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Adoption of the banking package: revised rules on capital requirements (CRR II/CRD V) and resolution (BRRD/SRM) | EU Commission Press

1. CONTEXT

Why did the Commission propose this package of banking reforms in 2016?

The banking reform package proposed by the Commission in November 2016 represents an important step towards the completion of the European post-crisis regulatory reforms. These risk-reduction measures will allow further progress in completing the Banking Union and the Capital Markets Union, as called for by the Euro Summit, most recently in December 2018. The package is also a response to the June 2016 ECOFIN Council conclusions, which invited the Commission to put forward proposals to further reduce risks in the financial sector no later than by the end of 2016.

These reforms also comply with the standards agreed with international partners at the G20 and to capitalise on the lessons learnt from the financial crisis. In particular, the banking package, as agreed today by the European Parliament, implements some outstanding elements that are essential to make the financial system more resilient and stable, which have been finalised by global standard setters (i.e. the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB).

How will this package reduce risks in the banking sector?

The agreed rules will reduce risks in the banking sector by further reinforcing banks’ ability to withstand potential shocks. They will update the framework of harmonised rules established in the wake of the financial crisis, the so-called ‘Single Rulebook’.

The ‘Single Rulebook’ ensures that:

o    banks have enough capital to cover unexpected losses and are prepared to withstand economic shocks (through the Capital Requirements Directive and Regulation)

o    bank failures are resolved with the use of funds provided by banks, with minimum impact on taxpayers (through the Bank Recovery and Resolution Directive)

o    depositors’ savings are protected at a uniform level of €100,000 across the EU Member States when a bank fails (through the Deposit Guarantee Scheme Directive), and

o    bankers have fewer incentives to take excessive risks.

For the banks in the euro area and those that would like to join the Banking Union, the regulations on the Single Supervisory Mechanism and the Single Resolution Mechanism have further harmonised the way in which banks are supervised and resolved. All these elements have led to reinforcing the EU institutional and regulatory framework for banks, resulting in a substantial reduction of risks in the banking sector.

The rules adopted today will fine-tune some prudential and bank resolution aspects in order to make the banking sector even more resilient to shocks, while making it more growth-friendly and proportionate to banks’ complexity, size and business profile. This means that the rules will be better adapted to the size, risk and systemic importance of the banks.

Furthermore, in order to facilitate an orderly resolution of banks in difficulty the adopted rules further adapt the requirements governing how banking groups deal with operations between the various entities.

How will this package affect the global competitiveness of EU banks?

The measures contained in the package will ensure that EU banks will maintain strong capital and liquidity positions that will enable them to compete with their international peers.

Which additional risk-reduction measures are being introduced beyond the banking package?

Since the Commission adopted the banking package in 2016, it has proposed additional risk-reducing measures for the banking sector in the EU.

One such measure is the ambitious and comprehensive package on non-performing loans (NPLs) proposed by the Commission in March 2018. The package’s aim is to preserve the banking sector’s ability to lend and finance the economy by facilitating the reduction of the remaining stocks of NPLs and by preventing the build-up of NPLs in the future. The European Parliament and the Council already reached an agreement in December 2018 on prudential requirements for banks to cover the risks associated with loans issued in the future that may become non-performing. The Commission continues to call on the co-legislators to show determination on the outstanding proposals on the development of secondary markets for NPLs and on facilitating debt recovery.

In addition, in September 2018 the Commission adopted a Communication and a proposal on anti-money laundering (AML) which complements the 2017 proposal to review of the functioning of the European Supervisory Authorities (ESAs). The main goal is to reinforce EBA’s competences in ensuring compliance with AML and terrorist financing rules. As highlighted in the Commission Communication, prudential and AML supervision are complementary and need to go hand in hand. The European Parliament and the Council reached an agreement on this package of measures during the inter-institutional negotiations on 21 March 2019.

Does the banking package contain any of the standards adopted by the Basel Committee in December 2017?

The 2016 banking package includes the elements of the Basel III framework already agreed at international level at the time of the Commission’s proposal. The more recent changes to that framework, most notably those on credit and operational risk agreed by the Basel Committee in December 2017, are not included in this banking package. The only exceptions are the revised rules on the leverage ratio and the new rules on the leverage ratio buffer.

The Commission will assess the possible implementation of the most recent changes into EU law under the new legislature, following a thorough consultation and an impact assessment to evaluate its consequences for EU banks and the EU economy. This Memo provides further detail on all the aforementioned points.

2. INTER-INSTITUTIONAL NEGOTIATION PROCESS ON THE BANKING REFORM PACKAGE

What has been decided today by the European Parliament? What are the key elements of the agreement?

The European Parliament endorsed today the provisional agreement reached with Member States during the political trilogues at the beginning of December. The legislative texts still need to be formally adopted by the Council of Ministers.

The agreement includes the following key measures of the package:

  • a leverage ratio requirement for all institutions as well as a leverage ratio buffer for all global systemically important institutions;
  • a net stable funding requirement;
  • a new market risk framework for reporting purposes;
  • a requirement for third-country institutions having significant activities in the EU to have an EU intermediate parent undertaking;
  • revised rules on capital requirements for counterparty credit risk and for exposures to central counterparties;
  • a revised Pillar 2 framework;
  • an updated macro-prudential toolkit;
  • the exclusion of certain banks from the scope of application of the CRR and the CRD;
  • a number of measures aimed at reducing the administrative burden related to reporting and disclosure requirements for small non-complex banks, as well as simplified market risk and liquidity rules for those banks;
  • a new discount on capital requirements for investments in infrastructure and a more generous discount on capital requirements for exposures to SMEs;
  • targeted amendments to the credit risk framework to facilitate the disposal of non-performing loans and to reflect EU specificities;
  • targeted amendments related to the incorporation of environmental, social and governance aspects into prudential rules;
  • enhanced prudential rules in relation to anti-money laundering;
  • a new total loss absorbing capacity (TLAC) requirement for global systemically important institutions;
  • enhanced Minimum Requirement for own funds and Eligible Liabilities (MREL) subordination rules for global systemically important institutions (G-SIIs) and other large banks referred to as top-tier banks;
  • a new moratorium power for the resolution authority;
  • restrictions to distributions in case of MREL breaches;
  • Home-host related measures.

