Financial Translation Services in View of EU Banking Union

Financial Document Translation Services

Financial document translation services play an important role in international business and international law. Based on European Council and Euro Area summit conclusions at the end of June 2012, the European Commission published its Banking Union proposals on 12 September. In summary, the proposals introduce a single supervisory mechanism (SSM) that will cover all Eurozone banks. In this way, the home State/host State distinction will be no longer relevant, as all Eurozone banks will be “domestic”. The proposals form part of a wider initiative to complete EU economic and monetary union (EMU). Related negotiations are already underway to revise EU-wide capital requirements for the banking sector and deposit guarantee/insurance, as well as to establish an EU bank recovery and resolution framework.

The EU institutions will adopt the Banking Union Regulations using different procedures:

  • The ECB Regulation will be adopted according to a “special legislative procedure”. Therefore, the Council will have to consult the European Parliament before taking a decision but will not be bound by the European Parliament’s opinion. The Council vote must be unanimous.The ECB Regulation could enter into force by 1 January 2013.
  • The EBA amendment Regulation will be subject to the Treaty of Lisbon’s “ordinary legislative procedure”, meaning that both the Council and European Parliament will have to agree on, and adopt, a final text. This procedure usually takes at least 18-24 months.

The European Parliament adopted a Resolution at its plenary session on 13 September expressing its disapproval of the procedure for adopting the ECB Regulation by stressing that:

“... any major change in supervision, including shifts to other institutions, must be accompanied by an equivalent increase in transparency and accountability of such institutions vis-à-vis Parliament, which must have full questioning rights and full powers in relation to appointment and budgetary procedures.

Subsequent developments, namely the limited progress at the latest meeting of EU leaders on 18-19 October, provoked further, harsh criticism from the Parliament during a plenary debate on 23 October. Meantime, various heads of state and government have expressed their doubts about whether the remaining hurdles can be overcome in time for formal adoption of even a revised SSM at the European Council meeting on 13-14 December. The ECOFIN meeting on 13 November was inconclusive.

Progress will depend largely on whether the Member States can resolve their differences on a number of aspects, particularly those expressed by Germany and vocal non-Eurozone states such as Sweden, Poland and the UK. A key issue for Germany is to avoid a single deposit guarantee scheme for the Banking Union. Recent comments by ECB Chairman Mario Draghi may signal a willingness to defer this aspect of the proposals. Swedish and Polish concerns about how non-Eurozone countries can participate in ECB decision-making may prove more difficult to resolve.

The UK government broadly supports Banking Union, but faces opposition from certain members of its own party. The UK’s financial services sector also continues to voice concerns about: (i) the cumulative effect of EU proposals on the competitiveness of the EU (primarily UK) financial services sector; and (ii) a system in which the UK is limited in its power to influence rules set by other states that do not have a significant financial services sector. Similarly, recent criticism by British politicians and senior officials over the EU approach risks jeopardizing Banking Union negotiations.

Thus, in summary, the key points for financial services and insurance practitioners to keep in mind:

  • Following publication of the texts, differences have emerged between the EU institutions (as noted above) and between Member States both as to timing and scope, for example: (i) the UK’s objective of preservation of the Single Market, while remaining outside the Banking Union; and (ii) the refusal of German savings and cooperative banks, which are local banks subject to a different policy regime from commercial banks, to come within the scope of ECB supervision.
  • The adoption of the key text, the ECB Regulation, before the end of the year therefore seems excessively optimistic. Furthermore, Banking Union risks delaying progress on other EU proposals under discussion.
  • Banking Union is the main EU response to the sovereign debt crisis: the need for enhanced EU-wide integration and avoidance of macro-economic imbalances in parts of the Eurozone. The EU (re)insurance sector presents the same geographical scope (Eurozone and non-Eurozone), and comparable policy objectives – essentially, protection of policyholders (instead of depositors) – but without any ECB-like structure. Subject to recognition of the specific characteristics of (re)insurance, experience gained with Banking Union may, if required, provide a template, preferably without systemic difficulties, for a supervisory mechanism in the insurance sector.

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