Almost three years since the European Commission published its plan for revisions to the Markets in Financial Instruments Directive (Mifid) following public consultation, the European Parliament yesterday signed off to the new rules.
Mifid II, as it’s known, aims to tighten rules on the derivatives markets to curb speculative investment and protect investors’ interests. Mifid II was one of a number of pieces of financial legislation rubber- stamped this week by the European Parliament, which meets for its final session before elections in less than six weeks.
Unsurprisingly, in light of the financial crisis, EU legislation and policymaking have been dominated by financial regulation in the past five years. Outgoing internal markets commissioner Michel Barnier, who is running himself in next month's elections, has spearheaded a raft of measures since succeeding Charlie McCreevy in the role in 2009, much to the annoyance of some in the financial services and banking industry.
New proposals on auditing, regulation of Ucits funds and consumer-friendly measures such as the right of all EU citizens, even those without a fixed address, to open bank accounts, have been pushed through in the last few weeks.
Most significant has been the new legislation on banking union. Following the announcement of the euro zone’s plan for an integrated banking system in June 2012, MEPs signed off on three of the most important elements yesterday – the banking recovery and resolution directive (BRRD), the single resolution mechanism and confirmation of the EU- wide guarantee scheme for deposits under €100,000.
Interconnected
All are interconnected: the single resolution mechanism, which will deal with the wind- up of troubled banks, will effectively implement the BRRD rules, which envisage a strict hierarchy of bank creditors to be "bailed-in" should a bank run into trouble, in a bid to avoid the burden of future bank bailouts falling on taxpayers.
The deposit guarantee scheme – which was exposed as dangerously uncertain 13 months ago during the Cypriot bailout, when deposits of under €100,000 were initially burned – has now been incorporated into these new bail-in rules, which ensure deposits under €100,000 will never be touched in the event of a bank wind-down.
The fun isn’t over yet, however, as officials tackle the business of establishing the fund, particularly the legal challenge involved in the inter-governmental agreement that will govern how banks contributions to the €55 billion single resolution fund will be paid.
