EBA faces harmonisation challenges

Author: Lizzie Meager | Published: 27 Oct 2015
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The European Banking Authority’s (EBA) three-year plan to harmonise banking regulation across the member states is likely to be hampered by limited resources and an unending wave of further legislation.

The EBA’s role is, fundamentally, to provide technical expertise and to develop a set of unified rules that are applicable across the EU in a consistent manner. Its work so far on the Single Rulebook will be built upon, as the authority looks to ensure supervisors apply these rules consistently across the EU.

Plans within its 2016 work programme include, for example, on AT1 issuances: 'to work on standardised term sheets’ (Activity 1) and 'to provide consistent implementation across the EU of the provisions of resolution policy documents’ (Activity 15).

"The challenge with harmonising EU markets has always been how it interacts with local legislation," said Simon Ovenden, a partner at Cleary Gottlieb Steen & Hamilton in London. "There’s this great idea of a harmonised market, but for example, how can we have that in the absence of a uniform insolvency regime?"


  • In its latest work programme the EBA has outlined plans to, over the next three years, ensure a harmonised approach to banking regulation across the member states;
  • Directives prove particularly difficult to achieve harmonisation as the idea is that countries are free to implement through national law;
  • But discrepancies create risks, especially for pan-European institutions. For a union to work there has to be consistency.

If rules are introduced as a directive – as opposed to a regulation – there will always be discrepancies between how 28 member states interpret the rules and implement them through their own national legal system.

Just last week the European Commission (EC) referred six member states to the European Court of Justice (ECJ) for failing to fully implement the Bank Recovery and Resolution Directive (BRRD).

The Czech Republic, Luxembourg, the Netherlands, Poland, Romania and Sweden received a warning back in May but are still yet to adopt the new rules in a way the Commission deems sufficient. EU countries had until December 2014 to convert the directive into national law.

Failing to implement legislation is a breach of EU law. But it’s unlikely that institutions – or in this case, the government – are looking for ways to bypass the directive.

"On the whole the industry would prefer the same rules to be applied consistently across Europe," said Karen Anderson, a partner at Herbert Smith Freehills. "Where different national authorities take different views on how it should be done, that creates potential risks."

"Achieving a more uniform and flexible regulatory framework reflects the need for the integrity of the EU single market as a whole, as well as for the smooth functioning of the banking union," said an EBA spokesperson when contacted.

"The challenge with harmonising EU markets has always been how it interacts with local legislation"

Some have called into question the EBA’s resources and legal authority to even carry out such work. Budget cuts at EU level have impacted resources, agreed the spokesperson, but "we remain confident that the added value we are bringing…is far from going unnoticed", he added.

There is also some way to go for many initiatives. Solvency II is set to come in early 2016, Basel III has a deadline of 2019 and plans for the Europe-wide structural reform – which, although not yet agreed on, appears to be a certainty– has hardly even started.

"Once the wave of post-crisis regulation subsides I think we’ll see the EBA moving more towards its harmonisation and mediation roles," said Anderson. "But for now there’s still a few more standard-setting pieces to get through."

And with various authorities at both national and EU level – which appear to be working towards the same goal, but have varying methods and abilities to get there – navigating the web of regulation and who enforces it is only set to get harder.

"It’s a complicated, three-dimensional jigsaw with initiatives coming from all over, that all have very different impacts on different pieces of legislation. And it’s only going to continue over the coming years," said Ovenden.

The Capital Markets Union (CMU) is one initiative looking to address this. As part of its long-awaited action plan released earlier this month it will review the cumulative impact of post-crisis regulation on banks and financial markets; a move the industry has welcomed.

See also

Why TLAC and BRRD discrepancies will fade

Contractual recognition of bail-in under fire

Market welcomes EBA advice on securitisation