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Divergences between EU and US in the Financial Regulation

What Effects on the TTIP Negotiations?

Published online by Cambridge University Press:  20 January 2017

Sara Pugliese
Sara Pugliese*
Affiliation:
University of Naples “Parthenope”
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Extract

Financial regulation is an issue where differences between the EU and US are highly sensitive. Indeed, EU and US apply in a different manner the financial standards adopted at international level by the Basel Committee and have different systems of financial supervision.

Due to these significant differences between the two systems, it is very difficult for the EU and US to reach an agreement on common financial standards within the TTIP negotiations. Actually, as the differences in regulation between the two systems are an obstacle to the access of the financial operators of each Party to the market of the other Party, the absence of common standards in this sector could nullify the efficacy of norms of market access that will be probably contained within the TTIP.

Moreover, in a risk regulation perspective, considering the weight that the US and EU financial relationship have on the global system and taking account of the effect of destabilization that could be generated by the divergent requirements imposed to the credit institutions on the two sides of the Atlantic, the lack of common financial standards between the EU and US could have a great impact on global financial stability.

Type
Symposium on TTIP Leaks
Information
European Journal of Risk Regulation , Volume 7 , Issue 2 , June 2016 , pp. 285 - 289
Copyright
Copyright © Cambridge University Press 2016

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References

1 See Basel Committee on Banking Supervision, “International convergence of capital measurement and capital standards”, July 1988; Basel Committee on Banking Supervision, “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”, June 2004; Basel Committee on Banking Supervision, “Basel III: A global regulatory framework for more resilient banks and banking systems”, December 2010 (rev June 2011) and all the integrating documents available on the Internet at <https://www.bis.org/bcbs/> (last accessed on 15 June 2016). On the Basel agreements, Atik, Jeffery, “Basel II: A Post–Crisis Post–Mortem”, 19 Transnational Law and Contemporary Problems (2011), pp. 731 et sqq. Google Scholar; Delimatsis, Panagiotis, “Financial Innovation and Prudential Regulation: The New Basel III Rules”, 46 Journal of World Trade (2012), pp. 1309 et sqq Google Scholar.

2 The principal instruments to obtain this balance are the so called minimum reserves.

3 These tools consists in two ratios (The Liquidity Coverage Ratio and the Net Stable Funding Ratio). The same aim is pursued by the so called “countercyclical buffers”, that are supplementary reserves useful to face unexpected shock.

4 See Basel Committee on Banking Supervision, “Charter”, January 2013, art. 3, available on the Internet at https://www.bis.org/bcbs/charter.htm (last accessed on 15 June 2016).

5 On the “osmotic” rapport between EU regulation and Basel standards, see Pugliese, Sara, “L’unione bancaria europea tra esigenze d coerenza interna e risposte alle sfide globali”, 19 Il Diritto dell’Unione europea (2014), pp. 831 et sqq. Google Scholar

6 Pub. L. 111–203 , H.R. 4173, July 21, 2010, pp. 124 STAT. 1376 et sqq.

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9 The “leverage ratio” is the index of indebtedness of a credit institute and is based on the ratio: total amount of credit institutes activities/credit institute's core capital. Jones, Erik and Maccartney, Huw, “TTIP and the “finance exception”: Venue–shopping and the breakdown of financial regulatory coordination”, 17 Journal of Banking Regulation (2016), pp. 4 et sqq, at p. 15 et sq.Google Scholar

10 Basel Committee on Banking Supervision, “Basel III”, supra note 1, pp. 61 et sqq.

11 Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, OJ 2013 L 176/1; Commission Delegated Regulation (EU) 2015/62 amending Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to the leverage ratio, OJ 2015 L 11/37.

12 Puccio, Laura, Le PTCI et la réglementation des marches financiers. Autonomie réglementaire contre fragmentation, (Bruxelles : Service de recherché du Parlement européen 2015), pp. 12 et sqq.Google Scholar

13 Commission Proposal for a Regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions Brussels, COM (2014) 43.

14 Ch. 6, 38 Stat. 251, enacted December 23, 1913.

15 Pub.L. 73–66, 48 Stat. 162, enacted June 16, 1933.

16 Pub.L. 106–102, 113 Stat. 1338, enacted November 12, 1999.

17 The Financial Service Modernization Act conferred to the system a four level structure: Board of Governors, composed by seven members appointed by the President after approval by the Senate, with a function of monetary and supervision policy; the Federal Open Market Committee, composed by the members of the Board and by the 12 Presidents of the Federal Reserve Banks; the 12 Regional Federal Reserve Banks; the Boards of Directors of Federal Reserve.

