Several packages related to financial services look set to be concluded before the end of this EU mandate period

Key points

  • European supervisory authorities reform measures have moved to the Council
  • Insolvency legislation looks set to pass soon
  • Technical work on sustainable finance may continue to the end of 2019

As the EU institutions in Brussels come to the end of their electoral mandate they are going out with a bang as far as financial services are concerned. Numerous legislative measures to tighten oversight via agreements between Commission, Parliament and Council (national governments) are in hand. One after another, they are set to be finalised before the end of May, according to the Council.

The centrepiece of the 2014-19 mandate period has been the Capital Markets Union. Alongside that, a package of measures to overhaul the European supervisory authorities (ESAs), has moved to the Council following endorsement by the Parliament’s economic and monetary affairs (ECON) committee. The Romanian presidency describes this as a priority, although it has also proved controversial as it transfers some powers from member state financial regulators to the ESAs. 

The ESA package targets harmonised governance with the principal aim of deepening financial integration. Measures in focus include anti money laundering.

One factor is Brexit and the UK financial services sector. Othmar Karas, an Austrian Christian Democrat MEP, articulated the concerns of many when, following ECON’s endorsement of the ESA reform package, he wrote: “European financial market supervision will also receive stronger cut-through rights with respect to third countries. This is necessary to make sure that the Brits, once they are out, do not start to do dodgy business in the EU with weakened rules. We will make sure that whoever does financial business in the EU has to obey our strict rules.” 

The ESA reform package furthers the cause of regulatory harmonisation across the rest of the EU. The proposed regulation has now moved to discussion at member state government level (see page 21). 

Not everyone is pleased to see the spate of financial legislation thundering through Brussels, however. Pieter Cleppe, head of the Brussels office of the UK-based anti EU-integration think tank Open Europe, appears surprised at the flow “despite Brexit and despite growing populism from the anti-establishment movement in Central Europe”. 

there is a spate of financial legislation coming from the european commission

There is a spate of financial legislation coming from the European Commission

Capital Markets Union

Pan-European personal pension product (PEPP): A political agreement between the Parliament and the Austrian presidency was reached in December. At the time of writing the expectation is that the regulation would be published in the Official Journal and become law by the beginning of May.

Insolvency legislation: New rules to cover EU bankruptcies are intended to reduce the inefficiency and divergence of insolvency laws which make it harder to assess and manage credit risk. 

When adopted, these will complement the 2015 Insolvency Regulation, which focuses on resolving conflicts of jurisdiction and laws in cross-border insolvency proceedings, and ensures the recognition of insolvency-related judgments across the EU.

The June 2015 Five Presidents’ report, Completing Europe’s Economic and Monetary Union, highlighted insolvency law as among the bottlenecks preventing the integration of capital markets in the euro-zone and beyond. 

According to a Commission statement from November 2016, the overall objective is to reduce significant barriers to the free flow

of capital stemming from differences in member states’ restructuring and insolvency frameworks. Having passed the Council, the package looks set for full clearance by April. 

While the deadline for enactment at a national level will be another two years, member states may choose to implement immediately. A key motivation would be to improve attractiveness for foreign direct investment, where a lack of harmonisation on insolvency is a brake on cross-border investment flows. 

A 2016 statement from the Association for Financial Markets in Europe (AFME) estimated a resultant GDP increase of €41bn-78bn – or between 0.3% and 0.55% of EU28 GDP – and an employment boost of 0.6m-1.2m. According to AFME, many of the absolute gains could flow to Italy, Spain and France. Countries, such as Greece, Hungary and Romania, stand to gain most in relative terms. 

Solvency II: Proposals issued by EIOPA, under the instruction of the European Commission, to amend specific elements of Solvency II on capital requirements were, at the time of writing, subject to the issue of a new set of delegated acts, as yet unpublished. A further assessment of standard parameters is set to come about before the end of 2020. EIOPA notes that a report on the long-term guarantee package is scheduled for January 2021.  

Cross-border distribution of collective investment funds: A regulation to facilitate the cross-border distribution of collective investment funds by amending the European Venture Capital Fund Regulation (EuVECA) and European Social Entrepreneurship Funds Regulation(EuSEF), and a proposal for a Directive amending the UCITS and the Alternative Investment Fund Managers (AIFM) Directives, has now cleared through the legislative machinery and will be in force soon. The aim is to improve the transparency of national requirements, remove burdensome elements, and harmonise divergent national rules.

The outcome of the Packaged Retail and Insurance-based Investment Products (PRIIPS) regulation – covering packaged retail investment and insurance products – was unclear at the time of writing. An informed source said the options were enablement before the May elections, or postponement until after the summer. Issues include disclosure of past performance, costs and presentation. 

