ECB

FMLC Publishes Letter to European Commission on Reporting and Transparency of Securities Financing Transactions

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On February 10, the UK Financial Markets Law Committee (FMLC) published a letter to the Director-General for Financial Stability, Financial Services and Capital Markets Union of the European Commission.

The letter discusses the proposed Regulation on Reporting and Transparency of Securities Financing Transactions. The proposed regulation would introduce a transparency regime in the context of securities financing transactions (typically repurchase agreements (repos), securities lending activities, and sell/buy-back transactions) by requiring their reporting to trade repositories and disclosure to fund investors.

The FMLC is concerned that the proposed regulation fails adequately to reflect the difference between a title transfer financial collateral arrangement (TTFCA) and a security financial collateral arrangement (SFCA), pointing out that such failure adequately to differentiate had been flagged in comments by the ECB. To allay these concerns the FMLC recommends that the proposed regulation is amended to make it explicit that TTFCAs are excluded from Article 15 of the proposed regulation which states that counterparties shall have the right to rehypothecation only if the counterparty is informed in writing of the potential risks and has granted its prior express consent. Since a TTFCA (unlike a SFCA) involves the transfer to the receiving counterparty of the ownership of the assets in question, it is incongruous to say that the receiving counterparty has the right to use the assets transferred to him only if certain conditions are satisfied because the right to use them is a necessary incident of the ownership of the assets. Similarly, the FMLC points out that only assets transferred by means of a SFCA constitute “client assets” for the purposes of the receiving party as the transferor retains an equitable interest.  Letter.

The ECB Published a Recommendation on Dividend Distribution Policies

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On January 28, the European Central Bank (“ECB”) published a recommendation to establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements.

The ECB has published recommendations with regard to Category 1, Category 2 and Category 3 credit institutions. Category 1 credit institutions should only distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all the Pillar 1 requirements. Category 2 credit institutions should not only distribute their net profits in dividends in a conservative manner but should also only pay out dividends to the extent which is consistent, at a minimum, with a linear path towards the fully loaded ratios required by the Common Equity Tier 1 capital ratio. Category 3 credit institutions which under the 2014 comprehensive assessment have a capital shortfall should, in principle, not distribute any dividend.  Recommendation.

Council of EU Presidency Compromise on Regulation on ECB’s Powers to Impose Sanctions

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On December 11, the Council of the EU published a note (dated December 10) that amends the ECB’s powers to impose sanctions.

The ECB published its recommendation for a Council Regulation in April 2014. The recommendation aims to establish a coherent regime for the imposition by the ECB for sanctions relating to the performance of its supervisory tasks under the Regulation establishing the single supervisory mechanism, by adapting the framework already set out for the purposes of monetary policy conduct.

ECB Opines on the Proposed Money Market Funds Regulation

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On June 4,  the European Central Bank (ECB) published an opinion on the European Commission’s proposed regulation on Money Market Funds (MMF).  The MMF regulation, which is aimed at enhancing the liquidity and stability of MMF, is part of a wider effort to develop a regulatory framework for shadow banking entities, over which concerns have been growing in relation to financial stability.

In the opinion, the ECB makes supporting observations towards the proposed regulation in the following areas:

  • the interconnection of the regulation and the legal frameworks for undertakings for collective investment in transferable securities (UCITS) and alternative investment fund managers (AIFMs);
  • financial stability;
  • the constant net asset value of MMFs;
  • the provision of external support;
  • risk management of MMFs;
  • the role of MMFs in intermediation;
  • internal rating systems; and
  • reporting requirements for MMFs.

In addition to those observations, the ECB also suggests a number of technical amendments to the proposed regulation. Opinion.

ECB Publishes Draft Consultation on Charging a Supervisory Fee

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On May 27, the European Central Bank (ECB) published a consultation paper and accompanying questions and answers on its website concerning its draft regulation on supervisory fees.  Under the draft regulation, the ECB would charge an annual fee to supervised banks and supervised banking groups to recover its cost of supervising Euro Area banks under the Single Supervisory Mechanism (SSM). The SSM Regulation (Regulation 1024/2013) requires the ECB to charge such a fee.

The draft regulation sets out the framework for calculating the fee, apportioning it between supervised entities and collecting the fee.  Comments on the draft regulation are invited and the consultation will close to comments on July 11, 2014.   The ECB will hold a public hearing on the consultation on June 24, 2014, where comments can be submitted.  Consultation Paper.  Q&As.  Public Hearing.

ECB Speech on SSM Comprehensive Assessment and Future Supervision of Banks

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On November 20, the European Central Bank (ECB) published a speech given on November 18 by Yves Mersch, ECB executive board member, on the ECB’s perspective on current issues relating to the European banking union.

Among other things, Mr Mersch:

  • Considers the comprehensive assessment of banks in the single supervisory mechanism (SSM) that will be  subject to direct ECB supervision;
  • states that the stress test, which forms part of the comprehensive assessment, will be conducted by the ECB over  a period of three years, and that the ECB will use a baseline scenario and one stress scenario;
  • comments that the ECB is currently discussing internally the question of how exposure to government bonds should be valued; and
  • summarizes the ECB’s proposed supervisory approach to banks that will be subject to direct supervision (that is, banks deemed to be significant under the SSM Regulation (Regulation 1024/2013)) and to the other banks in the SSM.

The UK Prime Minister has stated that the UK will not participate in the SSM.  Speech.

European Central Bank to Undertake Comprehensive Assessment of Large Banks in Advance of the Single Supervisory Mechanism

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In a press release dated October 23, the ECB announced that it will undertake a comprehensive assessment of large banks prior to assuming full responsibility for supervision as part of the SSM.

The assessment will include a risk assessment, an asset quality review and a stress test to examine the banks’ balance sheet’s resilience.  The assessment will start in November 2013 and will be completed in 12 months, in collaboration with the relevant national competent authorities. 

The UK Prime Minister stated that the UK will not participate in the SSM.  Press Release.