Category Archives: Financial services: banking

Banking services are essential to the smooth functioning of economic activity – be it to do with payments, loans or investments.
European policy objectives in this area are twofold. The first is to complete the creation of an integrated market for banks and financial conglomerates, on the basis in particular of mutual recognition and the “European passport”. The second is to ensure that the market operates properly so that European citizens have all the security guarantees they need when using banking services.
These issues are especially important in view both of increasing cross border activity and the massive growth in services based on new technologies.

Internal Market

Internal Market

Internal Market Contents

  • Internal market: general framework
  • Living and working in the internal market: Free movement of people, asylum and immigration, free movement of workers
  • Single Market for Goods: Free movement of goods, technical harmonisation, product labelling and packaging, consumer safety, pharmaceutical and cosmetic products, chemical products, motor vehicles, construction, external dimension
  • Single market for services: Free movement of services, professional occupations, services of general interest, transport, Information Society, postal services, financial services, banks, insurance, securities markets
  • Single market for capital: Free movement of capital, economic and monetary union, economic and private stakeholders, fiscal aspects, combating fraud, external relations
  • Businesses in the internal market: Company law, public procurement, intellectual property

See also

Living and working in the internal market.
Overviews of European Union: Internal market.
Further information: the Internal Market and Services Directorate-General of the European Commission.

Electronic commerce

Electronic commerce

Outline of the Community (European Union) legislation about Electronic commerce

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

Electronic commerce

Document or Iniciative

Commission Communication of 7 February 2001 to the Council and the European Parliament on e-commerce and financial services [COM(2001) 66 – Not published in the Official Journal].

Summary

Introduction

The e-commerce Directive is a horizontal framework directive that applies to all information society services (“on-line” services) and therefore also to financial services provided on-line. Financial services provided off-line will be subject to a different legal regime. The communication explains that the e-commerce Directive complements sector-specific financial services legislation (information requirements for customers in the field of consumer credit, insurance and distance marketing). For example, the “internal market clause” applies to financial services by enabling providers to supply services throughout the Union on the basis of the legislation prevailing in the Member State in which they are established (i.e. country of origin). The e-commerce Directive also complements the electronic signatures Directive in that it obliges Member States to ensure that their legal system allows contracts to be concluded by electronic means. Financial service providers are unable to comply with fifteen different sets of rules and regulations if they really wish to offer cross-border on-line services. It is also necessary to reassure consumers who are still reluctant to use this type of service. In order to attain this objective, cooperation between the Member States must also be strengthened.

Derogations

The “internal market clause” of the e-commerce Directive does not apply to the taking up and carrying out of insurance business, the advertising of UCITS and the issue of electronic money by institutions which do not benefit from a European passport. There is also a derogation for contractual obligations in consumer contracts. The Directive also preserves the freedom of the parties to choose the law applicable to their contract.

Future

The Directive should be transposed by 17 January 2002. This will require further harmonisation of conduct-of-business rules for investment services and pre-contractual information requirements covered by the proposed Directive on the distance marketing of financial services.

Policy areas

The communication defines three policy areas:

  • Ensuring coherence in the legislative framework for financial services by, for example, harmonising core marketing and information rules and by regulating sectoral issues (banking, insurance, investment, etc.) and product-specific issues (mortgage credit, consumer credit, investment services, UCITS, life and non-life insurance, insurance intermediation, etc.): The Commission will also undertake a review of national rules relating to retail financial service contracts to ensure closer convergence and will inform the Member States on the conditions in which the case-by-case derogation provided for in Article 3(4) may be applied, enabling the Member States to apply on certain conditions, their national provisions to services coming from other Member States, with a view to defending public order or protecting consumers.
  • Building consumer confidence in redress and Internet payment systems: For cross-border redress, the Commission supports the establishment of private Alternative Dispute Resolution (ADR) and has launched FINNET (FINancial Services complaints Network) for financial services. For secure Internet payment systems, the Commission intends to develop the
    e-Europe
    initiative aimed at improving security by new identification and authentication techniques and to encourage the establishment of a legislative framework providing reassurance that a refund will be made if problems occur (non-authorised transaction, non-delivery or fraud).
  • Enhanced supervisory cooperation between Member States based on the principle of supervision by the authority of the country of establishment of the financial service provider: In the field of money laundering, digital signatures and the other identification and authentication techniques will partly reduce the risks associated with on-line and cross-border transfers. It will also be necessary to examine new risk profiles in financial services such as credit, market, interest-rate and insurance risks, which are being examined as part of a current review of prudential requirements (own funds) and solvency margins (insurance).

Related Acts

Commission Communication to the Council, the European Parliament and the European Central Bank of 14 May 2003 on the application to financial services of Article 3(4) to (6) of the Electronic Commerce Directive [COM(2003) 259 – Not published in the Official Journal]

This communication is designed to ensure that the mechanisms set out in Article 3(4) to (6) of the Electronic Commerce Directive and allowing Member States to apply on a case-by-case basis general-interest restrictions on an information society service provided in another Member State are correctly and strictly applied. It provides assistance to Member States wishing to avail themselves of those mechanisms although it is not an interpretative document. The analysis it contains is based on the Court of Justice’s case law. It does not attempt systematically to cover all the aspects of the Article in question, addressing only those where the Commission has noted that there is a need for some explanation and assistance.

