>> EBA BSG Proportionality Paper
EBIC's Working Group on Banking Supervisory Practices, of which ESBG is a member, contributed to the European discussion on better/simplified regulation with regard to prudential topics. Having elaborated on the need for simplified, less complex regulation in Europe in the first part of the letter, the group then presented some helpful and concrete suggestions. For instance, EBIC reflected on how to reduce regulatory overlaps and asked for a consideration of the interaction with other legislation – keeping proportionality, materiality, and the principle-based approach in mind. Any further increase in complexity should be avoided, and more extensive impact ESBG Positions 12 assessments and analyses of the interactions with other legislation need to be undertaken. EBIC held the view that it would be advantageous to consult all relevant stakeholders in good time, and to always keep an eye on the related costs before introducing more regulation. ESBG will continue to follow the file, in particular in the context of the announced REFiT review.
On 19 May 2015, the European Commission adopted and presented its Better Regulation Package. This package of reforms covers the entire policy cycle (the creation, implementation, and revision of legislation). It will boost openness and transparency in the EU decision-making process, improve the quality of new laws, and promote constant and consistent review of existing EU laws. One of the main elements will be the establishment of a Regulatory Scrutiny Board (RSB).The RSB will have an expanded role in checking the quality of impact assessments of new proposals as well as fitness checks and evaluations of existing legislation.
Within the Better Regulation Package, the Commission presented a new draft inter-institutional agreement that is expected to be concluded between the Commission, the European Parliament, and the Council. This agreement proposes continuous monitoring of the performance of EU regulation and more thorough evaluations, as well as coordinated annual and multiannual planning, greater transparency on trilateral negotiations, and joint efforts to reduce unjustified "gold-plating" of EU legislation by Member States.
The Commission aims to strengthen the Regulatory Fitness and Performance Programme (REFIT), which assesses the existing stock of EU legislation to make it more effective and efficient without compromising policy objectives. In addition to this, the draft texts of delegated acts and important implementing acts will be open for public comments on the Commission's website for four weeks.
As acknowledged by European and international legislative bodies and standard setters (e.g. the Basel Committee, in its core principles for effective banking supervision, Principle 8), the proportionality principle is an instrument that aims to achieve the right balance between the objectives pursued by legislation and the methods used to achieve them. This balance must be ensured in order to prevent the financial system and its regulatory framework from creating disproportionate obligations to banks that do not adjust to the standards of size, complexity, business model, and cross-border activity; banks that due to their low-risk business model constitute stabilising factors in the financial system.
ESBG Members have contributed, through the ESBG Task Force on Proportionality, to the "Application" section of the paper, providing concrete examples of where the principle of proportionality could be applied. The topics selected in this section are supervisory reporting, liquidity, external models, leverage ratio, corporate governance, and general retail banking.
In June 2014, the European Banking Authority’s Banking Stakeholder Group (BSG) started working on a common paper on the area of proportionality within the European Union. Work has also been carried out by the ESBG Task Force (TF) on Proportionality.
Updated: March 2016
>> EBA BSG Proportionality Paper