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CEBS Work Summary in Relation to the de Larosière Recommendations

Core Content Overview

The following summary outlines the current status of CEBS (Committee of European Banking Supervisors) work in relation to the de Larosière Group's recommendations, which aim to strengthen financial regulation and supervision across the EU and globally. CEBS is actively involved in various initiatives to align with these recommendations, focusing on capital requirements, transparency, risk management, and the establishment of a more integrated European supervisory system.

Main Recommendations and CEBS Actions

Recommendation 1: Review and Amend Basel 2 Rules

• Main Points:
  • Gradually increase minimum capital requirements.
  • Reduce pro-cyclicality through dynamic provisioning and capital buffers.
  • Introduce stricter rules for off-balance sheet items.
  • Tighten liquidity norms and strengthen internal control and risk management.
• CEBS Actions:
  • Provides input on trading book requirements.
  • Participates in EU working groups on pro-cyclicality and has its own working group on cyclicality.
  • Designs guidelines on securitisation in the revised CRD.
  • Works on enhancing liquidity risk management and defining liquidity buffers.
  • Published a work plan for updating risk management guidelines.

Recommendation 2: Common Definition of Regulatory Capital

• Main Points:
  • Adopt a common definition of regulatory capital, including hybrid instruments as Tier 1 capital.
• CEBS Actions:
  • Clarifying and harmonising conditions for hybrid instruments as Tier 1 capital.
  • Liaising with the Basel Committee of Banking Supervisors.

Recommendation 3: Strengthening Regulation of Credit Rating Agencies (CRAs)

• Main Points:
  • Strengthen CESR's role in registering and supervising CRAs.
  • Review CRA business models and separate rating and advisory activities.
  • Reduce reliance on ratings in financial regulations.
  • Introduce distinct codes for structured products.
• CEBS Actions:
  • Monitors regulatory changes and their impact on ECAI recognition in the CRD.

Recommendation 4: Accounting Rules for Complex and Illiquid Instruments

• Main Points:
  • Simplify accounting issues related to complex products.
  • Ensure accounting standards do not promote pro-cyclical behavior.
  • Clarify valuation methodologies for illiquid assets.
  • Increase transparency in IASB's standard-setting process.
• CEBS Actions:
  • Published a report on valuation of complex and illiquid instruments in June 2008.
  • Updated the report in March 2009 and noted that many recommendations had not been fully addressed.
  • Usually comments on IASB papers.

Recommendation 5: Solvency 2 Directive

• Main Points:
  • Adopt the Solvency 2 directive with a balanced group support regime.
  • Ensure sufficient safeguards for host Member States.
  • Implement a binding mediation process and harmonised insurance guarantee schemes.
• CEBS Actions:
  • Provided advice to the EC on reducing national discretions in the CRD.

Recommendation 6: Supervisory Powers and Sanctions

• Main Points:
  • Ensure competent authorities have sufficient supervisory powers and deterrent sanctions.
• CEBS Actions:
  • Published a report on supervisory powers in March 2009.
  • Provided input for the Commission's White Paper on early intervention tools.

Recommendation 7: Regulation of Systemically Important Entities

• Main Points:
  • Extend regulation to all firms with systemic potential.
  • Improve transparency, especially for hedge funds.
  • Introduce appropriate capital requirements for banks involved in proprietary trading.
• CEBS Actions:
  • Examines the scope of supervision and provides criteria for assessing material impact.
  • Published a paper on transparency and monitors industry progress.

Recommendation 8: Securitised Products and Derivatives Markets

• Main Points:
  • Simplify and standardise OTC derivatives.
  • Require a central clearing house for CDS.
  • Ensure issuers retain underlying risk.
• CEBS Actions:
  • Issues guidelines on the prudential treatment of securitisation, particularly on retention clauses.

Recommendation 9: Investment Funds Regulation

• Main Points:
  • Develop common rules for investment funds.
  • Tighten supervisory control over depositories and custodians.
• CEBS Actions:
  • Provided advice on custodians and their impact on commodity derivatives.
  • Ensures changes to ECB-CESR recommendations for CCP are reflected in banking regulation.

Recommendation 10: Harmonisation of National Discretions

• Main Points:
  • Avoid inconsistent transposition of regulations.
  • Remove national exceptions to improve the single financial market.
  • Allow more stringent national measures under core EU principles.
• CEBS Actions:
  • Provided advice to the EC on reducing national discretions in the CRD.

Recommendation 11: Remuneration Policies

• Main Points:
  • Align compensation with long-term profitability.
  • Base bonuses on multi-year performance.
  • Ensure no guaranteed bonuses.
• CEBS Actions:
  • Published principles for remuneration policies on 20 April 2009.
  • Will consider implementation in the Pillar 2 context.

