The Road ahead foR financial SeRviceS in euRopeenabling the financial sector to create growth, promote long-term investment and

improve competitiveness

MARCH 2014

The European Financial Services Round Table (EFR) was formed in 2001. The Members of EFR are Chairmen and Chief Executive Officers of international banks or insurers with headquarters in Europe. EFR Members believe that a fully integrated EU financial market, a Single Market with consistent rules and requirements, combined with a strong, stable and competitive European financial services industry will lead to increased choice and better value for all users of financial services across the Member States of the European Union. An open and integrated market reflecting the diversity of banking and insurance business models will support investment and growth, expanding the overall soundness and competitiveness of the European economy.

1. INTRODUCTION 5

2. THe IMpORTANCe Of THe fINANCIAl SeCTOR 6

3. THe CHANgINg NeeDS Of CONSUMeRS 9

4. gOAlS fOR effeCTIve RegUlATION 11

5. SUMMARy Of MAIN ISSUeS AND Key ReCOMMeNDATIONS 13

6. MAIN ISSUeS AffeCTINg THe eUROpeAN fINANCIAl SeRvICeS SeCTOR 17

A. STRUCTURe Of THe BANKINg SeCTOR 18

B. BANKINg SUpeRvISION 21

C. ReSOlUTION 23

D. BANKINg pRUDeNTIAl RegUlATION 25

e. INSURANCe pRUDeNTIAl RegUlATION 27

f. INSURANCe SUpeRvISION AND SySTeMIC RISK 29

g. peNSION RefORM 31

H. lONg-TeRM INveSTMeNT 33

I. CONSUMeR pROTeCTION 35

J. MARKeT INfRASTRUCTURe 37

K. SHADOw BANKINg 39

l. TAxATION 41

M. ACCOUNTINg 43

N. TRADe 45

ANNex I: ABBRevIATIONS 47

ANNex II: efR’S vISION 49

ANNex III: MeMBeRS Of THe efR 50

TABle Of CONTeNTS

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INTRODUCTION

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Europe is in a deep need for economic growth and a healthy European financial sector is essential to support this growth. It remains a very critical time. Although there have been some signs of recovery, the European economy is still under pressure, weighed down by indebtedness, unemployment – especially among young people – and declining competitiveness. European policymakers, politicians, regulators, central bankers, financial services firms, the private sector in general, and citizens are adjusting to pull through this difficult period. The challenges are well known. Europe needs to start growing again so it can create jobs. Many countries have to improve their fiscal positions, become more competitive and invest for the long-term. This will not be easy, especially as the demographic profile of Europe is changing. The coming years will be critical. At the same time Europe is part of a more integrated world, where other economies are growing faster and becoming increasingly competitive.

There are many opportunities to create a better economic system. National governments in Europe have introduced reforms and created incentives to encourage sustainable growth, efforts that dovetail with substantial G20 commitments to make the international system safer, more robust and better able to withstand future shocks.

The European financial sector is at the centre of these developments, as the infrastructure to keep the economies moving and growing. The financial sector is undertaking massive operational and cultural changes. It is innovating, rebuilding trust in the financial system and working hard to meet the needs of consumers. European financial services firms must remain competitive. This means respecting the diversity of their business models, and allowing them to keep providing the products and services the European economy needs.

The institutions of the European Union are also undergoing change. 2014 sees a new European Parliament and a new European Commission. Politicians and civil servants will inherit an ambitious agenda of financial regulatory reform and will finalise the important work already underway on Banking Union, Solvency II and in other areas. They need to convince the citizens of Europe what steps need to be taken and why.

Through this report the European Financial Services Round Table (EFR) wants to contribute to the important debate on key economic and financial issues and share its views with European Union policymakers. This document begins by explaining briefly the purpose and importance of financial services in Europe in the broader economy and the links to economic growth. It then addresses the changing needs of consumers in Europe and what their future expectations are likely to be. The report then proposes a number of high-level goals for effective regulation before focusing on 14 key issues affecting the financial services sector and making specific recommendations.

In these difficult times it is important to work together to make the right decisions about matters that will boost long-term growth, employment and competitiveness. For that to happen it is vital that there is a well functioning and diverse financial services sector that will continue to play its role in the economy and in society as a whole.

1. INTRODUCTION

5

INTRODUCTION

People aspire to improve their quality of life for themselves and their families. Improvement requires the expansion of economic activity – to provide better food, high quality housing, a stable energy supply, desirable consumer goods, modern and efficient public and private transport, life-enhancing education and essential health care. Greater economic activity requires a corresponding expansion of money and management of the related risks. Banks, insurers, asset managers and other financial institutions play a vital role in the European economy.

The key roles of banking

Banks keep the stock of money moving efficiently. They provide payment services. They provide a safe home for cash and are an essential source of finance; by intermediating between savers and borrowers, they transform the short-term savings of people and companies into long-term loans and other credit instruments for the smallest to the largest borrowers, including companies and governments. And they facilitate direct investment into the economy. In performing these and other functions, the financial services industry generates a substantial number of jobs and tax receipts1.

There are about 8,060 credit institutions in Europe with total assets exceeding EUR 46.3 trillion. Banks in Europe also employ about 2.5 million people, according to the European Banking Federation (EBF). One of the strengths of the European banking sector is the diversity in ownership structures and business models, with global banks, large domestic and foreign banks, regional savings banks, cooperative banks, and other institutions catering to the needs of the community. In Europe, bank loans account for 80% of corporate financing, with the remaining 20% sourced through the debt capital markets. This is a marked difference from the US, where companies rely much less on bank loans and more on the capital markets.

The critical importance of insurance and asset management

Insurers and reinsurers take on many of the short- to long-term risks faced by individuals and businesses: from the uncertainty that arises from an accident or burglary, to helping people provide for their retirement. The insurance sector contributes to economic growth by covering the productive activities of their customers against unexpected expenses arising from unforeseen events; in return, customers pay a fee, or premium. This benefits both parties because through the pooling of risk there is less volatility and the insurer can hold the risk more cheaply than any single party. Insurers pool risks among themselves to limit individual losses and in doing so transfer risks to those that are more able and willing to take them. Insurers invest the majority of their profits and other assets in long-term illiquid assets, such as property and infrastructure. Asset management firms, including those owned by insurers, also invest the pooled funds of retail investors, providing them with diversification, liquidity and investment opportunities. Insurance makes a major contribution to Europe’s economic growth and development.

Insurance Europe, the European insurance federation, estimates that insurers generate premium income of more than EUR 1.1 trillion a year, employ almost one million people and invest almost EUR 8.4 trillion into the economy. The European Commission estimates that institutional investors, including insurance companies, occupational pension funds, mutual funds and endowments, hold an estimated EUR 13.8 trillion of assets, equating to more than 100% of EU Gross Domestic Product (GDP.)

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1 Many of these functions are described in the report “How regulation can preserve the contribution of financial firms to economic growth in Europe,” published by the EFR and Oliver Wyman In November 2012. The World Economic Forum also highlights many of key attributes in its more recent report: “The Role of Financial Services in Society: A Multistakeholder Compact” (August 2013.)

2. THe IMpORTANCe Of THe fINANCIAl SeCTOR

Essential services

It is clear that a well-functioning and competitive financial services system is essential to the economic health of Europe and its citizens. Most people conduct their day-to-day financial affairs with retail banks, which provide a variety of services for consumers, including savings and debit accounts, mortgages, personal loans and credit cards. Wholesale banks provide loans and other services (like securities underwriting, market-making, and fund management) to large companies, SMEs (small and medium-sized enterprises), and institutional investors. Investment banks assist individuals, corporations, and governments in managing wealth, raising capital, issuing securities, trading, managing risks and other activities.

In all these different ways banks transform the risk profile of financial flows and they also finance investments which carry higher degrees of risk. Long-term funding, which is essential to the economy, is provided by the “maturity transformation” role performed by banks, and by asset liability matching performed by insurers and occupational pension funds. Furthermore, with their credit assessment skills, and by lending to a large and diversified pool of borrowers, financial institutions are able to reduce risk.

Borrowing and savings products allow people to smooth consumption over their lives. For example, mortgages allow younger people to borrow against future income to purchase a house, while life insurance and pension savings products allow younger people to save for their retirement. Non-life and other types of insurance protect consumers against misfortunes, such as unemployment, crime and accidents.

The financial sector is a major employer across Europe and firms are active corporate citizens, giving a lot back to society. Many firms are substantial funders of education, housing, health care, social welfare, the environment and the arts. By supporting social stability, providing financial education and making financial products more widely accessible, the financial services industry is helping to alleviate social exclusion.

Banks support economic activity both in a domestic context and by facilitating international trade. But this trade depends on a reliable method of making payments. Constant innovation by financial firms, such as payments technologies and the widespread usage of electronic payments, have greatly increased convenience for consumers, companies and governments. Investments in security to counter fraud and other crimes also contribute to a safer and more secure society.

Playing a central role in economic recovery

The strength of an economy has a large bearing on the success or otherwise of its financial services firms. Likewise, these firms play a key role in facilitating economic growth. The European economy has been under substantial pressure over the past few years due to high levels of sovereign debt, a banking crisis, and a lack of international competitiveness. This has led to a slowdown in economic growth and recession, increasing unemployment – especially among young people – and fragmentation across Europe. Without a return to growth, fiscal balances may worsen and make it even more difficult for governments to honour their unfunded promises to provide pensions and health care for their aging populations. It is also likely to lead to more unemployment, declining incomes, lower asset values and under-funded retirements.

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INTRODUCTION

The institutions of the European Union, member state governments and private sector companies have all taken important steps to address the crisis, and growth is starting to pick up. But more needs to be done. The European Commission in its recent Green Paper and public consultation on the long-term financing of the European economy acknowledges that part of the answer lies in encouraging a greater supply of long-term financing through banks and other financial institutions.

The EFR welcomes this dialogue and has shared its views with the European Commission on seven important topics for long-term investment: infrastructure investment, financing small and medium-sized enterprises (SMEs), fostering a venture capital culture, the importance of securitisation, the key role of the insurance sector, the changing dynamics of the banking sector, and taxation. If addressed properly, these areas can all contribute substantially to long-term growth and employment prospects across Europe.2

Regulation

Reform of the financial system is necessary and many changes are being implemented by the authorities to make it safer. However, it is critical that the right balance is struck so that regulation does not stifle the dynamism and creativity of the financial sector, which is so central to Europe’s economic recovery. In turn, financial services firms are undertaking massive operational and cultural changes, innovating, rebuilding trust and working hard to meet the future needs of their customers. In Chapter 4, the EFR proposes a number of high-level goals for effective regulation of the financial services sector.

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2 “Supporting Long-Term Financing of the European Economy” EFR, October 2013.

Europe is undergoing a period of substantial social transformation, due to an ageing population, rapid advances in technology, big changes in social and consumer behaviour, pressure on the welfare state and globalisation. All of these changes have significant implications for financial services. Firms need to cater to consumers’ current needs and anticipate what they might want in the future.

Across Europe people are generally living longer than ever, and having fewer children. The combined effect will be to reduce the ratio of workers to retirees, from 4:1 now to 2:1 by 2050 according to the International Monetary Fund (IMF.) As people live longer it will put substantial pressure on pension provision and health care. Although these trends will in some cases be partially offset by immigration, overall it is expected that in the near future there will be fewer workers to pay income taxes and fund pension schemes.

As consumers adapt to these trends we can expect them to take more interest in saving for their retirement. They are likely to favour retirement products that can smooth income over time and protect them from inflation. Knowing that their money has to last longer may make some people more risk averse and to opt for security (wealth protection) over higher returns (wealth accumulation). Depending on interest rate developments, there may also be more demand for traditional savings products, mutual funds and pension schemes, which can combine to help fund long-term investment.

Another hugely important trend is technological change and the impact this has had on consumer behaviour. Financial firms face growing demand for greater simplicity and transparency, and pressure to lower costs. In addition, sales through e-commerce are set to rise for years to come, in Europe and globally. Consequently, many financial providers have moved their offerings online, and will continue to innovate in this area as consumers expect their finances to be easily accessible across several platforms. Due to the increasing budgetary constraints of households, customers will be more inclined to shop around and compare providers that offer the best service and advice. The financial world is moving to continuous accessibility, empowered by technology and consumer demand, and both the private and public sectors need to adapt to this.

The free flow of information about financial products and services is empowering consumers and giving them more control over their accounts at banks and insurance companies. “Crowdfunding” and other social media developments in finance are expected to become more popular as technology further continues to connect society. There are also an increasing number of non-financial firms venturing into online financial services and products, seizing on the capabilities of new technologies and, to some extent, exploiting regulatory loopholes which risks being detrimental to the consumers if left unaddressed.