3. CAPITAL and LIQUIDITY REQUIREMENTS

3.1 Leverage Ratio (LR)

What impact does the banking package have on the leverage ratio?

The financial crisis highlighted that institutions were highly leveraged, i.e. they took on more and more exposures (loans, derivatives, guarantees etc.), while raising relatively limited amounts of additional capital.

The banking package introduces a binding leverage ratio requirement (i.e. a capital requirement independent from the riskiness of the exposures, as a backstop to risk-weighted capital requirements) for all institutions subject to the CRR. The leverage ratio requirement complements the current requirements in the CRD and the CRR to calculate the leverage ratio, to report it to supervisors and, since January 2015, to disclose it publicly.

The leverage ratio requirement is set at 3% of Tier 1 capital and institutions must meet in addition to/in parallel with their risk-based capital requirements. The 3% calibration is in line with the internationally-agreed level.

Does the banking package contain an additional leverage ratio buffer for G-SIIs?

Yes. Rules requiring global, systemically important institutions to hold an additional leverage ratio buffer on top of the leverage ratio applicable to all banks were added in the package during the negotiations between the European Parliament and the Council. The Commission’s proposal did not contain such rules because international discussions were still ongoing at the time.

3.2 Net Stable Funding Ratio (NSFR): What is the compromise on the NSFR?

Before the financial crisis, banks relied too much on short-term funding raised in wholesale markets to finance their long-term activities, meaning that long-term assets growth was not accompanied by a similar increase in stable funding sources. When short-term funding became unavailable, institutions were either forced to request emergency liquidity assistance from central banks or engage in ‘fire sales’ of assets with the ultimate consequence of driving a number of them into insolvency.

The net stable funding ratio (NSFR) requires banks to ensure that exposures are matched with stable funding sources, thereby preventing liquidity crises. The NSFR standard agreed by the Basel Committee is implemented with some adjustments recommended by the EBA’s NSFR report in order to ensure that the NSFR does not hinder the financing of the European economy. They relate mainly to specific treatments such as pass-through models in general and covered bonds issuance in particular, whose funding risk can be considered as low when assets and liabilities have the same maturity. The proposed specific treatments broadly reflect the preferential treatment granted to these activities in the EU Liquidity Coverage Ratio (LCR). As the NSFR complements the LCR, these two ratios need to be consistent in their definition and calibration.

Other adjustments to the Basel standard relate to the treatment of short-term transactions with financial institutions in order not to hinder the good functioning of EU capital markets. These adjustments are only transitional for a period of four years, after which the calibration of the Basel standard would apply unless the Commission submit a legislative proposal to amend the treatment of these short-term transactions.

3.3 Market Risk – trading book

What is the compromise on the revised market risk capital requirements?

During the financial crisis, the level of capital required against trading book positions proved insufficient to absorb losses when they materialised. That is why the Basel Committee carried out a fundamental review of the trading book (FRTB) framework.

The FRTB standard of the Basel Committee as a whole was completed in January 2016. However, certain elements of the new market risk framework were subsequently revised by the Basel Committee in January 2019. In December 2017, the Basel Committee also announced a delay of the implementation deadline of the FRTB standard to 1 January 2022.

In light of these developments, which came after the Commission made its proposal, the co-legislators agreed that it would not be appropriate to implement the FRTB rules as initially proposed by the Commission in the banking package because it would oblige institutions to meet requirements subject to change in the short term.

Instead, the co-legislators have adopted a reporting requirement. Reporting will start once the elements reviewed at international level are introduced via a number of level 2 measures (delegated act for the standardised approach and RTS developed by EBA for the internal model approach).

The EBA has been mandated to report to the Commission on the appropriateness of the final FRTB standards for capital requirement purposes and, in light of this report, the Commission will be invited to submit a legislative proposal by June 2020 to turn the reporting requirement based on the FRTB approaches into a capital requirement.

3.4 Own funds – Treatment of software

What is the agreement on the deduction of software assets from own funds?

As a general rule, banks are required to deduct the value of software assets identified as intangible from their capital. This increases their capital needs. The co-legislators have agreed to exclude certain software assets from the scope of assets that need to be deducted from own funds. In order to ensure a level-playing field at international level and to foster the investments in software in the context of an even more digital environment, the European Banking Authority will be mandated to draft technical standards to define those software assets that do not need to be deducted.

This specification is important as software is a broad concept that covers many different types of assets not all of which preserve their value in a winding-down situation. The technical standards should ensure prudential soundness, taking into account the digital evolution, difference in accounting rules at international level as well as the diversity of the EU financial sector including FinTechs.

3.5 Pillar 2

What are the main changes regarding “Pillar 2” capital add-ons?

Pillar 2 capital requirements are bank specific requirements which supervisors can impose in addition to generally applicable minimum requirements (“Pillar 1”) to cover the specific risks a bank is exposed to. Today’s agreement confirms the thrust of the Commission’s proposal to clarify the conditions for the application of Pillar 2 capital add-ons and the distinction between mandatory Pillar 2 requirements and supervisory expectations to hold additional capital, also known as Pillar 2 Guidance. The agreement also ensures that competent authorities have the necessary flexibility in the application of Pillar 2 requirements.

What is the difference between “Pillar 2” capital add-ons and macro-prudential tools?

