Financial Services UK

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This week, EU legislators, at the last plenary session of the current Parliament, will push a bumper package of financial sector regulation over the line. The table below lists key directives and regulations relating to the regulation of financial services passed by the current European Parliament and identifies the seven that were signed off yesterday. This package more or less completes the EU's programme to deliver on the G20's post‑crisis commitments. Ahead of the parliamentary elections in May, we look back at what the current configuration of the European Parliament, Council and Commission has achieved over the past five years, and what business remains unfinished.

The aggregate impact on the financial services industry, particularly banking, of the thousands of pages of directives and regulations passed during the term of the current Parliament will be profound. The financial crisis fostered a “never again” mentality among legislators and most of the critical pieces of financial regulation planned and designed in response to it have now been adopted and launched. The regulations aim to reduce the riskiness of banking activities, increase the resilience of banks and other institutions, and make banks more resolvable, including ending “too big to fail”. The focus in achieving this has been on raising the quantity and quality of capital and liquidity, but in addition the EU has also made significant progress towards Banking Union, including creating the Single Supervisory Mechanism (SSM) for the Eurozone. Notwithstanding this progress, the full effects of this immense programme of re‑regulation have yet to be felt: capital, leverage and liquidity requirements are being phased in; central clearing of OTC derivatives has yet to start; the European Central Bank (ECB) won’t assume its new powers in relation to the SSM until November; and much of the huge amount of technical detail underpinning the new directives and regulations is still in the process of being written.

Great compromises: promises delivered?

The post‑crisis drive towards re-regulation of financial services, particularly banking, needs to be put into context. Between October 2008 and December 2012, Member States provided €0.6 trillion of capital support to the financial sector. In the aftermath of the financial crisis, central bank balance sheets expanded significantly as liquidity was extended to the banking system. For example, by 2010, as a proportion of GDP the Bank of England’s balance sheet was about as large as at any point in the past two centuries. By 2012, the ECB’s balance sheet was double the size it had been just before the crisis started.

During this period, the EU economy suffered a severe contraction, and concerns about sovereign indebtedness led to a precipitous rise in the perceived risk of the break-up of the Eurozone. It is against this background that this Parliament’s agenda has been dominated by financial services regulation.

The European Commission has brought forward an extensive package of proposals stemming from the G20 commitments aimed at strengthening regulation and supervision of the financial sector and providing an effective response to the financial crisis. This massive programme includes some ground-breaking changes for the regulation of banks, capital markets and insurance and much more besides. And the EU has gone beyond the G20 commitments in certain areas.

Key directives and regulations passed by the current Parliament:


Application from


Area of regulation



Solvency II

Prudential requirements for insurers


2014 (2015 for clearing obligation)

European Market Infrastructure Regulation

OTC derivatives reform


2012 (transitional provisions apply)

Single European Payments Area (migration end   date)

Payments system



Revision of Deposit Guarantee Schemes Directive**

Deposit guarantee schemes


2011/2013 (transitional provisions apply)

Revision of Credit Rating Agencies Regulation (CRA 2 and CRA 3)

Rating agencies



Capital Requirements Directive and Regulation (CRD IV package)

Prudential requirements for banks



Mortgage Credit Directive

Mortgage market



Omnibus 2 Directive (amendments to Solvency II Directive)

Prudential requirements for insurers



Revision of Markets in Financial Instruments Directive**  

Capital markets



Revision of Market Abuse Directive

Capital markets


2015* (2016* for bail-in provisions)

Bank Recovery and Resolution Directive**

Resolution regime for banks



Directive on Packaged Retail Investment Products**    

Retail investment market


2014* (transitional provisions apply)

Regulation on improving securities settlement in the EU and on central securities depositories**

Capital markets




Revision of Directive on undertakings for collective investment in transferable securities (UCITS V)**

Investment funds



Single Supervisory Mechanism

Banking Union



Single Resolution Mechanism Regulation**

Banking Union

* - estimated date
** - adopted on 15 April 2014

Progress has not been easy. Inevitably, difficult compromises have had to be made. This has been a bumpy road. And, depending on your point of view, the aggregate success of the programme has been mixed, as many of the initiatives have ended up in a form that is in some respects substantially different from the original vision.

