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Issue 23 - March 2014
This newsletter is published by SOMO and WEED.

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Summary: Financial lobby puts down shadow banking regulation
By Markus Henn, WEED

The regulation of shadow banking advances step by step. While some international recommendations are still in the making, the EU has started with some laws for implementation. The first proposal, dealing with money market funds, has been stopped by the financial lobby in the Parliament. Arguing that the proposal – already watered-down compared to international recommendations – would close down all such funds, the lobby was successful and the committee decided to take the law off the agenda two weeks ago.

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Another issue is shadow banking activities such as the lending of securities. A new law proposal by the European Commission aims for more transparency of these activities and prior consent by the actual owner of the securities. It remains to be seen if the financial lobby will also bring down this law.

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Brief updates

Brief update: Investment funds regulation amended (UCITS V)

The Council of EU Finance Ministers and the European Parliament agreed on the revision of the ‘UCITS’ directive on 25 February 2014.UCITS, which stands for Undertakings for Collective Investments in Transferable Securities, are the main type of investment funds available to individuals and regulated by the EU. The UCITS framework has been changed several times already to adapt to the changes in the financial markets. The revision now agreed on (‘UCITS V’) will:

  • Extend and harmonize how national authorities can sanction misbehavior by the funds. Administrative sanctions of up to €5 million or 10 per cent of the turnover of the corporation will be introduced. Criminal sanctions are not part of the revision but member states can introduce them within two years after the revised directive enters into force.
  • Introduce remuneration practices that do not encourage excessive risk-taking by UCITS managers. However, the provisions do not apply to managers from third countries to whom functions were delegated, nor are fees covered that are based on the performance.
  • Strengthen the rules on the so-called depositary, i.e. an independent entity acting as a supervisor and safe-keeper of the fund's assets. Only national central banks, banks and regulated firms with sufficient capital and adequate infrastructure will be eligible as UCITS depositaries. Furthermore, the depositary will be now liable for any loss of UCITS assets held in its custody.

The revision requires final endorsement by Parliament and Council and then needs to be integrated into national law of all EU countries.

Brief update: Banking Union almost finalised

On the road to a European Banking Union (for details see November 2013 Newsletter), there was a breakthrough in the negotiations. After supervision of credit institutions by the European Central Bank had already been agreed on, the European Parliament (EP) and the European Council also agreed on the Single Resolution Mechanism (SRM), which sets the rules for how to deal with failing banks at EU level, on 20 March 2014. The mechanism will include a board with participation of the European Council, European Commission, European Central Bank and national authorities that can shut down banks facing heavy financial difficulties. The payments needed in a resolution shall be covered by a fund financed by the banks. The fund will need to collect up to 55 billion Euros in the next eight years before becoming fully operational. The EP, however, will only be voting on a regulation covering the main aspects of the mechanism while there will be an intergovernmental agreement related to some aspects of the fund. The exclusion of the EP from the resolution board and the fund is the reason for serious concerns over its legality.

There was also another decision important for a comprehensive banking union, regarding Deposit Guarantee Schemes. Such schemes are required at EU member state level to protect money saved at a bank of up to 100,000 Euro. On 3 March 2014, after years of discussions, the Council approved a review of the respective EU directive, which was agreed before with the EP in trilogue negotiations. The review improves the existing framework in some respects. A core element is sufficient financing by the banks at national level. In the new framework banks should have built up a fund within 10 years of at least 0.8 per cent of the value of the deposits covered by the Guarantee Schemes (for the relation of these schemes to the new resolution mentioned above see here). This should further reduce the risk of a bank run due to a lack of confidence by clients. The EP will now have to approve the law, but only as a formality.

Brief update: Big and small steps with tackling tax evasion

Individuals will face more difficulties to evade taxes as the heads of EU member states in the European Council finally amended the EU’s Savings Tax Directive. The directive so far mainly requires automatic information exchange on interest gains between EU states (for details see May 2013 Newsletter). Now after years of resistance, Luxembourg and Austria, which so far have not applied the exchange, accepted to fully join the directive and exchange data – but probably only by 2017. Furthermore, the exchange was extended to more kinds of capital gains. The decision was welcomed by tax justice campaigners.

To prevent corporate tax avoidance, the OECD further coordinates the implementation of a G20 action plan. The latest issue open for public comments was transparency of ‘transfer prices’, i.e. the prices that corporations set internally for transactions between their affiliates and that can also be used for tax avoidance (see a civil society comment). In the meantime, the EU is further reviewing its Parent-Subsidiary Directive which is about taxing the profits of trans-European corporations (for details see December 2013 Newsletter). The European Parliament’s ECON committee voted on its position on 18 March 2014, supporting the Commission’s proposals for general anti-abuse clauses and against a particular form of tax avoidance through certain types of loans. More stringent proposals by some MEPs like a minimum taxation level were rejected by the majority of the committee.

The parliament’s position is only an opinion. The ultimate decision on tax policy still lies with the Member States. The Council of EU Finance Ministers is discussing its position and plans to come to an agreement during its meeting on 20 June 2014.

Brief update: Parliament votes for ownership transparency to tackle money laundering

The EU’s Anti-Money Laundering Directive is still in the legislative review process (for an overview see December 2013 Newsletter). The European Parliament voted on its position on 11 March 2014.

One rather controversial issue dealt with in the directive is transparency of the so-called beneficial owners, i.e. the natural person getting the ultimate benefit from a legal entity such as a company or a trust. According to the parliament’s position, which was taken with a large majority, companies and other legal entities such as trusts would have to ‘retain information on their beneficial ownership and make adequate, accurate and up-to-date information available through central public registers’. This decision was strongly applauded by civil society’s Financial Transparency Coalition as such a register can help to fight money laundering more effectively.

While the parliament was rather quick with its decision, the Council of Finance Ministers (ECOFIN) still has to deliberate and take its position. The ECOFIN could not come to an agreement in November, but it ‘confirmed the aim rapidly agreeing a general approach, so that agreement can be reached with the European Parliament before the end of its current term (May 2014)’. However, the fact that the directive is not scheduled for any official ECOFIN agenda until June 2014, could also be a contrary sign meaning that the Member States see no urgency in tackling money laundering.

For background to the official agenda of European institutions, see the following websites: The links below give the website with updates and overviews of documents and dates related to the EU decision making process
March April May June July
  • 22, ECON (Brussels): Meeting
  • 19-23, Attac (Paris): Summer Academy
September October
  • 7, ECON (Brussels): Meeting
  • 13, ECON (Brussels): Meeting
November December
  • 1-2, ECON (Brussels): Meeting
  • 8, ECON (Brussels): Meeting