OTC derivatives clearing: Agreement has been reached in Council on a regulation to streamline existing rules on clearing over-the-counter (OTC) derivative products in the European Market Infrastructure Regulation (EMIR). The intention is to make the supervision more effective: it will remove the obligation to report historical data (backloading) as well as intra-group transactions involving non-financial counterparties.

The upgrade aims to create incentives and increase access to clearing by removing existing obstacles. In particular, the text introduces an obligation on brokers to provide services on fair, reasonable, non-discriminatory (FRAND) and transparent commercial terms by ensuring in particular transparency on fees as well as unbiased contractual arrangements. At the time of writing, rules relevant to the UK, and its third-country status post-Brexit, were under review. A clearing waiver was recently granted to pension funds.  

Covered bonds: A directive and a regulation for covered bonds – which total €2.1trn in outstandings – was subject to negotiations in trilogue at the time of writing, with a view to reaching political agreement before May’s Parliamentary elections. Covered bonds represent an important source of long-term financing in many member states. However, the market is fragmented along national lines. 

Sustainable finance

Technical expert group – taxonomy: A technical expert group (TEG) on sustainable finance is due to report by June. The TEG is due to make recommendations for an EU green bond standard as well as a classification system – a taxonomy. A TEG consultation for feedback on “first round climate mitigation activities” and on the “usability of the taxonomy” is scheduled to run until February. The TEG may continue its work until the end of 2019.

Disclosure and carbon benchmarks: Rules on the two other sustainable finance initiatives – sustainable finance disclosure and low-carbon benchmarks – have cleared the Council. The disclosure obligations relate to how financial companies integrate environmental, social and governance factors in their investment decisions. The low-carbon measures are to create a category of benchmarks aimed at giving greater information on a portfolio’s carbon footprint.


Anti-Money Laundering Directive (AMLD V): Changes to the regulation to tighten up on money laundering (AML) and terrorist financing (AMLD V), which cleared Brussels last July, have a deadline for transposition into national law of January 2020. 

The fifth anti-money-laundering directive includes an extension of the scope to virtual currency platforms; public access to the beneficial ownership information of EU-based companies; making it an obligation to consult the beneficial ownership register when performing AML due diligence; and the introduction of strict due diligence measures for financial flows from high-risk third countries. 

However, if AMLD IV is anything to go by, resistance by member states is to be expected. Late last year, the Commission was involved with infringement proceedings for the non-communication of transposition measures against 21 member states.

The Commission was at the referral stage for Romania, Ireland and Luxembourg. Others were at reasoned opinions, or letters of formal notice. Court proceedings commenced against Luxembourg, but were then withdrawn to give time for scrutiny of any changed position. 

Corporate taxation: Proposals to tackle taxation could be successful. A recent Commission paper advocates applying qualified majority voting to the decision-making process on tax. Pierre Moscovici, the Commissioner for Economic and Financial Affairs, Tazation and Customs argues that the current requirement for unanimity among member states for tax measures “no longer makes sense”. He describes the present system as “politically anachronistic, legally problematic and economically counter-productive”. 

According to the Commission, the cost of this inaction totals €50bn annually, owing to the lack of a definitive regime for VAT or sales tax. Furthermore, the introduction of a common consolidated corporate tax base (CCCTB) could increase economic growth by up to 1.2%. A digital services tax could raise €5bn annually. 

According to a recent statement, member-state finance ministers meeting in the Ecofin grouping recently exchanged views on the proposed “progressive and targeted transition to qualified majority voting in certain areas of EU taxation policy”.

Cross-border tax liaison: On the horizon is a new regulation to back up the EU’s existing Fiscalis programme. Fiscalis enables exchange of information between the EU’s national taxation authorities. The plans are proposed for the next Multiannual Financial Framework (2021-27). Fiscalis is described as fitting the priority of fighting tax evasion, tax avoidance and money laundering. An increase in its budget to cover administrative and other expenses is forecast; the current budget is €223m. 


Agencies to protect against competition distortion: Competition Commissioner Margrethe Vestager, in her strategic plan for 2016-20, advocates for the creation of new agencies to enforce competition laws. She is seeking to provide management incentives to protect the functioning of markets from distortions. These could originate from member states (distortive state aid), market players (distortive unilateral or co-ordinated behaviour), or mergers that would impede effective competition. 

Also in the pipeline 

Whistleblowers: Earlier this year, member states adopted a position on whistleblower protection, following a Commission proposal of April 2018. This arose from scandals such as Dieselgate, Luxleaks and the Panama Papers. The rules will provide legal protection for individuals reporting on breaches of EU legislation in the fields of fraud, corruption, corporate tax avoidance, money laundering and terrorist financing. When in force –  probably in more than two years’ time – they will also protect against retaliations such as dismissal or demotion.

MiFID II: The best is yet to come