Mortgage Credit in the EU

Mortgage Credit in the EU

Outline of the Community (European Union) legislation about Mortgage Credit in the EU

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

Mortgage Credit in the EU (Green Paper)

Mortgage credit markets vary greatly between the different Member States, with the same being true for consumer protection in this field. In a Green Paper (initiatives to be discussed), the Commission proposes intervening on this market to promote a cross-border mortgage credit. It proposes among other things establishing minimum rules for the information that needs to be provided for this type of loan and the creation of a Euromortgage.

Document or Iniciative

Green Paper: mortgage credit in the European Union [COM(2005) 327 final – Not published in the Official Journal].

Summary

It is argued in the Green Paper that the establishment of a transnational mortgage credit market in place of the numerous existing markets could contribute to European growth. A transnational market would benefit the consumer by promoting competition and increasing the choice of mortgage credit, while at the same time encouraging labour mobility. For the time being, national laws make it impossible for a transnational credit market to be established.

The Commission has launched a debate on the possible measures to be taken and the desired degree of Community intervention to bring about better integration of this market. It could eliminate obstacles to the supply of and demand for mortgage credits, and increase product diversity and price convergence. This would be beneficial both for the consumer and for economic development.

Moreover, the market is one of the largest in Europe and is continuing to grow. By way of example, the Green Paper states that by the end of 2004 Europe’s mortgage credit markets will represent approximately 40% of European GDP.

Advantages of a possible Community intervention

An intervention by the Commission could ensure:

  • an overall decrease in the cost of mortgage loans;
  • a broader range of ancillary products (mortgage insurance etc.) and key mortgage products (such as more flexible mortgages) being offered;
  • a decreased credit risk thanks to cross-border diversification;
  • greater consumer protection.

The Commission has also launched a debate into the possibility of intervening, to varying degrees, in the following areas:

  • the information provided to consumers;
  • early repayment penalties;
  • the method for calculating the annual percentage rate (APR) applied to mortgage loans, making it easier for consumers to compare prices;
  • ceilings on interest and variation in interest rates;
  • the standardisation of loan contracts;
  • cross-border extra-judicial measures;
  • the customer’s creditworthiness and access to databases;
  • property valuation;
  • compulsory auction procedures;
  • the possible creation of a Euromortgage, an instrument that would make it easier to take out and transfer a mortgage.

Greater protection for consumers

Consumers should receive all the information necessary to make a free choice. For the time being, a voluntary code of conduct is in place concerning the information made available on housing loans prior to the signing of the contract.

The Commission is reflecting on the future of this code, and wonders whether it would be better for the code of conduct to be made compulsory and whether the obligation to provide information that apply to the lender should also apply to other service providers such as brokers.

Related Acts

European Economic and Social Committee opinion of 15 December 2005 on the Green Paper: Mortgage Credit in the EU [COM(2005)327 final – Official Journal C 65 of 17.3.2006]

Commission Recommendation of 1 March 2001 on pre-contractual information to be given to consumers by lenders offering home loans [Official Journal L 69 of 10.03.2001].

The business and prudential supervision of electronic money institutions

The business and prudential supervision of electronic money institutions

Outline of the Community (European Union) legislation about The business and prudential supervision of electronic money institutions

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

The business and prudential supervision of electronic money institutions

Document or Iniciative

Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (Text with EEA relevance).

Summary

This Directive defines the rules on the business and supervision of electronic money institutions in order to guarantee fair competition conditions for all payment services providers.

Which institutions are covered by the directive?

  • credit institutions;
  • electronic money institutions *;
  • post office giro institutions entitled to issue electronic money;
  • the European Central Bank and national central banks;
  • Member States or their regional or local authorities when acting in their capacity as public authorities.

Which activities are carried out by electronic money institutions?

Electronic money institutions issue electronic money. They can carry out this activity through natural or legal persons acting on their behalf. In this case, they must obtain authorisation from Member States.

These institutions are also authorised to carry out the following activities:

  • the provision of payment services (see the list appended to the Directive on payment services in the internal market);
  • the granting of credit related to payment services;
  • the provision of operational services and closely related ancillary services in respect of the issuing of electronic money or the provision of payment services;
  • the operation of payment systems;
  • business activities other than the issuance of electronic money.

Own funds and capital requirements

Electronic money institutions must hold initial capital of not less than EUR 350 000.

They are to hold own funds which, as stated in the Directive on the taking up and pursuit of the business of credit institutions, shall be composed mainly of capital, reserves, funds for general banking risks, revaluation reserves and value adjustments. They shall mainly be calculated according to the following methods:

  • for activities not related to the issuance of electronic money, own funds shall be calculated in accordance with methods A, B or C of Article 8 of the Directive on payment services in the internal market);
  • for the activity of issuing electronic money, own funds shall amount to at least 2% of the average outstanding electronic money.

Electronic money institutions must safeguard funds that have been received in exchange for the electronic money issued. These safeguards must be effective no later than five business days after the issuance of electronic money.

What are the conditions for the issuance and redeemability of electronic money?

Electronic money issuers shall issue electronic money at par value on the receipt of funds. Upon request by the electronic money holder, issuers must be able to redeem the monetary value of the electronic money held at any moment.

