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A Rich But Shaky Legislative Pipeline

Tue, 09/06/2016

The policy area for which Brexit presents the greatest challenges is Financial Services, where London’s €106tn volume of business in trading and clearing euros only takes place due to the City being in the EU. This will be one of the most controversial elements of the negotiations between the EU and the UK. The City is unlikely to safeguard its current status without the UK making concessions in other areas of interest for the EU such as the maintenance of the freedom of movement and establishment for EU citizens.

The Capital Markets Union (CMU) Action Plan, presented last year by the European Commission, outlines 33 new measures deemed necessary to establish the building blocks for an integrated capital market across the European Union by 2019. The first progress report on CMU released earlier this year does not take account of the new situation emerging following the UK referendum and will require re-assessment by the Commission.

There has been much speculation about how Brexit affects Financial Services legislation for the EU, and specifically the future of the Capital Markets Union, a pet project of the former British Commissioner Jonathan Hill. In his final speech, however, Lord Hill was resolute, “It’s absolutely essential for the European Union to continue diversifying the funding sources for its economy, particularly with London outside the EU,” urging the EU to stick with it, “to keep hammering away at the barriers to free movement of capital for the years ahead.”

Despite the new challenging situation surrounding Brexit and the diverging views of other key Member States on several technical aspects of CMU priorities, Commission Vice-President Valdis Dombrovkis, who has taken over responsibility for the Financial Services portfolio seems committed to pursuing the work initiated by Lord Hill in this area, but the pace and scope of future work is unlikely to remain as initially planned.

The launch of four new public consultations presents a good opportunity for business and stakeholders to make known their views and perspectives on future EU initiatives in financial services, as outlined below.

Insights Brussels - Sept 2016 Fin Services 01 Proposals to be Adopted

Revised directive on “Institutions for Occupational Retirement Provision” (IORP II)

The proposed revision of the IORP II directive was presented by the European Commission in March 2014, mainly focusing on the governance and transparency of the activities of occupational pension institutions.
According to the rapporteur in the European Parliament, Brian Hayes (EPP, Ireland), the final text will be voted on at the plenary session in October 2016. EU member states will have 24 months after the entry into force of the Directive to transpose it into national legislation.


  • March 2014 : Commission proposal
  • 30 June 2016 : Council Agreement
  • October 2016 : Adoption in EP Plenary
  • 2018 : Deadline for transposition in national law

Ongoing consultations

  • Capital Markets Union: action on a potential EU personal pension framework
    27 July – 31 October
    The consultation invites interested parties to provide information on their experience using personal pension schemes and seeks the views of professionals working in the pensions industry on the possibility of offering more simple, affordable and transparent personal pension products. The consultation will enable the Commission to get a better view on what can be done at EU level to support a wider choice of personal benefit tools at retirement across borders.
  • Review of the EU macro-prudential framework
    1 August-24 October
    The framework under consultation consists of the European Systemic Risk Board (ESRB) Regulations, the Capital Requirements Directive IV (CRD IV), the Capital Requirements Regulation (CRR) and the Single Supervisory Mechanism (SSM). The consultation focuses on refining the scope of existing macro-prudential instruments (such as capital buffers) and making the rules more consistent with one another, as well as examining the role and organisational structure of the ESRB and its relationship with the European Central Bank.
  • Main barriers to the cross-borders distribution of investment funds across the EU
    2 June-2 October
    The aim of the consultation is to define how best to strengthen the single market passport for cross-border investment funds. The consultation seeks feedback from the public, including fund managers, investors and consumer groups, as well as from those who market and sell these funds, in order to gain a fuller picture of the remaining barriers to cross-border distribution (such as marketing rules, administrative arrangements by host countries, regulatory fees and notification rules).
  • Evaluation of the financial conglomerate directive
    9 June – 20 September
    The consultation will gather evidence on whether the Directive on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate, known as FICOD, first adopted in 2002, is proportionate and fit for purpose in its current form and delivering as expected.