18 Kathryn C. Lavelle, “The Foundations of Regulatory Convergence and Divergence Between the Federal Reserve and European Central Bank”, supra note 8, at pp. 1141 et sqq.

19 Council Directive 83/350/EEC, OJ 1983 L 193/18; Council Directive 92/30/EEC, OJ 1992 L 110/52; Directive 2000/12/EC of the European Parliament and of the Council, OJ 2000 L 126/1; Directive 2006/48/EC of the European Parliament and of the Council, OJ 2006 L 177/1; Directive 2013/36/EU of the European Parliament and of the Council, OJ 2013 L 176/338 .

20 Regulation (EU) No 1093/2010 of the European Parliament and of the Council establishing a European Supervisory Authority (European Banking Authority), OJ 2010 L 331/12; Regulation (EU) No 1094/2010 of the European Parliament and of the Council establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), OJ 2010 L 331/48; Regulation (EU) No 1095/2010 of the European Parliament and of the Council establishing a European Supervisory Authority (European Securities and Markets Authority), OJ 2010 L 331/84.

21 Council Regulation (EU) No 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ 2013 L 287/63. Sarcinelli, Mario, “The European Banking Union: Will It Be a True Union Without Risk Sharing?”, 66 PSL Quarterly Review (2013), pp. 137 et sqq. Google Scholar; Lastra, Rosa M., “Banking Union and Single Market: Conflict or Companionship?”, 36 Fordham International Law Journal (2013), p. 1190 et sqq.Google Scholar

22 Art. 6, § 4-6. Schuster, Gunnar, “The Banking Supervisory Competencies and Powers of the ECB”, in 25 Europäische Zeitschrift für Wirtschaftsrecht (2014), pp. 3 et sqq.Google Scholar; Neumann, Kerstin, “The supervisory powers of national authorities and cooperation with the ECB – a new epoch of banking supervision”, 25 Europäische Zeitschrift für Wirtschaftsrecht (2014), pp. 9 et sqq.Google Scholar

23 Regulation (EU) No 1022/2013 of the European Parliament and of the Council amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013, OJ 2013 L 287/5. Gurlit, Elke, “The ECB's relationship to the EBA”, in 25 Europäische Zeitschrift für Wirtschaftsrecht (2014), pp. 14 et sqq, at p. 16 et sqq.Google Scholar

24 Regulation (EU) No 806/2014 of the European Parliament and of the Council establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, OJ 2014 L 225/1.

25 Commission Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme, COM (2015) 586.

26 Iglesias–Rodríguez, Pablo, The Accountability of Financial Regulators. A European and International Perspective, (Alphen aan den Rijn: Wolters Kluwer Law & Business, 2014).Google Scholar

27 Directive 2014/49/EU of the European Parliament and of the Council on deposit guarantee schemes, OJ 2014 L 173/149. Directive fastens at 100.000 euro the deposit guarantee limit. Buonanno, Laurie, “Financial services regulation and the Transatlantic Trade and Investment Parnership Agreement”, 14 Journal of Transatlantic Studies (2015), pp. 1 et sqq.Google Scholar

28 Chiu, Iris H.–Y., “Regulating Credit Rating Agencies in the EU: In Search of a Coherent Regulatory Regime”, 25 European Business Law Review (2014), pp. 269 et sqq. Google Scholar; Alexander, Kern, “The Risk of Rating in Capital Regulation”, in 25 European Business Law Review (2014), pp. 295 et sqq.Google Scholar

29 On the potential effects of banking union on TTIP negotiations, Lannoo, Karel, “The New Financial Regulatory Paradigm: A Transatlantic Perspective”, CEPS Policy Briefs No 287, 21 March 2013, pp. 1 et sqq.Google Scholar; Sara Pugliese, L’unione bancaria europea, supra note 5, pp. 859 et sqq.