Redemption conditions shall be clearly established in the contract between the issuer and the holder of electronic money. Redemption may be subject to a fee only if stated in the contract in the following cases:

  • redemption is requested before the termination of the contract;
  • the electronic money holder terminates the contract before the termination date;
  • redemption is requested more than one year after the date of termination of the contract.

This Directive repeals Directive 2000/46/EC.

Key terms of the Act
  • Electronic money institution: a legal person that has been granted authorisation to issue electronic money;
  • Electronic money: electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions.

Reference

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2009/110/EC

30.10.2009

30.4.2011

OJ L 267 of 10.10.2009

This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Bank Resolution Funds

Bank Resolution Funds

Outline of the Community (European Union) legislation about Bank Resolution Funds

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

Bank Resolution Funds

Document or Iniciative

Communication of 26 May 2010 from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the European Central Bank – Bank Resolution Funds [COM(2010) 254 final – Not published in the Official Journal].

Summary

This Communication defines the European Commission’s intentions concerning the establishment of Bank Resolution Funds.

What is the role of Bank Resolution Funds?

Resolution funds should contribute to financing the orderly resolution of distressed banks. In order to do this, they could implement measures such as:

  • financing bridge banks;
  • financing a total or partial transfer of assets and/or liabilities from the ailing entity;
  • financing a good bank/bad bank split.

Resolution funds may also be used to cover administrative costs, legal and advisory fees.

However, they must not play the role of insurance against failure or be used to bail out failing banks.

How can Bank Resolution Funds be financed?

The Commission considers that financing arrangements for a fund should procure the necessary resources whilst incentivising appropriate behaviour.

Three points could form the basis for calculating contributions to Bank Resolution Funds:

  • banks’ assets could represent an indicator of the amount which might need to be spent in handling the bank’s resolution. A levy could be established based on the assets and could therefore amount to an additional capital requirement;
  • banks’ liabilities could also represent indicators of the amount which might need to be spent in handling the bank’s resolution. However, liabilities could be less effective proxies for the degree of risk;
  • profits and bonuses could be used as a reference in order to determine the amount of levies.

Financing arrangements should meet the following criteria:

  • avoid any possible arbitrage;
  • reflect the appropriate risks;
  • take into account the systemic nature of certain financial entities;
  • be based on the possible amounts that could be spent if resolution becomes necessary;
  • avoid competition distortions.

What means of governance should be used for Bank Resolution Funds?

Bank Resolution Funds should remain separate from the national budget and be dedicated only to resolution costs.

The management of these funds should be entrusted to the authorities responsible for the resolution of financial entities acting as independent executive bodies.

The use of resolution funds should also respect the EU State aid rules.

The Commission plans to adopt legislative proposals for crisis management and resolution funds by early 2011.

How can bank resolution funds be integrated into a new financial stability framework?

The Commission has proposed to strengthen capital requirements and to reform financial supervision within the EU. It intends to strengthen Deposit Guarantee Schemes and the corporate governance of financial institutions.

The Commission also intends to implement preventive measures in order to mitigate the risks of bank failures and to reduce the implicit guarantees associated with institutions deemed ‘too big to fail’.

The Commission has also planned to adopt in October 2010 a roadmap on a European framework for crisis management. The aim of the new proposed framework is to make common tools, which enable prompt and effective action to be taken in the event of banking failures, available to Member States. These measures should not lead to costs for taxpayers.

Tools are proposed to complement the action of resolution funds:

  • Recovery and Resolution Plans;
  • debt to equity conversions.

Defining a common approach to Bank Resolution Funds

A European and global approach should be defined as regards the creation of Bank Resolution Funds.

Under this new measure, national authorities will continue to be responsible for day to day supervision, and this should be underpinned by a solid cross-border framework which is ready to address possible crises.

The first step in this common approach lies in establishing a system based on a harmonised network of national funds linked to a set of coordinated crisis management arrangements. This system should be re-examined by 2014 with a view to creating EU integrated crisis management and supervisory arrangements, as well as an EU Resolution Fund in the longer term.

Context

In order to mitigate the bank failures caused by the October 2008 financial crisis, the governments of Member States have provided State aid to assist the financial sector. This aid has considerably affected taxpayers and has increased Member States’ public debt. The creation of resolution funds should prevent future recourse to State aid to resolve financial institutions’ failures.

Financial conglomerates

Financial conglomerates

Outline of the Community (European Union) legislation about Financial conglomerates

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Financial services: general framework

Financial conglomerates

Document or Iniciative

European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC [See amending acts].

Summary

This Directive provides for supervision of the conglomerate and promotes closer coordination between the supervisory authorities for the individual sectors and the exchange of information between them.

Characteristic thresholds of a financial conglomerate

The Directive considers that the activities of a group occur mainly in the financial sector where the balance sheet total of the regulated and non-regulated financial sector entities in the group exceeds 40 % of the group’s balance sheet total.

The most important financial sector in a financial conglomerate is the sector with the highest average. The Directive regards the group as a conglomerate where it has significant activities in another financial sector.

Target entities for supplementary supervision at the level of a financial conglomerate

Supplementary supervision is to be applied to:

  • any regulated entity at the head of a financial conglomerate;
  • any regulated undertaking which has as its parent company a mixed financial holding company with its head office in the Union;
  • any regulated entity connected to another entity in the financial sector.

