A proposed EU crackdown on the ability of banks outside the EU to sell services into the bloc is intended to focus on “core” banking, a senior EU official said, in words that will ease industry concerns that Brussels is pursuing more wide-ranging restrictions.
Valdis Dombrovskis, EU executive vice-president, said it would be up to the bloc’s council of ministers and the European parliament to clarify the scope of the rules as they thrash out the legislation in coming months. But he stressed that the provisions contained in legislation proposed by the commission “were designed first and foremost to cover core banking services”.
He added: “The provision of core banking activities is conditional on having an establishment in a member state, meaning a branch or subsidiary . . . it must be said that implicitly those requirements were de facto there already.”
The clampdown on cross-border sales is part of the commission’s latest rules on bank capital requirements, which will give a legal basis to the global Basel III bank capital standards. Among the provisions are new powers for regulators to require banks to turn some branches into more closely supervised subsidiaries, coupled with stricter rules on what services can be sold by non-EU groups without any physical branch or subsidiary in the union.
The latter provisions have sparked the most concern among banks’ lawyers and lobbyists because the framing of the draft legislative proposals by the commission appears to stop almost all cross-border selling from non-EU countries into the bloc’s single market. That might encompass investment banking and other markets activities covered by separate rules in the Markets in Financial Instruments Directive, and not only mainstream banking activities such as lending and deposit taking.
Brussels’ proposals are meant to strengthen a general EU requirement that banks from elsewhere should have either a branch or a legal entity in a member state where they wish to do business.
The national access regimes in Ireland and Luxembourg are among the most flexible in the EU. Luxembourg typically only requires a licence if the provider of a service is physically in the country, while Ireland allows most activities on a cross-border basis as long as they do not involve retail clients.
Some bankers and lobbyists think the EU inadvertently drew the provisions contained in the Basel III package too loosely, and that it has been signalling that the door is open for the language to be narrowed.
The commission intended the drafting to “implicitly” exclude markets activities covered by the Mifid regulations, which permit cross-border selling, said one lobbyist. “Anything that makes it not as aggressive would . . . be helpful,” said a senior executive at one large international bank.
“It will now be up to member states and the European parliament to take these proposals forward to clarify the scope of application,” said Dombrovskis.
The banking package, he added, “brings about clarity under which third country firms may offer banking services within the EU, which will ensure there is an equal footing for all market players, and that our supervisors have the necessary tools to protect the financial stability of the union and its member states”.
The new EU provisions have also attracted close scrutiny in other jurisdictions. Sam Woods, the head of the Bank of England’s Prudential Regulation Authority, recently said the UK would not engage in a “tit-for-tat” game of restricting market access for EU groups.
Additional reporting by Martin Arnold in Frankfurt