The Commission’s proposal provided that Pillar 2 capital add-ons should be confined to a purely micro-prudential perspective, to avoid overlaps with the existing macro-prudential tools which aim to address systemic risk. Today’s agreement confirms this separation and provides additional flexibility for the application of the existing macro-prudential tools in order to ensure that authorities have sufficient means to address systemic risk.

3.6 Macro-prudential toolbox

What are the main changes regarding the macro-prudential toolkit?

Targeted improvements have been introduced in the macro-prudential toolkit by the co-legislators to enhance its flexibility and comprehensiveness. It was agreed to:

(i)         increase the authorities’ flexibility in the use of the Systemic Risk Buffer and the Other Systemically Important Institutions buffer;

(ii)        clarify their scope of application of the Systemic Risk Buffer;

(iii)       clarify the roles and responsibilities of authorities in tackling financial stability risks linked to exposures secured by mortgages on immovable property;

(iv)    reduce the administrative burden linked to the activation and reciprocation of macro-prudential instruments;

(v)     introduce a leverage ratio buffer for G-SIIs;

(vi) introduce the option to reflect progress with respect to the Banking Union in the calculation of G-SII score.

3.7 Exempted Entities

What changes are being introduced with regard to entities exempted from CRD/CRR?

Currently the CRD contains a list of entities that have historically been exempted from its scope. Those are public development banks and credit unions in certain Member States. To ensure a level playing field, it should be possible for other similar entities to operate only under national regulatory safeguards, proportional to the risks incurred. In addition to exemptions proposed by the Commission, the co-legislators have exempted a few additional entities, some of which are newly established. In one case, several additional entities were added to the list to ensure the level playing field with an already exempted entity in that particular Member State.

Additionally, the co-legislators agreed that the list of exempted entities should only be only by the co-legislators and not through Delegated Acts as proposed by the Commission.

Lastly, the co-legislators have added an anti-circumvention clause expressly prohibiting Member States to exempt from the CRD through national law credit institutions which are not on the list.

3.8 Credit risk

Why does the adopted text include provisions on credit risk?

Credit risk is the risk of loss due to a borrower’s failure to make payments on his or her debt or on other contractual obligations. The European Parliament has proposed some targeted amendments to the existing credit risk framework. The co-legislators agreed to such amendments in two areas: (i) provisions that would help banks with high-levels of non-performing loans to sell them with a limited impact on their capital requirements (so-called massive disposals) and (ii) a more favourable treatment for pensions and salary-backed loans.

What are ‘massive disposals’?

The term ‘massive disposals’ refers to situations where banks sell large parts of a portfolio of non-performing loans. These measures are usually part of a multiple-year programme and have the objective to reduce a bank’s non-performing exposure on its balance sheet.

What does the agreed package envisage for massive disposals?

A number of banks use internal models to quantify their own Loss-given default (LGD) estimates. These estimates are one parameter for the calculation of regulatory capital requirements and must be based on observed losses. In short, the higher these observed losses are, the higher will be a bank’s LGD estimates and subsequently it will face higher capital requirements.

There have been concerns that massive disposals would not reflect the true long-term economic value of the underlying loans and hence the observed losses could lead to an unjustified increase in banks’ loss estimates.

The new rules will allow banks to adjust their loss estimates for a limited period and under strict conditions. This should make it easier for banks to clean up their balance sheets from bad assets and hence improving their lending capacity.

These rules were not included in the Commission proposal.

What does the agreed package envisage for pension and salary-backed loans?

The compromise envisages lower capital requirements for these specific loans to natural persons. These loans typically have comparably low default risk. The compromise sets out a number of safeguards to ensure that this remains the case.

These rules were not included in the Commission proposal.

3.9 Proportionality

What do the agreed rules introduce in terms of proportionality?

First, the text renders requirements for banks to publically disclose certain information more proportionate for smaller and less complex banks. A mandate is also given to the European Banking Authority with the aim to streamline reporting requirements. Moreover, a feasibility study to integrate different types of regulatory reporting by banks will be undertaken.

Second, where new prudential standards are introduced, simple and conservative alternatives are proposed for smaller, less complex banks, notably for market risk, the net stable funding ratio, counterparty credit risk and interest rate risk in the banking book.

Finally, the agreed rules introduce simplified obligations on remuneration and on the net stable funding ratio for smaller and less complex banks.

3.10 Financing of SMEs

How will the banking package affect the financing of SMEs and infrastructure investment?

As regards lending to SMEs, the banking package raises the threshold below which exposures to SMEs can benefit from the existing 25% reduction in capital requirements for lending to SMEs. Compared to the existing rules, it also reduces capital requirements by 15% for exposures above that threshold.

Similarly to the prudential requirements on insurance, the banking package lowers capital requirements by 25% for investments in infrastructure provided they comply with a set of criteria able to reduce their risk profile and enhance predictability of cash flows.

3.11 Sustainable finance

Does the banking package contain any measures related to sustainable finance?

The banking package mandates the European Banking Authority to prepare two reports: one on how to incorporate environmental, social and governance (ESG) risks into the supervisory process and one on the prudential treatment of assets associated with environmental or social objectives. In addition, it requires large institutions to publicly disclose information on ESG-related risks they are exposed to.

3.12 Intermediate parent undertaking

Today’s agreement endorses the Commission’s proposal to require third-country groups operating in the EU to set up an intermediate parent undertaking (IPU) in the EU, which would allow for a more holistic supervision of the EU activities and would facilitate resolution within the EU.

Co-legislators agreed to limit the application of such new requirement to groups with significant EU activities of at least EUR 40 billions, regardless of whether they are global systemically important banks or not. With a view to respond to structural separation requirements in certain third countries, the agreement also envisages a derogation permitting the establishment of two intermediate parent undertakings where such separation is warranted or resolution would be more effective. To avoid disruptive effects existing third country groups operating in the EU will benefit from a transitional period.

Are branches also covered by the intermediate parent undertaking?