30 For an example of US extraterritorial norms, Title VII of Dodd–Frank Act. For the EU extraterritorial rules, Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, OJ 2012 L 201/1 (so called EMIR), art. 4, § 4. See also Commission Delegated Regulation (EU) No 285/2014 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on direct, substantial and foreseeable effect of contracts within the Union and to prevent the evasion of rules and obligations, OJ 2014 L 85/1. Greene, Edward F. and Pothia, Ilona, “Issues in the Extraterritorial Application of Dodd–Frank's Derivatives and Clearing Rules, the Impact on Global Markets and the Inevitability of Cross–Border and US Domestic Coordination”, 8 Capital Market Law Journal (2013), pp. 338 et sqq CrossRefGoogle Scholar. McKinstry, Lucy, “Regulating a Global Market: The Extraterritorial Challenge of Dodd–Frank's Margin Requirements for Uncleared OTC Derivatives & A Mutual Recognition Solution”, 51 Columbia Journal of Transnational Law (2013), pp. 778 et sqq.Google Scholar; Coffe, John.C. Jr, “Extraterritorial Financial Regulation: Why E.T. Can't Come Home”, European Corporate Governance Institute (ECGI) – Law Working Paper n. 236/2014, pp. 1 et sqq.Google Scholar

31 Really the first EU approach was more ambitious. See DG Trade della Commissione europea, “EU – US Transatlantic Trade And Investment Partnership (TTIP). Cooperation on financial services regulation”, 27 January 2014, available on the Internet at http://trade.ec.europa.eu/doclib/docs/2014/january/tradoc_152101.pdf (last accessed on 15 June 2016).

32 The leaked documents are available on the Internat at https://www.ttip-leaks.org/ (last accessed on 15 June 2016).

33 “The US chapter on financial services covers only financial service suppliers, which are regulated and supervised as financial institutions (all other financial services suppliers are covered in the investment chapter), whereas the EU chapter covers all categories of financial service suppliers”.

34 “The EU prudential exception includes a necessity test as opposed to the US proposal which includes an anti–circumvention test as in the GATS”. The necessity test has already been introduced within the prudential carve–outs included into the EU–Singapore Agreement (Art. 8.50), May 2015, available on the Internet at http://trade.ec.europa.eu/doclib/press/index.cfm?id=961 (last accessed on 15 June 2016), and into EU–Vietnam Agreement (p. 82), January 2016, available on the Internet at http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437 (last accessed on 15 June 2016). On the prudential carve–out within the TTIP, Barbee, Inu and Lester, Simon, “Financial Services in the TTIP: Making the Prudential Exception Work”, 45 Georgetown Journal of International Law (2014), pp. 954 et sqq.Google Scholar

35 In particular, “the US continues to oppose discussing this issue in TTIP, whereas the EU confirmed that its mutual access offer for Financial Services hinges upon the US satisfactory engagement in regulatory cooperation”. The specificity of the regulatory cooperation in the financial sector is confirmed by the document “Initial Provisions For Chapter [ ] [EU: Regulatory Cooperation] [US: Regulatory Coherence”, Art. X-23 (EU: Establishment of the Regulatory Cooperation Body: 3.In the domain of financial services as set out under paragraph 2 (function of RCB) shall be performed by the ﹛Joint EU/US Financial Regulatory Forum (FRF)﹜, which shall ensure that appropriate information is given to the Regulatory Cooperation Board. Any decisions concerning financial services should be taken by the competent authorities acting within the framework of the FRF”. See also European Commission, Report of the 13th Round of Negotiations for the Transatlantic Trade and Investment Partnership (New York, 25-29 April 2016), pp. 1 et sqq, at p. 5Google Scholar, available on the Internet at http://trade.ec.europa.eu/doclib/docs/2016/may/tradoc_154581.pdf (last accessed on 15 June 2016). It is to remember that since 2002 the EU and US conduct a “soft” cooperation on financial service regulation within the EU–US Financial Markets Regulatory Dialogue. On the difficulty to conciliate EU and US regulatory methods and procedures, Parker, Richard and Alemanno, Alberto, “Towards Effective Regulatory Cooperation under TTIP: A Comparative Overview of the EU and US Legislative and Regulatory Systems”, CEPS Special Reports 88, 15 May 2014, pp. 1 et sqq.Google Scholar

36 Ecorys, , Trade SIA on the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the USA Draft Interim Technical Report, (Brussels: European Commission), May 2016, pp. 333 et sqq., at p. 373 et sqq.Google Scholar