Parliament compromises on Banking Union but sends market abusers to jail

European Parliament. Committee on Economic and Monetary Affairs (ECON) meeting. Voting by raise of hands. From left to right, Jean-Paul Gauses (EPP, FR), Markus Ferber (EPP, DE), Diogo Feio (EPP, PT). (EP Audiovisual Services, 30/1/2014).

Yesterday the European Parliament confirmed its willingness to regulate the EU’s financial sector with determination and the obvious intention of convincing the 500 million European citizens that ordinary people matter more than bankers and derivative dealers. Of course all that is happening ahead of the May European elections. To this effect, the plenary of the House approved the Commission’s proposal for a Directive on criminal sanctions for financial market abuse. There was more to it though.

On top of the market abuse Directive and probably more importantly, there was a rare cross-party unity against a “bad deal on bank resolution”. By this decision the Parliamentarians wanted to remind the German and French governments that the legislative backs a Banking Union and a resolution mechanism for failing banks, functioning under the principles of equality, transparency and democratic accountability. On this affair the Commission is in agreement with the Parliament and against a commonly backed position by Berlin and Paris. The two most powerful EU member states long for a banking union fragmented in national segments as far as cost is concerned and politically controlled by them. Let’s discuss one thing at a time.

Bank resolution

According to a Press release issued by the parliament after yesterday’s plenary session, “the MEPs across the political spectrum refused on Tuesday to back a bad deal on the arrangements for winding up ailing banks. They said the member states’ position undermined the core aim of ensuring that taxpayers were not first in line to pay when banks ran into trouble. MEPs’ chief target was the EU countries’ proposals for setting up the bank-financed fund and for its decision-making methods”.

As noted above, the Parliament and the Commission are on the same side in this issue. Both institutions support a centrally controlled and financed bank resolution mechanism. However the Commissioner for financial services, Michel Barnier who was present in the Parliamentary discussion said that “for political reasons it seemed that intergovernmental arrangements would be needed for some aspects of the bank-financed fund but they should remain extremely limited. He also said it was clear that Parliament’s “very valid concerns” needed to be taken on board”.

At this point it must be reminded that the Parliament has rejected the idea of institutionalising an Intergovernmental Conference, where only government officials will participate and decide about everything, related to authorising a bank resolution and the coverage of costs. Germany and France insist that for the next five years those costs will be covered exclusively by the member state where the bank is based (including the taxpayers) and only at the tenth year of the Banking Union this cost could be shared by all participating countries.

Obviously, Germany and France don’t want to pay, say next year, for the winding down of a Greek or Italian bank. In reality this Intergovernmental Conference is a simple international agreement having no relation whatsoever with the European Union, being outside EU standards. Exactly for not being an EU institution, this Intergovernmental Conference will not oblige the rich countries to share the bank resolution cost with the poor.

A compromise on the Banking Union

Now it seems that the possible compromise between the Council, the Parliament and the Commission will be realised on the extent of the powers of this Intergovernmental Conference.  Some member states have already accepted to discuss a proposal of cutting the years needed for a full mutualisation of bank resolution cost from ten to five. Similar steps towards finding a compromise were taken yesterday by key Parliamentarians like Sharon Bowles (chair of the economic and monetary affairs committee, ALDE, UK) who said : “The tone from the Council seems to be changing. It now needs to also begin changing its text.” In the same light Antolin Sanchez-Presedo (S&D) (standing in for the rapporteur, Elisa Ferreira) commented: “We will not support a bad solution. But there is no reason not to reach a deal if there is genuine political will.”

There is no doubt that all institutions will do their best to find common grounds in order to complete the Banking Union before this Parliament dissolves for the May elections. Nobody can accurately predict what the next Parliament may bring about.

Prosecuting market abusers

Last but not least, yesterday the European Parliament  approved the above mentioned market abuse Directive. It’s a real revelation to be informed that until now many member states have actually very weak or even non-existent legislation to prosecute bankers and financiers, who realise unlawful profits by using inside information and market manipulation. In most countries it is also very difficult for prosecutors to bring to court the culpables for spreading false or misleading information.

At last the adoption of this Directive now means that:
*There will be common EU definitions of market abuse offences such as insider dealing, unlawful disclosure of information and market manipulation;
*There will be a common set of criminal sanctions including fines and imprisonment of four years for insider dealing/market manipulation and two years for unlawful disclosure of inside information;
*Legal persons (companies) will be held liable for market abuses;
Member States need to establish jurisdiction for these offences if they occur in their country or the offender is a national;

Member States need to ensure that judicial and law enforcement authorities dealing with these highly complex cases are well-trained. Better late than never.

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