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Saturday, 27th April 2024 |
| CEBS - is total convergence really achievable? |
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| As the implementation of the Capital Requirements Directive approaches, Debra McCarthy asks, is the convergence of supervisory practise and transposition of Community Directives sought by CEBS really possible? |
The regulatory framework of the Irish banking industry has been shaped by the European agenda for some time now. We are well-accustomed to a steady stream of EU Directives ranging from the Financial Conglomerates Directive to the Market Abuse Directive. However, national authorities have maintained a degree of flexibility and control over how these Directives are implemented and, ultimately, their implications for the national market. This is set to change through initiatives such as Committee of European Banking Supervisors (CEBS). | | Debra McCarthy |
CEBS, established in 2003, pursuant to the European Commission decision of 5 November 2003, comprises high level representatives from the banking supervisory authorities and central banks of the European Union. It is the only institutional body that brings together all of the banking supervisory authorities and central banks of the 28 countries in the European Economic Area. The European Commission and European Central Bank also participate as observers.
Transposition of an EU Directive into national legislation is controlled by the national authorities. Combined with the numerous discretions often contained in Directives, this has led to significant divergences in how the text of a Directive is interpreted and applied across European jurisdictions. One pertinent example which is currently under the spotlight of the European Commission is the Deposit Guarantee Scheme Directive. The various options permitted in this Directive have led to major differences in how the schemes are operated across Europe despite the fact that these schemes were established under the auspices of a single EU Directive.
CEBS aims to address this situation. Its primary mandate is to contribute to the consistent implementation of Community Directives and to the convergence of Member States’ supervisory practices throughout the Community.
The fast-approaching implementation of the Capital Requirements Directive (CRD) would be the first major road-test of CEBS’s convergence mandate. The CRD sets out new rules for banks and investment firms aimed at aligning financial institutions’ capital more closely with the risks. In addition to issuing guidance on various aspects of the Directive, CEBS is also actively involved in a number of ancillary projects to coincide with its implementation. Two such projects are CEBS’s proposals for a standardised prudential reporting package and a standardised financial reporting package to be applied across Europe.
The proposal of the standardised reporting packages is a logical and welcome development. Institutions across Europe adhere to the same capital adequacy requirements as set out in the Capital Adequacy Directive, soon to be amended by the CRD. However, the manner in which institutions report their capital adequacy differs across jurisdictions.
CEBS has produced a reporting template which, if implemented, would mean that the capital adequacy information and the manner in which this data is presented to national regulators would be consistent across Europe. Similarly, the financial reporting package aims to standardise how institutions report financial information to regulators.
The principal of convergence is welcomed by the IBF but the proposed packages have tended to emphasise an ‘all-practice’approach rather than a ‘best-practice’approach. Rather than harmonising the varying reporting requirements, the proposed packages appear to be an amalgamation of all the various reporting requirements of European regulators. This is not true convergence as its fails to produce agreement on a common point.
‘Implementation of the new international accounting standards (IFRS) and the proposed CRD provide the EU with a unique opportunity to harmonise the framework for supervisory reporting, as all institutions and authorities need to make changes to their systems,’said Jos? Mar?a Rold?n, CEBS Chair, speaking in May.
CEBS has postponed issuing a second paper on prudential reporting and unless all regulators are willing to diverge from current practices to agree an acceptable Europe-wide practice, the financial reporting package may also be delayed.
The IBF recognises that convergence of European practices is no easy task, but much more needs to be done to make true convergence possible. |
Debra McCarthy is a research analyst with the Irish Bankers Federation.
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| Article appeared in the October 2005 issue.
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