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The Voice of Europe’s BanksThe Voice of Europe’s Banks
Financial Services Regulatory reform
Impact on EU banks
The EBF vie...
The Voice of Europe’s Banks
1. General framework of the financial services
reform
2. Main Sectoral Regulatory initiatives
...
The Voice of Europe’s Banks
EU institutions – New framework
Macro & financial
stability
Competition
enforcment
Sectoral re...
The Voice of Europe’s Banks
Waves of new regulations driving new business
models
- EU financial services regulatory reform...
The Voice of Europe’s Banks
Financial services sector reform – objectives
 Strong regulatory reform
 Better consumer/inv...
The Voice of Europe’s Banks
Banking Union - Overview of the proposals
 SSM as the “First step towards the creation of a E...
The Voice of Europe’s Banks
7
Banking Union - Overview of the proposals
 Legislative basis – Agreement reached on 19 Marc...
The Voice of Europe’s Banks
8
Banking Union - SSM Framework
Council
SSM Regulation
ECB Framework Regulation
SSM Perimeter ...
The Voice of Europe’s Banks
9
SSM - Implications for banks in the Eurozone
 ECB will be the prudential regulator for ALL ...
The Voice of Europe’s Banks
10
SSM : Implications for banks in the Eurozone:
significant banks
 Some banks deemed more si...
The Voice of Europe’s Banks
A European Deposit
Guarantee Scheme?
Banking Union: missing elements
Resolution Authority
1. E...
The Voice of Europe’s Banks
CRD IV
 CRD IV implement the Basel III standards
 Applies to Banks, Building Societies and I...
The Voice of Europe’s Banks
Banking Structural Reform (Liikanen)
 Background
 Report published on 2 October
 Consultati...
The Voice of Europe’s Banks
Indices & benchmarks
 Investigations (Libor, Euribor) since March 2011
 IOSCO consultation o...
The Voice of Europe’s Banks
4th AML directive & Funds transfer Regulation
 Proposal issued on 5 february 2013
 EP LIBE c...
The Voice of Europe’s Banks
4th AML directive - Area of concerns
 PEPs identification and verification
 Beneficial owner...
The Voice of Europe’s Banks
AML -FATF Future Challenges
 RBA (R1) Requires both countries and obliged entities to accurat...
The Voice of Europe’s Banks
Data Protection Regulation – some elements of
the review
 Explicit consent
 Profiling
 Data...
The Voice of Europe’s Banks
Data Protection Regulation – Area of concerns
 Explicit consent
 Prevention of fraud & finan...
The Voice of Europe’s Banks
20
 Fight against tax fraud and off-shore tax abuses
 Prospect of home country taxation of i...
The Voice of Europe’s Banks
FATCA definition of FFI = foreign entity that:
• Accepts deposits in the ordinary course of bu...
The Voice of Europe’s Banks
Fatca - NFFE (Foreign entity that is not an FFI)
• Compliant NFFEs
- US owned, compliant NFFE
...
The Voice of Europe’s Banks
• Identification in the client base of all direct and indirect US accounts and
look-through fo...
The Voice of Europe’s Banks
24
FATCA COMPLIANCE REQUIREMENTS APPLICABLE TO NFFES
 Non-US owned NFFE
- If direct or indire...
The Voice of Europe’s Banks
25
FATCA : INTER-GOVERNMENTAL AGREEMENTS (IGAS)
 Intergovernmental agreements aimed at reduci...
The Voice of Europe’s Banks
Financial Transaction Tax (FTT)
 FTT proposal published on 14 February 2013 via Enhanced Coop...
The Voice of Europe’s BanksThe Voice of Europe’s Banks
Thank you for your attention !
For further information: www.ebf-fbe...