EU branches of third-country credit institutions and investment firms are relevant for determining whether the activities of third-country groups in the EU are significant, i.e. whether the EU assets are above the EUR 40 billion threshold. Branches do not have to be organised under an IPU, but will be subject to enhanced reporting.

3.13 Prudential supervisors’ role in combating money laundering and terrorist financing

Recent cases involving some EU banks have revealed serious occurrences of money-laundering and underlined that failure to address money laundering could have detrimental effects on the financial soundness of individual institutions, as well as financial stability implications. Prudential supervisors have a clear responsibility in complementing the role of anti-money laundering authorities and participating actively in this fight.

The new rules of the CRD reinforce the cooperation and exchange of information obligations between prudential and anti-money laundering authorities. Moreover, the co-legislators have explicitly highlighted the anti-money laundering dimension in several key prudential instruments enshrined in the CRD, such as authorisation, fit and proper tests, the supervisory review and evaluation process.

Together with the existing EU Anti-Money Laundering rules and the recently agreed reform of the European Supervisory Authorities, which entrusts the European Banking Authority (EBA) with specific anti-money laundering responsibilities, the new rules will contribute to promote the integrity of the EU’s financial system and protection from financial crime. 

How does this relate to the Commission’s AML related proposals in the ESAs review?

Although the Commission did not propose in 2016 changes to the CRD to reinforce the AML dimension of prudential supervision, the Commission immediately reacted to the recent AML-related scandals by publishing in September a Communication and an amendment to ESA’s review that would reinforce EBA’s competences in ensuring compliance with AML rules.

As highlighted in the Commission Communication, prudential and AML supervision are complementary and need to go hand in hand. The Banking Package establishes an enhanced role for prudential authorities, which goes hand in hand with the reinforced EBA role agreed in the ESA’s review.

4. BANK CRISIS MANAGEMENT FRAMEWORK

What is the essence of the political compromise reached by the co-legislators on the MREL subordination policy?

In order to ensure effective and credible application of the bail-in resolution tool to impose losses on banks’ creditors in case of a banking crisis, banks are subject to the Minimum Requirement for own funds and Eligible Liabilities (MREL) which are earmarked for bail-in in a crisis. The EU resolution framework (consisting of the BRRD and the SRMR) requires banks to comply with MREL at all times by holding easily ‘bail-inable’ instruments, so as to ensure that losses are absorbed and banks are recapitalised once they get into a financial difficulty and are subsequently placed in a resolution.

In order to achieve a credible bail-in tool, the co-legislators agreed to tighten the rules on the subordination of MREL instruments. Beyond, the existing GSII category, they decided to create a new category of large banks, the so-called “top-tier banks” with a balance sheet size greater than EUR 100bn, in relation to which, more prudent subordination requirements are formulated. National resolution authorities may also select other banks (non-GSIIs, non-top tier banks) and subject them to the top-tier bank treatment. Co-legislators agreed an MREL minimum pillar 1 subordination policy for each of these different categories. Moreover, for a sub-set of G-SIIs and top-tier banks and under certain conditions, the resolution authority may also impose an additional Pillar 2 subordination requirement.

For the rest of the banks, the subordination requirement remains a bank-specific assessment based on the principle of “no creditor worse off”.

What is the agreed policy regarding moratorium powers?

In order to avoid excessive outflows of liquidity in a bank resolution, the Commission proposed to give supervisors and resolution authorities the power to impose a moratorium on banks’ liabilities. The co-legislators agreed to retain a single moratorium power (as opposed to two different tools for supervisors and resolution authorities as initially proposed by the Commission and the EP), which should be triggered after the bank is declared “failing or likely to fail”. The power to impose a moratorium includes also covered deposits and could be imposed for a maximum duration of two days, in line with the ISDA (International Swaps and Derivatives Association) agreements.

What is the agreement on the penalties related to breaches of MREL levels (maximum distributable amount (MDA))?

If banks breach their MREL requirements they may be subject to restrictions preventing them from distributing resources to shareholders or employees. The retained approach, which is the outcome of the political negotiations, builds on the concept of framed flexibility for the resolution authorities to define maximum distributable amounts. For the first nine months following a breach of combined buffer requirement due to an MREL breach, restrictions might be applied only if certain conditions which are related to the nature of the breach are met. After nine months, the presumption is that restrictions must be applied, but can be waived if strict conditions (related to market conditions and the broader financial stability) are met.

What is the final political agreement on the home-host elements?

The negotiations on the powers of the home supervisor of a banking group and the supervisors of Member States where a subsidiary of the banking group is located (home-host balance) have led to the following agreement:

  • ensuring that subsidiaries in host countries haveresolution resources (MREL);
  • a “safe harbour” clause which enables host authorities to request a higher internal MREL, part of which would not be subject to EBA mediation between home and host authorities;
  • the deletion of collateralised guarantees in cross border situations and no cross-border waivers;
  • the deletion of the “rule of the sum” between internal and external MREL requirements in a given group;
  • a bottom-up approach in the process of setting internal/ external MREL targets;
  • the exclusion of intra-group liabilities from the bail-in of the parent.

KEY TERMS GLOSSARY

BRRD    Bank Recovery and Resolution Directive

CCP      Central Counterparty

CRD      Capital Requirements Directive

CRR      Capital Requirements Regulation

EBA      European Banking Authority

FRTB     Fundamental review of the trading book

FSB      Financial Stability Board

G-SII    Global Systemically Important Institution (CRR lingo for G-SIB)

G-SIB    Global, Systemically Important Banks

LCR       Liquidity Coverage Ratio

MREL    Minimum Requirement for Eligible Liabilities and Own Funds – MREL

NSFR    Net Stable Funding Ratio

O-SII    Other Systemically Important Institutions (CRR lingo for domestic SIBs)

QCCP    Qualifying Central Counterparty

SRF      Single Resolution Fund

SRMR    Single Resolution Mechanism Regulation

TLAC     Total Loss Absorption Capacity

Parliament approves rules to reduce risks to EU banks and protect taxpayers | EU Parliament Press

  • Risk to the EU banking system reduced 
  • Clear roadmap for banks to deal with losses 
  • Taxpayers protected 

Parliament adopted a significant step towards reducing risks in the banking system and establishing the Banking Union, on Tuesday.

