian Presidency’s prioritisation has raised some eyebrows. For instance, why isn’t UCITS V on this list? AIFMD’s implementation last July may lead to a potential market distortion if similar measures are not introduced into the UCITS regime.
There are also questions about what priority should be given to other EC proposals – like the Commission’s retail package as a whole and recent or pending proposals such as that on money market funds issued on 4 September, that on financial benchmarks (due 18 September) and on bank structure (expected in November).
Looking beyond the Council’s priority list we still have fifteen further legislative initiatives to worry about:
As indicated above, we’re also expecting several more key proposals in the coming weeks.
The EC published a proposal on money market funds on 4 September. This is the only piece of legislation to be proposed by the EC so far that specifically addresses ‘shadow banking’, so it is likely to want this to be ‘fast-tracked’. The EC has proposed a relatively hard line on this issue which a number of Member States will not be willing to support. Negotiating this dossier may not be straightforward - it may not reach a ‘place of safety’ before the Parliamentary elections.
We’re expecting the EC’s proposal on financial benchmarks on 18 September. This proposal could put the Commission in conflict both the UK and the US, so it also may be challenging to progress significantly.
The EC’s proposal dealing with the recommendations set out in the Liikanen report are due out in November. The EC may not adopt all of the Liikanen recommendations but even so this proposal is expected to be relatively controversial (and therefore difficult to negotiate).
In May 2013, Commissioner Michel Barnier indicated that the EC had decided to exclude ‘pillar 1’ considerations from the upcoming IORP proposal, given the unsatisfactory outcomes of the quantitative impact study undertaken by EIOPA. The proposal will therefore focus on governance and transparency issues which should be less controversial. The new proposal is expected in October.
Securities law legislation remains something of an enigma. The EC has been working on this text for some time. Essentially, it will aim to fill in the remaining legislative gaps remaining with regards to clearing and settlement that are key for the effective operation of EMIR and other legislation. The EC has not indicated whether this will be a Directive or a Regulation and we don’t have a clear indication of the timetable, but it may be released in Q4 2013.