UNI Europa Finance Meeting with DG Internal market & Services – 16th November 2011

imag0234The purpose of this meeting is for UNI Europa to influence the decision making, to better understand Commission initiatives and to work for results that are in line with UNI Europa Finance policies. These meetings should be win–win in nature and this is achieved by

(i) Receiving relevant information on the content and impact of EU initiatives,
(ii) Receive information and advice on decision making,
(iii) Give advice and share in depth knowledge on financial services, employment and social issues and
(iv) Give in-depth presentations on issues of particular interest or concern.

With the continuous growing of the financial and economic instability across the EU, the necessity to regulate European financial sector is indispensable, for such reasons the Commission published a communication on financial services called ‘Regulatory Financial Services for Financial Growth’. This communication outlines the overall financial regulation reform as a response to the crisis. The Commission stresses the importance of strengthening the involvement of trade unions and civil society organisations in order to counter balance the strong lobbying from the finance industry in the legislative process.

Issues being addressed and forming part of this reform are:-

1. Taxation in the financial sector

The financial sector was a major cause of the crisis and received substantial government support over the past few years. To ensure that the sector makes a fair contribution to public finances, the EU put forward a proposal for a financial transaction tax (FTT) The objectives of this tax should be to:-

a) Maintain stability and eliminate excessive risk taking in the financial sector,
b) Make the ‘polluters pay principle’ apply, i.e. make risk takers pay and
c) Generate revenue to bank resolution funds and to the general public budget

In this respect the aim should be to provide for a sounder finance industry. The design and application of any tax measures should be considered carefully as not to destabilise the real economy by burdening the traditional finance sector and leaving the shadow-banking sector unregulated.

2. Cross Border Crisis Management in the banking Sector

The communication covers three areas:

Preparatory and preventative measures:- such as a requirement for institutions and authorities to prepare for recovery and resolution plans to ensure adequate planning for financial stress or failure.

Power to take early action:- to remedy problems before they become severe such as powers for supervisors to require the replacement of management or to require an institution to implement a recovery plan or to divest itself of activities or business lines that pose an excessive risk to the financial soundness.

Resolution tools:- such as powers to effect the takeover of a failing bank by a sound institution, or to transfer all or part or its business to a temporary bridge bank, which would enable authorities to ensure the continuity of essential services and to manage the failure in an orderly way.

3. Capital requirements regulation and corporate governance directive

The Commission’s proposals have three concrete goals:

(i) To require banks to hold more and better capital to resist future shocks by themselves,
(ii) To set up a new governance framework giving supervisors new powers to monitor banks more closely and take action through possible sanctions when they spot risks and
(iii) To have a Single Rule Book for banking regulation, this will improve both transparency and enforcement.

The proposal contains two parts: a directive governing the access to deposit-taking activities and a regulation governing how activities of credit institutions and investment firms are carried out.

Employees have a special knowledge and experience about how daily practices can impact on risk. In practice, policies are not always implemented the way managers think they are, and the employees can contribute to providing a more complete picture of the company’s risk profile. For an effective implementation of risk policies in companies, a close cooperation and dialogue with the employees is necessary. Sound risk policies have no value if they are not properly implemented and the implementation is not continuously monitored and adjusted in cooperation with the employees and their unions.

4. Credit rating agencies (CRAs)

Credit rating agencies (CRAs) play a significant role in today’s financial markets. They issue credit worthiness opinions that help overcome the information between those issuing debt instruments and those investing in these instruments. CRAs have a major impact on the financial markets. It is essential, therefore, that they consistently provide high-quality, independent and objective credit ratings. The CRA Regulation requires credit rating agencies to comply with rigorous rules of conduct in order to mitigate possible conflicts of interest, ensure high quality of ratings and sufficient transparency of ratings and the rating process.

5. Markets in Financial Instruments Directive (MiFID)

This directive regulates investments services and has two key objectives: (a) to increase market efficiency and (b) to enhance investor protection.

UNI Europa Finance supports the suggestion in the consultation paper to inform clients about the basis on which the advice is provided and to consider a sufficiently large range of financial instruments from different providers. This will contribute to ensuring that the advice provided is objective and based on a profound analysis. However, it must be recognised that such a profound advisory service requires time for the employees to carry out their work properly. It must therefore be ensured that sales targets, numbers of clients in the portfolio of each employee etc. should be adjusted accordingly. The number of clients should reflect the amount of time and effort spent on

each client. Furthermore, in addition to the time required to prepare the advice and sales, proper time should also be foreseen for the employees to receive regular training on new products to ensure they are always sufficiently qualified to carry out their advice duties.

6. Packaged Retail Investment Products (PRIPs)

The Commission adopted a Communication on Packaged Retail Investment Products (PRIPs) to ensure an effective and comprehensive legal framework for retail financial services. The ability for customers to make informed decisions about financial products in the situation of purchase is decisive, and highly dependent of the quality of advice provided by employees. It must be ensured that remuneration and incentive systems as well as working practices are appropriate and put customers first – not profit and sales targets.

7. Undertakings for Collective Investment in Transferable Securities (UCITS) Directive

The Commission is currently preparing a legislative proposal to amend the UCITS Directive as regards depositaries by prescribing precise rules related to the safekeeping of securities by depositary institutions. The UCITS Directive sets a regulatory framework for retail funds at the European level and a basis for cross border sales of these funds.

8. Insurance Mediation Directive (IMD)

A considerable variance in the application and actual transposition of the Insurance Mediation Directive has been noted between EU countries. This has led to fragmented insurance markets in the EU, with significant gaps and inconsistencies, in particular regarding the information requirements imposed on sellers of insurance products. It has also increased the problem of customers having a poor understanding of the risks, costs and features of insurance products. The collapse in consumer confidence during the financial crisis has also given new prominence to level-playing field and consumer protection issues.

It is particularly important that the employees selling the insurance products always have sufficient time to provide the necessary information to the client. Employees are often encouraged to keep conversations with clients below a certain time limit, which can have a negative impact on the quality of the information provided. The same counts in particular for the use of sales targets, which are used to increase the sales performance of employees individually and collectively.

9. Green paper on Corporate Governance

The green paper seeks views on enhancing shareholders’ involvement on corporate governance issues by encouraging them to take an interest in sustainable returns and longer term performance.

The Green Paper provides a useful analysis of the problems as well as a number of proposals for improvement. Employees in companies are obviously stakeholders with a long-term interest in the company and have essential knowledge about the functioning of the company. For instance, they have a special knowledge and experience about how daily practices can have an impact on risk management.


This meeting was attended by William Portelli and Charmaine Corser Navarro

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