However, greater speed and interconnection also carry risks. Consumers will therefore want to be reassured that their money and bank accounts are safe from cybercriminals and they may be willing to pay more for security. Consumers will also be wary of being mis-sold products they do not need. European financial firms will therefore continue to improve their risk and control systems, overhaul compensation schemes, improve the ways they approach consumers and design products, and strengthen general culture and value systems.

The European social welfare models in place today, and the expectations of citizens, need to be adjusted if they are to be sustainable in the long run. This is partly due to globalisation and free trade – where labour costs, productivity and the strength of a currency all play a role – and partly due to the relative economic decline of the wealthier countries. Angela Merkel, the Chancellor of Germany, has famously remarked that Europe has 7% of the world’s population, 25% of its GDP and 50% of its social spending. If Europe wants to remain competitive, responsible politicians need to focus on all three factors: population, GDP and social spending.

3. THe CHANgINg NeeDS Of CONSUMeRS

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INTRODUCTION

The financial crisis has exposed the fiscal gap facing many European countries. Over time there is likely to be a shortage of money available to pay for pensions, medical care and other public expenditures. One highly visible consequence of this squeeze on funds, which is taking place in both the public and private sectors, is the move from expensive-to-fund “defined benefit” pension schemes where the risk sits with the scheme provider or employer, to the less expensive, but more volatile, “defined contribution” plans where the future risk sits with the individual.

As a large amount of future global economic growth will occur outside Europe it will become increasingly important to attract foreign direct investment (FDI) and other foreign capital to fund Europe’s growth and investment needs.

Uncertainty about their prospects may encourage many Europeans to take more responsibility for their financial future and to purchase additional insurance products to mitigate against these risks. Life insurance companies are working hard to meet these needs. They are trying to minimise complexity and address consumers’ concerns about medical care by offering new products such as wearable health monitoring devices, personal genomics and pro-active health management programmes. Banks, in turn, are offering wealth protection and other products that safeguard investments into old age.

Increasingly European consumers want to research options and make proactive buying decisions based on objective information from unbiased sources and trusted peers. With easy access to information, the modern consumer is empowered and increasingly independent in his or her purchasing choices. In this environment, the challenge, and opportunity, for insurers is to change their approach so that their products and services are “bought, not sold”.

European consumers will want to be confident about the security and stability of their assets and the financial system as a whole. With people pushing for change, it is up to the private sector and policymakers to work together to find the right balance between innovation, accessibility, competition and consumer protection.

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An extensive reform agenda for the European financial sector has helped firms refocus on the vital role they play in the economy. Many of the reforms will make the financial sector better able to weather future economic or financial crises without relying on taxpayer support.

As policymakers continue to discuss new laws and regulations, the EFR is becoming increasingly concerned about the amount of regulation and would like to propose a number of high-level goals for effective regulation. Our over-riding objective is to ensure that the reforms will have the desired effects, including boosting economic growth, ensuring the financial services industry is competitive and able to provide the necessary products and services for consumers and businesses, and to avoid any unintended consequences for the industry and the broader economy in general.

Our goals are to:

• Find a healthy balance between safety and economic growth. Make the system safer by reducing risk but ensure that financial firms are still able to be dynamic, competitive and innovative within a framework of long-term and stable growth.

• Ensure that the financial sector continues to be able to provide the products and services needed by clients and provides attractive and competitive returns to investors while complying with increased capital and liquidity requirements.

• Ensure that regulations do not overburden the financial sector and that specific reforms enable banks and insurers to play their key role in the European economy.

• Make certain that reforms are logical and consistent with what has been introduced in the past five years and give the sector sufficient room to meet the needs of clients by offering a variety of services, over different models, and to continue innovating.

• Ensure a coordinated approach and level playing field across European countries and sectors, where appropriate recognising the structural differences in the assets and liabilities of banks and insurers.

• Maintain the wide diversity of share ownerships and business models across Europe. This diversity should be respected and treated appropriately in European legislation through proportionality, the principle of subsidiarity and national implementation of EU law.

• Opt for a global approach to reform, wherever possible. This will support consistency, ensure a level playing field that is more effective and preserve the competitiveness of the European financial services industry compared with other parts of the world.

• Make sure that proper impact assessment studies – including cross-sectoral and cumulative impact studies - are conducted to estimate the benefits and costs of regulation not just on the financial sector, but on the economy as a whole.

• Take stock of existing regulation and ensure that it has been correctly implemented before adding another layer of regulation as this may subsequently be unnecessary, counterproductive or need a different focus. Focusing on proper implementation, and incremental enhancements to an already agreed framework, will provide materially higher marginal returns from a stability perspective than additional regulatory requirements.

4. gOAlS fOR effeCTIve RegUlATION

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• Make banks and other financial firms independent of taxpayer support, including through effective resolution tools, thereby reducing moral hazard. In this context, the EFR supports the move towards a Banking Union with a stronger role for the ECB as single supervisor for European banks.

• Increasing the global competitiveness of Europe’s financial services sector – while ensuring it is sound and safe – should be a leading key principle for any future initiatives.

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The main issues facing the European financial services sector, and the EFR’s key recommendations for dealing with them, are summarised here. Full details are given in the next section, Section 6.

A. STRucTuRE of ThE BAnking SEcToR

key Recommendations:• Market-making has many benefits for all market participants and should not be subject to separation

requirements. • Address the possible level playing field implications raised by these reforms.• A cost-benefit analysis should be undertaken, also taking into account other reforms being implemented,

to determine the economic impact and unintended consequences of banking structure reforms.

B. BAnking SuPERviSion

key Recommendations:• The Single Supervisory Mechanism (SSM) should carefully balance the new central responsibility of the

ECB with the need to take advantage of the local expertise that national authorities have built up over the years.

• As for the ECB’s comprehensive assessment of significant banks in the Banking Union, more clarity should be provided on the methodology used to allow banks to anticipate the need for any more capital.

• On the other hand, the ECB should define parameters and guidelines within the SSM to make sure the exercise of macro-prudential powers by national authorities does not place national interests above EU interests.

c. RESoluTion

key Recommendations:• Establish the Single Resolution Mechanism (SRM) to ensure a uniform approach to the resolution rules

and a decision-making structure that is aligned with the SSM.• In Banking Union it needs to be clarified how supervision and resolution are carried out to provide

confidence that it can handle even the most systemic crisis. • For insurance companies, any enhancements should recognise the effective functioning of current

recovery and resolution mechanisms.

D. BAnking PRuDEnTiAl REgulATion

key Recommendations:• Policymakers should resist further substantial increases in capital, liquidity and other regulatory

requirements for banks at a time when most EU economies are still experiencing weak growth and addressing macro-economic imbalances.

• There are many regulatory changes occurring simultaneously and a prudent approach would be to allow reforms to take hold before layering on more regulations that may result in unintended consequences. A balance needs to be found between simplicity, risk-sensitivity and the comparability of risk-weighted assets.

• More consideration should be given to using macro-prudential policy and tools to address potentially systemic risks.

5. SUMMARy Of MAIN ISSUeS AND Key ReCOMMeNDATIONS

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INTRODUCTION

E. inSuRAncE PRuDEnTiAl REgulATion

key Recommendations:• Solvency II Level 2 measures must remain consistent with the Level 1 political agreement and need to

avoid introducing artificial volatility.• The capital requirements for certain long-term assets (infrastructure, enterprises including SMEs,

securitisations) needs to be reviewed.• The final design of the Solvency II framework must be clarified and any new global insurance regulatory

regime should be Solvency II compatible, so as to avoid both additional requirements and inconsistencies with Solvency II.

f. inSuRAncE SuPERviSion AnD SySTEmic RiSk

key Recommendations:• Global insurance initiatives should be compatible with the Solvency II framework to help realise common

objectives.• ComFrame and the global Insurance Capital Standard should aim to provide a common basis for

convergence of best supervisory practices, avoid new layers of supervision and be compatible and consistent with the Solvency II framework for economic risk-based group supervision.

• Capital charges for insurance and reinsurance activities are inappropriate responses to the problem of systemic risk and should be avoided.

g. PEnSion REfoRm

key Recommendations:• There need to be clear and stable rules and, greater transparency. A common pensions “language” would

facilitate easier comparison within Europe’s pension sector.• The European Commission should build on work by EIOPA to identify the various categories of funded

pension schemes, products and providers, and to determine where prudential regulation might create level playing field issues in specific markets across the EU.

• European pension reform should respect national diversity of social policy and taxation, ensure a competitive internal market and take into account the substantial changes that have already taken place.

h. long-TERm invESTmEnT

key Recommendations:• Convergence on a definition for infrastructure would promote availability of data, innovation and clarity

of rules. • While banks will continue to be important players in financing SMEs and infrastructure, access to long-

term finance for SMEs and infrastructure should be made easier through private and public sector initiatives.

• The securitisation market should be revitalised to address the funding gap for SMEs and infrastructure financing.

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i. conSumER PRoTEcTion

key Recommendations:• Regulators should take a holistic approach to consumer protection that looks at the specific needs of the

consumer while also taking into account the impact regulations may have on the take-up of financial services. In parallel, financial literacy should be improved so that consumers have a proper understanding of how to manage their finances, and how to avoid unnecessary risks, excessive debt and financial exclusion.

• EU initiatives should not ignore the differences in market practice, language, culture and consumer needs that exist between member states. To promote flexibility and coherence, regulators should focus on essential rules only, following the approach of targeted full harmonisation at the EU level.

• Policymakers should consider complementary measures to consumer protection laws and rules, such as self-regulation, codes of conducts and regular dialogue with industry practitioners.

J. mARkET infRASTRucTuRE

key Recommendations:• The European authorities need to ensure the smooth and globally consistent implementation of the

European Markets Infrastructure Regulation (EMIR), including the appropriate treatment of cross-border issues.

• A thorough impact assessment should be undertaken to analyse the effects of EMIR and market developments should be regularly monitored.

• Legislation on a sound recovery and resolution regime for Financial Market Infrastructures (FMIs) is also required.

k. ShADow BAnking

key Recommendations:• The objective of further regulation should be clearly defined and aimed at proposing solutions to genuine

problems that have not already been addressed. • Existing sources of data should be fully leveraged. • Regulation should support the smooth functioning of money market funds, securitisation markets and

repo and securities lending. Any unintended consequences of proposed changes to prudential rules should be understood and mitigated.

l. TAxATion

key Recommendations:• The EFR urges the 11 participating states and the European Commission to cancel the proposed EU

Financial Transactions Tax.• The tax would not achieve its intended goals and would have significant harmful effects on financial

markets and economies, thereby putting Europe at a competitive disadvantage.• Policymakers should consider that similar taxes in the UK, Sweden and Switzerland have led to capital

outflows, reduced trading activities, less liquidity and created distortions in markets.

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INTRODUCTION

m. AccounTing

key Recommendations:• The EU should reform the governance of the European Financial Reporting Advisory Group (EFRAG)

so that private sector and national stakeholder interests are fully taken into account in a transparent decision-making process that is aligned to the objective of global convergence.

• The IASB’s exposure draft on insurance contracts should not introduce permanent mismatches between the valuation of assets and liabilities.

• Accounting authorities should be encouraged to continue trying to converge the international and US accounting systems and to ensure that joint efforts to make standards more compatible are of a high quality, workable and are able to reflect all types of business models.

n. TRADE

• Trade agreements should aim to include as many countries as possible to maximise the economic benefits. • Financial services regulation and market access should be included in the EU/US Transatlantic Trade and

Investment Partnership (TTIP) in order to improve access to capital and boost economic growth. • Regulators should monitor the impact of prudential rules on the supply of trade finance and, if necessary,

review their calibration.

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6. MAIN ISSUeS AffeCTINg THe eUROpeAN fINANCIAl SeRvICeS SeCTOR

A. STRUCTURe Of THe BANKINg SeCTOR

BAckgRounD

A number of countries are implementing structural reforms with the aim of strengthening the stability of their banking sectors and tackling the “too-big-to-fail” issue, including the UK, France, Germany, Belgium and the US (with the recent issuance of the Volcker rule).

In Europe, the European Commission published in January 2014 its own proposal for regulation on structural reforms, building on the October 2012 “Liikanen Report” of the High-level Expert Group (HLEG), as well as national legislation and global practices. The Commission said its proposed new rules are aimed at stopping the biggest and most complex banks from engaging in proprietary trading. The new rules would also give supervisors the power to require those banks to separate certain activities from their deposit-taking business if necessary. In brief, the European Commission proposes the following:

• The new rules would apply only to a subset of EU banks, based on size of bank assets and trading activities.