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Financial Services Regulatory Reform Impact on EU Banks

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2013 sébatien de brouwer - ebf
The EBF view
Conférence Arrow Institute
http://conferences-institute.eu/

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Financial Services Regulatory Reform Impact on EU Banks

  1. 1. The Voice of Europe’s BanksThe Voice of Europe’s Banks Financial Services Regulatory reform Impact on EU banks The EBF view Sebastien de Brouwer Executive Director European Banking Federation
  2. 2. The Voice of Europe’s Banks 1. General framework of the financial services reform 2. Main Sectoral Regulatory initiatives – Banking Union, CRD IV, Liikanen, Financial benchmarks, ... 3. Horizontal regulatory initiatives – AML – Data protection – FATCA & FTT
  3. 3. The Voice of Europe’s Banks EU institutions – New framework Macro & financial stability Competition enforcment Sectoral regulation Horizontal regulation Respect of Maastricht Criteria Excessive Deficit Procedures Fiscal consolidation Programs State Aid Control Restructuring of problematic institutions CRD IV, Resolution Framework, Banking Union, Liikanen, DGS, ICSD, MiFID, EMIR, CRAs, Indices & Benchmarks .. Data Protection ,AML, FTT, ...
  4. 4. The Voice of Europe’s Banks Waves of new regulations driving new business models - EU financial services regulatory reform : Banking Union (SSM), CRD IV, Recovery & Resolution Directive, Liikanen, MiFID 2, EMIR, Regulation on Benchmarks and Indices... - Horizontal regulations : AML, Data Protection, FTT, ... - National financial regulatory reforms (UK, FR, GER, ...)  EU fragmentation - US financial services Regulatory reform (Dodd-Frank, FATCA, ...): Extra-territorial impact
  5. 5. The Voice of Europe’s Banks Financial services sector reform – objectives  Strong regulatory reform  Better consumer/investor protection  Effective supervision  Resolution and adressing systemic institutions  End the possibility that taxpayers will have to support to bail out systemic financial firms
  6. 6. The Voice of Europe’s Banks Banking Union - Overview of the proposals  SSM as the “First step towards the creation of a European banking union” – A single supervisory mechanism (SSM) permitting the European Central Bank (ECB) to be the prudential supervisor of all banks within relevant Member States – Pre-requisite for a direct bank recapitalisation through the European Stability Mechanism (ESM) – Underpinned by a single rulebook for financial services based on directly applicable EU Regulations (CRR, EMIR, MiFIR, MAR, SSR) rather than Directives  Timing: ECB to assume tasks - Best estimate: Summer 2014  Next steps in banking union – Following on from the Recovery and Resolution Directive for banks (plenary date June 2013) – a common resolution authority and resolution fund (Regulation planned for final quarter of 2013) – Common deposit guarantee scheme – more problematic
  7. 7. The Voice of Europe’s Banks 7 Banking Union - Overview of the proposals  Legislative basis – Agreement reached on 19 March – Regulation conferring specific tasks on the ECB – Regulation amending the Regulation creating the European Banking Authority (EBA)  Political implications – 17 Euro area states plus 7 additional states currently propose to join the SSM – UK, Sweden and Czech Republic have stated intention to remain outside the SSM – Benefit of Eurozone stability
  8. 8. The Voice of Europe’s Banks 8 Banking Union - SSM Framework Council SSM Regulation ECB Framework Regulation SSM Perimeter - Relations ECB/NSAs - Procedures ECB Regulation on Supervisory Fees ECB Regulation on Panel of Review Sanctions Regime ECB Regulation on Sanctions, Council Regulation on ECB Sanctions SSM internal operational protocols and templates EBA Regulation ECB Decision on Close Cooperation Non-euro area Member States participation in SSM
  9. 9. The Voice of Europe’s Banks 9 SSM - Implications for banks in the Eurozone  ECB will be the prudential regulator for ALL banks based in: – Member States where the euro is the currency (17 Member States) – Other Member States which choose to participate in the SSM via “close cooperation” (currently 7 Member States)  ECB has oversight for all banks, but will only actively fully supervise “significant banks”  SSM will consist of ECB and national competent authorities  National regulators to retain limited powers even for significant banks – Anti money laundering/counter terrorist financing functions, payment services, MiFID functions, day-to-day verification services, consumer protection – Supervision of domestic banks (which are not credit institutions under EU law) and branches of non-EU banks