Regulation on a European framework for Simple, Transparent and Standardised (STS) Securitisation and a revision of the capital calibrations for banks

Insights Brussels - Feb 2016 - Digital Single Market 02 With a view to opening up investment opportunities to a wider set of non-bank investors, the Commission in September 2015 presented a proposal for the creation of a new regulatory framework to relaunch markets for STS securitisations and for the revision of capital calibration for banks. The proposals were agreed by the Council in December 2015 and are currently awaiting the opinion of the European Parliament.

Following a Public Hearing on the regulation in the European Parliament on 13 June, the rapporteur Paul Tang, (S&D, Netherlands) expressed his concern that the examination of the proposal by the Council was being rushed. In his draft report he follows the proposal of NGO Finance Watch that at least 20% of the risk should be kept on the balance sheet of the issuer (the Commission proposal foresees only 5%). This proposed higher threshold clearly divides the political groups, with rapporteurs from GUE/NGL and Greens/EFA supporting the proposal, while ECR and ALDE clearly oppose it.

Both pieces of legislation are provisionally scheduled to be debated in ECON Committee on 9 November and in plenary on 13 December for 1st reading/single reading.

Once a political agreement is reached between the co-legislators, the Commission has announced its intention to also revise capital charges for investments in STS securitisations under Solvency II.


  • September 2015 : Commission proposal
  • December 2015 : Council agreement
  • November 2016 : Adoption in EP Committee
  • December 2016 : EP Plenary Meeting for 1st/single reading

Regulation on the modernisation of the Prospectus Directive

In November 2015, the European Commission issued a proposal to modernise the Prospectus Directive, aiming to reduce the costs for smaller companies accessing the capital markets. The European Parliament’s Committee on Economic and Monetary Affairs (ECON) published its draft report in March 2016. Rapporteur Petr Jezek (ALDE, CZ) and the ECON committee endorsed its draft negotiating position on 13 July, to be submitted to plenary. The Member States agreed on their general approach in the ECOFIN council meeting on 17 June.

Under the new regulations proposed by the Commission, issuers would no longer be obliged to create prospectuses for issuances of less than €500.000, a threshold that Member states could raise to €10 million. Where the Commission want to limit this possibility purely to national issuances, the Council’s proposal does not foresee this restriction, whereas the European Parliament wants to limit it to €5 million.

In addition, the Commission’s proposal and the positions of the European Parliament and the Council are still divergent on the exact definition of who can make use of a lighter version of prospectus, the EU Growth Prospectus and on the exact qualification of risk factors.

After a formal approval of the negotiating mandate in EP plenary, scheduled for 13 September 2016, the interinstitutional negotiations can start. The Slovak Presidency aims to reach a political agreement between the institutions before the end of the 2016.


  • November 2015 : Commission proposal
  • 17 June 2016 : negotiating mandate agreed at ECO FIN Council
  • 13 September 2016 : negotiating mandate agreed in EP plenary
  • Autumn 2016 : start of inter-institutional negotiations
  • End 2016 : target date from Slovak Presidency for Political agreement
  • 2017 : Entry into force of Regulation
  • 2018 : Application of Regulation and dead line for transposition of elements in national law

Regulation on the Reform of Money Market Funds

Insights Brussels February 2015 flags The commission adopted a proposal for a regulatory framework for Money Market Funds (MMFs) in September 2013. These funds serve as an important source of short-term financing for financial institutions, business and governments, but are also vulnerable to investor “runs” on redemptions and have given rise to the misperception that their returns are guaranteed. The proposed regulatory framework should allow them to better withstand redemption pressures in stressed market conditions, while ensuring that they remain a secure tool for European companies to manage their finances.

After years of discussion, on 17 June 2016 the EU finance ministers reached an agreement on the negotiating mandate for the Council, paving the way for trilogues with the European Parliament to start shortly. The European Parliament has been ready for talks since April 2015.

The discussions between the three institutions centre around the issues of Constant Net Asset Value funds (CNAVs) and the creation of a new type of money market fund, the Low Volatility Net Asset Value Money Market Fund (LVNAV).