Solvency

Financial conglomerates must have adequate capital of their own. In particular, the multiple gearing of own funds must be abolished. The parent firm is no longer able to issue loans to finance its regulated subsidiaries («excessive leveraging»).

The proposal defines methods for calculating solvency ratios and capital adequacy at group level.

«Intra-group» transactions and risk concentration

Regulated entities and mixed financial holding companies are required to report:

  • any significant risk concentration at the level of the financial conglomerate;
  • any intra-group transaction.

An intra-group transaction is regarded as significant if it exceeds 5 % of the total amount of capital adequacy requirements of own funds at the level of a financial conglomerate.

Internal control mechanisms

Regulated entities at the level of a financial conglomerate are required to set internal control mechanisms which enable all the incurred risks to be measured.

Reporting procedures must also be implemented to identify, measure, monitor and control the intra-group transactions, as well as the risk concentration.

A mixed committee of European supervisory authorities is responsible for ensuring coherent cross-sector and cross-border supervision and compliance with EU legislation.

Supervision

The Directive provides for the appointment of a competent authority or coordinator responsible for the supplementary supervision of regulated entities of a financial conglomerate. It is responsible for:

  • coordinating and disseminating information;
  • ensuring supervisory overview and assessment of the financial situation;
  • assessing compliance with the rules on capital adequacy and of risk concentration and intra-group transactions;
  • assessing the financial conglomerate’s structure, organisation and internal control system;
  • planning and coordinating the supervisory activities.

The competent authorities responsible for supervising regulated entities belonging to a financial conglomerate and the coordinator for the financial conglomerate are required to cooperate closely with each other. In particular, they must cooperate in order to achieve harmonised supervisory practices.

Parent companies with their head office outside the European Union (EU)

Regulated entities whose head office is located outside the EU must be subject to supervision which is equivalent to that provided for by this Directive.

Role of the European Commission

The Commission is responsible for clarifying certain concepts, such as credit institutions, insurance undertakings and investment firms. It must also establish more precise methods for calculating capital adequacy in order to take account of developments on financial markets and prudential techniques.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2002/87/EC

11.2.2003

11.8.2004

OJ L 35, 11.2.2002

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79, 24.3.2005

Directive 2008/25/EC

21.3.2008

OJ L 81, 20.3.2008

Directive 2010/78/EU

4.1.2011

OJ L 331, 15.12.2010

Successive amendments and corrections to Directive 2002/87/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.


Another Normative about Financial conglomerates

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic

Internal market > Single market for services > Financial services: banking

Financial conglomerates

Document or Iniciative

European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC [See amending acts].

Summary

This Directive provides for supervision of the conglomerate and promotes closer coordination between the supervisory authorities for the individual sectors and the exchange of information between them.

Characteristic thresholds of a financial conglomerate

The Directive considers that the activities of a group occur mainly in the financial sector where the balance sheet total of the regulated and non-regulated financial sector entities in the group exceeds 40 % of the group’s balance sheet total.

The most important financial sector in a financial conglomerate is the sector with the highest average. The Directive regards the group as a conglomerate where it has significant activities in another financial sector.

Target entities for supplementary supervision at the level of a financial conglomerate

Supplementary supervision is to be applied to:

  • any regulated entity at the head of a financial conglomerate;
  • any regulated undertaking which has as its parent company a mixed financial holding company with its head office in the Union;
  • any regulated entity connected to another entity in the financial sector.

Solvency

Financial conglomerates must have adequate capital of their own. In particular, the multiple gearing of own funds must be abolished. The parent firm is no longer able to issue loans to finance its regulated subsidiaries («excessive leveraging»).

The proposal defines methods for calculating solvency ratios and capital adequacy at group level.

«Intra-group» transactions and risk concentration

Regulated entities and mixed financial holding companies are required to report:

  • any significant risk concentration at the level of the financial conglomerate;
  • any intra-group transaction.

An intra-group transaction is regarded as significant if it exceeds 5 % of the total amount of capital adequacy requirements of own funds at the level of a financial conglomerate.

Internal control mechanisms

Regulated entities at the level of a financial conglomerate are required to set internal control mechanisms which enable all the incurred risks to be measured.

Reporting procedures must also be implemented to identify, measure, monitor and control the intra-group transactions, as well as the risk concentration.

A mixed committee of European supervisory authorities is responsible for ensuring coherent cross-sector and cross-border supervision and compliance with EU legislation.

Supervision

The Directive provides for the appointment of a competent authority or coordinator responsible for the supplementary supervision of regulated entities of a financial conglomerate. It is responsible for:

  • coordinating and disseminating information;
  • ensuring supervisory overview and assessment of the financial situation;
  • assessing compliance with the rules on capital adequacy and of risk concentration and intra-group transactions;
  • assessing the financial conglomerate’s structure, organisation and internal control system;
  • planning and coordinating the supervisory activities.

The competent authorities responsible for supervising regulated entities belonging to a financial conglomerate and the coordinator for the financial conglomerate are required to cooperate closely with each other. In particular, they must cooperate in order to achieve harmonised supervisory practices.

Parent companies with their head office outside the European Union (EU)

Regulated entities whose head office is located outside the EU must be subject to supervision which is equivalent to that provided for by this Directive.