  10. 10. The Voice of Europe’s Banks 10 SSM : Implications for banks in the Eurozone: significant banks  Some banks deemed more significant assessed on: Quantitative criteria: – Total value of assets exceeds euro 30 billion, or – Ratio of its total assets over the GDP of the participating Member State exceeds 20%, unless total of assets is < euro 5 billion, or – Top three banks in each participating Member State – (in each case subject to “particular circumstances”) Qualitative criteria: – Of significant relevance for domestic economy, upon notification by domestic regulator and confirmatory decision by ECB following a comprehensive assessment – With banking subsidiaries in more than one participating Member State and significant cross-border assets or liabilities, upon ECB’s own initiative  Those for which public financial assistance has been requested or received directly from the EFSF or the ESM
  11. 11. The Voice of Europe’s Banks A European Deposit Guarantee Scheme? Banking Union: missing elements Resolution Authority 1. ESM: recapitalize or liquidate? 2. Commission: rescue or kill? 3. New Agency Single Resolution Mechanism (Dec.2013): Aims “Break the vicious circle between banks and sovereigns” Avoid fragmentation along national lines of insolvency & resolution rules, of competent authorities, and of fiscal backstops Equal treatment in the allocation of losses on bank creditors Foster financial market integration: geography not relevant Financing the SRM 1. Public-Private Partnership Fund: a) Financial industry: counter-cyclical b) Fiscal backstop: temporary, ex-post levies 2. PROHIBITED: ECB lending
  12. 12. The Voice of Europe’s Banks CRD IV  CRD IV implement the Basel III standards  Applies to Banks, Building Societies and Investment firms  It also covers : – Corporate Governance – Remuneration – Sanctions – Arrangements for harmonisation of European Prudential requirements through a single rule book
  13. 13. The Voice of Europe’s Banks Banking Structural Reform (Liikanen)  Background  Report published on 2 October  Consultation launched with deadline on 13 November  5 Recommendations • Mandatory separation o f proprietary trading services and other significant trading activities over a certain threshold (> 15-25 % of bank total assets or 100 bn) • Emphasis on the use of Recovery and Resolution Plan and power for the resolution authority to request additional separation of activities condition on the RRP • Allow the use of designated bail-in instruments to improve predictability /to be held outside the banking sector. • A review of capital requirements on trading assets and real estate related loans • Better corporate governance – Commission to come with a follow-up in the Spring 2013 – Initiatives at national level (US, UK, France, Germany and NL)  Next steps  Own-initiative Report at EP level (Rapporteur : Arlene McCarthy (S&D) expected to be voted at EP Plenary on 1 July 2013  EU Commission Proposal before Summer 2013
  14. 14. The Voice of Europe’s Banks Indices & benchmarks  Investigations (Libor, Euribor) since March 2011  IOSCO consultation on 11 January  ESMA/EBA consultation on 11 January  June 2013 (tbc) EU Commission to publish legislative text  Q2 2013, IOSCO to develop gloval policy guidance and principles on financial markets indices
  15. 15. The Voice of Europe’s Banks 4th AML directive & Funds transfer Regulation  Proposal issued on 5 february 2013  EP LIBE committee in charge (Rapporteur : Judith Sargentini (Green, NL)) Main Proposals  Extension of the scope: 2 main changes (a) the threshold for traders in high value goods dealing with cash payments is reduced from 15.000 € to 7.500 € and (b) providers of gambling services are covered (only casinos previously).  Risk-based approach: The European Supervisory Authorities (ESA) shall develop a minimum list of factors to be taken into consideration. Member States will be required to identify, understand and mitigate the risks facing them. The resources of supervisors can be used to concentrate on areas where the risks of ML are greater.  Simplified and Enhanced CDD: Enhanced measures where risks are greater and may be permitted to take simplified measures where risks are demonstrated to be less. The revised Directive tightens the rules on simplified due diligence and does not permit exemptions.  PEP : Inclusion of domestic PEPs, as well as those who work for international organisations.  Beneficial owner (BO): new measures in order to provide enhanced clarity and accessibility of BO information especially for trusts. It requires legal persons to hold information on their own beneficial ownership. This information should be made available to both competent authorities and obliged entities.  Administrative sanctions  European Supervisory Authorities (ESA): ESAs should develop guidance for MS and financial institutions on factors to be taken into account when applying simplified/enhanced customer due diligence and when applying a RBA to supervision.
