Separation Anxiety: Structural Reform of EU Credit Institutions

The march towards structural reform of the EU banking sector has taken another step forward, as the EU Commission’s (the “Commission”) legislative proposals (the “Proposals”) for a Regulation implementing certain recommendations of the Liikanen Report (see further below) were published on 29 January 20141. Following hot on the heels of regulatory progress in respect of structural reforms at the EU member state level (including in France, Germany and the UK2) and globally (most notably in the US with the recent final text of the Volcker Rule being issued in December 2013), the Proposals are aimed at implementing structural changes that are designed to improve the resilience of the banking system and minimise the risk of public funds being utilised to bail-out financial institutions.

Background -

On 2 October 2012, the European Commission’s high-level expert group, chaired by Erkki Liikanen, published its final report (the “Liikanen Report”) making recommendations on the need for structural reforms to the EU banking sector. The Liikanen Report reached a number of conclusions, amongst them the recommendation that a deposit bank’s proprietary trading activities (and other significant trading) should be segregated and operated by a separate legal entity, to the extent that such activities amount to a significant share of the bank’s business (determined by a threshold test).

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