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Issue 27 - 16 December 2014
This newsletter is published by SOMO and WEED.

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Summaries of the articles

Financial Transaction Tax – the roller coaster continues
 

The December ECOFIN did not bring a breakthrough for the Financial Transaction Tax (FTT). The stalemate between France and Germany over the inclusion of derivatives into the tax base remains unresolved. The negotiations have turned into a paradigmatic example of the functioning of the EU. Only a broader bilateral package deal, for instance on fiscal policy and/or austerity, will bring a solution.

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Tax evasion: Luxembourg Leaks and beyond
The fight against legal tax avoidance and illegal tax evasion has gained momentum ever since the media has turned its focus to corporate tax dodging after the revelation of the Luxembourg Leaks beginning in November 2014. In the meantime, tax reform processes proceeded at the international and EU level with disappointing results. The G20/OECD reform process is at risk due to resistance from tax havens and the unwillingness of the other countries, who seek to allow important loopholes. In the fight against personal tax fraud, the automatic exchange of tax information reached new impetus at the end of October 2014, with 51 countries supporting a multilateral agreement which still contains flaws. In the EU, the revision of an important corporate tax law introduced a general rule against tax avoidance.

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The risks of the new Commission’s “Better Regulation” agenda
As part of the “Better Regulation” agenda, the new European Commission is considering the withdrawal of some proposals on financial market legislation on the separation of too big to fail banks and on investor compensation for failing funds. The financial sector lobby and some member states are trying to interpret the “Better Regulation” agenda in order to water down the financial reform agenda.

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Banks: missing structural reform
The reform of the EU banks’ structure, including possible prohibition or separation of business segments, is under heavy pressure from the financial lobby and from some member states. However, civil society and some academics warn that structural reform is urgently needed to manage the remaining risks in the financial system. Previous reforms, particularly on capital requirements, have not addressed these risks and are thus insufficient in preventing a crisis. The European Parliament plans to vote on the reform at the end of April next year.

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Brief Updates

The Banking Union to begin
The Banking Union finally became operational on 1 November 2014 with the supervision of European banks by the European Central Bank (ECB) in execution of the Single Supervisory Mechanism.

Before taking over the supervision, the ECB coordinated a stress test, the results of which were published by the European Banking Authority (EBA) on 26 October 2014. The stress test – the third of its kind for the EU – covered 123 banking groups from 22 EU countries with more than 70% of total EU banking assets. It intended to test what the impact of adverse economic conditions, i.e. a financial crisis, would be on the banks’ balance sheets. Twenty-four banks had insufficient capital to cover the losses stemming from these conditions. This was considered a rather good result. However, the test assumptions have been criticized as being unrealistically positive and thus not providing a valid picture as to whether the current banking system can deal with another financial crisis. For example, the assumed economic downturn was not as severe as in the real crisis of 2009. Important factors of the test model, such as interest rates, were not defined by the EBA, which gave the banks providing the information wide discretion over their calculations. It is also questionable whether the test can ever cover the risks that will emerge in the future. Finally, the test was based on the current capital requirement laws contingent upon the new international standard Basel III, which has been criticized as being too weak by many observers and academics. According to Finance Watch, the test results thus showed the need for a binding leverage ratio, namely a legally binding limit on the total amount a bank itself can borrow. The EU is still merely considering such a ratio, while the United States has already introduced it.

Another pillar of the Banking Union will also be in operation soon: the Single Resolution Mechanism, the EU instrument for dealing with failing or failed banks. On 9 December 2014, the Council of EU Finance Ministers agreed on the fees that banks have to pay to bear the costs of the new resolution fund, which has been criticized for being too small.
 

Information for individual investors who buy complex investment products (PRIIPs)
New EU legislation on packaged retail investment and insurance products (PRIIPs) deals with information about complex products for non-expert individual investors. The PRIIPs market is worth up to €10 trillion in the EU, according to European Commission estimates.

The new law (“Regulation on key information documents for packaged retail and insurance-based investment products”) was published on 9 December 2014, will enter into force 29 December 2014 and be directly applicable from 31 December 2016. It requires that an easy-to-read “key information document” (KID) is issued with the promotion and selling of such investment products. The European supervisory agencies responsible for elaborating and advising on how the KID should be produced and designed have issued a public consultation on how the PRIIP risks can be calculated, based on which the KID has to be presented as simply as possible. The deadline for responding to the consultation is 17 February 2015.

The consultation proposals include information about the risks the buyer faces, e.g. losing the invested money. The KID does not have to inform about the impact of the assets contained in the PRIIP on financial stability, the environment or social aspects. A label for socially and environmentally responsible investments should, however, be proposed by mid-2018 (Art. 33 of the new regulation).
 

Calendar
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.
 
2014
December 2015
January   February March
  • 6, Basel Committee on Banking Supervision (Basel): Deadline for consultation on Net Stable Funding Ratio
  • 9, Eurogroup (Brussels): Meeting
  • 9-12, EP (Strasbourg): Plenary
  • 19-20, European Council (Brussels): Meeting
  • 5, ECON (Brussels): Meeting
  • 23-24, ECON (Brussels): Meeting
  • 25, EP (Strasbourg): Plenary
  • 31, ECON (Brussels): Meeting
 April
  • 15, EP (Strasbourg): Plenary
  • 27-30, EP (Strasbourg): Plenary
May June
  • 7-8, G7 (Schloss Elmau): Heads of State Summit
  • 8-11, EP (Strasbourg): Plenary
  • 16, Eurogroup (Luxembourg): Meeting
  • 24, EP (Strasbourg): Plenary
  • 25-26, European Council (Brussels): Meeting
July
  • 6-9, EP (Strasbourg): Plenary
September
  • 7-10, EP (Strasbourg): Plenary
  • 16, EP (Strasbourg): Plenary
October
  • 5-8, EP (Strasbourg): Plenary
  • 14, EP (Strasbourg): Plenary
  • 26-29, EP (Strasbourg): Plenary
November
  • 11, EP (Strasbourg): Plenary
  • 15-16, G20 (Antalya): Summit
  • 23-26, EP (Strasbourg): Plenary
  • 25, EBA (London): Public Hearing on simplified obligations
December
  • 2, EP (Strasbourg): Plenary
  • 14-17, EP (Strasbourg): Plenary