The rules approved by Parliament and already informally agreed with member states, concern

prudential requirements to make banks more resilient. This should help to boost the EU economy by increasing lending capacity and creating more liquid capital markets, and a clear roadmap for banks to deal with losses without having to resort to taxpayer funded bailouts.

Proportionality

To ensure that banks are treated proportionately, according to their risk profiles and systemic importance, MEPs ensured that “small and non-complex institutions” will be subject to simplified requirements, in particular with regard to reporting and to putting fewer funds aside to cover possible losses. Systemically important banks, however, will have to have significantly more own funds to cover their losses in order to strengthen the principle of bail-in (losses imposed on banks’ investors (e.g. bondholders) to avoid bankruptcy, instead of state-funded recapitalisation) in the EU.

SME supporting factor

As small and medium enterprises (SMEs) carry a lower systemic risk than larger corporates, capital requirements for banks will be lower when they lend to SMEs. This should mean that lending to SMEs will increase.

Peter Simon (S&D, DE) the rapporteur for the prudential requirements (CRD-V/CRR-II), said:“In the future, banks will be subject to stricter leverage and long-term liquidity rules. Sustainability is also important, as banks have to adapt their risk management to risks that stem from climate change and the energy transition.”

Avoiding taxpayer bailouts

Parliament has approved the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR), which means that international standards on loss absorption and recapitalisation will be incorporated into EU law.

This new legislation on a clear roadmap for banks to deal with losses should ensure that they hold enough capital and bail-inable debt to not resort to taxpayer bailouts and define conditions for early remedial measures.

Moratorium

The new rules for applying a “moratorium power” will suspend payments by banks that are in difficulty . This power may be activated when it has been determined that the bank is failing or likely to fail and if there is no immediately available private sector measure to prevent the failure. It allows the resolution authority to establish whether it is in the public interest to put the bank into resolution rather than insolvency. The scope of the moratorium would be proportionate and tailored to a concrete case.If the resolution of a failing or likely to fail bank is not in the public interest, it should be wound up in an orderly manner according to national law.

Protection

Finally, Parliament secured provisions to protect small investors from holding bail-inable bank debt, such as bonds issued by a bank when it is not a suitable retail instrument for them. Financial contracts governed by third country law in the EU would need to have a clause acknowledging that it was subject to the resolution rules on bail-in and moratorium.

Gunnar Hökmark (EPP, SE), the rapporteur for the BRRD/SRMR package, said: “This is a very important step in the completion of the Banking Union and in reducing risks in the financial system. The new law is balanced, as it sets requirements on banks but at the same time also ensures that banks can play an active role in financing investments and growth”.

MEPs strengthen EU financial watchdogs | EU Parliament Press

  • Update to EU system of financial supervision to keep pace with changes  
  • Consumers stand to be better protected 
  • New powers to banking watchdog to fight money-laundering  

MEPs approved rules strengthening the EU financial supervision needed for safer financial markets, fighting money laundering, and protecting consumers.

The new law, adopted on Tuesday by 521 in favour, 70 against, with 65 abstentions, already agreed with EU ministers and spearheaded through Parliament by Othmar Karas (EPP, AT) and Pervenche Berès (S&D, FR), consists of an upgrade of the EU financial supervisory authorities established in 2010.

European consumers, investors and businesses will benefit from safer and more integrated financial markets thanks to the reform, which is also essential to pave the way for completing the banking union and the capital markets union, two flagship projects for a stronger single market. It also includes provisions to promote financial products which support environmental, social and good governance initiatives (ESGs).

More empowered finance watchdogs

The revision of the supervisory architecture will increase the responsibilities of the EU watchdogs for banking, for securities and financial markets, and for insurance and pensions, and improve their governance structure. This will allow them to keep up with the increasingly complex world of finance, thereby protecting consumers and taxpayers better, and settle disputes and breaches of EU law more effectively.

Helping consumers and sustainable finance

To ensure a uniform application of EU rules and promote a true Capital Markets Union, the reform also entrusts the European Securities and Markets Authority (ESMA) with direct supervisory power in specific financial sectors, such as markets in financial instruments or benchmarks. ESMA will also coordinate national actions in the areas of Financial Technologies (FinTech) and promote sustainable finance, including when conducting EU-wide stress tests to identify which activities could have a negative effect on the environment.

Consumers will benefit from various new powers that will be given to the EU supervisory authorities, such as the power to coordinate competent authorities’ mystery shopping activities to measure compliance with regulation, and reinforcing powers to prohibit or restrict certain financial activities considered damaging to consumers.

New powers to improve fight against money laundering

Finally, the new law strengthens the European Banking Authority’s (EBA) mandate, tasking it with preventing the financial system from being used for money-laundering and terrorist financing. Specifically, EBA will now have the power to adopt measures to prevent and counter money laundering and terrorist financing. National authorities will be obliged to provide the EBA with information necessary to identify weaknesses in the EU financial system regarding money laundering.

Next steps

EU ministers will now have to formally confirm the deal before the reform enters into force.

Parliament approves EU rules requiring life-saving technologies in vehicles | EU Parliament Press

  • Cars, vans, trucks and buses to be equipped with advanced safety features 
  • Cyclists and pedestrians will be better protected 
  • In 2018, 25 100 people died in accidents on EU roads 

Safety features such as intelligent speed assistance and advanced emergency-braking system will have to be installed in new vehicles as from May 2022.

