Daisy chain of internal MREL
The “daisy chain” deduction framework increases the necessity of legal certainty, predictability, and proportionality in the internal MREL (iMREL) regulation.
Resolution groups with entities in only one member state should be exempted from the “daisy chain” deduction framework. The transitional period for applying the requirements should also be extended to 1 January 2024. Moreover, ESBG warns that the introduction of the “daisy chain” proposed by the European Commission in late October should explicitly not increase other prudential requirements for banks. Finally, the scope of application of iMREL should be fixed at 5% of Total Risk Exposure Amount (TREA) for non-resolution entities in the level 1 text and not left at the discretion of the Single Resolution Board (SRB) as is currently the case.
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Call for evidence on the European Commission mandate regarding the PRIIPs Regulation
In Europe there are many PRIIPs that retail investors can purchase. In the area of structured products (PRIPs) alone, there are more than 1.5 million of them.
Regarding the use of the Key Information Documents (KIDs) to choose or compare between the products that banks offer to their clients, we believe that they do not play a role in product selection per se; there are other sources of information and the KIDs, which are designed for retail investors, are not suitable as a basis for product comparisons by the sales offices. For product approval purposes, the sales offices have designed separate technical solutions to obtain the required information. These tools allow, for example, the filtering of products according to certain product designs such as capital protection or certain underlings. However, there are individual contents of the KIDs that are used by the institutions for product selection. This includes, for example, the SRI, which is also used for the target market under MiFID II product governance.
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ESMA's review of the MiFID II best execution reports
The RTSs 27 (and 28) currently regulates the best execution reporting by execution venues and investment firms.
We understand that the crucial question for RTS 27 reports is if these reports should be re-instated. Based on the evidence we have with these reports so far, we do not think that they provide meaningful information which justifies the efforts of producing these reports. Neither have these reports been widely used by prospective recipients so far (measured by observed page views) nor are they helpful for investment firm’s own decisions to determine suitable best execution venues. We do not expect that the proposed modifications of RTS 27 reports would change that. Therefore, we welcome the European Commissions’s proposal to delete the Art. 27 (3) [RTS 27] as part of the Capital Markets Union package.
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Financial Transaction Tax (FTT)
Eight ESBG members support the aim to curb short-term speculation and to encourage the prohibition of undesirable market behaviour. However, they do not support a Financial Transaction Tax at EU-level.
The impact on financial activities essential to the functioning of financial markets and to the real economy could be extremely negative. We believe that the following activities will be affected negatively by the proposed tax:
- The issuance and secondary markets for sovereign bonds
- The use of derivatives contract for hedging purposes
- The use of repurchase agreements to provide secured liquidity to the market
- Market-making activities
- The use of intra-group transactions for liquidity management and efficient capital allocation within a group.
Concerns of savings and retails banks around EU financial transation tax (FTT)
ESBG’s main concern with the current EU FTT proposal is that – in efficient fixed income markets such as the markets for government and covered bonds, which are characterised by low spreads between bid and offer prices – the tax will be far higher than what can be earned on market-making, especially on instruments with short remaining time to maturity.
The consequence of the tax will be that market-making will almost cease and current liquid markets are likely to be transformed into buy and hold markets. As a result, market liquidity will disappear or be significantly reduced.
Background on the FTT
A Financial Transaction Tax (FTT) builds on the work of famous Nobel laureate James Tobin. An FTT is in theory applied to a financial transaction in a similar way to how VAT is applied to goods and services but due to the very narrow margins and the international character of finance the FTT, if incorrectly implemented, may have a severe distortive impact on the economy as a whole.
In September 2011 the European Commission proposed a FTT to be implemented in all EU member states but unanimity was not reached within the Council. Nonetheless, in autumn 2012, 11 member states (Belgium, Germany, Estonia, France, Greece, Spain, Italy, Austria, Portugal, Slovenia and Slovakia) requested and were permitted to continue the work on an FTT using the enhanced cooperation mechanism. After talks in December 2015, Estonia withdrew from the group of countries that requested enhanced cooperation, reducing the number of participating countries to 10, raising questions about the viability of the FTT.
Timeline of FTT legislation in the European Union
- September 2011: the European Commission proposed an FTT to be implemented in all Member States.
- Autumn 2012: 11 Member States requested enhanced cooperation on the FTT.
- February 2013: the Commission set out the details of the FTT to be implemented under enhanced cooperation in Council Directive COM (2013)71.
- Spring 2015: French President François Hollande called for the FTT to be based on the largest scope possible with low rates thus aligning the French position with the Austrian and German position. The EU-11 decided at the January 2015 meeting that the political coordination of the work on the FTT will be done by Austria and the technical coordination of the work on the FTT will be done by Portugal.
- May 2015: FTT (EU-11) Ministers’ discussion.
- June 2016 : Member States deciding to set up two task forces responsible for discussing issues regarding the possible effects on public borrowing costs of the proposed FTT and the efficiency of FTT collection.
- October 2016: The group of 10 Member States held a new meeting setting out the types of trades that would be covered, on the basis of a proposal put forward by Austria.
- March 2017: Based on the latest talks at the finance minister level, the group of Member States is pursuing an overall opt-out for the pension fund industry.
- Autumn 2018: The European Commission is preparing a new proposal, helped by the Austrian Presidency. The income from the new FTT is destined for the EU budget. Countries participating in the FTT would get to reduce the tax’s contribution for the EU budget. However, all tax initiatives need unanimity before they can become EU law.