Recommendation 12: Internal Risk Management

• Main Points:
  • Ensure independence of risk management functions.
  • Conduct regular stress testing.
  • Avoid over-reliance on external ratings.
• CEBS Actions:
  • Conducted an analysis of existing risk management guidelines.
  • Submitted a report to the EFC in March 2009.
  • Developed a roadmap for improving CEBS guidance.

Recommendation 13: Crisis Management Framework

• Main Points:
  • Develop a transparent crisis management framework.
  • Ensure all relevant authorities have appropriate tools.
  • Remove legal obstacles for cross-border crisis resolution.
• CEBS Actions:
  • Submitted comments on the EC's White Paper on early interventions.
  • Noted the need for a review of the current MoU on burden sharing.

Recommendation 14: European Systemic Risk Council (ESRC)

• Main Points:
  • Establish an ESRC under the ECB.
  • Include ECB, CEBS, CEIOPS, CESR, and Commission representatives.
  • Ensure information flow with micro-prudential supervisors.
• CEBS Actions:
  • Referenced in the Annex of the 3L3 Joint Contribution.

Recommendation 15: Risk Warning System

• Main Points:
  • Implement a risk warning system under the ESRC and EFC.
  • Issue mandatory follow-up actions for macro-prudential risks.
  • Inform EFC and relevant bodies for global risks.
• CEBS Actions:
  • Referenced in the Annex of the 3L3 Joint Contribution.

Recommendation 16: European System of Financial Supervisors (ESFS)

• Main Points:
  • Establish a decentralised ESFS with three new European Authorities.
  • Maintain national supervisors for day-to-day oversight.
  • Ensure independence and accountability.
• CEBS Actions:
  • Referenced in the Annex of the 3L3 Joint Contribution.

Recommendation 17: Strengthening Supervisory Resources

• Main Points:
  • Enhance supervisory competences, powers, and independence.
  • Improve training and personnel exchanges.
  • Prepare legal proposals for new Authorities.
• CEBS Actions:
  • Has a supervisory culture network and training programme.
  • Collaborates with CESR and CEIOPS on a joint 3L3 training programme.

Recommendation 18: Harmonisation of Financial Regulations

• Main Points:
  • Develop a more consistent set of financial regulations.
  • Remove national differences and ambiguities.
  • Strengthen supervisory and sanctioning regimes.
• CEBS Actions:
  • Referenced in the Annex of the 3L3 Joint Contribution.

Recommendation 19: Immediate Reforms for Level 3 Committees

• Main Points:
  • Increase resources and improve peer review processes.
  • Set up supervisory colleges for major cross-border firms.
• CEBS Actions:
  • Has established a peer review mechanism since 2007.
  • Set up supervisory colleges for large EU cross-border banking groups by end 2009.

Recommendation 20: Integration of ESFS

• Main Points:
  • Transform Level 3 Committees into three European Authorities.
  • Establish a common budget and binding supervisory standards.
• CEBS Actions:
  • Agreed on a list of cross-border EU banks for which colleges will be set up.
  • Published good practices paper on college functioning.
  • Participated in college activities and prepared guidelines for joint assessment and decision-making.

Recommendation 21: Implementation Plan for ESFS

• Main Points:
  • Develop a detailed implementation plan by end of 2009.
• CEBS Actions:
  • Will be fully involved in planning and transformation of the system.

Recommendation 22: Review of ESFS Functioning

• Main Points:
  • Review ESFS within 3 years of its entry into force.
  • Consider structural reforms like reducing to two Authorities.
• CEBS Actions:
  • Referenced in the Annex of the 3L3 Joint Contribution.

Recommendation 23: Global Financial Stability Cooperation

• Main Points:
  • Promote convergence of international financial regulations.
  • Strengthen cooperation between FSF, Basel Committee, and other bodies.
• CEBS Actions:
  • Referenced in the Annex of the 3L3 Joint Contribution.

Recommendation 24: Early Warning System

• Main Points:
  • Develop an early warning system with an international risk map.
• CEBS Actions:
  • Noted that the FSF should be enlarged to include the European Commission and other key players.

Recommendation 25: Supervision of Poorly Regulated Jurisdictions

• Main Points:
  • Encourage poorly regulated jurisdictions to adhere to international standards.
  • Increase capital requirements for institutions engaging with such jurisdictions.
• CEBS Actions:
  • Will assist in prudential efforts and information exchange.

Key Information

• CEBS is actively involved in many of the de Larosière Group's recommendations, particularly in the areas of capital requirements, risk management, transparency, and harmonisation of regulations.
• CEBS has published several reports and guidelines, including those on remuneration policies and securitisation.
• The Group has called for the establishment of a European System of Financial Supervisors (ESFS) and a European Systemic Risk Council (ESRC).
• CEBS is working closely with the European Commission and other regulatory bodies to align EU practices with international standards.
• The Group emphasizes the need for a balanced approach, ensuring that national flexibility is maintained while promoting a coherent and effective regulatory framework.