Role of the European Commission

The Commission is responsible for clarifying certain concepts, such as credit institutions, insurance undertakings and investment firms. It must also establish more precise methods for calculating capital adequacy in order to take account of developments on financial markets and prudential techniques.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2002/87/EC

11.2.2003

11.8.2004

OJ L 35, 11.2.2002

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79, 24.3.2005

Directive 2008/25/EC

21.3.2008

OJ L 81, 20.3.2008

Directive 2010/78/EU

4.1.2011

OJ L 331, 15.12.2010

Successive amendments and corrections to Directive 2002/87/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.

The taking-up and pursuit of the business of credit institutions

The taking-up and pursuit of the business of credit institutions

Outline of the Community (European Union) legislation about The taking-up and pursuit of the business of credit institutions

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

The taking-up and pursuit of the business of credit institutions

Document or Iniciative

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) [See amending acts].

Summary

Like Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions *, this Directive deals with the risks run by credit institutions as a result of their activities. Directives 2006/48/EC and 2006/49/EC have transposed into Community law the Basel II rules on measuring own funds and capital requirements agreed by the G-10.

Directive 2006/48/EC lays down the rules on the taking-up and pursuit of the business of credit institutions and on the prudential supervision of such institutions. It constitutes an important instrument for achieving the single market from the point of view of both the freedom of establishment and the freedom to provide services in the field of credit institutions. The central banks of the Member States, post office giro institutions and other bodies specific to certain Member States are excluded from the scope of the Directive.

Requirements for access to the taking up and pursuit of the business of credit institutions

The essential requirements for authorisation to take up and pursue the business of credit institutions are:

  • existence of separate own funds;
  • existence of initial capital of at least 5 million euros;
  • presence of at least two persons who effectively direct the business of the credit institution (and who are of sufficiently good repute and have sufficient experience to perform such duties);
  • notification to the competent authorities of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings, and of the amounts of those holdings.

Member States can adopt additional conditions, which must the Commission must be informed of.

All authorisations must be notified to the European Banking Authority (EBA) which is responsible for drawing up a register of authorised credit institutions and making it accessible on its website. Applicants must be notified whenever an authorisation is refused and the reasons for refusal must be given. The competent authorities may withdraw an authorisation subject to the conditions set out in the Directive, in particular when the above conditions are no longer fulfilled. The parties concerned, the Commission and the EBA must be notified when authorisation is withdrawn and the reasons for withdrawal must be given.

Credit institutions exercising their activities in a Member State other than the one in which their head office is situated may use their original name on condition that it does not give rise to any doubt as to the national law to which the parent undertaking is subject. However, the host Member State may, for the purposes of clarification, require that the name be accompanied by certain explanatory particulars. The division of responsibilities must be clearly defined.

The competent authorities must also collect information relating to the number of persons per credit firm in the income bracket of at least one million euros, comprising:

  • the main salary elements;
  • premiums;
  • long-term allowances;
  • pension premiums.

Prudential assessment of the acquisition of qualifying holdings

The Directive establishes detailed criteria for the prudential assessment of shareholders and management in the event of the planned acquisition of a qualifying holding and also a clear procedure for applying them. Competent authorities are to work together to assess the potential acquirers. The assessment applies in particular to:

  • credit institutions, insurance companies, reinsurance companies and investment firms;
  • parent undertakings of credit institutions, insurance companies, reinsurance companies and investment firms;
  • natural or legal persons in charge of credit institutions, insurance companies or reinsurance companies.

The competent authorities are to make a judgment as to the character of the proposed acquirer and the financial soundness of the proposed acquisition, on the basis of various criteria:

  • the reputation of the proposed acquirer;
  • the reputation and experience of any person who will direct the business of the credit institution as a result of the proposed acquisition;
  • the financial soundness of the proposed acquirer;
  • whether the credit institution will be able to comply, and continue to comply, with the prudential requirements;
  • whether there are reasonable grounds to suspect that attempted or actual money laundering or terrorism financing are taking place.

Freedom of establishment and freedom to provide services

A credit institution wishing to establish a branch in another Member State must notify the authorities of its home Member State, indicating the Member State in which it plans to establish a branch, a programme of operations, the address in the host Member State from which documents may be obtained and the names of those responsible for the management of the branch. The home Member State must provide this information to the host Member State within three months except if there is a reason to doubt the capacity of the administrative structure or the financial situation of the credit institution. If they refuse to provide the required information, the home Member State must justify their decision within three months of receiving all the information. That refusal shall be subject to a right to apply to the courts in the home Member State.

A credit institution wishing to exercise the freedom to provide services on the territory of another Member State must notify the authorities of its home Member State. Such notification must be forwarded to the host Member State.

Relations with third countries

The competent authorities shall notify the Commission and the EBA of all authorisations for branches granted to credit institutions having their head office outside the European Union (EU). The EU may, through agreements concluded with one or more third countries, agree to apply provisions which accord to branches of a credit institution having its head office outside the Community identical treatment throughout the territory of the EU.

Member States may not apply to branches of credit institutions which have their head office outside the EU provisions resulting in more favourable treatment than that accorded to branches of credit institutions which have their head office in the EU.

