The association representing Luxembourg’s banking industry has claimed success in its lobbying effort to persuade the EU to amend the rules governing the prudential requirements and the supervision of third-country branches to its satisfaction. The association said Thursday that a series of subsequent amendments preserve the attractiveness of the EU as a financial centre towards the rest of the world.
“Overall, the political agreement provides fair conditions of access to the European market while preserving the position of European banks,” said Gilles Pierre, head of banking regulation and financial markets at ABBL. “In the challenging times we are going through, this is undoubtedly a ‘win-win’ situation for European and non-European services.”
The EU Council announced last Tuesday it had reached a provisional agreement with the European Parliament on amendments to the Capital Requirements Regulation and the Capital Requirements Directive as part of finalising the integration of Basel III international agreements into EU law.
Scope narrowed
The key policy wins for the banking association include that the scope of the proposed regime was narrowed to core banking activities, excluding notably MiFID investment services and the related ancillary services, intragroup transactions and transactions between EU banks and third country banks.
Cross-border transactions between third-country banks of the same group will be permitted if they carry them out for funding purposes. The procedure for assessing the third-country banks’ systemic importance, which triggers potential remedial supervisory measures was left to national supervisors for any banks in their jurisdiction.
The new text raised the threshold for triggering the assessment by 33% to 40 billion euros.
Unexpected consequences
The ABBL had previously been concerned about issues it identified that had “unexpected or unintended consequences” in the EU Commission proposal to amend the Capital Requirements Directive in October 2021.
These included that the proposal would “significantly restrict the flow of financial services and products that third-country providers could offer going forward to EU banks and other clients.” Another major issue was that the proposal would be “inconsistent with existing well-established EU financial regulatory frameworks”, for example, the Markets in Financial Instruments Directive and Regulation regime that allows third-country firms to provide investment services on a cross-border basis to eligible counterparties and professional clients.
Since the publication of the proposal, “the ABBL has been continuously advocating a rebalancing of the proposal to preserve the attractiveness of the EU as a financial centre towards the rest of the world.” With last Tuesday’s agreement, the ABBL could claim that “our advocacy efforts have borne fruit.”
Shock resilience
The EU and its G20 partners in the Basel Committee on Banking Supervision reached the Basel III agreement to make banks more resilient to possible economic shocks. The standards include measures to enhance prudential regulatory standards, supervision and risk management of banks as a response to the Global Financial Crisis of 2007/2008.
“Today’s agreement marks the culmination of a long process to reform the EU’s banking rules in the wake of the financial crisis,” said Niklas Wykman, the Swedish Minister for Financial Markets. “By making the banking sector more resilient, the new rules will help the EU continue to withstand challenges such as COVID-19 and the economic impact of the war in Ukraine.”
He went on to say that the agreed rules will support the green and digital transitions by establishing a strong banking sector that can provide funding to the real economy, households and citizens.
The EU governing authorities reached the agreement ‘ad referendum’, so it remains provisional until the Council and the Parliament confirm it, to allow it to be formally adopted.