“This law is paving the way to save thousands of lives in the coming years. Our focus was always on the safety of road users, especially vulnerable ones. The additional obligatory equipment for cars, trucks and buses will help to save people’s lives”, said Róża Thun (EPP, PL), who steered this legislation through Parliament. The provisional deal with EU ministers was reached on 26 March.

Vehicles better equipped to prevent accidents

The advanced systems that will have to be fitted in all new vehicles are: intelligent speed assistance; alcohol interlock installation facilitation; driver drowsiness and attention warning; advanced driver distraction warning; emergency stop signal; reversing detection; and event data recorder (“black box”).

The intelligent speed assistance (ISA) system could reduce fatalities on EU roads by 20%, according to estimates. “ISA will provide a driver with feedback, based on maps and road sign observation, always when the speed limit is exceeded. We do not introduce a speed limiter, but an intelligent system that will make drivers fully aware when they are speeding. This will not only make all of us safer, but also help drivers to avoid speeding tickets”, Ms Thun said.

For passenger cars and light commercial vehicles, it will also be mandatory to have an emergency braking system (already compulsory for lorries and buses), as well as an emergency lane-keeping system.

Most of these technologies and systems are due to become mandatory as from May 2022 for new models and as from May 2024 for existing models.

Trucks and buses safer for cyclists and pedestrians

Trucks and buses will have to be designed and built to make vulnerable road users, such as cyclists and pedestrians, more visible to the driver (so-called “direct vision”). Those vehicles will have to be equipped with advanced features to reduce “to the greatest possible extent the blind spots in front and to the side of the driver”, says the text.

Direct vision technology should be applied to new models as from November 2025 and for existing models from November 2028.

Improved crash tests and windscreens

The new rules also improve passive safety requirements, including crash tests (front and side), as well as windscreens to mitigate the severity of injuries for pedestrians and cyclists. Type-approval of tyres will also be improved to test worn tyres.

Next steps

The regulation, approved by Parliament with 578 votes to 30, and 25 abstentions, will now be submitted for approval to the EU Council of Ministers.

In 2018, around 25 100 people died on EU roads and 135 000 were seriously injured, according to preliminary figures published by the Commission.

Protecting whistle-blowers: new EU-wide rules approved | EU Parliament Press

  • New system to protect and encourage reporting of breaches of EU law 
  • Whistle-blowers will be able to choose between internal and external reporting 
  • Safeguards against reprisals from employers
 

Those disclosing information acquired in a work-related context, on illegal or harmful activities, will be better protected, under new EU rules approved on Tuesday.

The new rules, adopted with 591 votes in favour, 29 against and 33 abstentions and already agreed with EU ministers, lay down new, EU-wide standards to protect whistle-blowers revealing breaches of EU law in a wide range of areas including public procurement, financial services, money laundering, product and transport safety, nuclear safety, public health, consumer and data protection.

Safe reporting channels

To ensure potential whistle-blowers remain safe and that the information disclosed remains confidential, the new rules allow them to disclose information either internally to the legal entity concerned or directly to competent national authorities, as well as to relevant EU institutions, bodies, offices and agencies.

In cases where no appropriate action was taken in response to the whistle-blower’s initial report, or if they believe there is an imminent danger to the public interest or a risk of retaliation, the reporting person will still be protected if they choose to disclose information publicly.

Safeguards against retaliation

The law explicitly prohibits reprisals and introduces safeguards to prevent the whistle-blower from being suspended, demoted and intimidated or facing other forms of retaliation. Those assisting whistle-blowers, such as facilitators, colleagues, relatives are also protected.

Member states must ensure whistle-blowers have access to comprehensive and independent information and advice on available procedures and remedies free-of-charge, as well as legal aid during proceedings. During legal proceedings, those reporting may also receive financial and psychological support.

Quote

The rapporteur Virginie Rozière (S&D, FR) said: “Recent scandals such as LuxLeaks, Panama Papers and Football leaks have helped to shine a light on the great precariousness that whistle-blowers suffer today. On the eve of European elections, Parliament has come together to send a strong signal that it has heard the concerns of its citizens, and pushed for robust rules guaranteeing their safety and that of those persons who choose to speak out”.

Next steps

The law now needs to be approved by EU ministers. Member states will then have two years to comply with the rules.

Background information

Recent scandals, from LuxLeaks to Panama Papers, have demonstrated how important whistle-blowers’ revelations are to detect and prevent breaches of EU law harmful to the public interest and the welfare of society. Lack of effective whistle-blower protection at EU level can also negatively impact the functioning of EU policies in a member state, but can also spill over to other countries and the EU as a whole.

Currently, only 10 EU countries (France, Hungary, Ireland, Italy, Lithuania, Malta, Netherlands, Slovakia, Sweden and UK) provide comprehensive legal protection. In the remaining countries, protection is only partial or applies to specific sectors or categories of employee.

A 2017 study carried out for the Commission estimated the loss of potential benefits due to a lack of whistle-blower protection, in public procurement alone, to be in the range of €5.8 to €9.6 billion each year for the EU as a whole.

MEPs discuss Brexit extension and European elections | EU Parliament Press

The flexible extension to the UK’s membership agreed on 10 April was discussed with Council President Donald Tusk and Commission President Jean-Claude Juncker.

In the plenary debate on Tuesday, having expressed their sadness at the Notre Dame disaster, the majority of MEPs commended the 10 April decision to extend the UK’s membership of the EU and avoid a ‘no-deal’ Brexit, stating that the UK government should use the time gained constructively, while the rest of Europe will be able to focus on other key issues. Nevertheless, most speakers stressed that the extension should not be interpreted as an invitation to perpetuate uncertainty and division, nor should it be allowed to poison the upcoming European elections in the UK.

Opening statements by Donald TUSK, President of the European Council and by Jean-Claude JUNCKER, President of the European Commission.

