European Banking Authority: Final Report on the Recapitalisation of EU Banks
On October 3, the European Banking Authority (EBA) published its final report on the recapitalisation of EU banks. It also published a set of accompanying questions and answers. The report confirms that, as of end-June 2012, the majority of the banks within the sample have reached the required 9% core tier 1 ratio, which was first recommended to national supervisory bodies by the EBA in December 2011. Meeting the required ratio has led to a €115.7 billion recapitalisation of 27 banks across the EU.
The report also includes an announcement that the EBA will issue a new capital conversion recommendation once proposals relating to the fourth Capital Requirements Directive (CRD IV) have been finalised. This will require that banks maintain a nominal amount of core tier 1 capital which corresponds to the end-June 2012 level of 9%. Banks will be permitted to go below the required level of capital in only certain limited circumstances, such as de-risking or restructuring. The ECB will also require that banks submit plans to their supervisory authority explaining how they will implement CRD IV.
Liikanen Report: Structural Reforms of the EU Banking Sector
On October 2, the European Commission published the final report on reforming the structure of the EU banking sector by the high-level expert group chaired by Erkki Liikanen. The group was established by the Commission in February 2012 in order to assess whether additional reform targeting the structure of individual banks would reduce potential failures and better protect retail clients.
The final report recommends the following steps, which the Commission will consider in light of its proposed legislative reforms:
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Changing banks’ capital requirements, particularly in the areas of trading assets and loans relating to real estate;
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Mandatorily separating proprietary trading from other significant trading activities, ensuring that they are legally separate from a deposit bank;
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Permitting supervisors to require the further separation of activities to aid resolvability;
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Reforming governance and remuneration arrangements; and
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Amending certain of the bail in proposals contained in the proposal for the Resolution and Recovery Directive of June 2012.
FSA Consultation on the PRA and FCA Regimes for Approved Persons
On October 3, the FSA published consultation paper 12/26 ‘Regulatory reform: the PRA and FCA regimes for Approved Persons’ (CP12/26). As part of the reform of the supervisory structure of financial services in the UK, the role and functions of the FSA will be passed over to the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). The PRA and FCA will each adopt sections of the FSA Handbook to create new PRA and FCA rulebooks. Most of the FSA Handbook will be adopted in its current form. Some substantive amendments to the FSA Handbook will be made to align the new rulebooks with the future objectives and functions of the PRA and FCA.
CP12/26 consults on these substantive amendments, most of which relate to the ‘controlled functions’ which can only be carried out by persons approved by the FSA (‘approved persons’), who must comply with the Statements of Principle and Code of Practice for Approved Persons (APER) in the FSA Handbook. The main substantive changes consulted on by CP12/26 are:
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a split of the current list of controlled functions for firms regulated by both the PRA and FCA (dual-regulated firms), seeking to minimise unnecessary duplication for dual-regulated firms; and
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an extension of the Statements of Principle in APER to a wider set of activities, and their application to people approved by either regulator – meaning that both regulators will have the ability to discipline certain categories of approved person.
The FSA invites comments by December 7.
FSA Consultation on Proposed Amendments to the Listing Regime
On October 2, the FSA published consultation paper 12/25 ‘Enhancing the effectiveness of the Listing Regime and feedback on CP12/2’ (CP12/25). In CP12/2 the FSA consulted on proposed amendments to the Listing Rules, Prospectus Rules and Disclosure and Transparency Rules, to maintain the operational effectiveness of the Listing Regime. In CP12/25 the FSA has published the feedback it received to CP12/2 as well as the final rules to:
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prevent ‘back-door’ listings of entities that would otherwise not be eligible for listing through the use of reverse takeovers;
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ensure the Listing Rules fully reflect the scope and nature of a sponsor’s role;
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codify existing practice on financial information requirements and transactions, much of which was contained in the UKLA technical notes; and
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introduce new rules to allow ‘externally managed companies’ (companies where the management of the company is deliberately outsourced to an offshore company to place it outside the controls and protections of the Listing Regime) a transitional period of 15 months to put new arrangements in place, and to remove premium listing status from such structures.
These new rules will come into effect on October 1, except for the new rules for sponsors and the new rules relating to reverse takeovers and financial information requiring the appointment of sponsors which will take effect on December 31.
The FSA is also using CP12/26 to consult on certain new proposals to:
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optimise the entry criteria to the Premium segment so as to maintain the strength of the Premium Listing brand;
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ensure that the eligibility requirements continue to apply as meaningful ongoing obligations;
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clarify the operation of the free-float provisions; and
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ensure that shareholders are provided with better quality information.
In addition, the FSA is consulting on a revised proposal relating to the Alternative Investment Fund Managers Directive (AIFMD) in relation to the potential conflict caused by overlapping obligations imposed by the AIFMD on fund managers and by the Listing Regime on the board of an investment trust. The FSA invites comments by January 2, 2013.
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