For CNAVs, the Commission wants to introduce a minimum reserve of 3% of total assets in own funds. Both the European Parliament and the Council disagree with this, favouring instead liquidity fees or redemption gates to be applied only in times of stress. The Council is pushing in favour of CNAVs which invest 99.5% of their assets in public securities, whereas MEPs are pushing for 80% of CNAVs assets to be invested in public securities of EU countries.

With regard to LVNAVs, the EP wants to introduce a “sunset clause” thereby forcing LVNAVs to be converted into Variable Net Asset Value Funds (VNAVs) after five years.

After lengthy internal discussions whereby the UK, Ireland and Luxembourg argued for less restrictive liquidity requirements on one side and France and Germany argued for more regulation, the Council reached a compromise on a weekly liquidity requirement of 30% for CNAVs and LVNAVs and of 15% for VNAVs, of which 15% may be made up of public securities, going further than the original Commission proposal which foresaw 20%.

The Slovak presidency aims to reach a political agreement between the European Parliament and the Council before the end of the year.


  • September 2013 : Legislative Proposal published
  • April 2015 : negotiating mandate agreed in EP plenary
  • May 2015 : Opening inter-institutional negotiations
  • June 2016 : Council position
  • Autumn 2016 : expected start of the Trilogue negotiations
  • End 2016 : target Slovak Presidency for political agreement Council – European Parliament

Delegated Act on Key Information Documents (KID) on Investment Products

On 30 June 2016, the Commission adopted a delegated act with new rules specifying regulatory technical standards on the content of methodology of the KID which must be supplied, from 2017 onwards, to consumers wishing to invest in a retail financial products. This delegated legislation follows from the regulation adopted in November 2014 on Packaged Retail and Insurance-based Investment Products (PRIIPs). The Council and the European Parliament have two months to object. Ten member states (including Germany and France) had asked for a longer implementation time for industry and also inside the European Parliament there is strong resistance to the current provisions of the delegated act, with the EPP, ALDE, ECR and Greens/EFA groups threathening to table a motion of objection in the September plenary, which, if adopted, would even threaten the entry into force » by « with the EPP, ALDE, ECR and Greens/EFA groups having tabled a motion of objection, which, if adopted in the September plenary, would even threaten the entry into force of the PRIIPs regulation by January 2017.

Enhanced Cooperation on a Financial Transaction Tax (FTT)

Negotiations between the finance ministers of the 10 countries participating in the enhanced cooperation, are making very slow progress. On 16 June 2016, the ministers decided to set up two task forces to look into two controversial issues still open in preparation of their next September meeting. The first task force, which will be presided by Italy will look into the possible impact of the tax on derivative products of sovereign financing, a main concern of Belgium. The second task force, led by Germany, will look at the implementation costs versus the anticipated revenue from the future tax, which in particular Slovakia and Slovenia are sensitive to. This new delay means that the self-imposed deadline for political agreement by June 2016 was missed once again.

Proposal on a Common Consolidated Corporate Tax Base

On the basis of the public consultation in January 2016 on the relaunch of the Common Consolidated Corporate Tax Base, the Commission is expected to outline its legislative proposal in the fourth quarter of 2016.

Regulation amending European venture capital funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) regulations

Following the public consultation that closed in January 2016, the European Commission on 14 July 2016 published a proposal for a Regulation amending the existing Regulations on EuVECA and EuSEF, dating from 2013. The purpose is to respond to problems encountered by the industry through the application of the existing Regulations. The new Regulation seeks to abolish the practice of member states levying charges when a fund is registered. Also the definition of SME in which a fund must invest 70% of the capital subscribed in order to obtain the European Passport is relaxed. The proposal will now be submitted to the European Parliament and the Council. The first meeting of the Member States on the topic of tax incentives for venture capital and business angels is scheduled for Autumn 2016, to allow for an exchange of views on best practices, on the basis of a study launched by the Commission in January.

This article is part of the September 2016 edition of Insights Brussels – a regular update on key EU policy developments. For real-time updates, follow @MSL_Brussels or reach out to us on Twitter @msl_group. You can also connect with our team of public affairs experts – Leonardo Sforza , Olivier Hinnekens , Romain Seignovert , Alastair Bealby and François Troussier .

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