  16. 16. The Voice of Europe’s Banks 4th AML directive - Area of concerns  PEPs identification and verification  Beneficial ownership identification and verification – notably notion of indirect ownership – Public Access to BO information  Potential conflicts between AML & Data Protection
  17. 17. The Voice of Europe’s Banks AML -FATF Future Challenges  RBA (R1) Requires both countries and obliged entities to accurately assess risks. Compliance failures show: – need for large, complex institutions to reflect carefully on how to organize/conduct their compliance functions to cover the risks – need to conduct and focus supervisory compliance and enforcement in a way that effectively addresses the risks  Transparency of corporate vehicles – lack of information on beneficial owners underlies many major corruption and ML cases.  New R.24 provides a better basis, and the proposed Art 29/30 4thAMLD sets out the requirements precisely. Key is timely access in practice to accurate and up to date information on the real owners of companies, trusts etc. Need for continued work globally by FATF, EU MS, and other key bodies. Capacity and competence of national company registers should be assessed as part of effectiveness assessments.  Tax evasion is a key issue for many countries currently. Governments lose billions through such criminality. – Tax crimes are now expressly a ML predicate and part of the FATF Standards. – Need to exchange information and effectively co-ordinate action (both nationally and internationally) between relevant authorities to prevent laundering of such proceeds.  FATF – continue productive engagement with the private sector  Ensuring effective global implementation. Key tools: – FATF global network of FSRBs – ICRG process: Naming countries with strategic deficiencies. 11-Feb-16
  18. 18. The Voice of Europe’s Banks Data Protection Regulation – some elements of the review  Explicit consent  Profiling  Data Portability  Right to be forgotten  Data breaches notification  Sanctions  Reduction of administrative burden and simplification – one stop shop  Elements of “Accountability”
  19. 19. The Voice of Europe’s Banks Data Protection Regulation – Area of concerns  Explicit consent  Prevention of fraud & financial crimes  Profiling  Portability  Right to be forgotten  Data breaches notification  Sanctions
  20. 20. The Voice of Europe’s Banks 20  Fight against tax fraud and off-shore tax abuses  Prospect of home country taxation of individuals  Focus on Foreign Entities upon payment and upon receipt – Foreign Financial Intermediaries (FFIs) – Non-Financial Foreign Entities (NFFEs)  FATCA compliance burden on Foreign Entities considered as Tax Intermediaries FATCA - OVERVIEW  FATCA relies on Tax Intermediaries (FFIs/NFFEs)  FATCA takes a Manichean view of foreign entities: - Good (participating) FFIs (PFFIs) versus bad (non-participating FFIs (NPFFIs) - Good (compliant) NFFEs versus bad (non-compliant) NFFEs  Withholding mechanism as coercion Triggered if recipient = bad FFI or bad NFFE  30% withholding tax on withholdable payments FATCA - MECHANISM
  21. 21. The Voice of Europe’s Banks FATCA definition of FFI = foreign entity that: • Accepts deposits in the ordinary course of business • Is in the business of holding financial assets for others, or • Is primarily engaged in the business of investing, reinvesting or trading in securities, partnership interests, commodities Under proposed Regulations (§ 1,1471-5(d)(e)(2)(i)(G)) FFIs’ activities include banking activities and similar business incl. the business of entering into, purchasing or disposing of financial lease or leased assets 21 FATCA - FOREIGN ENTITY (FFI) DEFINITION • Participating FFIs (PFFIs) - Have signed FFI agreement with IRS, or - Have registered with partner country authorities • Non-participating FFIs (NPFFIs) • Deemed compliant FFIs (DCFFIs), registered with IRS or self-certified - Certain FFIs with small number of owners - Certain local banks - Certain qualified investment vehicles with local activities • Exempted FFIs: Statutory list of low-risk entity types ! Each FFI affiliate of an expanded affiliated group (entities which are more than 50% owned by the same parent) must satisfy the requirements of a PFFI or a DCFFI FACTCA : FFIS CLASSIFICATION
