2013 sébatien de brouwer - ebf The EBF view Conférence Arrow Institute http://conferences-institute.eu/

1. The Voice of Europe’s BanksThe Voice of Europe’s Banks
Financial Services Regulatory reform
Impact on EU banks
The EBF view
Sebastien de Brouwer
Executive Director
European Banking Federation

2. The Voice of Europe’s Banks
1. General framework of the financial services
reform
2. Main Sectoral Regulatory initiatives
– Banking Union, CRD IV, Liikanen, Financial benchmarks, ...
3. Horizontal regulatory initiatives
– AML
– Data protection
– FATCA & FTT

3. The Voice of Europe’s Banks
EU institutions – New framework
Macro & financial
stability
Competition
enforcment
Sectoral regulation
Horizontal
regulation
Respect of Maastricht Criteria
Excessive Deficit Procedures
Fiscal consolidation Programs
State Aid Control
Restructuring of problematic
institutions
CRD IV, Resolution Framework,
Banking Union, Liikanen, DGS,
ICSD, MiFID, EMIR, CRAs, Indices
& Benchmarks ..
Data Protection ,AML, FTT, ...

4. The Voice of Europe’s Banks
Waves of new regulations driving new business
models
- EU financial services regulatory reform : Banking
Union (SSM), CRD IV, Recovery & Resolution Directive,
Liikanen, MiFID 2, EMIR, Regulation on Benchmarks
and Indices...
- Horizontal regulations : AML, Data Protection, FTT, ...
- National financial regulatory reforms (UK, FR, GER, ...)
 EU fragmentation
- US financial services Regulatory reform (Dodd-Frank,
FATCA, ...): Extra-territorial impact

5. The Voice of Europe’s Banks
Financial services sector reform – objectives
 Strong regulatory reform
 Better consumer/investor protection
 Effective supervision
 Resolution and adressing systemic institutions
 End the possibility that taxpayers will have to
support to bail out systemic financial firms

6. The Voice of Europe’s Banks
Banking Union - Overview of the proposals
 SSM as the “First step towards the creation of a European banking union”
– A single supervisory mechanism (SSM) permitting the European Central Bank
(ECB) to be the prudential supervisor of all banks within relevant Member
States
– Pre-requisite for a direct bank recapitalisation through the European Stability
Mechanism (ESM)
– Underpinned by a single rulebook for financial services based on directly
applicable EU Regulations (CRR, EMIR, MiFIR, MAR, SSR) rather than Directives
 Timing: ECB to assume tasks - Best estimate: Summer 2014
 Next steps in banking union
– Following on from the Recovery and Resolution Directive for banks (plenary
date June 2013) – a common resolution authority and resolution fund
(Regulation planned for final quarter of 2013)
– Common deposit guarantee scheme – more problematic

7. The Voice of Europe’s Banks
7
Banking Union - Overview of the proposals
 Legislative basis – Agreement reached on 19 March
– Regulation conferring specific tasks on the ECB
– Regulation amending the Regulation creating the
European Banking Authority (EBA)
 Political implications
– 17 Euro area states plus 7 additional states currently
propose to join the SSM
– UK, Sweden and Czech Republic have stated intention to
remain outside the SSM
– Benefit of Eurozone stability

8. The Voice of Europe’s Banks
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Banking Union - SSM Framework
Council
SSM Regulation
ECB Framework Regulation
SSM Perimeter - Relations ECB/NSAs - Procedures
ECB Regulation on Supervisory Fees
ECB Regulation on Panel of Review
Sanctions Regime
ECB Regulation on Sanctions, Council Regulation on ECB Sanctions
SSM internal operational protocols and templates
EBA
Regulation
ECB Decision on Close Cooperation
Non-euro area Member States participation in SSM

9. The Voice of Europe’s Banks
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SSM - Implications for banks in the Eurozone
 ECB will be the prudential regulator for ALL banks based in:
– Member States where the euro is the currency (17 Member States)
– Other Member States which choose to participate in the SSM via “close
cooperation” (currently 7 Member States)
 ECB has oversight for all banks, but will only actively fully supervise
“significant banks”
 SSM will consist of ECB and national competent authorities
 National regulators to retain limited powers even for significant banks
– Anti money laundering/counter terrorist financing functions, payment
services, MiFID functions, day-to-day verification services, consumer
protection
– Supervision of domestic banks (which are not credit institutions under EU law)
and branches of non-EU banks