• Ban proprietary trading in financial instruments.

• Prohibition from acquiring or retaining shares of hedge funds or of entities that engage in proprietary trading.

• Grant supervisors the power and, in certain instances, the obligation to require the transfer of other trading activities (such as market-making, investments in and acting as a sponsor for securitisation, and trading in certain derivatives) to separate legal trading entities within the group.

• Banks will have the possibility of not separating activities if they can show to the satisfaction of their supervisor that the risks generated are mitigated by other means.

• Provide rules on the economic, legal, governance, and operational links between the separated trading entity and the rest of the banking group.

PoSSiBlE imPAcTS

By proposing the separation of trading activities this would result in higher funding costs for European banks (among other things the trading entity would most likely receive a much lower credit rating) and loss of economies of scale, resulting in higher operational costs that would – unless compensated for on other accounts, such as by a reduction of personnel costs for these activities – result in higher credit costs and reduced market liquidity.

The proposed separation would also have a detrimental impact on banks’ ability to perform their role as a provider of funding (see recommendations below). The separation could therefore be highly harmful to the European economy and might result in increased dependency of the European corporate sector on foreign banks, increased financial instability, and decreased profitability (with a consequent decline in tax revenues for EU member states). Indeed, the proposed scenario that affects the activities related to market-making could entail unintended consequences on the financial sector and on the economy as a whole. These activities

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are fundamental for the proper functioning of the financial markets and fulfil two essential functions: (i) the provision of liquidity to all financial instruments in the secondary market; and (ii) the supply of risk management tools to end-users.

Customers, likewise, would be negatively impacted. Small and medium enterprises could be faced with a much more limited access to markets and a reduced range of services. Retail customers could be impacted by lower returns on deposits, and more restricted access to bank services.

The HLEG rightly concluded that there is no confirmed link between bank failures and the structure or business model of banks. Examples of bank failures, such as Lehman Brothers and Northern Rock show the range of banks that might pose systemic consequences. The report also appreciates the recognition that prudent universal banks “weathered the crisis well”, that universal banks are “valuable to customers” and that the diversity of European banks is a strength, both in terms of risk and customer offering. In light of these findings, it is surprising that the European Commission and the HLEG report recommend the separation of trading activities, as the consequences would be detrimental to the financing of the EU economy. Indeed, this recommendation calls into question two major issues in this respect: first, banks’ ability to serve customers via capital-markets activities and second their ability to provide liquidity to issuers and investors.

With reference to the impact on the rest of the economy, as a result of the separation, the activity of the deposit-taking bank would be in our view too narrowly defined, with an expected negative impact on treasury management activity and on the provisions of risk management services to non-financial customers, which should be fully preserved.

Besides not being applicable to unleveraged and close-ended hedge funds, the ban should not relate to ownership of any collective investment vehicle, which is already subject to the rigorous regulatory standards imposed by the AIFMD. The objective of the AIFMD was precisely to create a framework for the supervision and prudential oversight of AIFMS in the EU in order to increase their transparency towards investors and supervisors, allowing them to monitor and respond to risks to the stability of the financial system that could be caused or amplified by their activity. Investing in hedge funds regulated under the AIFM should therefore not be considered as a risky activity.

EfR REcommEnDATionS

• market-making has many benefits for all market participants and should not be subject to separation requirements. Through their capital markets activities, banks offer a wide range of services and products that help their corporate customers manage many types of financial risks such as credit risk, market risk, interest rate risk and currency risk. Market-making in financial instruments is an essential economic function which is directly linked to these client activities. If separation of trading activities were considered to be inevitable, it would be better to ring fence only proprietary trading activities and the holding of other assets like hedge funds, and not market-making. It is essential to differentiate between proprietary trading and client-driven market-making activities in order to ensure the continued availability of services that are beneficial for all market participants, such as the provision of liquidity in secondary markets.

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• Address the possible level playing field implications raised by these reforms. There are also strong risks of inconsistency between structural reforms at European and national levels, as well as at European and US level. In addition, it seems that the Liikanen recommendations would not be applicable to non-European financial institutions operating in Europe through branches. This would undermine the level playing field between European institutions and their foreign competitors. By focusing on only the largest banks it also places them at a potentially competitive disadvantage against other competitors. It should not be left to the EBA and European Commission’s delegated acts to define the conditions for separation as they are not technical details but rather fundamental policy decisions whose impact needs to be assessed.

• A cost benefit analysis should be undertaken, also taking into account other reforms being implemented, to determine the economic impact and unintended consequences of banking structure reforms. Addressing systemic risk is about ensuring that banks perform operations that are useful to the economy, properly manage risks and can be resolved without recourse to taxpayer bailouts. The many legislative initiatives currently being undertaken, notably the framework for the recovery and resolution of credit institutions and investment firms, already address many of the same concerns identified by the European Commission and the HLEG. It would be preferable that they are implemented, embedded and assessed before embarking on further reform. Policymakers could fruitfully consider how to mitigate the build-up of systemic risk by, for example, looking more closely at macro-prudential policy measures and their coordination across the Single Market. In any case, the proposed regulations should be subject to a stringent assessment of their impact both on economic growth and financial stability.

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BAckgRounD

Since September 2012, the European Union has been working towards creating an integrated Banking Union that both restores confidence in the supervision of all banks in the euro area and breaks the link between sovereigns and their banks. The union consists of four elements: harmonised regulation; a common supervision of the banking system; a common resolution mechanism for troubled banks (including a fiscal backstop to be used as a last resort measure); and, in the longer term, a common deposit guarantee scheme to protect depositors.

The first step towards the Banking Union is the Single Supervisory Mechanism (SSM), a single centralised mechanism for the supervision of banks. Having entered into force in November 2013, it confers upon the European Central Bank (ECB) the ultimate responsibility for financial supervision of credit institutions in the euro area.

From November 2014, the ECB is expected to begin directly supervising all credit institutions that fulfil any of the following criteria: i) being one of the three largest institutions in a participating country; ii) having assets in excess of EUR 30 billion; iii) having assets representing more than 20% of the GDP of the respective country; iv) having a significant size of cross-border activity and a significant importance to the economy of the EU; and v) having received public funding from the European Stability Mechanism (ESM). About 130 banks are expected to fulfil these criteria. National supervisors will remain responsible for the direct supervision of lenders considered to be less significant credit institutions, but the ECB will be responsible for overseeing the overall functioning of the system, and will also be able to assume the direct supervision of any institution posing a threat to financial stability. EU countries outside the euro area can also participate in the mechanism on a voluntary basis, by signing an agreement with the ECB. In this new institutional context, the European Banking Authority (EBA) will retain its role of developing standards and ensuring consistency of the supervisory practices across the Banking Union.

Once the SSM is fully operational, the ESM will be able to recapitalise banks directly. In this regard, in June 2013 the Eurogroup reached a provisional agreement on the main features of the operational framework of the ESM direct recapitalisation instrument, and decided to finalise it once co-legislators reached a final agreement on the legislative proposals on recovery and resolution and deposit guarantee schemes.

Prior to the effective implementation of the SSM, the ECB is undertaking a comprehensive assessment of the significant credit institutions of the eurozone. This assessment is composed of three elements: a risk assessment, which will identify broad risk factors, including funding and liquidity risks; a balance sheet assessment, or Asset Quality Review (AQR), which will use calculation, qualification and valuation checks of a broad risk-based nature, with central quality assurance according to a common methodology; and, a stress test, to be performed jointly in close cooperation with the EBA, which will apply the results to an adverse scenario. The linkages between the balance sheet assessment and the stress test still need to be defined in detail.

PoSSiBlE imPAcTS

As the first step towards Banking Union, the SSM is of key importance in achieving sounder underpinnings for the euro. One of the main goals of the SSM is dispel any remaining doubts about the health of European banks and to ease the “doom loop” between sovereigns and banks, introducing a EU-level supervisor that will eliminate any national bias, will harmonise supervisory practices within the Euro area, and will also promote a homogeneous implementation of the single rulebook. As a consequence, market fragmentation

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and the divergence in funding costs for governments and SMEs within the euro area will be minimised. In this context, the ECB’s comprehensive assessment will represent a crucial challenge, given the scale of the exercise and the need to devise a targeted risk-based AQR. The results of the assessment will determine the soundness of euro area banks and the quality of their assets, and therefore the legacy costs that participating member states will have to assume before the SRM becomes fully operational.

The finalisation of a Single Rulebook by the EBA – ensuring a more robust and uniform regulatory and supervisory framework throughout the EU, not just within the Banking Union, and preventing a downward spiral of competitive relaxation of prudential rules or the setting of stricter requirements not justified by the preservation of financial stability in the EU – is of paramount importance. Excessive heterogeneity of the regulatory environment within the Banking Union would force the ECB as the Single Supervisor to apply different rules for each member state. The ECB will carry out the supervisory functions of the home and host authority for all member states in the Banking Union. This will simplify the functioning of cross-border groups and Colleges of Supervisors, reducing coordination problems when applying prudential requirements. On the other hand, for cross-border banks with activities inside and outside member states participating in the SSM, the current home/host supervisory coordination procedures will still apply. As appropriate, the EBA should act as mediator between home and host supervisors and change to the EBA’s governance should not impede this essential role. It is essential to ensure no fragmentation of the wider single market as a result of the Banking Union.

EfR REcommEnDATionS

• The SSm should carefully balance the new central responsibility of the EcB with the need to take advantage of the local expertise that national authorities have built up over the years. All elements of the Banking Union must be made compatible with the rest of the EU single market, which the EBA will monitor.

• As for the EcB’s comprehensive assessment of significant banks in the Banking union, more clarity should be provided on the methodology used to allow banks to anticipate the need for any more capital. The announcement of adequate backstops that would be made available to banks would provide credibility to the ECB’s comprehensive assessment. Adequate backstops are important even if they are never needed, as they would make it easier for banks to raise capital from private investors prior to or after the assessment.

• on the other hand, the EcB should define parameters and guidelines within the SSm to make sure the exercise of macroprudential powers by national authorities does not place national interests above Eu interests. While key supervisory powers will be entrusted to the SSM, in certain circumstances national authorities will still be able to require banks to hold additional capital buffers. The ECB should take steps to ensure that national and EU interests are balanced.

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Beyond the SSM, the other main element of Banking Union is the development of a resolution framework, the Single Resolution Mechanism (SRM) to address the failure of a bank within the SSM. The SRM will strongly rely on the EU single resolution rulebook set up by the Bank Recovery and Resolution Directive (BRRD) and the Deposit Guarantee Scheme Directive (DGSD), which are aimed at providing authorities in all EU member states with the means to tackle bank crises pre-emptively, while also providing the tools and powers to wind down banks in a way that safeguards financial stability across the region, eliminates moral hazard and removes taxpayers’ exposure to losses in insolvency.

In July 2013 the European Commission proposed the establishment of a SRM responsible for the resolution of all banks in states participating in the SSM, with a view to safeguard financial stability and to protect taxpayers as much as possible from bank resolution costs. The aim is to reach an agreement by March-April 2014, before the end of the current legislature.

For insurance groups, any enhancement of the current recovery and resolution mechanisms needs to recognise that insurers have a very different business model from banks, and acknowledge the general acceptance that insurance does not generate systemic risk; thus the failure of such firms should have a limited impact on financial stability.

PoSSiBlE imPAcTS

Banking Union should be seen as a key element in helping reduce the current inter-dependency between sovereigns and national banking systems, and in restoring confidence and growth in the euro area and the Single Market as a whole.

The SRM aims to alleviate contentious home-host issues, minimise the systemic impact and cost of bank failures, and ensure more efficient, effective and less-costly resolution. It will also ensure more consistent decision-making with respect to cross-border groups.

On the other hand, the establishment of a single resolution fund for banks could lead to a duplication of contributions to resolution funds at the national and European level. The SRM allows for raising ex post contributions from banks which could have a significant economic impact. As in the BRRD, bail-in should be the primary means for absorbing losses with resolution funds only used in limited circumstances.