MEPs debate.

Closing statements by Donald TUSK, President of the European Council and by Jean-Claude JUNCKER, President of the European Commission.

Report by President Donald Tusk to the European Parliament on the Special European Council (Art. 50) meeting on 10 April | EU Council Press

From this place I would like to say words of comfort and solidarity with the whole French nation in the face of the Paris tragedy. I say these words not only as the president of the European Council, but also as a citizen of Gdańsk, 90 percent destroyed and burnt, and later rebuilt. You will also rebuild your cathedral. From Strasbourg, the French capital of the European Union, I call on all the 28 Member States to take part in this task. I know that France could do it alone, but at stake here is something more than just material help. The burning of the Notre Dame cathedral has again made us aware that we are bound by something more important and more profound than Treaties. Today we understand better the essence of that, which is common, we know how much we can lose. And that we want to defend it – together.

Last week the European Council of 27 leaders, in agreement with the government of the United Kingdom, granted a flexible extension of the Article 50 period until the 31st of October this year. This extension gives our British friends more time and political space to find a way out of the current situation. I hope that they will use this time in the best possible way.

The European Council will be awaiting a clear message from the UK on a way forward. If the Withdrawal Agreement were to be ratified, the extension period will automatically end on the first day of the following month, meaning that the UK would leave the Union on that day. It is clear to everyone that there will be no re-opening of the Withdrawal Agreement. However, to facilitate the ratification process, the EU27 is ready to reconsider the Political Declaration on the future relationship, if the UK position were to evolve.

Last week, the European Council changed the logic of granting a much shorter extension than requested by the UK, to giving an extension that is much longer. I proposed such a change, as in my view it has a few advantages.

First and foremost, only a long extension ensures that all options remain on the table, such as ratification of the current Withdrawal Agreement, or extra time to rethink Brexit, if that were the wish of the British people.

Second, this extension allows the EU to focus on other priorities that are at least as important, like trade with the US or the new EU leadership. I know that some have expressed fear that the UK might want to disrupt the EU’s functioning during this time. But the EU27 didn’t give in to such fear and scaremongering. In fact, since the very beginning of the Brexit process, the UK has been a constructive and responsible EU member state. And so, we have no reason to believe that this should change.

Third, this flexible extension delays the possibility of a no-deal Brexit by over 6 months. Thanks to this, millions of people and businesses have gained at least some certainty in these unstable times.

One of the consequences of our decision is that the UK will hold European elections next month. We should approach this seriously, as UK Members of the European Parliament will be there for several months, maybe longer. They will be full Members of the Parliament, with all their rights and obligations.

I am speaking about this today because I have strongly opposed the idea that during this further extension, the UK should be treated as a second-category member state. No, it cannot. Therefore, I also ask you to reject similar ideas, if they were to be voiced in this House.

I know that, on both sides of the Channel, everyone, including myself, is exhausted with Brexit, which is completely understandable. However, this is not an excuse to say: “let’s get it over with”, just because we’re tired. We must continue to deal with Brexit with an open mind, and in a civilised manner. Because whatever happens, we are bound by common fate, and we want to remain friends and close partners in the future.

During the European Council one of the leaders warned us not to be dreamers, and that we shouldn’t think that Brexit could be reversed. I didn’t respond at the time, but today, in front of you, I would like to say: at this rather difficult moment in our history, we need dreamers and dreams. We cannot give in to fatalism. At least I will not stop dreaming about a better and united Europe.

Dear friends, this is our last meeting in your current term. I hope to have the opportunity to meet most of you after the elections.

Closing remark 

One remark: for many weeks now, the participation of the UK in the European Parliament elections has evoked emotions, especially in this chamber. I want to remind everybody that the UK has the right and the obligation to take part in this election as long as it is a member of the EU. This is not subject to negotiations. I also can’t agree to establishing a second category membership. I understand party interests but they cannot overshadow the legal reality. Mr Verhofstadt was applauded, heartily and energetically, by Mr Farage. This is a good enough reason for you, Mr Verhofstadt, to reconsider and reformulate your argumentation.

EU-U.S. Trade: Commission welcomes Council’s green light to start negotiations with the United States | EU Commission Press

The European Commission welcomes today’s decision by the Council to adopt the negotiating directives for trade talks with the United States, thus continuing to deliver on the implementation of the Joint Statement agreed by Presidents Juncker and Trump in July 2018.

European Union Member States gave the Commission the green light to start formal negotiations with the U.S. on two agreements, one on conformity assessment, and the other on eliminating tariffs on industrial products. This is just three months after the European Commission had put forward the mandates and in line with the conclusions of the March European Council, during which EU leaders called for a “rapid implementation of all elements of the U.S.-EU Joint Statement of 25 July 2018”.

The President of the European Commission, Jean-Claude Juncker said: “The European Union is delivering on what President Trump and I have agreed on 25 July 2018. We want a win-win situation on trade, beneficial for both the EU and the U.S. Notably we want to slash tariffs on industrial products as this could lead to an additional increase in EU and U.S. exports worth around €26 billion. The European Union and the United States have one of the most important economic relationships in the world. We want to further strengthen trade between us based on the positive spirit of last July.”

EU Trade Commissioner Cecilia Malmström said: “This is a welcome decision that will help ease trade tensions. We are now ready to start formal talks for these two targeted agreements that will bring tangible benefits for people and economies on both sides of the Atlantic. I am convinced that breaking down barriers to trade between us can be win-win.”

The directives for the negotiations cover two potential agreements with the U.S.:

  • A trade agreement strictly focused on industrial goods, excluding agricultural products;
  • A second agreement, on conformity assessment to make it easier for companies to prove their products meet technical requirements on both sides of the Atlantic.