Principles of prudential supervision

In principle, supervision is carried out by the home Member State with limited exceptions (such as supervisions of liquidity). The competent authorities of the Member States concerned are to cooperate closely. In particular, they are to supply each other with any information necessary for effective supervision. Such exchanges are protected by professional secrecy. When the competent authorities encounter refusals of requests for cooperation and information, they shall notify the EBA.

A competent authority has the option to communicate the information required for accomplishing its mission to the following authorities:

  • central banks;
  • public authorities responsible for monitoring payment systems;
  • the European Systemic Risk Board (ESRB).

The competent authorities are authorised to impose or implement penalties and other financial or non-financial measures.

Should a branch breach a Member State’s prudential rules, the host Member State shall request the home Member State to take the necessary measures. If the measures taken are insufficient then the host Member State has the power to take appropriate measures to prevent or punish the breach committed by the branch. The home Member State must be informed before such measures are taken. In urgent cases, the competent authorities of the host Member State may take any precautionary measures necessary to protect interests. In these cases, they must inform the Commission, the EBA and the competent authorities of the other Member States.

Technical instruments of prudential supervision

Own funds

The Directive puts forward a definition of own funds comprising two elements (original own funds and additional own funds). The amount of additional own funds added to own funds must not exceed the original own funds. In addition, the commitments of members of credit institutions (cooperative societies) and subordinated loans may not exceed one half of the original own funds. The Directive also lists the elements to be deducted from own funds and indicates the formula for calculating own funds on a consolidated basis.

Solvency ratio

The own funds of each credit institution are defined as a proportion of the weighted risks of its assets and off-balance-sheet activities. The minimum prescribed ratio is 8 %. This mainly concerns credit risk incurred by possible non-payment by a borrower and establishes a distinction between the levels of risk associated with specific assets and off-balance-sheet elements, and with certain specific categories of borrowers.

Large exposures

A credit institution’s exposure is deemed large where its value exceeds 10 % of its own funds. Credit institutions must report every large exposure to the competent authorities and the EBA in the manner provided for in the Directive. Limits are set on the exposures that a credit institution may incur.

Supervision on a consolidated basis of credit institutions

Every credit institution which has a credit institution or a financial institution as a subsidiary, or which holds a participation in such institutions, and all credit institutions the parent undertaking of which is a financial holding company, are subject to supervision on a consolidated basis. The arrangements attempt to identify clearly elements whereby the competent authorities responsible for exercising supervision on a consolidated basis can be determined in the various possible scenarios.

The competent authorities can take measures against establishments which do not meet the requirements of this Directive, in particular to:

  • require credit institutions to apply a specific policy of assets in terms of own funds;
  • limit the activities of the establishment;
  • require credit institutions to limit variable income where this income is not compatible with maintaining a sound financial basis;
  • require credit institutions to use the gains achieved to strengthen their financial basis.

If the establishment does not cooperate in a satisfactory manner, the competent authorities shall refer it to the EBA.

Emergency situations

In emergencies or adverse market situations which threaten market liquidity and the stability of the financial system, the supervisor shall alert the EBA, the ESRB and the competent authorities.

European Banking Authority

The EBA assists the Commission in ensuring the proper implementation of this Directive under Regulation (EU) 1093/2010.

Key terms of the Act
  • Credit institution: an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2006/48/EC

20.7.2006

31.12.2006

OJ L 177, 30.6.2006

Amending act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2007/18/EC

17.4.2007

30.9.2007

OJ L 87, 28.3.2007

Directive 2007/44/EC

21.9.2007

20.3.2009

OJ L 247, 21.9.2007

Directive 2007/64/EC

25.12.2007

1.11.2009

OJ L 319, 5.12.2007

Directive 2008/24/EC

21.3.2008

OJ L 81, 20.3.2008

Directive 2009/110/EC

30.10.2009

30.4.2011

OJ L267, 10.10.2009

Directive 2009/111/EC

7.12.2009

31.12.2010

OJ L 302, 17.11.2009

Directive 2010/76/EU

15.12.2010

31.12.2011

OJ L 329, 14.12.2010

Directive 2010/78/EU

4.1.2011

31.12.2011

OJ L 331, 15.12.2010

The successive amendments and corrigenda to the current guidelines by the ECB have been incorporated into the original text. This consolidated version is of documentary value only.

Related Acts

Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (Text with EEA relevance).

This Directive concerns the revision of rules applicable to capital in the banking sector with regard to:

  • the role of hybrid products (securities that contain features of both equity and debt). The challenge is to be able to classify these products as capital in order to be able to better assess the amount of loans a bank can grant;
  • liquidity risk management principles, which are a determining element concerning the soundness of banks. Supervision of liquidity risk should be facilitated by a College of supervisory authorities;
  • cross-border banking groups, which should also be supervised by Colleges of Supervisors;
  • a limit on interbank exposures in order to reduce risk;
  • improving risk management of securitised products.

Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) [Official Journal L 177 of 30.6.2006].

By laying down new capital requirements for banks and investment companies, this Directive aims to ensure the coherent application of the new international framework on capital requirements adopted by the Basel Committee on Banking Supervision (Basel II). The new framework lays down lower capital requirements for SME financing and provides for preferential treatment of specific types of risk capital. In addition, it introduces reduced capital requirements for retail loans to individuals who are less risk than the latter.

Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council.