More specifically EFR supports:

• Timely and uniform adoption of the new Bank Recovery and Resolution toolkit, either via national transposition of the BRRD or via the Single Resolution Mechanism;

• The establishment of the SRM, as it would ensure a uniform approach to the resolution rules and an integrated decision-making structure aligning resolution with supervision under the SSM. Resolution action at Banking Union level will ensure that failing banks are resolved with minimal cross-border spill overs;

• The objective to set up the SRM by the end of the current parliamentary cycle must be achieved. It is important that the SRM package is in force at the same time as the ECB takes up its role as a single supervisor in order to mitigate the inconsistencies associated to a separation of the jurisdictional scope of supervisory and resolution arrangements, which would undermine the credibility of the SSM;

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• Decision making in the transition period must be simplified, without too many players involved in what needs to be an expeditious process;

• The new Single Rulebook on Bank Resolution will mean that a bank’s own shareholders and creditors will bear the primary responsibility for losses and recapitalisation. This internalises costs to the responsible bank, and avoids the moral hazard issues of externalising these costs to resolution funds or governments. This is a critical step forward. The EFR also supports the establishment of a truly European liquidity backstop in order to back the Single Resolution Fund so as to reinforce the stabilisation effects of such framework; and,

• A review of the governance and voting modalities of the EBA so as to ensure the EBA appropriately represents countries participating in the SSM/SRM as well as those which do not.

As for insurance companies, there is no maturity mismatch between their assets and liabilities, and they tend not to have strong links with other financial firms, so the risk of contagion is limited. The nature of the traditional insurance business also allows management and regulators to take decisions, over a relatively long period of time in an orderly way.

EfR REcommEnDATionS

• Establish the SRm to ensure a uniform approach to the resolution rules and a decision-making structure that is aligned with the SSm. Key from a market perspective is that the SRM can make decisions quickly, if necessary in a weekend. A coherent alignment between the BRRD and the SRM provisions should be foreseen, notably with regard to the main principles underlying the calculation of financial contributions to the single resolution fund.

• in Banking union it needs to be clarified how supervision and resolution are carried out to

provide confidence that it can handle even the most systemic crisis. The EFR agrees with the European Commission Blueprint and the Four Presidents reports that the euro area needs a fiscal backstop, and to evaluate if the ESM or a vehicle with close relations to the ESM can be used for this purpose. Before such a backstop is established, a first step should be harmonisation to ensure all countries actually have a comparable deposit guarantee scheme. Now that an agreement on the Deposit Guarantee Schemes Directive has been reached, a common backstop can be established.

• for insurance companies, any enhancements should recognise the effective functioning of the current recovery and resolution mechanisms. Otherwise, such a regime would be highly disproportionate to the potential risks of an insurer and would thus put unnecessary costs on policyholders and insurers.

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The substantial changes in capital and liquidity requirements required by Basel III and the Capital Requirements Directive (CRD IV) / Capital Requirements Regulation (CRR) are well known. While these changes have been at the forefront of recent regulatory responses to the financial crisis, the process of re-drawing the prudential regulatory framework does not end with their implementation. There are a number of new initiatives, planned or already initiated at the global level, which will represent additional sources of regulatory pressure over the next five years. These in turn will partially frame the EU’s future regulatory priorities.

These initiatives include the fundamental review of the trading book, planned changes to securitisation and operational risk rules, the treatment of interest rate risk in the banking book, new large exposure rules, potential changes arising from the debate over variability in risk- weighted assets and complexity in regulation and reducing excessive dependence on credit rating agencies’ assessments. The EU will also have to integrate into the CRR the Basel rules on liquidity (the Liquidity Coverage Ratio and the Net Stable Funding Ratio) and the new Basel Leverage Ratio standards. Further to these regulatory approaches, Banking Union and the Single Supervisory Mechanism (SSM) will represent a major step forward in the harmonisation and optimisation of supervisory practices in the euro area.

In addition, in the response to the global financial crisis there is a growing consensus among global policymakers, as well as economists and academics, that the prudential framework should include more of a macroprudential perspective. Macroprudential policy is essentially focused on the identification and mitigation of “systemic risk,” that may threaten the stability of the financial system and could damage the real economy. Macroprudential tools may include capital-related, liquidity-related, and credit-related measures.

The European Systemic Risk Board (ESRB) was established in the end of 2010 as part of a wider reform aiming to improve macro-prudential oversight in the EU. The role of the ESRB is currently being reviewed by the EU along with the three European Supervisory Authorities (ESAs.) Many European countries are currently establishing governance for macroprudential oversight and developing policy tools applicable to both the banking and insurance sectors. In the US, the Financial Stability Oversight Committee (FSOC) was created with the objective of identifying risks and responding to threats to financial stability. Some countries, including Switzerland, Hong Kong and Singapore already have substantial experience in macroprudential supervision.

There is also an increased focus on Systemically Important Financial Institutions (SIFIs), whose failure might trigger a financial crisis. The Financial Stability Board (FSB) identified 28 global banks in 2012 as being “systemically important” (increased to 29 in November 2013) and an additional nine insurance companies in July 2013. Reinsurance companies will be considered separately in mid-2014. A number of policy measures apply to institutions designated as SIFIs, including recovery and resolution planning, enhanced group-wide supervision and higher loss absorbency requirements (in the form of capital requirements.)

PoSSiBlE imPAcTS

The next wave of micro-prudential reforms is likely to result in further increases in capital requirements, further restrictions on funding and liquidity, reduced reliance on internal models for regulatory purposes and less risk sensitive regulatory treatments. The EFR is concerned about changes that would invalidate the rationale for banks to invest in improving internal risk weighting models. It is open to question whether the marginal benefits they bring in terms of financial stability are outweighed by their costs. If taken too far, these reforms could have unintended consequences – including, for instance, further restricting banks’ capacity to provide credit or encouraging banks to hold riskier assets.

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Macro-prudential supervision on the other hand aims to deliver greater financial stability through focusing on the financial system as a whole rather than on individual financial institutions (even if the exercise of macro-prudential policy may involve the exercise of micro-prudential supervisory tools such as the counter-cyclical variation of capital requirements or loan to value ratios). Whilst it is clear that pre-crisis regulatory frameworks (in developed economies at least) failed to take a comprehensive view of the financial system as a whole, it is intended that the new macro-prudential frameworks that are currently being developed should act as a counter-cyclical force for stability, for instance by supporting the supply of bank credit during a downturn. The ESRB should also play a leading role in the oversight of macroprudential policy across the EU, ensuring its consistency of application and cross-border observance to prevent circumvention. The ESRB’s governance, mandate and structure need to reflect this role across both SSM (Single Supervisory Mechanism) and non-SSM countries, working in close cooperation with the ECB and other central banks within Europe but with an independent chair and greater visibility.

EfR REcommEnDATionS

• Policymakers should resist further substantial increases in capital, liquidity and other regulatory requirements for banks at a time when most Eu economies are still experiencing weak growth and addressing macro-economic imbalances. Any changes to individual prudential regulations need to be assessed in the context of the prudential framework as a whole, and the major tightening of requirements that has already been achieved. They should also be viewed alongside additional capital and liquidity demands arising from other parallel initiatives, including tougher supervisory demands arising from stress testing and Pillar II add-ons, such that there is a more coherent and overall proportionate set of regulatory capital and liquidity demands placed on the industry.

• There are many regulatory changes occurring simultaneously and a prudent approach would be to allow reforms to take hold before layering on more regulations that may result in unintended consequences. A right balance needs to be found between simplicity, risk-sensitivity and the comparability of risk-weighted assets. There are unintended consequences in shifting the pendulum too far in the direction of simplicity and in further restricting the use of internal models. A less risk sensitive framework creates adverse incentives to take on riskier exposures and greater opportunities to arbitrage rules. Less risky lending, such as trade and sovereign finance and some SME and retail, should not be penalised in the leverage ratio, for example, by its regulatory treatment compared with riskier lending. The Enhanced Disclosure Task Force report (October 2012) is a major step forward in building transparent, high-quality risk disclosures that enable investors to understand a bank’s business and risks and link these to capital consumption and financial performance.

• more consideration should be given to using macro-prudential policy and tools to address potentially systemic risks. In this context a significant element is credit, a principal source of growth but also potential instability since unsustainable credit expansion can lead to a financial crisis, itself precipitating an economic crisis through uncontainable credit contraction.

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BAckgRounD Solvency II is a fundamental review of the regulatory framework for the European insurance industry. It aims to enhance policyholder protection and the internal market by introducing common rules in order to improve the system of governance of insurance and reinsurance undertakings, introduce new supervisory measures, enhance risk management, economic and risk-based capital requirements and increase transparency applicable for both insurance undertakings and insurance groups. The Directive was proposed by the European Commission in 2007, and agreed by the European Parliament and European Council in 2009. But before Solvency II could come into force it was necessary to adapt the framework, through the Omnibus II Directive, in line with wider European reforms such as the Lisbon treaty (governing how the implementing measures would be developed) and the new European Insurance and Occupational Pensions Authority (EIOPA.)

PoSSiBlE imPAcTS

On 13 November 2013, the European Parliament, Council and Commission successfully concluded the trilogue negotiations paving the way for the adoption of Omnibus II before the end of the current legislature. Subject to transposition into delegated acts, technical standards and national legislation this will remove much of the regulatory uncertainty for insurers and will create a robust common European regime, which will be especially important for standard setting in future international discussions on global insurance capital rules. It includes a package of measures to avoid artificial volatility in the balance sheets and to set out the capital requirements of insurance undertakings.

The rules introduce new requirements for governance within insurance entities, enhance the role of the executive management, including the Board of Directors being responsible for risk management, and set new requirements for regulatory reporting and disclosure. In addition the supervisors will get new measures available for the supervision of the industry and in particular the supervision of insurance groups will be enhanced.

For quantification of risks and capital requirements the aim is to optimise the allocation of economic capital to risk. They will incentivise the use of the best practices of risk management. They ensure a uniform and enhanced level of policyholder protection by making sure that insurance undertakings are sound and can survive difficult periods. Solvency II may therefore give policyholders greater confidence in the products of insurers and will contribute to financial stability as a whole. The European Commission also expects the new rules to increase competition, especially for mass retail lines of business. In 2014, the focus turns to the delegated acts and technical standards that should further develop the agreement on the Omnibus II.

Artificial volatilitySolvency II values financial assets on a marked-to-market (MtoM) basis and discounts liabilities on a market consistent approach with swap rate curves adjusted for credit risk. Assets and liabilities are not valued on the same basis, in particular where the insurance products (liabilities) have longer duration than the liquid assets available in the financial markets, which mechanically introduces volatility both in the valuation of own funds and in the calculation of the capital requirement. Where there are changes on market spreads, only the volatility due to the changes on the probability of default should affect the value and the solvency of the company. The volatility related to short-term market variations above the credit risk must not affect the value and the solvency position of the company. Volatility related to corporate bonds and government bond spreads should not be reflected because companies can hold such assets over the long term. Only volatility related to the change in fundamental credit spreads (i.e. expected defaults) should be reflected in the Solvency II ratio. The real risk for insurers and ultimately for the protection of policyholders is the loss in the event of actual asset default, not the short-term movements in value while the asset is being held.

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capital requirementsA fundamental principle in financial regulation is that any new framework must never be detrimental to the long-term funding of the economy. In its current state, Solvency II capital charges weigh heavily on the holding of long-term assets and securitisation, as has been rightly noted in the European Commission’s “Green Paper: Long-term Financing of the European Economy.” It may be corrected mainly through a review of Solvency II delegated acts (former level 2 measures) or Technical Standards (former level 3 measures). As an example, under Solvency II poor or missing credit ratings combined with low liquidity of an investment asset leads to significant increased capital requirements. This could make the industry reluctant to invest in assets, where SMEs are the underlying risk.

Against this background, the insurance sector has been supporting the recommendation, made by the Commission to EIOPA, to review the Solvency II asset risk capital charge set of rules for long-term assets such as private equity, real estate, asset-based securities, loans and long-term corporate bonds. Long-term investments offer a particularly attractive duration for insurers’ long-term liabilities and often include inflation-linked returns. Those investments are essential to support sustainable growth in any economy. For instance, insurance regulations do not set lower capital requirements for infrastructure investment, which is a key area of investment and is much less risky than general corporate investment. Similarly, the capital requirements for securitisations invested in by insurers tend to be much higher than the risks they actually carry.

EfR REcommEnDATionS

• Solvency ii level 2 measures must remain consistent with the level 1 political agreement and need to avoid introducing artificial volatility. The agreement reached at the trilogue in November 2013 provides for an adjustment to the discount rate curve with specific mechanisms such as a Matching Adjustment mainly for long-term annuities, and a Volatility Adjuster of the spread volatility. They aim at reducing the destructive and inappropriate impact of extreme market volatility on insurers and reduce the incentives for pro-cyclical and systemic behaviour in extreme conditions. The priority must be to ensure that the level 2 legislation for Solvency II delivers particularly on the Volatility Adjuster, Matching Adjustment, Credit Risk Adjustment, long-term investments and equivalence – the intended outcome of the political agreement on Omnibus II.

