Germany Announces Plans for Bank Levy
The German government announced plans to implement an annual levy on all banks that have headquarters in Germany that is expected to raise €1.2bn annually. Taxable liabilities under €10bn will be taxed at 0.02 percent, while those over €10bn will be taxed one basis point higher, and those above €100bn at 0.04 percent. The proposal also amends the insolvency law to allow regulators to intervene earlier and overrule investors’ rights of co-determination in cases where restructuring of the respective entity is deemed necessary by the state and includes the possibility of additional lump-sum payments in cases where raised revenues from the proposed levy are insufficient to recoup costs of government intervention in crisis situations. The levy is expected to enter into force between December 2010 and January 2011.
German proposal (German only)
FSA Publishes Discussion Paper on Trading Activity Regulation
The Financial Services Authority (FSA) published a discussion paper that considers fundamental changes to the regulation of trading activities. The paper outlines the FSA’s current views and ideas in relation to major areas of reform that need to be considered to address areas of structural weakness that exacerbated the build up of risk before the financial crisis. It also outlines a number of recommendations that are grouped into three key areas: an increased regulatory focus on the valuation of traded positions and a need for a specific assessment of valuation uncertainty; changing the structure of the capital framework to bring greater coherence and reduce the opportunities for structural arbitrage within the banking sector and the wider financial system; and specific measures aimed at improving firms’ risk management and modeling standards, and ensuring that these are aligned with regulatory objectives. The deadline for comment is November 26, 2010.
FSA discussion paper
CEBS Publishes Revised Guidelines on Stress Testing
The Committee of European Banking Supervisors (CEBS) published the final text of its revised guidelines on stress testing that takes into the account the results of the earlier public consultation which ran from December 2009 to March 2010. The guidelines aim to identify the relevant “building blocks” in an effective stress testing program from simple sensitivity analysis on single portfolios to complex macroeconomic scenario stress testing on a firm-wide basis. They also describe both quantitative and qualitative aspects of stress testing while noting the principle of proportionality; that small and simple institutions may focus more on the qualitative aspects while larger more complex institutions will require more sophisticated stress testing techniques.
CEBS revised guidelines
CESR Publishes Response to Consultation on Transaction Reporting
The Committee of European Securities Regulations (CESR) published responses to the consultation on Transaction Reporting on OTC Derivatives and Extension of the Scope of Transaction Reporting Obligations issued July 19, 2010. In the original consultation, CESR proposed that investment firms would retain the possibility of complying with their transaction reporting obligations with respect to OTC derivatives under the Markets in Financial Instruments Directive (MiFID) provisions. Investment firms reporting their transactions to a trade repository (TR), supporting MiFID standards, would be exempted from direct reporting when they communicate to the competent authority their decision to report their transactions through a TR.
Responses to CESR consultation
FMLC Issue Report on Legal Risk of EU Financial Supervisions
The Financial Markets Law Committee (FMLC) released a report that highlights fundamental issues that could create “significant legal uncertainty” and provide grounds for a challenge to future Commission or European Supervisory Authority (ESA) decisions. The report expresses concern over the following issues: uncertainty as to which legislation (the EU Directives or national laws) will be applied to national competent authorities and financial institutions; uncertainty for financial institutions supervised by both their national competent authority and the ESAs, and whether the powers of the ESAs will undermine the ability of competent authorities to discharge their regulatory functions; and uncertainty as to the scope of the ESAs' powers in relation to EU-based branches of non-EU incorporated financial institutions.
FMLC report