This Directive states the rules which aim to organise the supplementary supervision of regulated bodies belonging to a financial conglomerate. A group is categorised as a financial conglomerate if the ratio between the balance sheet total of the financial sector entities and the balance sheet total of the group as a whole exceeds 40 %, and when the average of the ratio between the balance sheet total of that financial sector and the balance sheet total of the group and the ratio of the solvency requirements of the same financial sector and the total solvency requirements of the financial sector entities exceeds 10 %.
Where a financial conglomerate has been identified, decisions shall be taken on the basis of a proposal made by the coordinator of that financial conglomerate.

Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions [Official Journal L 125 of 5.5.2001].

This Directive relates to the reorganisation and winding-up of credit institutions and forms part of the Community legislative framework relating to the taking-up and pursuit of the business of credit institutions. It ensures that, where a credit institution with branches in other Member States fails, a single winding-up procedure is applied to all creditors and investors.

Financial collateral arrangements

Financial collateral arrangements

Outline of the Community (European Union) legislation about Financial collateral arrangements

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

Financial collateral arrangements

Document or Iniciative

Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements [See amending act(s)].

Summary

This Directive introduces a Community framework for financial collateral. It concerns financial institutions and insolvency proceedings. The financial collateral is made up of:

  • cash;
  • financial instruments;
  • credit claims *.

Bodies concerned

Member States are required to repeal certain national rules in order to improve the legal clarity of collateral arrangements *. However, this Directive does not apply to certain aspects of civil law such as restitution arising from mistake, error or lack of legal capacity. It applies to specific categories such as:

  • public authorities;
  • public sector bodies;
  • a central bank;
  • a financial institution subject to prudential supervision.

This Directive does not prejudice the operation and effect of the contractual terms of financial instruments or credit claims provided as financial collateral. Moreover, the Directive does not affect the rights of Member States to impose rules aimed at ensuring the enforceability of financial collateral contracts on third parties with regard to private claims.

A more secure legal framework for financial collateral

The Directive provides for rapid and non-formalistic enforcement procedures designed in part to limit contagion effects in the event of default by one of the parties to the arrangement. Member States may not make the creation, perfection, validity, enforceability or admissibility of a financial collateral arrangement dependent on the performance of any formal act. In addition, Member States must ensure that the collateral taker is able to realise financial collateral in one of the following manners:

  • if it concerns financial instruments by sale or appropriation and by setting off their value against, or applying their value in discharge of, the relevant financial obligations;
  • if it concerns cash by setting off the amount against or applying it in discharge of the relevant financial obligations;
  • if it concerns a credit claim by sale or appropriation and by setting off their value against, or applying their value in discharge of, the relevant financial obligations.

Appropriation is possible only if this has been agreed in the arrangement. Member States are responsible for ensuring the right of use of financial collateral and for ensuring that a financial collateral arrangement can take effect in accordance with its terms. Member States must recognise the applicable close-out netting provisions, even if the collateral taker or provider is subject to winding-up proceedings or reorganisation measures. Equally, the application of close-out netting provisions may not be blocked by any purported assignment, judicial or other attachment, or other disposition of or in respect of such rights.

The Directive also stipulates that certain insolvency provisions do not apply. Financial collateral arrangements may not be declared invalid or void or be reversed on the sole basis that they have been concluded or that the financial collateral has been provided:

  • on the day of the commencement of winding-up proceedings or reorganisation measures, but prior to the order or decree making that commencement;
  • in a prescribed period prior to, and defined by reference to, the commencement of such proceedings or measures or by reference to the making of any order or decree.

The Directive also lays down provisions applicable in the event of a conflict of laws.

Key terms used in the act
  • Financial collateral arrangement: a collateral arrangement in the form of cash or financial instruments, i.e. a title transfer of ownership or a security financial collateral arrangement.
  • Credit claims: pecuniary claims arising out of an agreement whereby a credit institution grants credit in the form of a loan.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2002/47/EC

27.6.2002

27.12.2003

OJ L 168 of 27.06.2002

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2009/44/EC

30.6.2009

30.12.2010

OJ L 146 of 10.6.2009

Related Acts

Evaluation Report from the Commission to the European Parliament and the Council of 20 December 2006 on the Financial Collateral Arrangements Directive [COM(2006) 833 final – not published in the Official Journal].
This report assesses the application of Directive 2002/47/EC in the Member States. Although it is still too early for a full assessment of whether this Directive has strengthened the integration of the European financial markets, the Commission considers that it has made procedures relating to financial collateral in Europe more effective by reducing legal and administrative constraints.

Integration of European Mortgage Credit Markets

Integration of European Mortgage Credit Markets

Outline of the Community (European Union) legislation about Integration of European Mortgage Credit Markets

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

Integration of European Mortgage Credit Markets (White Paper)

Document or Iniciative

White Paper of 18 December 2007 on the Integration of EU Mortgage Credit Markets presented by the Commission [COM(2007) 807 final – not published in the Official Journal].

Summary

The integration of the European credit market is central to the European Union (EU) economy and the efficient functioning of the internal market. The Commission identifies the challenges to which an appropriate solution could be provided to remove the obstacles to integration of the market.