• The capital requirements for certain long-term assets (infrastructure, enterprises including SmEs, securitisations) need to be reviewed. A positive outcome on these issues, agreed by EIOPA, is necessary so that Solvency II can support long-term investing in the European economy and contribute to the stability of financial markets. We welcome EIOPA’s report on the calibration of certain long-term assets which proposes to lower the ratio related to good quality securitisation but regret that no action was taken concerning the other long-term assets considered.

• The final design of the Solvency ii framework must be clarified and any new global insurance regulatory regime should be Solvency ii compatible, so as to avoid both additional requirements and inconsistencies with Solvency ii. The industry will be ready to implement everything at the heart of the Solvency II framework, in particular the risk management and governance requirements, on 1 January 2016. For internal models for calculating capital adequacy needs to be approved by early 2015. Given the short timeframe, and the political calendar constraints relating to the renewal of the European Parliament and the Commission, tight dialogue between the industry, the Commission and EIOPA is critical to ensure that the remaining issues are resolved as soon as possible. Furthermore, Solvency II is likely to form the basis of the global insurance standards being developed by the International Association of Insurance Supervisors (IAIS), so the sooner it is completed the more it will strengthen the EU’s position at the negotiation table.

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BAckgRounD Since the beginning of the financial crisis, international bodies such as the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS) have been addressing the sources of systemic risk in the insurance sector.

In 2013, both the FSB and IAIS took a number of significant steps in their work on systemic risk and global capital standards which will have deep implications for the European insurance industry. Although the debate is being influenced by domestic developments, including the finalisation of Solvency II in Europe, these two international regulators have been mandated by the G20 leaders to create a global insurance capital standard within the next few years.

The FSB and IAIS published a list of nine Global Systemically Important Insurers (G-SIIs) in July 2013, along with the methodology for identifying G-SIIs and the policy measures applicable to them, namely (i) enhanced supervision, (ii) improved resolvability and (iii) Higher Loss Absorbency (HLA) capacity. In addition, a simple Basic Capital Requirement (BCR) will be introduced for G-SIIs by the end of 2014 to serve as a basis for the calculation of the HLA. The decision on whether to designate reinsurers as systemically important has been delayed until July 2014. In October 2013, the IAIS confirmed the development of a global Insurance Capital Standard (ICS) by the end of 2016, to be fully implemented in 2019. This ICS will be part of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) and apply to all Internationally Active Insurance Groups (IAIGs). ComFrame is a key IAIS initiative to improve supervisory cooperation of IAIGs and increase global convergence in supervisory practices.

The IAIS work on BCR and ICS is at an early stage and it is not clear whether BCR will apply to international groups or what the implications of ICS/BCR will be for national jurisdictions. However, the timeline is ambitious and the first ComFrame/BCR qualitative and quantitative field testing will be conducted in 2014.

The field-testing exercise is expected to help make progress on valuation. These three approaches may differ from the market-consistent economic valuation basis of Solvency II and the Swiss Solvency Test (SST.) PoSSiBlE imPAcTS

Even though the IAIS recognises that traditional insurance and reinsurance activities are unlikely to be a source or amplifier of risk and are shock absorbers rather than sources of financial turbulence, many supervisors continue to raise concerns and may introduce additional domestic measures to ring-fence their markets.

EU-based insurance groups and G-SIIs face an increasing number of regulatory initiatives on group supervision that overlap each other, generating duplication and fragmentation. The main concerns are:

(i) Excessive and non-risk based capital requirements affecting the competitiveness and attractiveness of groups as well as penalising advanced domestic solvency regimes;

(ii) Ring-fencing requirements;

(iii) Reduction of diversification benefits;

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(iv) Introduction of additional protectionist and extra-territorial measures by national jurisdictions beyond global standards or in rejection of the standards;

(v) Excessive and duplicative reporting requirements; and

(vi) Inadequate and inappropriate requirements being applied to re/insurers (such as a leverage ratio).

As regards capital charges in particular, the introduction of macroprudential policies and tools will provide authorities across Europe with additional scope to mitigate threats to financial stability. Neither the practical nor the cost-benefit case for surcharges has yet been made against this background.

Capital charges may also affect customers, lowering the availability of insurance and personal or business finance, and therefore reducing the resilience of businesses and households alike.

EfR REcommEnDATionS

• global insurance initiatives should be compatible with the Solvency ii framework to help realise common objectives. If implemented properly, Solvency II will provide incentives for improved risk management, deeper competition with enhanced benefits and protection for consumers and the economy.

• comframe and the global insurance capital Standard should aim to provide a common basis for convergence of best supervisory practices, avoid new layers of supervision and be compatible and consistent with the Solvency ii framework for economic risk-based group supervision. EFR is supportive of the IAIS efforts in developing ComFrame to facilitate better coordination and cooperation in supervision of groups. EFR recommends that EU institutions actively engage with the IAIS to promote the solutions to these issues offered by Solvency II, and that any new global capital and/or valuation standards are consistent and compatible with Solvency II.

• capital charges for insurance and reinsurance activities are inappropriate responses to the problem of systemic risk and should be avoided. Governance, consistent and proper risk management and supervision are much more critical for the stability of the financial sector than additional capital charges.

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State-run, occupational and private pension schemes (known as pillar I, II and III pensions respectively) are extremely important as they should allow people to enjoy their retirement after a working life and provide good protection against poverty. But the changing demographics in Europe present a major challenge to pension systems in many EU member states. People are living longer, and in many countries are having fewer children, which together will have far-reaching economic and budgetary consequences and may lead to many citizens not having sufficient retirement income. A looming pension crisis underlines the challenges that state-run pension systems in particular may pose for European economic and monetary integration.

Being aware of the situation, the European Commission has launched several pension initiatives in recent years. It published a White Paper in 2012, “An Agenda for Adequate, Safe and Sustainable Pensions” in that it looks at how the EU and member states can work together to tackle the problem. The European Parliament has since adopted a non-legislative resolution that stresses the need for complementary pillar II and pillar III pension schemes, effectively recognises direct competition in some markets between occupational pension funds and insurance companies as providers of pensions, and supports the application of the “same risks, same rules, same capital” principle to all financial institutions providing occupational pensions, where relevant.

The Commission is revising the Directive on Institutions for Occupational Retirement Provision, known as the IORP II proposal. The focus in its first phase will be on governance, transparency and reporting requirements for occupational pension funds but it is not currently expected to cover the solvency of these pension funds. For countries in which occupational pensions are also provided by life insurers, this could give rise to an uneven playing field; life insurers will have to comply with strict solvency requirements under Solvency II, whereas occupational pension funds will not be subject to similar requirements.

More widely, it is clear that there are still lessons to be learned about the prudential treatment of long-term financial products. These lessons need to be included in the various EU secondary laws to achieve consistency without forcing inappropriate uniformity on Europe’s diverse pension systems. The Commission has emphasised that it aims to protect future pensioners and not to penalise national pension systems that function well. In its Green Paper on the long-term financing of the European economy the Commission has also highlighted the important role all pension providers play in providing long-term financing for the wider economy, for example by investing their assets in infrastructure projects.

PoSSiBlE imPAcTS

Savings rates and savings returns have been aggravated by the financial and economic crisis. Pay-as-you-go (PAYG) – that is, only part-funded – pension schemes face falling employment and thus lower contributions, and are increasingly regarded as unsustainable because the burden of their long-term funding falls on future taxpayers. At the same time, fully funded schemes are affected by falling asset values, low interest rates and consequently reduced returns. All these factors raise significant challenges for the future retirement provision of European citizens.

In most Central and East European countries mandatory, sustainable fully funded pillar II pension schemes were introduced late in the twentieth century, but these are under threat, as evidenced both in Hungary, where mandatory pension funds were dismantled in 2011, and more recently in Poland, where a government review of pension legislation has serious consequences for funded pillar II pension funds. These developments are more symptomatic of short-term budgetary pressures than of well thought-out pension strategies, and risk spilling over to other countries in the region.

For all these reasons it has become an urgent necessity to adapt pension systems throughout Europe to the changing demographic and economic environment and to create effective pensions regimes for the future.

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The current, limited internal market for pensions stems from historical, cultural and economic variances across member states, and pensions rules across Europe remain fragmented, in part due to the close interaction with member state’s social security and tax regimes, areas where the EU has only limited competences. The EU’s pension policies need to respect national social policy choices and the associated diversity, yet at the same time ensure that an increased role of private and commercial providers is facilitated by sensitively designed regulation that enables markets to reinforce PAYG systems and which will also enable an internal market for pensions and pensions-related services to begin to emerge and flourish.

It is important that member states should seek to harness markets and competition as part of an overall objective of ensuring adequate retirement savings for as many of their citizens as possible so as to protect their standard of living. The insurance sector is active in the provision of funded pensions in all three pillars and is a significant provider of long-term savings, pensions and annuity products.

Life insurers are also well placed to provide protection against the various risks that individuals face in preparing for, and during, retirement. However, as long-term businesses investing in the future, insurers and other pension providers need regulatory stability and to be confident that any regulatory change is evidence-based and ultimately motivated by the interests of pensioners. At the same time, through the long-term investing of their assets, insurers and pension providers support economic growth and safeguard the future competitiveness of the European economy.

EfR REcommEnDATionS

• There need to be clear and stable rules and, greater transparency. A common pensions “language” would facilitate easier comparison within Europe’s pension sector. To provide for their retirement, Europe’s citizens should save more within the multi-pillar pension systems, with an increasing focus on funded pensions. Private sector providers and their clients need clear and stable rules and fair and effective competition. Transparency is needed to make Europe’s pension diversity more manageable: policymakers, providers and citizens need to be able to compare the risks and returns for different pensions. A “common language” on pensions across Europe would help everyone can understand the products, their benefits and their risks.

• The European commission should build on work by the European insurance and occupational Pensions Authority (EioPA) to identify the various categories of funded pension schemes, products and providers, and to determine where prudential regulation might create level playing field issues in specific markets across the Eu. In some countries where occupational pensions are governed by insurance directives, competition issues among different providers may arise as Solvency II comes into effect for insurers, while IORPs (Institutions for Occupational Retirement Provision) remain subject to the current IORP solvency rules. It is important to determine where this will occur and where different types of providers will compete directly for the same business. EIOPA has already announced it will place stronger emphasis on occupational pensions and, in addition, hopes to create a Europe-wide approach to personal pensions.

• European pension reform should respect national diversity of social policy and taxation, ensure a competitive internal market and take into account the substantial changes that have already taken place. Effective interaction between the various dimensions is key to a holistic solution. Responsibility for pensions is neither national nor solely with the EU, it is shared. Europe needs a “Pension Partnership’ between member states and the EU institutions. It may also be useful for the European Commission to review the effectiveness of its new integrated approach to pension reform, announced in its Green Paper of 2010.

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Long-term investment (LTI) is essential for the economy and society as a whole. Funds held by financial institutions are invested in long-term energy, transport and other infrastructure projects, as well as in businesses, including small and medium-sized enterprises (SMEs), real estate and other assets.

The European Commission in its Green Paper on the long-term financing of the European economy, published in March 2013, asserts that the most pressing challenge for Europe is a return to sustainable and inclusive growth, creating jobs and enhancing its international competitiveness. The Commission regards large-scale, long-term investment as essential for reviving growth and employment across Europe. It has sparked a debate on how to foster more long-term financing and how to improve and diversify the system of financial intermediation.

In November 2013, the Economic and Monetary Affairs Committee (ECON) of the European Parliament (EP) published its own-initiative report on the Long-term financing of the European economy, containing suggestions on how the Commission should tailor its follow up to its Green Paper. The report welcomes the Commission’s proposals, acknowledging that long-term investment is the key to economic growth but is hindered by the lack of alternative equity and debt financing instruments that are affordable for EU companies.

Infrastructure projects, when they give rise to stable and predictable cash flows, may be suitable investments for insurers but they need to have access to information on a range of projects to choose from. As for long-term investing in SMEs, this is being held back for a number of reasons. Many SMEs prefer to raise funds through bank borrowing rather than the capital markets. This is due to the often high costs of access which are not in relation to the borrowing needs of SMEs. Traditional lending via banks has proven to be a reliable source of financing, as well as helping SMEs access the capital markets when appropriate. Creating a trustful regulatory framework for crowdfunding could also help many SMEs to access alternative sources of finance.

More should be done to promote venture capital and business angels as a source of SME finance. There is no integrated venture capital market in Europe, and VC funding fragmented along national lines; this increases funding costs and limits opportunities for entrepreneurs and investors alike. There also remain significant obstacles in the form of double taxation, tax treatment uncertainties and administrative requirements that will continue to hold back venture capital.