10. The Voice of Europe’s Banks
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SSM : Implications for banks in the Eurozone:
significant banks
 Some banks deemed more significant assessed on:
Quantitative criteria:
– Total value of assets exceeds euro 30 billion, or
– Ratio of its total assets over the GDP of the participating Member State
exceeds 20%, unless total of assets is < euro 5 billion, or
– Top three banks in each participating Member State
– (in each case subject to “particular circumstances”)
Qualitative criteria:
– Of significant relevance for domestic economy, upon notification by domestic
regulator and confirmatory decision by ECB following a comprehensive
assessment
– With banking subsidiaries in more than one participating Member State and
significant cross-border assets or liabilities, upon ECB’s own initiative
 Those for which public financial assistance has been requested or
received directly from the EFSF or the ESM

11. The Voice of Europe’s Banks
A European Deposit
Guarantee Scheme?
Banking Union: missing elements
Resolution Authority
1. ESM: recapitalize or liquidate?
2. Commission: rescue or kill?
3. New Agency
Single Resolution Mechanism (Dec.2013): Aims
“Break the vicious circle between banks and sovereigns”
Avoid fragmentation along national lines of insolvency & resolution rules, of competent
authorities, and of fiscal backstops
Equal treatment in the allocation of losses on bank creditors
Foster financial market integration: geography not relevant
Financing the SRM
1. Public-Private Partnership Fund:
a) Financial industry: counter-cyclical
b) Fiscal backstop: temporary, ex-post levies
2. PROHIBITED: ECB lending

12. The Voice of Europe’s Banks
CRD IV
 CRD IV implement the Basel III standards
 Applies to Banks, Building Societies and Investment firms
 It also covers :
– Corporate Governance
– Remuneration
– Sanctions
– Arrangements for harmonisation of European Prudential
requirements through a single rule book

13. The Voice of Europe’s Banks
Banking Structural Reform (Liikanen)
 Background
 Report published on 2 October
 Consultation launched with deadline on 13 November
 5 Recommendations
• Mandatory separation o f proprietary trading services and other significant trading
activities over a certain threshold (> 15-25 % of bank total assets or 100 bn)
• Emphasis on the use of Recovery and Resolution Plan and power for the resolution
authority to request additional separation of activities condition on the RRP
• Allow the use of designated bail-in instruments to improve predictability /to be held
outside the banking sector.
• A review of capital requirements on trading assets and real estate related loans
• Better corporate governance
– Commission to come with a follow-up in the Spring 2013
– Initiatives at national level (US, UK, France, Germany and NL)
 Next steps
 Own-initiative Report at EP level (Rapporteur : Arlene McCarthy (S&D)
expected to be voted at EP Plenary on 1 July 2013
 EU Commission Proposal before Summer 2013

14. The Voice of Europe’s Banks
Indices & benchmarks
 Investigations (Libor, Euribor) since March 2011
 IOSCO consultation on 11 January
 ESMA/EBA consultation on 11 January
 June 2013 (tbc) EU Commission to publish legislative text
 Q2 2013, IOSCO to develop gloval policy guidance and
principles on financial markets indices

15. The Voice of Europe’s Banks
4th AML directive & Funds transfer Regulation
 Proposal issued on 5 february 2013
 EP LIBE committee in charge (Rapporteur : Judith Sargentini (Green, NL))
Main Proposals
 Extension of the scope: 2 main changes (a) the threshold for traders in high value goods dealing with
cash payments is reduced from 15.000 € to 7.500 € and (b) providers of gambling services are covered
(only casinos previously).
 Risk-based approach: The European Supervisory Authorities (ESA) shall develop a minimum list of
factors to be taken into consideration. Member States will be required to identify, understand and
mitigate the risks facing them. The resources of supervisors can be used to concentrate on areas where
the risks of ML are greater.
 Simplified and Enhanced CDD: Enhanced measures where risks are greater and may be permitted to
take simplified measures where risks are demonstrated to be less. The revised Directive tightens the
rules on simplified due diligence and does not permit exemptions.
 PEP : Inclusion of domestic PEPs, as well as those who work for international organisations.
 Beneficial owner (BO): new measures in order to provide enhanced clarity and accessibility of BO
information especially for trusts. It requires legal persons to hold information on their own beneficial
ownership. This information should be made available to both competent authorities and obliged
entities.
 Administrative sanctions
 European Supervisory Authorities (ESA): ESAs should develop guidance for MS and financial
institutions on factors to be taken into account when applying simplified/enhanced customer due
diligence and when applying a RBA to supervision.

