THIS WEBSITE IS AN ONLINE ARCHIVE OF THE DANISH EU PRESIDENCY 2012 AND WILL NO LONGER BE UPDATED

Financial Regulation

The economic crisis has led to increased focus on regulation of the financial markets. The EU Member States have launched an extensive effort to amend and strengthen the rules that govern the financial sector with a view to minimising the risk of future crises.

During the Danish Presidency of the Council of the EU, a number of dossiers on the area of financial regulation will dominate the work of the Council. Below you can read more about these matters and the EU’s policy in this area.

Crisis management in the banking sector

As a result of the financial crisis, several EU Member States have introduced various forms of financial support and state guarantees for the banking sector.

To ensure a level playing field for all European banks, the Commission will soon present a proposal to establish a uniform framework for handling banks in distress within the EU. The aim of the proposal is to increase the possibilities for supervisory authorities to take preventive measures in order to avoid situations in which banks become distressed.

The proposal also contains a toolbox to help resolve banks in distress. This may relate to the sale of assets, the establishment of a "bridge bank" for the purpose of splitting up assets, writing down debt to creditors and internal asset transfers, etc. Finally, the proposal requires that resolution schemes be financed by the banks themselves.

Revision of the Capital Requirements Directive (CRD)

In the wake of the financial crisis, the Basel Committee has presented revised and stricter standards for banks' capital reserves and liquidity requirements. In the summer of 2011, the Commission put forward proposals to revise the capital requirements directive in order to transform the revised Basel standards into EU rules.

The purpose of the revised rules is to ensure that the financial sector becomes more resilient to future financial crises. For that reason the banks must have larger capital reserves and more accessible liquidity in order for them to better handle turmoil in the financial markets as well as economic downturns. Specifically, capital requirements will be increased and new rules will be adopted to ensure that banks have sufficient liquidity to operate in stressed markets in both the short and long term.

A leverage ratio will also be introduced to prevent the capital reserves of banks from getting too limited relative to the size of lending. Just as national authorities will be given the opportunity to impose additional capital requirements to dampen lending during periods of high growth. Finally, further strict requirements will be introduced in relation to corporate governance, the handling of risks by financial counterparties, etc.

When implementing the Basel standards, it is important that European specificities are taken into account. A necessary strengthening of requirements for banks should not undermine the efficiency of well-functioning national business models.

Revision of the MiFID directive

Developments in the financial markets as well as lessons learnt from the financial crisis have made it necessary to revise the directive that sets the rules for trading in the securities markets - ‎the directive on markets in financial instruments (MiFID). Trading in the securities markets is regulated by MiFID, including requirements for trading platforms, disclosure obligations, advice to investors in connection with the purchase and sale of shares, bonds, investment certificates, etc.

The Commission has presented a proposal that aims to ensure that all relevant trade forms are covered by the directive, including derivatives trading and so-called "high frequency trading" i.e. the purchase and sale of securities within short periods with a view to exploiting even minor fluctuations. The proposal also aims to strengthen the requirements to disclose information in the markets, both before and after trade has been conducted and, likewise, there is focus on ensuring better consumer protection in areas such as investment advice.

Strengthened financial regulation in the EU
Following the financial crisis the EU has launched an extensive effort to amend and strengthen the rules that govern the financial sector.

The financial crisis has had serious consequences. Many EU citizens have lost their jobs, and today both businesses and banks are struggling to get back on their feet.

Therefore, the financial crisis is frequently on the agenda when the ministers of ECOFIN meet. There it is negotiated how the EU can get out of the crisis most efficiently and how the risk of future crises can be minimised.

The work of ECOFIN has led to an extensive effort to strengthen regulation and supervision of the financial sector. This includes capital requirements for banks and insurance companies, and a uniform framework to deal with ailing banks

A rapid and effective implementation of these reforms is therefore a high priority for the Danish EU Presidency.

Capital and liquidity requirements for banks
The international Basel Committee adopted revised standards for bank capital and liquidity in December 2010, and it is now up to the EU to translate these standards into binding EU legislation.

The new standards aim at making the bank sector more resilient to future financial crises. This is to be achieved by obligating European banks to hold larger reserves and more available resources so they can better handle turmoil in financial markets and economic downturns.

Common EU rules for dealing with ailing banks
Because of the crisis, several countries have introduced various forms of support schemes and guarantees to their national banking sector. Some countries have already started to phase out support schemes, while other countries have not yet begun this process.

This results in unfair terms and conditions for banks in different countries, which necessitates common European rules in this area to guarantee a level playing field.

Strengthening regulation and investor protection in securities markets
In addition, the EU has also focused on enhancing the control of bonds and stocks trading in the financial markets and in particular on strengthening the protection of consumers and investors.

Here you can find more information about strengthened financial regulation in the EU

Website of EU Commission DG Internal Market and Services