Finally, historical data proves that European households traditionally often choose basic deposits when placing assets. Since a substantial portion of European assets is held by households they play a significant part in finding a solution for securing sustainable and long-term growth in Europe. Successful activation of these assets can become vital in securing financing for SMEs and infrastructure.

PoSSiBlE imPAcTS

The European Commission recognises that long-term investment has diminished in recent years for a number of reasons, including the economic situation in Europe and post-financial crisis regulatory reforms. It is looking for ways of rectifying the situation, but needs to be aware that parts of its regulatory reform programme has contributed to the problem as it has thrown up some real obstacles to long-term funding.

Insurance companies, occupational pension funds and other institutional investors are well suited to long-term financing and investment. They have substantial portfolios with long-term horizons, and due to the low interest rate environment continue to seek out diversification and yield.

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Unfortunately, elements of the Solvency II directive may make it more difficult for insurance companies to invest long term, as they deter them from holding corporate stocks and long-term bonds and loans. The new rules penalise investments that have a maturity longer than one year. They may be dissuasive for equity and medium or long-term debt with a maturity higher than seven years. Moreover, regulatory capital charges are very heavy for non-investment grade or non-rated companies. Finally, unfavourable capital charges for securitised products penalise the economics of the transactions.

Banks are traditionally the major conduits of finance, but new regulations might in certain cases reduce banks’ appetite for long-term lending. Non-banking financial institutions – “shadow banks” - are stepping into the gap. Steps are being taken by the European authorities to regulate shadow banking, and while this is necessary they should be careful not to over-regulate or they could limit the opportunities coming from this source.

Multinational and national development bank programmes such as guarantee facilities, risk-sharing agreements, bank financing and global loans, should be further developed. These instruments are very useful, especially for financing SMEs that cannot access the capital markets.

EfR REcommEnDATionS

• convergence on a definition for infrastructure would promote availability of data, innovation and clarity of rules. At a national and European level the visibility of the range of infrastructure projects seeking private finance could be made much clearer, particularly for small and medium-sized projects. One way to improve the flow of information would be for the EU Commission to collate details of current and forthcoming infrastructure deals, on a website, and to standardise the key parameters, such as the nature of the asset and funding requirements.

• while banks will continue to be important players in financing SmEs and infrastructure, access to long-term finance for SmEs and infrastructure should be made easier through private and public sector initiatives. SMEs are far more reliant on bank borrowing than large companies and are generally wary of tapping into the debt capital markets which tend to provide longer-term finance. Governments, banks, insurance companies, development banks and others should explore what can be done to help SMEs access these markets, while expanding the EU project bonds initiative would help build scale in the market for infrastructure bonds. Moreover, the creation of a consolidated bond market which would make bond evaluation more transparent and attractive would be also welcomed. In order to accelerate the setting up of such a consolidated bond market, a public operator could act as both bond issuer and purchaser of bank credits – offering further guarantees and keeping contact with rating agencies.

• The securitisation market should be revitalised to address the funding gap for SmEs. Re-developing the European SME securitisation market – securitising bank loans to SMEs, with or without credit risk mitigation from the European Investment Fund (EIF) or other official bodies – could provide an attractive alternative for investors and a stable source of liquidity and capital for SMEs. Properly designed, such a system could significantly diversify sources of funding for SMEs, lower funding costs and reduce the exposure of the sector to any future constraints within the banking sectors. As a response to the need for revitalisation, the EFR has helped launch a European market-led initiative Prime Collateralised Securities (PCS), where an independent, not-for-profit entity defines and promotes best market standards and practices in the securitisation market.

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In the immediate wake of the financial crisis, the regulatory focus first turned to solvency and liquidity. From the Capital Requirements Directive IV, the Capital Requirements Regulation and Solvency II in the EU, to the Dodd-Frank Act in the US, enhanced prudential regulation – especially of systemically significant financial institutions – took centre stage in an effort to stabilise the financial system. However, the focus soon switched to consumer protection to deal with the series of high-profile mis-selling and other incidents that led to a general loss of public confidence in financial institutions.

The G20’s High-Level Principles on Financial Consumer Protection issued in October 2011 provide a credible roadmap to the future of financial consumer protection regulation. These principles emphasise: a) avoidance or disclosure of conflicts in the provision of advice; b) product choice and ease of switching; c) transparency and product suitability; d) recourse for customers when dissatisfied.

Europe has made a concerted effort to advance a common consumer protection agenda to apply the principles set out by the G20. These consumer protection initiatives have a common objective, namely to increase transparency in financial transactions to reduce the risk of conflicts of interest, to stimulate an easier and more convenient access to financial services through harmonised definitions and rules across the EU, to promote the development of efficient complaint and redress mechanisms, and to enhance competition to put downward pressure on prices.

Financial institutions are following these developments closely since consumer protection is a necessary condition of preserving consumer confidence and business growth. The EFR supports these objectives. Nevertheless, it is important to find a way to both protect consumer interests and to preserve appropriate financial innovation, security and competitiveness. It is also essential to make sure that regulations aimed at protecting and helping consumers do not end up acting against them as a result of burdensome information procedures, lengthy and complex security checks and, above all, higher costs. Consumer protection measures often carry with them substantial changes in distribution channels, reporting requirements, and authentication processes, which translate into higher operational costs and increased prices for end-users.

PoSSiBlE imPAcTS

Numerous new consumer protection rules have been proposed in recent years, affecting business practices in several ways. They include MiFID II, IMD II, PRIPs, and various mortgage and consumer credit rules. As a result, firms will have to adapt their distribution channels, change pre-contractual information processes, continue to adapt commercial product documentation for clients, enhance remuneration and fee disclosure practices, facilitate bank account switching, adapt compliance systems, introduce more efficient complaint and redress mechanisms, implement new risk management and client mediation processes and improve staff training. While in general these changes are expected to benefit consumers, the significant operational costs that accompany these efforts should not be underestimated.

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EfR REcommEnDATionS

• Regulators should take a holistic approach to consumer protection that looks at the needs of the consumer while also taking into account the impact regulations may have on the take-up of financial services. in parallel, financial literacy should be improved so that consumers have a proper understanding of how to manage their finances, and how to avoid unnecessary risks, excessive debt and financial exclusion. The assessment of regulation should be carried out in close coordination with the financial services industry, which has expertise in the functioning of financial systems and processes, client behaviour and product-testing procedures.

• Eu initiatives should not ignore the differences in market practices, language, culture and consumer needs that exist between member states. To promote flexibility and coherence, regulators should focus on essential rules only, following the approach of targeted full harmonisation at the Eu level. The principles of subsidiarity and proportionality should therefore be carefully observed when assessing the need for new regulations and definitions at EU level. For example, the proposed ban on commissions when advising on investment products – in the context of independent advice (MiFID II in the EU, and the Retail Distribution Review in the UK) - are a relatively recent and untested development. It seems prudent to apply the principle of subsidiarity to this issue.

• Policymakers should consider complementary measures to consumer protection laws and rules, such as self-regulation, codes of conduct and regular dialogue with industry practitioners. Such alternatives have often proved to be more efficient, flexible, easier to implement and more cost-efficient than prescriptive legislation and rules. They also tend to be more “technology-neutral” and “innovation friendly” than more traditional regulatory instruments. Similarly, consumer protection measures should remain neutral of the business model they rest on. It would be helpful if the financial services industry could have a regular and structured dialogue between the European Supervisory Authorities to identify priority areas in the field of consumer protection and to see how monitoring and reporting processes could be best integrated into financial institutions’ risk management and compliance systems.

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In 2009, G20 members agreed that a reform of the over-the-counter (OTC) derivatives market was necessary to improve transparency, mitigate systemic risk and protect against market abuse. They agreed to implement reforms to:

• Trade standardised OTC derivatives contracts on exchanges or electronic platforms, where appropriate; • Clear OTC derivatives through central counterparties; • Subject non-cleared OTC transactions to additional capital or margin requirements to mitigate risk and• Report all OTC derivatives contracts to trade repositories.

To date, over half of the FSB (Financial Stability Board) jurisdictions have frameworks in place to enable reform commitments to be implemented. However, significant further work is needed by regulators and policymakers to ensure frameworks are fully in place in all FSB jurisdictions, these frameworks are consistent and allow for smooth cross-border financial flows, and market participants put the rules into operation.

The EFR shares the FSB’s view that the main risk to implementing these reforms is inconsistency, gaps and duplication between major jurisdictions. In addition, a potential lack of clarity of rules, and the pace at which industry capacity can implement them operationally, represent additional risks. It is critically important to ensure a globally coherent framework and level playing field while avoiding overlapping and/or contradictory rules. In this respect, the EFR welcomes the announcement of a common forward approach agreed by the European Commission, the European Securities and Markets Authority (ESMA) and the US Commodity Futures Trading Commission (CFTC) and the agreed understandings to resolving cross-border conflicts, inconsistencies, gaps and duplicative requirements by the OTC derivatives regulators group. However, significant further work needs to be done to put these agreements into practice and to ensure recognition of other regimes is truly based on common outcomes rather than identical requirements to achieve consistency to the greatest extent possible. Following ESMA’s advice on the comparability of different jurisdictions to the EU rules in late 2013, the European Commission now needs to finalise its equivalence decisions to avoid major market disruptions which could, for example, be caused if significant third country central counterparties (CCPs) were not recognised under Articles 75 and 25 of EMIR.

PoSSiBlE imPAcTS

The financial services industry and derivatives end-users will need further clarity over time on issues where decisions are still outstanding, such as which derivatives will be subject to the clearing obligation, and which transactions will need to be cleared retrospectively (known as “frontloading”). From an implementation perspective, given the significant uncertainties and the delays that have occurred so far, regulators should set realistic phase-in periods for the start of central clearing. Regulators and policymakers need also to be mindful of the possibility that new sources of systemic risk could arise, if, for example, insufficiently liquid derivatives are subject to mandatory clearing obligations and risks are concentrated in CCPs. European competent authorities need to satisfy themselves that CCPs’ capital adequacy, governance, risk management and legal status is sufficiently sound before re-authorising them and mandating central clearing.

From an implementation perspective, regulators and policymakers should factor in these experiences and also take into account the major implementation challenges linked to certain requirements such as, for example, reporting obligations, and by setting realistic lead times before adopting further regulation. Rapid adoption of the rules will not be beneficial if unintended consequences are embedded in rules or operational risks are created.

In September 2013, the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) published guidelines on margin requirements for non-centrally cleared derivatives. As a result, EBA/ESMA/EIOPA are expected to launch a further consultation in 2014 with final

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adoption of margin requirements for non-cleared derivatives in the EU envisaged in the first quarter of 2015. Legal certainty on clear and globally harmonised margin standards is crucial to increase the robustness of the financial system and to ensure a global level-playing field.

As detailed standards are developed and implementation takes place, regulators should conduct thorough impact assessments with regard to the cumulative effects of regulation and seek a constant exchange with stakeholders before adopting new rules on different levels, as those have a major impact on the recovery of the European and global economy. Last but not least, sufficient resources for supervisors such as ESMA, allowing them to implement legislation of the highest quality once it is adopted, are crucial for legal certainty and smooth implementation.

Target 2 Securities (T2S), the ECB project to provide a single platform for securities settlement in the euro area in central bank money, moves into a critical phase in 2014. The first transactions are due to be settled in June 2015. For it to be successful, the Central Securities Depository Regulation (CSDR) will need to be fully implemented, to improve the safety and efficiency of securities settlement by providing legal certainty on the outsourcing agreements of the CSDs towards T2S. Furthermore, market participants need to have certainty on the future settlement discipline- and buy-in-regime, for which ESMA is likely to be asked to provide the implementing technical standards. ESMA should be encouraged to deliver these standards as quickly as possible to allow market participants for a proper implementation of the T2S project. Any future regime should take into consideration the required changes stemming from the settlement discipline and buy-in regime together with the move to T+2 settlement cycle. Both might be in conflict with the T2S programme. Within its mandate, ESMA could consider a phase-in approach for the settlement discipline regime in order to avoid too many change projects for CSDs and market participants at a time. Again, allowing ESMA to devote necessary resources to this will be a key requirement.

EfR REcommEnDATionS

• The European authorities need to ensure the smooth and globally consistent implementation of EmiR, including the appropriate treatment of cross-border issues. The authorities will need to take account of similar derivatives regulations in the US and other parts of the world. Regarding related regulations such as MiFID II and CSDR, it will be important to provide ESMA with sufficient time to meet its deadlines to develop implementing measures, and for market participants to comply with those.