16. The Voice of Europe’s Banks
4th AML directive - Area of concerns
 PEPs identification and verification
 Beneficial ownership identification and verification
– notably notion of indirect ownership
– Public Access to BO information
 Potential conflicts between AML & Data Protection

17. The Voice of Europe’s Banks
AML -FATF Future Challenges
 RBA (R1) Requires both countries and obliged entities to accurately assess risks. Compliance failures
show:
– need for large, complex institutions to reflect carefully on how to organize/conduct their compliance
functions to cover the risks
– need to conduct and focus supervisory compliance and enforcement in a way that effectively addresses
the risks
 Transparency of corporate vehicles – lack of information on beneficial owners underlies many major
corruption and ML cases.
 New R.24 provides a better basis, and the proposed Art 29/30 4thAMLD sets out the requirements
precisely. Key is timely access in practice to accurate and up to date information on the real owners
of companies, trusts etc. Need for continued work globally by FATF, EU MS, and other key bodies.
Capacity and competence of national company registers should be assessed as part of effectiveness
assessments.
 Tax evasion is a key issue for many countries currently. Governments lose billions
through such criminality.
– Tax crimes are now expressly a ML predicate and part of the FATF Standards.
– Need to exchange information and effectively co-ordinate action (both nationally and internationally)
between relevant authorities to prevent laundering of such proceeds.
 FATF – continue productive engagement with the private sector
 Ensuring effective global implementation. Key tools:
– FATF global network of FSRBs
– ICRG process: Naming countries with strategic deficiencies.
11-Feb-16

18. The Voice of Europe’s Banks
Data Protection Regulation – some elements of
the review
 Explicit consent
 Profiling
 Data Portability
 Right to be forgotten
 Data breaches notification
 Sanctions
 Reduction of administrative burden and simplification – one
stop shop
 Elements of “Accountability”

19. The Voice of Europe’s Banks
Data Protection Regulation – Area of concerns
 Explicit consent
 Prevention of fraud & financial crimes
 Profiling
 Portability
 Right to be forgotten
 Data breaches notification
 Sanctions

20. The Voice of Europe’s Banks
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 Fight against tax fraud and off-shore tax abuses
 Prospect of home country taxation of individuals
 Focus on Foreign Entities upon payment and upon receipt
– Foreign Financial Intermediaries (FFIs)
– Non-Financial Foreign Entities (NFFEs)
 FATCA compliance burden on Foreign Entities
considered as Tax Intermediaries
FATCA - OVERVIEW
 FATCA relies on Tax Intermediaries (FFIs/NFFEs)
 FATCA takes a Manichean view of foreign entities:
- Good (participating) FFIs (PFFIs)
versus bad (non-participating FFIs (NPFFIs)
- Good (compliant) NFFEs
versus bad (non-compliant) NFFEs
 Withholding mechanism as coercion
Triggered if recipient = bad FFI or bad NFFE
 30% withholding tax on withholdable payments
FATCA - MECHANISM

21. The Voice of Europe’s Banks
FATCA definition of FFI = foreign entity that:
• Accepts deposits in the ordinary course of business
• Is in the business of holding financial assets for others, or
• Is primarily engaged in the business of investing, reinvesting or trading in securities, partnership
interests, commodities
Under proposed Regulations (§ 1,1471-5(d)(e)(2)(i)(G))
FFIs’ activities include banking activities and similar business incl. the business of entering into,
purchasing or disposing of financial lease or leased assets
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FATCA - FOREIGN ENTITY (FFI) DEFINITION
• Participating FFIs (PFFIs)
- Have signed FFI agreement with IRS, or
- Have registered with partner country authorities
• Non-participating FFIs (NPFFIs)
• Deemed compliant FFIs (DCFFIs), registered with IRS or self-certified
- Certain FFIs with small number of owners
- Certain local banks
- Certain qualified investment vehicles with local activities
• Exempted FFIs: Statutory list of low-risk entity types
! Each FFI affiliate of an expanded affiliated group (entities which are more than 50% owned by
the same parent) must satisfy the requirements of a PFFI or a DCFFI
FACTCA : FFIS CLASSIFICATION