  22. 22. The Voice of Europe’s Banks Fatca - NFFE (Foreign entity that is not an FFI) • Compliant NFFEs - US owned, compliant NFFE - Non-US owned, compliant NFFE • Excepted NFFEs (exempt from withholding): - Active NFFE (engaged in an active non-financial business) - Listed companies, Government entities, international organizations, central banks • Non-compliant, passive NFFE 22
  23. 23. The Voice of Europe’s Banks • Identification in the client base of all direct and indirect US accounts and look-through for NFFE to determine whether a substantial US owner has interest in this entity • Verification criteria and due diligence procedures with respect to identification of US accounts • Disclosure to IRS of identity of US accounts and of substantial US owners of NFFE • Annual report to IRS including ALL income (US and non-US) paid to US accounts and to substantial US owners of NFFE • Request from any US account holder of a waiver from privacy or bank secrecy law and closing of accounts of recalcitrant account holders (undocumented/ uncooperative customers) • Withholding on all payments to NPFFIs, to recalcitrant account holders and to FFIs that have elected to be withheld upon rather than to withhold 23 FATCA - COMPLIANCE REQUIREMENTS APPLICABLE TO FFIS
  24. 24. The Voice of Europe’s Banks 24 FATCA COMPLIANCE REQUIREMENTS APPLICABLE TO NFFES  Non-US owned NFFE - If direct or indirect participation < 10% (in non-partner country) - If direct or indirect participation < 25% (in partner country) - NFFE will provide a certification to the Withholding Agent (WA) that it does not have substantial US owners  US owned NFFE - NFFE will disclose the substantial US owner by providing WA with name, address and TIN - WA will report to IRS the share of the income attributed to substantial US owner
  25. 25. The Voice of Europe’s Banks 25 FATCA : INTER-GOVERNMENTAL AGREEMENTS (IGAS)  Intergovernmental agreements aimed at reducing FFIs’ costs and at addressing legal obstacles  FATCA Model I IGA (provides for local nominative reporting + information exchange)  FATCA Model II IGA (provides for direct reporting to IRS on aggregated basis + possible request for information) FATCA : CALENDAR  FFI agreements to be signed by 1 January 2014  New account opening procedures implemented by 1 January 2014  Impact on US payments made after 1 January 2014  Reporting to start on 1 March 2015  Information exchange to start on 1 September 2015  Due diligence for pre-existing accounts: - Prima facie FFIs: 30 June 2014 - High value entities: 31 December 2014 - Others: 31 December 2015
  26. 26. The Voice of Europe’s Banks Financial Transaction Tax (FTT)  FTT proposal published on 14 February 2013 via Enhanced Cooperation Procedure (ECP)  Broad territorial scope – FI established in a participating MS (establishment criterion) – FI being party to a taxable transaction with FI established in a MS (contagious establishment principle) – FI being party to a taxable transaction issued in a PMS (excl OTC derivatives) (issuance principle) – FI being party to a taxable transaction with an non-financial institution established in a PMS (client- based criterion) – FI being party to a taxable transaction with a non-Financial institution being party to a taxable transaction issued in a PMS (last resort issuance principle)  Transaction scope – 3 categories – Exempt: issuance of loans, making deposits, cash transactions, spot currency and commodity transactions, insurance contracts etc. – Taxable at higher rate (minimum 10 basis points): secondary market transactions in equities, securities, repos, also primary market transactions in UCITS. Risk transfer arrangements within groups of companies. – Taxable at lower rate (minimum 1 basis point): derivative transactions over all asset classes, the notional principal is the tax base for such transactions 26
  27. 27. The Voice of Europe’s BanksThe Voice of Europe’s Banks Thank you for your attention ! For further information: www.ebf-fbe.eu

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