The cornerstone of the banking sector reforms was the Basel III rules, translated at the EU level into the Capital Requirements Directive and Regulation (CRD IV). Along the way there were many areas of debate, including between Member States that wanted the package to represent minimum standards, leaving them discretion to go above them, and those which thought that they should deliver maximum harmonisation, constraining national discretion and pushing forward the single EU rulebook. In some areas the EU deviated from the requirements set out in Basel III, but these should not obscure the fact that the EU has delivered on the bulk of the G20 commitments, both in letter and spirit. In fact, the CRD IV package has introduced several extra measures not covered by Basel III, for example, more stringent regulation of corporate governance and remuneration, and the systemic risk buffer.

Unfinished business and new regulatory horizons

So, given all this activity, what is left for the new Parliament that will assume office in July?  

In January, the European Commission published a much delayed proposal for structural reform in the banking sector, a bitter EU cocktail which mixes three parts Volcker Rule and one part Vickers. The proposed regulation would put an end to proprietary trading (narrowly defined) and carries the prospect of some banks having to ring-fence their remaining trading activities. It is clear that the future legislative process on this one will not go smoothly, especially as the UK, Germany and France have already made their own laws in this area. Relatively few tears would be shed if the new Parliament and Commission decided not to take this proposal forward, although at this stage such an outcome looks unlikely.

An even more prominent (and controversial) piece of unfinished business is the Financial Transaction Tax (FTT). Even though the FTT will not be adopted by the EU as a whole, its impact will be felt well beyond those countries that do implement it.

Other dossiers likely to be carried over include those relating to the regulation of benchmarks, shadow banking, long-term finance and money market funds, as well as revisions to the Insurance Mediation Directive. All of these have already proved controversial in some respects. It will be essential to make sure that the initiatives on shadow banking and money market funds complement the efforts to diversify sources of long‑term finance for businesses, rather than undermine them.

Last, but by no means least, a great deal of the technical standards underpinning the new directives and regulations has still to be written.  These standards are critical, in that until they are in place it will be impossible to determine and assess the full impact of the package of post‑crisis reforms.  It is therefore premature to conclude that we have already seen the final effect of these reforms on the financial system and the wider real economy.

In the meantime, some new priorities are emerging. The focus of the last five years has been on financial stability. The 2014–2019 mandate for the European institutions would in our view best focus on the promotion of further economic recovery and growth and on assessing the cumulative impact of the plethora of new directives and regulations which have been agreed. Given the breadth and depth of the reform programme the likelihood of unintended as well as intended consequences is high, and it is therefore clear that a robust post implementation review is needed. As emphasised in a report published by TheCityUK a few weeks ago, the new Parliament and Commission will need to focus on the agenda of fostering competitive businesses, creating a stable business environment, improving technology and infrastructure, and promoting long-term investment. Completing the Single Market project in financial services will be one of the priorities driving positive change, alongside work on unlocking more opportunities for investors and sources of finance for business. Further steps to align international regulation, and avoid extra-territorial complexity, will also require significant effort and energy. Against this backdrop, negotiations on the Transatlantic Trade and Investment Partnership and the aspirations to achieve increased compatibility and convergence will also run into the next Parliamentary term.

In conclusion, when the eighth European Parliament is considering launching new legislative initiatives on the financial services industry it might be guided by the following principle: “Whatever you do, do cautiously, and look to the end”.


David Strachan 100David Strachan - Head, Deloitte EMEA Centre for Regulatory Strategy  David focuses on regulatory issues related to systemic risk, including the Independent Commission on Banking’s work in the UK and the international tools deployed in relation to crisis management. David joined Deloitte after 12 years at the FSA, where in his last role, Director of Financial Stability, he worked on the division of the FSA into the PRA and the FCA. LinkedIn

Kateryna Bobrova7959Katya Bobrova, Senior Associate - the EMEA Centre for Regulatory Strategy
Katya works in the EMEA Centre for Regulatory Strategy, covering EU and UK financial regulation. She joined Deloitte in 2013 after graduating from the University of Cambridge, where she focused on Development Economics and Finance. She also has experience working at an international financial institution and in government relations.


  • Great article, a very clear and succinct summary of key regulatory undertakings, current state of the regulatory environment and future priorities in the regulatory sector.

    Posted by: Andrei Brenko on 04/26/2014 at 03:01 PM

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