Tensions are rising in Brussels as the EU institutional mandate approaches its end ahead of the Parliamentary elections in May 2019, and the Commission has already ceased issuing new proposals in the absence of legislative time.
As Brexit approaches, some see the chance to promote a strategic focus on “more, not less Europe”. For instance, MEPs from the cross-party Spinelli Group, have set out plans for an ambitious constitutional development. Jean-Claude Juncker, Commission president, in his final ‘state of the union’ speech, kept much to the same track, also expressing pride in Europe’s economy having “now grown for 21 consecutive quarters”.
Juncker focused on the big picture, for instance highlighting investment opportunities under the new Alliance for Sustainable Investment and Jobs between Europe and Africa. A notable reaction on the Brexit theme came from MEP Manfred Weber, who said the “EU is united and London is in trouble”. The centre-right German may step into Juncker’s shoes next year.
However, elsewhere in Brussels, numerous protests and comments relevant to finance have been made.
ESA reform still raises concerns
For example, the European Association of Paritarian Institutions (AEIP) has been objecting to a more hierarchical supervision of occupational pension funds with the strengthening of the European Supervisory Authorities (ESAs) and the development of the European Systemic Risk board (ESRB).
The AEIP finds that supervisory convergence has limited added value in the context of paritarian institutions in the field of pensions and healthcare insurance. This is because they have a social function and fall under provisions of the national social and labour law.
For the AEIP, national competent authorities (NCAs) are best placed to judge the risks, vulnerabilities, threats and weaknesses of the system. The NCAs can take into account the local labour market, social and labour legislation, as well as the local social environment, so the tasks and powers of the European Insurance and Occupational Pensions Authority (EIOPA) should remain as they are.
Aleksandra Kaydzhiyska, financial and economic affairs policy adviser for the AEIP, tells IPE: “We stress that the AEIP’s support is for a common supervisory culture in a sense of coordination and share of best practices. But it opposes a supervisory convergence that leads to a ‘one-size-fits-all’ supervisory approach.”
PEPP in the spotlight
The Pan-European Personal Pension Product (PEPP) is also getting its full share of attention. The European Trade Union Confederation ETUC judges that the European Parliament’s Economic Affairs Committee (ECON) has “failed to ensure that PEPP providers would be required to guarantee workers’ pension savings when investing them on the financial market”. The union federation goes on to call for “a regulatory system that does not compete with collective pension schemes”.
In a recent newsletter entirely devoted to PEPP, the Federation of Financial Advisers and Financial Intermediaries (FECIF), tackles the taxation situation. Board member Daphne Foulkes, makes a strong case for “a pragmatic alternative solution be agreed by the trilogue, rather than being left until after the regulation has been enacted”.
She notes: “Theoretically, a fully separate tax regime [a 29th regime] applicable across all of Europe would be ideal in terms of simplicity and portability. However, it is understood that this is not likely to be accepted by member states”.
As a result, her recommendation is for sub-sections in the legislation to be limited, initially, to the two options, EET (exempt/exempt/taxed) and TEE (taxed/exempt/exempt). However, “If desired”, EEE and TTT sub-sections could also be created as demand arises. On distribution and advice, Foulkes takes the line that PEPPs should only be sold on an advised basis, even if the saver has chosen the default investment option.
For Finance Watch, a think tank devoted to “making finance serve society”, Benoît Lallemand, secretary general, repeats the group’s position that PEPP “may help some savers to supplement their retirement income, but will not solve the outstanding issues with our state and occupational pension systems”.
An unusual hurrah from the EU Green Party greets the latest PEPP thinking. The group’s Sven Giegold has praised the 1% annual limit on costs and fees. “This will put competitive pressure on the often outrageous fees for life insurance policies and investment funds in many member states,” states the German MEP, who is also the left’s leading economist in the European Parliament.
Indications of other matters to be tackled in the months ahead comes from Insurance Europe. It points the finger at IFRS 9 – the accounting standard for the measurement and reporting of financial assets. Insurers will have to apply it (together with IFRS 17) by 2021. For others, IFRS 9 came into operation at the start of 2018.
Insurance Europe is arguing for the removal of the “accounting disadvantage for this type of equity financing in long-term projects because it leads to misleading performance measurement for insurance products involving long-term equity investment”.
The insurance sector is also concerned at the challenge to investors caused by the limited supply of suitable infrastructure assets. Here it refers to moves concerning the Financial Stability Board. The FSB’s consultative document, Evaluation of the effects of financial regulatory reforms on infrastructure finance, notes that the financial sector is becoming an increasingly important source of infrastructure finance.
Insurance Europe also says that the two upcoming reviews of Solvency II will pose important questions for insurers.
Yet another challenge ahead in the EU institutional pipeline is combating money laundering. A joint working group, chaired by the Commission, which started its work in June, will continue its focus on the theme of “seamless cooperation” between anti-money laundering and Prudential supervisors in the EU.
After the election
As for the next Commission term, among projects certain to spill over well into 2019 will be the current drive on sustainable finance. According to Joost Mulder, head of the Better Europe consultancy, “horse trading between member states over what exactly is a ‘green’ investment and what is not” will make for an extended time span. Further complications would include debating beyond climate change, and into other environmental issues, he adds.
If the big picture of the EU in Brussels during pre-mandate period looks like a frenetic panic, in some ways it is. After all, it has the odour of populism and nationalism to contend with.