• A thorough impact assessment should be undertaken to analyse the effects of EmiR and market developments should be regularly monitored. Following the assessment and regular monitoring, adjustments should be made where necessary to ensure EMIR actually achieves its objectives. The same holds true for related legislation such as MiFID II or the CSDR.

• legislation on a sound recovery and resolution regime for financial market infrastructures (fmis) is also required. Central clearing will increase as a result of EMIR and CSDR despite the absence of a clearly defined process to either rescue or wind down those infrastructures in an orderly fashion, whose insolvency would represent a risk for the entire market. A proposal for a Securities Law Legislation would help eliminate uncertainty in securities holding chains across multiple jurisdictions and would be complementary to the regulation of the securities value chain from pre-trade over trading, clearing and settlement to custody. It should aim to harmonise securities laws, by ensuring interoperable national holding models including rules on “conflicts of law”, aspects of shadow banking in the context of securities lending and repo transactions and the re-use of collateral.

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The shadow banking sector has been in the limelight in recent years as regulators attempt to put it under closer scrutiny. Taking a broad approach, the Financial Stability Board (FSB) defines the shadow banking system as “the system of credit intermediation that involves entities and activities (fully or partially) outside the regular banking system.” The European Commission, in its March 2012 Green Paper, defines shadow banking entities as entities operating outside the regular banking system engaged in (i) accepting funding with deposit-like characteristics; (ii) performing maturity and/or liquidity transformation; (iii) undergoing credit risk transfer; and, (iv) using direct or indirect financial leverage.

Regulators and supervisors are concerned that the shadow banking system can be used to arbitrage bank regulation and pose “bank like” risks to financial stability through long-term credit extension based on short-term funding and leverage. The FSB has worked to develop recommendations to deal with the concerns about the lack of oversight of the shadow banking system and its interconnectedness with the regular banking system via five work streams: i) bank exposure to shadow banking; ii) regulation of money market funds (MMFs); iii) securitisation; iv) other shadow banking entities; and v) securities lending and repurchase agreements.

In the EU, many shadow banking activities are already regulated by reforms implemented since the crisis’ for example, bank interconnections with the shadow banking system (CRD II/III, implementation of international accounting standards); insurance interconnections with the sector (Solvency II); alternative fund managers (the Alternative Investment Fund Managers Directive, AIFMD); OTC derivatives (EMIR); securitisation arrangements; and credit rating agencies. A proposed regulation on money market funds (MMFs) is currently under discussion in the European Parliament and EU Council. In future, the EC plans further initiatives to enhance the framework for investment funds and to regulate securities financing further, and strengthen banking regulation. In addition to regulatory measures aimed at improving oversight and regulation of the shadow banking system, private sector initiatives have played an important role. The Prime Collateralised Securities (PCS) initiative co-founded by the EFR promotes high quality securitisation assets.

PoSSiBlE imPAcTS

Many shadow banking activities are an essential complement to traditional bank credit intermediation and, according to the FSB, “such intermediation, appropriately conducted, provides a valuable alternative to bank funding that supports real economic activity”. They can offer alternative sources of funding, enlarge the available spectrum of assets for investors and help to re-allocate risk within the financial system thereby securing financial stability and promoting efficient functioning of financial markets. Securitisation for example can help ensure a steady flow of credit, most importantly to companies unable to access directly capital markets. Secured lending through repos and securities lending offers a safe alternative cash management option for companies, investors and central banks and also enables funding to be provided to a more diversified set of banks. Money market funds perform an important service bringing together the demand and supply of short-term funding. Constant NAV MMF funds are an essential daily cash management tool for a range of investors including asset managers, pension funds and companies.

Overall, shadow banking activities contribute to the biodiversity of the financial system, and expand funding sources in the economy.

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EfR REcommEnDATionS

• The objective of further regulation should be clearly defined and aimed at proposing solutions to genuine problems that have not already been addressed. As regulation of shadow banking needs to be global to be effective, proposals should strive to ensure international consistency between the various recommendations proposed by the FSB.

• Existing sources of data should be fully leveraged. Central data repositories such as the ECB collateral eligibility and loan level data initiative, or direct information feeds from identified shadow bank entities, already provide ready sources of data. Information on shadow banks should not be collected indirectly solely from banks.

• Regulation should support the smooth functioning of money market funds, securitisation markets, and repo and securities lending. Any unintended consequences of proposed changes to prudential rules should be understood and mitigated. The proposed 3% capital buffer for constant NAV MMF funds in the draft EU regulation would threaten the viability of a majority of these funds and the need to manage short term liquidity would require an alternative such as bank deposits or direct investment in individual instruments. Liquidity gates and redemption fees could serve as an alternative means to smooth the perceived risk of runs associated with constant NAV funds. Draft EU rules on securities financing transactions and the Basel Committee’s revised Net Stable Funding Ratio proposal should be examined carefully to ensure that any unintended impacts on market liquidity, market making capacity or the ability of primary dealers to support issuance through the repo market are fully understood and effectively mitigated.

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In February 2013, the European Commission issued a legislative proposal for an EU Financial Transaction Tax (FTT) on securities and derivatives transactions in 11 participating member states. The EU FTT proposal is broad in scope and highly extraterritorial in nature, embodying both the Residence Principle and Issuance Principle. Under the Residence Principle, the tax would apply if at least one party to the transaction were deemed “established” in the territory of a participating state; under the Issuance Principle, the tax would apply if the security had been issued in a participating state. Initially the tax was supposed to have been introduced in January 2014 but it has been delayed because of the need for more negotiations. Several EU states have already adopted national FTTs, with France’s FTT having entered into force in August 2012 and Italy’s and Hungary’s in 2013. The UK and Switzerland have had their current stamp duties in place since the early 1970s.

There has been increasing opposition to the EU FTT from both inside and outside the FTT zone, with the result that there could be a reduction in the scope of the tax, changes to the principles on which the tax is to be based, and changes to the tax collection mechanism. In May 2013, the UK launched a legal action against the EU FTT proposal with the European Court of Justice (ECJ). The UK challenges the extraterritorial effects of the proposal, which it believes would infringe the rights and competences of non-participating member states and would depart from accepted international tax norms. In addition, the EU Council’s Legal Service issued a legal opinion in September 2013 finding one element of the Residence Principle of the EU FTT proposal unlawful. The European Commission produced in December 2013 a “non-paper” (a discussion paper that does not represent the official position of the body that drafted it), putting forward arguments why it deems the Residence Principle to be compliant with European and international law. Due to these disagreements, it is unclear how the EU FTT will proceed and when it will be implemented. In July 2013, the EC stated that the FTT could enter into force towards the middle of 2014, contingent on agreement in the Council before the end of 2013. Some observers believe it will be delayed even further because of the lack of agreement among participating states.

PoSSiBlE imPAcTS

The primary rationale of the EU FTT was to secure a “fair and substantial contribution” from financial institutions to cover the costs of the recent crisis and limit undesirable market behaviour. However, the current proposal would have significant harmful effects on financial markets and economies. It would penalise directly financial instruments that are used to manage business risks in the real economy and would therefore be detrimental to growth. The wide scope of the proposal would lead to higher transaction costs and higher costs of capital and funding for all market participants, including governments. Much of the cost of the tax would be passed on to end-users of financial services. Considering that the FTT is a gross tax, charged on each leg of the transaction, the impact would be substantial, in particular for investments by investment funds and funded providers of pensions. Industry associations say that asset values would be significantly reduced by the tax. A study by Oliver Wyman, commissioned by the Association for Financial Markets in Europe (AFME), estimates a one-off decline in asset values of EUR 425-445 billion.

Most of the financial instruments and transactions in scope are used by banks and companies to hedge their risks and raise funds. The EU FTT would therefore badly affect the market for short-term hedging instruments and increase costs for companies, which therefore might either reduce hedging, or opt for less business risk. The tax would substantially affect bank-funding capabilities, especially short-term money market financial instruments. Short-term repos would become expensive and would largely disappear. Furthermore, as transactions with the ECB would be exempt, the tax would increase the role of the ECB. Handling the EU FTT will be operationally complex due to its envisaged wide scope meaning there could be a high risk of involuntary non-compliance.

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The EU FTT would significantly reduce market liquidity in financial instruments. In addition to increased spreads and higher capital and funding costs, it would also have negative consequences for the liquidity value of financial instruments and the extent to which they could be used for hedging purposes. The tax would increase funding costs on sovereign bond markets. The imposition of the tax on secondary trading would result in reduced market liquidity and, consequently, higher funding costs for governments. The imposition of the tax on repos would cause another challenge, as primary dealers and market makers in sovereign bonds rely in a large part on repo funding (primarily overnight), which would be rendered very expensive by the FTT. As a result, some primary dealers may be forced to consider whether they are able to continue to act in that capacity. When an FTT was introduced in France and Italy trading volumes fell by as much as 30%, volatility increased and at the same time there was a reduction in market depth, resiliency, and price efficiency. Despite the fact that only 11 EU states plan to introduce the EU FTT, non-participating EU states and non-EU countries will be affected due to the extraterritorial effects of the proposal. The tax would have a high compliance and operational impact, resulting in an increase in costs for financial institutions and clients and savers in those countries. Furthermore, the introduction of such a tax will imply a competitive disadvantage for those 11 countries vis-à-vis their EU peers and also the rest of the world.

EfR REcommEnDATionS

• The EfR urges the 11 participating member states and the European commission to cancel the proposed Eu financial Transaction Tax.

• The tax would not achieve its intended goals and would have significant harmful effects on financial markets and economies, putting Europe at a competitive disadvantage.

• Policymakers should consider that similar taxes in the uk, Sweden and Switzerland have led to capital outflows, reduced trading activities, less liquidity and created distortions in markets.

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Financial statements aim to present a true and fair picture of a company’s performance and net assets to management, shareholders, lenders, regulators and others. Transparency, consistency, and comparability of accounting information across countries and industries allows providers of capital and credit to make informed decisions on the allocation of funds. Robustness of performance reporting aligned with the specificities of a company’s business model provides management with a sound basis for performance reporting.

For over a decade, international accounting standard-setters have been working on establishing a single set of accounting standards that can be used internationally, with a focus in particular on efforts to reduce the differences between International Financial Reporting Standards (IFRS), which are set by the International Accounting Standards Board (IASB), and the US Generally Accepted Accounting Principles (US GAAP), set by the Financial Accounting Standards Board (FASB) in the US. IFRS originated in Europe, was adopted in 2005 and has since become a requirement in many countries around the world. While the US Securities and Exchange Commission (SEC) has said it intends to move from US GAAP to IFRS, progress has been slow and very much uncertain. In July 2012 the SEC issued a report on IFRS and US GAAP and gave no clear indication on how convergence would occur. The US should be encouraged to continue making progress. Negotiations between the EU and US on a Transatlantic Trade and Investment Partnership (TTIP) agreement might provide a good opportunity to align US and international accounting standards. However, convergence must not be detrimental to the substance of the standards.

Transparent and consistent financial accounting information is vital for capital markets to function effectively. Sound reporting performance is critical for well-advised management decisions. The IASB and FASB have been developing a new common valuation framework for insurance contracts. Together they have also sought to update existing accounting standards for assets and other financial instruments, which make up the majority of insurers’ investments. The key thrust of the proposed reform is to move towards an economic valuation of both assets and liabilities, marking assets to market prices and measuring liabilities using a discounted cash flow-based approach.

The EFR welcomes the Maystadt report (September 2013) and the preliminary recommendations for enhancing the EU’s role in promoting high quality accounting standards. One of the main recommendations is to transform the European Financial Reporting Advisory Group (EFRAG) so that the public policy voice is embedded in the decision-making process. Furthermore, reflection on the conceptual framework should be favoured and financial resources should be attributed to fund strong research. Accounting standards should provide a fair view of business models and be designed not only for short-term investors but also long-term investors. Long-term financing investors need to have an adequate measurement of the value of their investment.

In June 2013, a revised exposure draft (ED) on insurance contracts was issued by the IASB, which has indicated that a final standard will be issued in the first half of 2015. The expected effective date will be January 2018. It is not aligned with IFRS 9, the accounting standard on financial instruments (expected to become effective in 2015 or 2016). Also still unresolved is the possible carve out for macro hedge accounting requirements.

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PoSSiBlE imPAcTS

A single set of high quality accounting standards would make it much easier to compare accounts of companies across the world, thereby improving transparency for investors, regulators, consumers and other interested parties. Furthermore, it would create a level playing field and help increase trade and investment between countries. If the US converged to IFRS, or at least allowed companies to use IFRS, it would significantly reduce costs for companies active in the US

The insurance sector believes that as international accounting standards are developed they should accurately reflect the long-term nature of insurance business. It is of paramount importance that standards on financial instruments are aligned with standards on insurance contracts. Non-alignment and inconsistency of accounting treatment between assets and liabilities would lead to unjustified volatility and mismatches in performance reporting.