Objectives

The detailed examination of the barriers to the integrated market identified four objectives to strengthen competition and effectiveness of the markets, namely:

  • facilitating the cross-border supply and funding of mortgage credit. The obstacles (legal frameworks, infrastructures, etc.) should be removed. This removal should allow development of a wide range of mortgage funding instruments, while protecting consumers and preserving market stability;
  • increasing product diversity. To meet consumers’ needs, the removal of barriers to distribution and sale should encourage diversification of mortgage products, in particular to the benefit of new and innovative products;
  • improving consumer confidence. Consumers should be in a position to make an informed choice based on clear, comparable information. Lenders should assess more thoroughly borrowers’ financial capacities. In addition, they should also be given relevant advice;
  • facilitating customer mobility. The freedom of consumers to change lender requires transparency of costs and product characteristics.

Achieving the objectives

On the subject of legislation, a review will assess law-making opportunity, in particular in terms of costs and benefits in accordance with the principle of better regulation. Nevertheless, the Commission has identified three key areas to be looked at, namely:

  • early repayment. In this sensitive area, exploration of the various options will determine the possibility of developing a European regime for early repayment;
  • quality and comparability of information. Information must be structured, comprehensive, concrete and simple. In this perspective, the European Standardised Information Sheet (ESIS) will be finalised and consumer-tested to ensure uniform application throughout the EU. The extension of Annual Percentage Rates of Charge (APRCs) provided in the proposed Consumer Credit Directive on mortgage credit could also be studied;
  • responsible lending and borrowing. More responsibility should be placed on lenders to access credit information registers of all the other Member States in order to adequately assess borrowers’ creditworthiness. Impartial advice that is relevant to consumers is also essential. Legislation on the subject is also to be anticipated to guarantee them an informed choice.

To address these matters, the creation of an Expert Group on Credit Histories, support for financial literacy and the possible extension of contract law to mortgage agreements (proposed Rome I Regulation) make up the framework of application to deal with the issues covered.

In terms of valuation, land registers and foreclosure procedures, the Member States should improve the efficiency of their forced sales and land registration procedures. The Commission also intends to publish regular scoreboards on the cost and duration of land registrations and foreclosures.

In order to combat infringements, the Commission will ensure compliance with Community rules in terms of:

  • national data circulation and service provision rules on the subject of credit;
  • prohibition practised by certain Member States on including non-domestic mortgage loans in cover pools.

In terms of mortgage credit funding, experts’ reports and the turmoil of the US sub-prime market must be taken into account in order to analyse the following questions:

  • management of liquidity mismatch risk;
  • movement by lenders of credit risk off balance sheet;
  • exposure of banks to securitisation transactions;
  • transparency measures for end investors.

In accordance with the Green Paper on Retail Financial Services, the Commission also carries out other assessments, in particular of the role of non-credit institutions in credit markets, the marketing of equity release products, unfair practices (such as ‘tying’ practices) and interest rate restrictions.

Background

This White Paper continues the Communication from the Commission entitled “A single market for 21st century Europe” within the context of the turmoil of the US sub-prime market.

Related Acts

Commission Green Paper of 19 July 2005 entitled “Mortgage Credit in the EU” [COM(2005) 327 final – not published in the Official Journal].

Owing to the differences between the mortgage credit markets of the Member States, the Commission sets out a number of proposals for a European mortgage credit market.

Financial services: banking

Financial services: banking

Outline of the Community (European Union) legislation about Financial services: banking

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: banking

Financial services: banking

Banking services are essential to the smooth functioning of economic activity – be it to do with payments, loans or investments.
European policy objectives in this area are twofold. The first is to complete the creation of an integrated market for banks and financial conglomerates, on the basis in particular of mutual recognition and the “European passport”. The second is to ensure that the market operates properly so that European citizens have all the security guarantees they need when using banking services.
These issues are especially important in view both of increasing cross border activity and the massive growth in services based on new technologies.

CREDIT INSTITUTIONS

  • Framework for crisis management in the financial sector
  • Bank Resolution Funds
  • Reorganisation and winding-up of credit institutions
  • Capital adequacy of investment firms and credit institutions
  • The taking-up and pursuit of the business of credit institutions
  • Deposit-guarantee schemes
  • Financial conglomerates
  • Annual accounts of banks and other financial institutions
  • Accounting documents of branches of foreign credit and financial institutions

ELECTRONIC MONEY INSTITUTIONS

  • The business and prudential supervision of electronic money institutions

PAYMENT AND TRANSACTION

Payment systems

  • Electronic payment: code of conduct
  • Relationship between card-holders and card-issuers (II)
  • Settlement finality in payment and securities settlement systems
  • Combating fraud and counterfeiting of means of payment
  • Electronic commerce

Cross-border transaction

  • Information on the payer accompanying transfers of funds
  • New legal framework (NLF) for payments

CREDIT INVESTMENTS

Investments

  • Undertakings for collective investment in transferable securities (UCITS): applicable rules
  • Risk Capital Action Plan (RCAP)
  • White Paper on the single market for investment funds
  • Investment services
  • Enhancing the framework for investment funds

Credit

  • Integration of European Mortgage Credit Markets (White Paper)
  • Financial collateral arrangements
  • Consumer credit agreements
  • Mortgage Credit in the EU (Green Paper)

SUPERVISORY BODIES

  • European Banking Authority (EBA)
  • European Banking Committee