mast image

Impact Investing

IPE special report May 2018

Sections

Ins and outs of ‘flexileg’

In the old days, an international investment bank could study a Brussels Directive or Regulation and make plans.

But now we have the Brussels reaction to the financial crisis, and the Lisbon Treaty. Among the major reforms is that loopholes, as interpreted in different EU member states if in a Directive, can be plugged quite quickly through flexible legislation - ‘flexileg'.

Under the treaty's level-two procedures, legislative amendments can be easily introduced to meet changed circumstances by the European Insurance and Occupational Pensions Authority (EIOPA) in Frankfurt.

The treaty was brought in to redistribute the share of power between Parliament and the Commission, and the EU member state governments. It came into effect at the end of 2009.

Two types of measures to speed up decisions are included in the new legal procedures. These are Delegated Acts (Art. 290), and Implementing Acts (Art. 291).

Both sets of level-two procedures, as set out by the treaty, can be specified in new financial sector directives and regulations (level-one packages). Under Delegated Acts, the Commission may itself draft a modification or amendment provision at the level-two implementation stage. This then passes into law, unless the Parliament or Council revokes the delegation or objects to (rather than approves) the Act.

Under Implementing Acts, the Commission drafts a provision, which goes before a committee of member-state representatives. They can either give a favourable, qualified or unsupportive opinion. The Commission then adopts the Act, but taking "utmost account" of the committee's opinion, according to another member of the EIOPA stakeholders' group Daniela Weber-Rey of the Clifford Chance Frankfurt office. She describes the level-two procedures as "a balance between more efficient decision-making, and a desire by the Parliament and the Council to preserve some influence over the Commission".

Level-three procedures cover matters such as guidelines not dealt with by other EU legislation, while level-four procedures deal with member state compliance, and legal action against breaches of Community law.

An example of the more or less automatic adoption of level-two practices came up at a conference organised by QED Communication on proposed legislation in MiFID/MiFIR introducing organised trading facilities (OTF). María Teresa Fábregas, a Commission official noted that, within the package, "we have given powers to the European Commission to develop level-two measures…. under the Delegated Act". Her reference concerned the calibration aspect of trades passing through the proposed venue.

Is the level-two trend good news? Probably yes. It means a cleaner field. But also no - the European Federation for Retirement Provision (EFRP) explains that the new rules can give rise to a problem of democratic control. This, it says, has actually weakened under the reform. Frequently, the only pressure it can now apply to EIOPA is via its stakeholder's group, whose influence is limited to offering opinions.

And some level-two measures may have a wide-reaching technical influence but which could also be considered political.

The background of the change, according to Weber-Rey, is the new financial supervisory structure initiated by the de Larosière report.

A different criticism of the level-two trend comes from the capital market sector. It adds complexity to markets and pushes fund mangers towards short-termism, says Susan Haan, secretary general of European Issuers. She believes that the movement may be acceptable for the interests of trading, but entirely forgets the strategic need for long-term investments.

Fine-tuning was a subject of discussion at omnibus two ‘trialogue' meetings before the summer break. It would be surprising if Parliament, Commission and member states were not considering the extent of EIOPA's role.

A Commission proposal from January details how the ESAs can exercise their powers with the aim of enhancing supervisory convergence.


 

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

  • RE-2441

    Closing date: 2018-05-31.

Begin Your Search Here