The IASB’s ED on Financial Instruments Classification and Measurement for insurance companies introduces much more measurement at fair value and more accounting mismatches than in other industries, including banks. It introduces two sources of volatility in the profit & loss account (P&L): the first of these are accounting mismatches resulting from inconsistency between liability and asset measurements taken in isolation; the second are the short-term market fluctuations, part of which would be recorded in the P&L. As currently drafted, the ED and its interaction with the proposed IFRS 9 standard is not appropriate as it will not provide a suitable basis for explaining insurers’ business performance to investors.

EfR REcommEnDATionS

• The Eu should reform the governance of the European financial Reporting Advisory group (EfRAg) so that private sector and national stakeholder interests are fully taken into account in a transparent decision-making process that is aligned to the objective of global convergence.

• The iASB’s exposure draft on insurance contracts should not introduce permanent mismatches between the valuation of assets and liabilities. The insurance industry is working on an alternative proposal which would create a single accounting model for all insurance contracts using different ways (fair value through Other Comprehensive Income account – OCI– or fair value through P&L) to achieve a common goal in terms of performance depending on the contracts and the way they are managed. Shifting towards a more economic valuation of assets and liabilities should, in principle, help to illuminate the full costs of providing insurance, including the cost of capital required to support the business.

• Accounting authorities should be encouraged to continue trying to converge the international and uS accounting systems and to ensure that joint efforts to make standards more compatible are of high quality, workable and are able to reflect all business models. The envisaged TTIP may offer fresh impetus to address some of the remaining obstacles. The SEC could consider the optional use of IFRS by US companies, and provide a clear schedule for the gradual adoption of IFRS. It is also important that there are clear and common rules on impairments of financial instruments. If full convergence is not achievable in the short-term it is essential that differences between the two standards do not have an adverse impact.

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International trade boosts company revenues and profits, fosters competition between businesses, creates jobs, stimulates economic growth, gives consumers more choice, boosts returns to company shareholders and provides many other benefits. The 2008 financial crisis contributed to a slowdown in global trade volumes but efforts to revitalise cross-border business through multilateral, regional and bilateral agreements and partnerships have yielded results.

The Ninth World Trade Organisation (WTO) Ministerial Conference held in Bali, Indonesia, in December 2013, breathed life back into the Doha round. Ministers agreed a series of decisions aimed at streamlining trade, allowing developing countries more options for providing food security and boosting least-developed countries’ trade. Work has also started on a plurilateral agreement (an agreement between more than two countries or trading blocs, but not involving all WTO members) on trade in services.

In February 2013, the EU and US agreed to start discussions on a Transatlantic Trade and Investment Partnership (TTIP). This aims to eliminate barriers to trade and investment and to deepen economic integration between the world’s two largest trade blocs. The EU-US High Level Working Group on Jobs and Growth has been looking at ways of increasing transatlantic trade and investment to support job creation, economic growth, and international competitiveness. It has concluded that a comprehensive agreement to address a range of bilateral trade and investment issues, including regulation, would be mutually beneficial.

Tariffs between the EU and US are low (around 3% on average), so the focus is on tackling non-tariff barriers, such as customs procedures and regulatory restrictions on goods and services. The European Commission cites independent research demonstrating that TTIP could boost the EU’s economy by EUR 120 billion, the US economy by EUR 90 billion and the rest of the world by EUR 100 billion. Financial services are the lifeblood of transatlantic commerce, facilitating nearly USD 1 trillion in annual trade flows as well as USD 3.7 trillion in total cross-border investment. Several rounds of TTIP negotiations took place in 2013 but so far no agreement has been reached on the inclusion of financial services. Both sides have said they will discuss financial services but it is unclear what the parameters will be – the discussions could be limited to market access, and exclude financial regulation.

Creating access to affordable and workable trade finance is as important as removing barriers to trade. Trade finance provides important liquidity and risk mitigation benefits which are especially important for smaller companies, so the right regulatory treatment is essential. Data from the International Chamber of Commerce indicates that trade finance supported USD 18 trillion in global commerce in 2011, underpinning around 30% of world trade. Trade finance is one of the safest forms of finance because of its short-term, self-liquidating and transactional nature. Out of nearly 8.1m short-term trade finance transactions between 2008-2011, fewer than 1,800 defaulted, only about 0.02%.

European policymakers have so far set a positive example by recognising the low-risk liquid nature of trade finance and adjusting the prudential calibration of certain capital and liquidity provisions within the Capital Requirements Directive (CRD) IV, and this has been accepted recently at the international level. For example, a recent Basel Committee proposal on the leverage ratio reduces the leverage requirement for such products, recognising the importance of trade finance for growth.

N. TRADe

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PoSSiBlE imPAcTS

The most substantial gains in world trade are to be made in tackling non-tariff regulatory barriers. For the financial services sector, there is the hope that the envisaged TTIP between the EU and the US will address outstanding concerns over market access and regulatory coordination, in particular for cross-border firms affected by legislation with extra-territorial implications. EU policymakers support this aim. Reducing or eliminating unnecessary regulatory differences that increase the cost of financial services would benefit not only the financial sector but all sectors involved in transatlantic trade and investment.

Legislative initiatives on structural reforms such as the Volcker rule or the recent draft issued by the European Commission could have unintended consequences in financial markets. To be more precise, an unlevelled playing field can hinder financing to the real economy and therefore affect the trade relations between the EU and the US.

EfR REcommEnDATionS

• Trade agreements should aim to include as many countries as possible to maximise the economic benefits. It is important that free trade agreements are seen as steps towards more harmonised and coordinated trade at the multilateral, or at least plurilateral level. Regulators and financial services firms should monitor how the Basel III and CRD IV rules on capital could reduce the supply of trade finance.

• financial services regulation and market access should be included in the Eu/uS Transatlantic Trade and investment Partnership (TTiP) in order to improve access to capital and boost economic growth. The TTIP should be viewed as an opportunity to ensure that global regulatory initiatives being developed by the G20 and the FSB are being implemented in a compatible manner on both sides of the Atlantic.

• Regulators should monitor the impact of prudential rules on the supply of trade finance and, if necessary, review their calibration. Before new rules are introduced the impact should be carefully assessed to avoid a reduction in the supply of trade finance.

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ABI Association of British InsurersAFME Association for Financial Markets in EuropeAIFMD Alternative Investment Fund Managers DirectiveAQR Asset Quality ReviewBCBS Basel Committee on Banking SupervisionBCR Basic Capital RequirementBRRD Bank Recovery and Resolution DirectiveCCP Central CounterpartiesCFTC US Commodity Futures Trading CommissionCOMFRAME Common Framework for the Supervision of Internationally Active Insurance GroupsCOREP Supervisory Reporting Framework of Common ReportingCRD IV Capital Requirements DirectiveCRR Capital Requirements RegulationCSD Central Securities DepositoriesCSDR Central Securities Depository RegulationDGSD Deposit Guarantee Scheme DirectiveEBA European Banking AuthorityEBF European Banking FederationEC European CommissionECB European Central BankECJ European Court of JusticeECON Economic and Monetary Affairs CommitteeECP Enhanced Cooperation ProcedureED Exposure Draft on Insurance ContractsEFR European Financial Services Round TableEFRAG European Financial Reporting Advisory GroupEIF European Investment FundEIOPA European Insurance and Occupational Pensions AuthorityEMIR European Markets Infrastructure RegulationEP European ParliamentESA European Supervisory AuthoritiesESM European Stability MechanismESMA European Securities and Markets AuthorityESRB European Systemic Risk BoardEU European UnionEU FTT European Union Financial Transaction TaxFASB Financial Accounting Standards BoardFINREP Supervisory Reporting Framework of Financial ReportingFMI Financial Market InfrastructuresFSB Financial Stability BoardFSOC Financial Stability Oversight CommitteeFTT Financial Transaction TaxG20 Group of 20: the 20 most economically developed countriesGDP Gross Domestic ProductGI General InsuranceG-SII Global Systemically Important InsurersHLA Higher Loss AbsorbencyHLEG High-level Expert GroupIAIG Internationally Active Insurance GroupsIAIS International Association of Insurance Supervisors

ANNex I : ABBRevIATIONS

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IASB International Accounting Standards BoardICS Insurance Capital StandardIFRS International Financial Reporting StandardsIIF Institute of International FinanceIMD2 Revision of the Insurance Mediation DirectiveIMF International Monetary FundIORP II Revision of Directive on Institutions for Occupational Retirement ProvisionIOSCO International Organisation of Securities CommissionsLTI Long-Term InvestmentMiFID II Revision of the Markets in Financial Instruments Directive MMF Money Market FundsMtoM Marked-to-MarketOTC Over-the-Counter P&L Profit & LossPAYG Pay-as-you-go pension schemesPCS Prime Collateralised SecuritiesPRIPS Packaged Retail Investment ProductsSEC US Securities and Exchange CommissionSIFI Systemically Important Financial InstitutionsSMEs Small and Medium-Sized EnterprisesSRB Single Resolution BoardSRM Single Resolution MechanismSSM Single Supervisory MechanismSST Swiss Solvency TestTR Trade RepositoriesTTIP Transatlantic Trade and Investment Partnership AgreementUCITS Undertakings for Collective Investment in Transferable SecuritiesUS GAAP US Generally Accepted Accounting PrinciplesWTO World Trade Organisation

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The European Financial Services Round Table (EFR) was formed in 2001. The Members of EFR are Chairmen and Chief Executive Officers of international banks or insurers with headquarters in Europe.

EFR Members believe that a fully integrated EU financial market, a single market with consistent rules and requirements, combined with a strong, stable and competitive European financial services industry will lead to increased choice and better value for all users of financial services across the member states of the European Union. An open and integrated market reflecting the diversity of banking and insurance business models will support investment and growth, expanding the overall soundness and competitiveness of the European economy.

Increased fragmentation as a result of the post-crisis regulatory response underlines the need to safeguard the single market and to protect the level playing field. The EFR therefore strongly encourages national governments and the EU institutions to continue their efforts to create a truly single market for wholesale and retail financial services, which will play an essential role in providing long-term financing for the economy in Europe. Furthermore, strong market discipline is essential to ensure fairness and alignment of interests of the financial sector and the rest of the economy towards serving the citizens of Europe and the world.

The integration of financial markets does not stop at the EU’s borders – markets are increasingly global. EFR Members therefore encourage both national and European leaders to establish internationally consistent and coherent financial regulation and supervision and to support and promote free and open markets throughout the world.

As of March 2014, EFR Members’ companies combined represent

• Around 817 million customers 3

• Around 1.8 million employees• e18.76 trillion total assets• e11.53 trillion assets under management

ANNex II : efR’S vISION

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3 Please note that double counting of customers may occur.

walter B. kielholzEFR Chairman and Chairman of the Board of DirectorsSwiss Re Ltd.

Baudouin ProtEFR Vice-Chairman andChairman of the BoardBNP Paribas

Paul Achleitner Chairman of the Supervisory BoardDeutsche Bank AG

Sergio BalbinotChairmanGenerali Italia

henri de castriesChairman of the Axa Group Management Board and CEOAXA

Jean-Paul chiffletChief Executive Officer Crédit Agricole SA

michael DiekmannChairman of the Board of ManagementAllianz SE

Annika falkengrenPresident and CEOSEB Group

Douglas flintGroup ChairmanHSBC

federico ghizzoniChief Executive Officer UniCredit Group

francisco gonzálezChairman and CEOBBVA

Ralph hamersChairman of the Executive Board and CEOING Group

Sir Philip hampton Chairman The Royal Bank of Scotland Group plc

Antonio huertas mejíasChairman and CEOMAPFRE

Javier marín RomanoChief Executive Officer Banco Santander

John mcfarlane ChairmanAviva plc

urs RohnerChairman of the Board of DirectorsCredit Suisse Group

martin SennChief Executive Officer Zurich Insurance Group

Tidjane ThiamGroup Chief ExecutivePrudential plc

Björn wahlroos ChairmanNordea

Axel weberChairman UBS

Alex wynaendtsCEO and Chairman of the Executive BoardAEGON NV

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ANNex III : MeMBeRS Of THe efR

efR – european financial Services Round Table (asbl)Rond point Schuman 11

B-1040 BrusselsBelgium

Tel: +32 2 256 75 23fax: +32 2 256 75 70

secretariat@efr.bewww.efr.be

Siège socialRue Royale 97

B-1000 BrusselsBelgium

RpM Bxl 0861.973.276