In line with the directives agreed by EU governments, the Commission will further examine the potential economic, environmental and social impacts of the agreement, taking into account the commitments of the EU in international agreements, including the Paris Agreement on climate change. This assessment, as well as the negotiating process itself, will be conducted in regular dialogue with the European Parliament, Member States, civil society and all relevant stakeholders, in line with the European Commission’s commitment to transparency. As part of its engagement for an inclusive trade policy, the Commission is currently running a public consultation on voluntary regulatory cooperation.

An economic analysis undertaken by the European Commission already indicates that an EU-U.S. agreement on eliminating tariffs on industrial goods would increase EU exports to the U.S. by 8% and U.S. exports to the EU by 9% by 2033. This corresponds to additional gains of €27 billion and €26 billion in EU and U.S. exports respectively.

Background

As a direct result of President Juncker’s meeting with President Trump on 25 July 2018, and the Joint Statement agreed by both sides, no new tariffs were imposed, including on cars and car parts, and the EU and the U.S. are working to eliminate all existing industrial tariffs and improve cooperation.

Since July 2018, the EU and the U.S. have been working via the EU-U.S. Executive Working Group to implement the actions agreed in the Statement.

In January 2019, the Commission presented to Member States proposals for negotiating mandates to remove industrial tariffs and facilitate conformity assessments with the United States. Today’s decision finalises this approval process.

As regards other aspects of the Joint Statement, the United States is now Europe’s main soya beans supplier and will soon be able to expand its market further, following the decision by the European Commission to launch the process for authorising the use of U.S. soya beans for biofuels. The European Commission will release the latest figures tomorrow. Recent figures have also shown a steep rise in shipments of liquefied natural gas (LNG) from the U.S. in October and November 2018. The EU has also identified a number of areas where voluntary cooperation on regulatory issues with the U.S. could yield quick and substantial results.

For More Information

EU-US joint statement of July 2018

Commission’s economic analysis

Fact sheet – economic gains from eliminating EU-US industrial tariffs

Public Consultation on EU-US Regulatory Cooperation

More information on current EU-US trade relationship

Energy Union: Commission to endorse Baltic Pipe project, a pipeline that unites creating a new gas supply corridor in the European market | EU Commission Press

This morning, a signature ceremony of the agreement for the €214.9 million Connecting Europe Facility grant for works for the Baltic Pipe project connecting Poland and Denmark with Norway took place at the European Commission headquarters in the Berlaymont building. Vice-President in charge of the Energy Union, Maroš Šefčovič, and Commissioner for Climate Action and Energy, Miguel Arias Cañete, witnessed the signature together with the Polish Prime Minister Mateusz MorawieckiandPolish Minister Piotr Naimski, plenipotentiary of the Polish Government for Strategic Energy Infrastructure. The Baltic Pipe Project is a gas infrastructure project aiming at creating a new gas supply corridor in the European market. The new pipeline will allow, as of 2022, the shipment of gas from the North Sea to the Polish market and further to the Baltic States, as well as to end-users in neighbouring countries. At the same time, it will enable the supply of gas from Poland, including from Liquefied Natural Gas imports, to the Danish and Swedish markets. This new pipeline is a European Project of Common Interest (PCI) and parts of this project – analysis of economic feasibility and technical feasibility study and other preparatory studies – are already co-financed by CEF Energy.

Trade with the United States: Council authorises negotiations on elimination of tariffs for industrial goods and on conformity assessment | EU Council Press

The Council today approved mandates for the Commission to open negotiations with the United States on two agreements:

  • a trade agreement limited to the elimination of tariffs for industrial goods only, excluding agricultural products;
  • an agreement on conformity assessment that would have as its objective the removal of non-tariff barriers, by making it easier for companies to prove their products meet technical requirements both in the EU and the US while maintaining a high level of protection in the EU.

The Council also decided to make both decisions authorising the opening of negotiations with the US and the accompanying negotiating directives public.

Today’s adoption of the EU negotiating directives gives a clear signal of the EU’s commitment to a positive trade agenda with the US and the implementation of the strictly defined work programme agreed by Presidents Trump and Juncker on 25 July 2018. But let me be clear: we will not speak about agriculture or public procurement. Another important element is that the environmental and social impact of the agreement will be fully taken into account during the negotiations.

Ștefan-Radu Oprea, Minister for Business Environment, Trade and Entrepreneurship of Romania and President of the Council

The EU is now ready to launch negotiations with the US. They will cover a strictly limited set of issues stemming from the July Joint Statement of Presidents Juncker and Trump. The mandates also clarify that the negotiating directives for the Transatlantic Trade and Investment Partnership (TTIP) agreed in June 2013 must be considered obsolete and no longer relevant.  

The Commission will negotiate on behalf of the EU, ensuring appropriate communication with all relevant EU stakeholders, including civil society and economic operators. The final agreement will need be concluded by the Council after obtaining the consent of the European Parliament.  

As far as the agreement on the elimination of industrial tariffs is concerned, the objective is to increase trade between the EU and the US, to improve market access and to generate new opportunities for jobs and growth. The mandate given by the Council ensures that negotiations will take full account of particular sensitivities for certain goods, such as energy-intensive products and fisheries products, as well as the environmental impact arising from the differences in the EU and US regulatory frameworks.

The Commission should produce a sustainability impact assessment as soon as possible which would examine the potential economic, environmental and social impacts of this agreement, also in light of the commitments of the EU in international agreements such as the Paris agreement on climate change. The findings of this impact assessment should be taken into account in the negotiating process.

The mandate also ensures that the EU will not conclude negotiations with the US as long as the current tariffs on EU exports of steel and aluminium remain in place, and that it would be able to suspend negotiations unilaterally if the US were to impose further trade restrictions against European products.

The EU and the US have the largest and deepest bilateral trade and investment relationship in the world and have highly integrated economies. Both economies account together for about half the entire world GDP and for nearly one third of total world trade.

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