Wednesday

1st Dec 2021

British EU commissioner causes controversy on banking reform

  • Jonathan Hill - his letter was sent to Frans Timmermans on 18 November (Photo: European Parliament)

Financial services commissioner Jonathan Hill has named three pieces of legislation that he believes ought to be scrapped, but his choice has sparked criticism among MEPs.

In a letter dated 18 November and seen by EUobserver, Hill wrote that "for this commission to be different, and truly political in its work, I fully agree with you that we focus on priorities."

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The letter was sent to Frans Timmermans, the commission vice-president in charge of better regulation and copied to two other economics vice-presidents: Jyrki Katainen and Valdis Dombrovskis and to the commission's secretary general, Catherine Day. Its authenticity has been confirmed by the EU commission.

Timmermans has asked all commissioners to send him a list of priorities and pending laws that may be ditched, in an effort to cut red tape.

Hill mentions three pieces of legislation that caught his attention - one on "investor compensation schemes" to be withdrawn immediately, two others on "occupational pension funds" and on "structural banking reform" possibly being recalled in the next years.

The British commissioner does not explain why he wants to ditch the "investor compensation schemes", but EUobserver understands that the bill, dating back to 2010, is anyway all but dead due to a lack of consensus among member states.

The proposal was made by Hill's predecessor Michel Barnier in response to the Madoff scandal in 2008, when the US wealth management fund ran by Bernard Madoff turned out to have been an elaborate Ponzi scheme which gambled away people's money.

Under the 2010 bill, Barnier wanted to set minimum standards for the 39 different investor compensation schemes across the EU that investors can call upon when firms like Madoff's engage in fraud or negligence.

The proposal envisaged an increase of the minimum level of compensation from €20,000 to €50,000 per investor and to make such payments much faster - from years to a maximum of 9 months after the investment firm's failure.

Hill then explains why he "keeps a close eye" on the other two pieces of legislation possibly being ditched next year.

On "occupational pension funds", a bill tabled in March by Barnier which seeks stricter rules on where pension funds are allowed to invest, the Italian presidency is seeking to reach an agreement in the next few weeks "so it would be odd to withdraw it now," said Hill.

"However, if there is no GA [agreement], and no pick up in the EP's interest in this, we should come back to this," he added.

Occupational pension funds are financial institutions which manage collective retirement schemes for companies, so that their employees get retirement benefits in addition to the compulsory state pension.

There are some 125,000 such funds operating across the EU, worth €2.5 trillion in assets and covering 75 million people.

The other bill that may be ditched next year is about "structural banking reform", also dating back to March 2014 and at the time labelled as the "missing piece" of the newly set up banking union.

"We need to see how much progress is made on the much bigger proposal on banking structural reform, where member states are pulling in different directions in opposition to it, so withdrawal could be an option next year if member state support does not pick up," Hill wrote.

EUobserver understands the UK opposes the bill because it has national rules that are stricter than the EU proposal. Meanwhile France and Germany have weaker rules which they don't want to toughen up.

But the timing of Hill's letter has raised allegations of ties to the UK and French banking sector, which is heavily lobbying against the bill.

Just a few days before Hill sent the letter to Timmermans, the British Bankers’ Association and the French Banking Federation jointly wrote to Timmermans to ask that the reform bill be withdrawn because it would harm capital markets and complicate the implementation of national laws.

Green Belgian MEP Phlippe Lamberts, who sits on the economics committee, sees a clear link, citing Hill's previous work as a lobbyist for the British financial industry.

"While we expected that Lord Hill would be sympathetic to the demands of the financial lobby to weaken financial regulation, given his background, it is nonetheless disturbing he is looking to go so far, so soon, with such a lack of subtlety," Lamberts told this website.

"The structural reform of the banking sector, and the proposed separation of banking activities, is one of the central elements of Europe's banking reforms and banking union. To suggest withdrawing this legislation at such an early stage is breathtaking," he added.

An EU commission official told EUobserver that Hill is "committed to taking the proposal forward at his hearings and stands by that commitment".

"Commissioner Hill will continue to work both with the EP and member states to help move negotiations forward and find a sensible pragmatic compromise – one which both meets the aims of financial stability, whilst supporting jobs and growth," the official added.

EU parliament gives final nod to banking union

MEPs on Tuesday signed off on the creation of a new authority and fund for failing banks – a missing element to the so-called banking union aimed at minimising the public cost of future financial crises.

UK commissioner deprived of power to oversee bankers' pay

The European Commission has played down suggestions that it had stripped the UK's commission candidate of responsibility for policing the EU's bank bonus rules, insisting that the decision had been taken before he was nominated.

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