22. The Voice of Europe’s Banks
Fatca - NFFE (Foreign entity that is not an FFI)
• Compliant NFFEs
- US owned, compliant NFFE
- Non-US owned, compliant NFFE
• Excepted NFFEs (exempt from withholding):
- Active NFFE (engaged in an active non-financial
business)
- Listed companies, Government entities,
international organizations, central banks
• Non-compliant, passive NFFE
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23. The Voice of Europe’s Banks
• Identification in the client base of all direct and indirect US accounts and
look-through for NFFE to determine whether a substantial US owner has
interest in this entity
• Verification criteria and due diligence procedures with respect to
identification of US accounts
• Disclosure to IRS of identity of US accounts and of substantial US owners
of NFFE
• Annual report to IRS including ALL income (US and non-US) paid to US
accounts and to substantial US owners of NFFE
• Request from any US account holder of a waiver from privacy or bank
secrecy law and closing of accounts of recalcitrant account holders
(undocumented/ uncooperative customers)
• Withholding on all payments to NPFFIs, to recalcitrant account holders
and to FFIs that have elected to be withheld upon rather than to
withhold
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FATCA - COMPLIANCE REQUIREMENTS APPLICABLE TO FFIS

24. The Voice of Europe’s Banks
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FATCA COMPLIANCE REQUIREMENTS APPLICABLE TO NFFES
 Non-US owned NFFE
- If direct or indirect participation < 10%
(in non-partner country)
- If direct or indirect participation < 25%
(in partner country)
- NFFE will provide a certification to the Withholding Agent
(WA) that it does not have substantial US owners
 US owned NFFE
- NFFE will disclose the substantial US owner by providing WA
with name, address and TIN
- WA will report to IRS the share of the income attributed to
substantial US owner

25. The Voice of Europe’s Banks
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FATCA : INTER-GOVERNMENTAL AGREEMENTS (IGAS)
 Intergovernmental agreements aimed at reducing FFIs’ costs and at addressing legal
obstacles
 FATCA Model I IGA (provides for local nominative reporting + information exchange)
 FATCA Model II IGA (provides for direct reporting to IRS on aggregated basis + possible
request for information)
FATCA : CALENDAR
 FFI agreements to be signed by 1 January 2014
 New account opening procedures implemented by 1 January 2014
 Impact on US payments made after 1 January 2014
 Reporting to start on 1 March 2015
 Information exchange to start on 1 September 2015
 Due diligence for pre-existing accounts:
- Prima facie FFIs: 30 June 2014
- High value entities: 31 December 2014
- Others: 31 December 2015

26. The Voice of Europe’s Banks
Financial Transaction Tax (FTT)
 FTT proposal published on 14 February 2013 via Enhanced Cooperation
Procedure (ECP)
 Broad territorial scope
– FI established in a participating MS (establishment criterion)
– FI being party to a taxable transaction with FI established in a MS (contagious establishment
principle)
– FI being party to a taxable transaction issued in a PMS (excl OTC derivatives) (issuance principle)
– FI being party to a taxable transaction with an non-financial institution established in a PMS (client-
based criterion)
– FI being party to a taxable transaction with a non-Financial institution being party to a taxable
transaction issued in a PMS (last resort issuance principle)
 Transaction scope – 3 categories
– Exempt: issuance of loans, making deposits, cash transactions, spot currency and commodity
transactions, insurance contracts etc.
– Taxable at higher rate (minimum 10 basis points): secondary market transactions in equities,
securities, repos, also primary market transactions in UCITS. Risk transfer arrangements within
groups of companies.
– Taxable at lower rate (minimum 1 basis point): derivative transactions over all asset classes, the
notional principal is the tax base for such transactions 26

27. The Voice of Europe’s BanksThe Voice of Europe’s Banks
Thank you for your attention !
For further information: www.ebf-fbe.eu