Single Rulebook Research Articles

Money laundering and compliance in professional football: the case of Belgium in light of the new EU AML single rulebook

In recent decades, football has evolved from a purely sporting activity into a global economic phenomenon. Along with this metamorphosis, questions of corporate governance and compliance have come to the fore when it comes to the governance of (professional) football clubs. A good example is the consequences of, and efforts to prevent, criminal activities in the form of money laundering. In recent years, the risks of money laundering activities through the professional football sector have often been highlighted by, for example, European Union institutions. In Belgium, an alleged money laundering scandal in professional football led to legislative measures. This contribution considers the application of Belgium’s preventive anti-money laundering framework to professional football in comparison to the novel EU AML Single Rulebook legal framework as applicable to professional football. It concludes that this legal framework is not a miracle solution to the problems facing the sector, and furthermore, the application of this framework raises several questions.

New European Legislation on Anti-Money Laundering

The European Commission has presented a new set of legislative proposals to strengthen the European Union’s anti-money laundering and countering terrorism financing (AML/CFT) rules. This proposal is scheduled for implementation in 2026. A new European supervisor, the AML Authority, will be introduced and a single rulebook will be created. The present AML Directive will be replaced by a new Directive and the regulation on crypto assets will be revised. The main changes resulting from this proposal in France, Germany, Italy, the Netherlands, Portugal, Spain and the United Kingdom will be discussed.

High and Low Credit Risk in SME Portfolios: Evidence from Regulatory Risk Grade Dissemination

Purpose: SME sector credit risk has received attention in research from several dimensions of the financial system. SME sector’s funding is mainly supplied by financial institutions and SME sector is both diversified and large sector in both well developed and less developed economies. Specific research on assessing SME as Financial Institution’s (FI’s) individual counterparties and SMEs as portfolios have developed from a theoretical and empirical perspective. To supplement current research on the area, we approach SME risk from perspective of FIs own risk assessments and compare it to how SME risk rating and measurement compares to other counterparties. Design/methodology/approach: We use published risk rating data from large financial institutions in Europe including globally operating FIs and compare shares of credits in different risk grades and overall portfolio risks within an institution’s own risk classification system and risk measurement system. The data consists of 89 comparable portfolios with over 25 million credits. Findings: Our results show that comparison to households and large corporates originates from higher default rate estimates for SME, which shows as smaller share of credits in the investment grade. SME risk is further raised as even within speculative grades SME’s receives higher default estimates in comparison to households and large corporates. An equally notable finding is that the other relevant parameter for risk calculation, loss given default (LGD), does not differ between SME’s and other counterparties. A part of SME credits is found to be in a low-risk regime in portfolio credit risk estimation. Research limitations/implications: Coverage and detail of data restricts to a specified geographical coverage and aggregated data on SME-companies is not as exact as unit level data. The data represents mostly European institutions as it is collected from institutions which have a head quarter in Europe and are applying Basel regulation in a single rule book environment for banking regulation. In a global scopethere may be differences between jurisdictions or between geographical areas. Data published by institutions is an aggregated data on a rating grade level a and not on a unit level data that institutions have for their exact calculations. Comparison methods for SME sector are selected accordingly so that methods apply to class level instead of unit level data. Originality/value: Higher capital requirements for SME’s may restrict the price and availability of finance. According to our results there can be separated a low-risk SME finance without higher capital requirements compared to peers. Results may also be used to support counterparty level default risk model results showing higher risk for SME’s which can be seen in smaller shares of investment grade credits and in a higher default rate for speculative grade credits.

Fit and Proper Requirements in the EU Banking Sector. A Step Further

Prudential regulation has become increasingly important over time. In such a context, strict suitability requirements for members of the management body and key function holders are considered an adequate tool to safeguard the sound and prudent management of banks. In the years following the Great Financial Crisis in 2008–2009 and the Eurozone sovereign debt crisis in 2010–2012, the regulatory and supervisory approach to banks’ corporate governance has seen a significant evolution. The centralisation of banking supervision at the Eurozone level was complemented by the application of a single rulebook throughout the European Union which stated, in compliance with the Capital Requirements Directive, higher suitability requirements for being appointed as a member of a management body or as a key function holder at a bank. Furthermore, the choice to identify fit and proper requirements through standards attributes significant power to the decision maker, thus allowing greater public control over private choices, and is justified by the need to prevent negative externalities. This approach is open to debate. Against the background of the pursuit of public interest, the lawmaker confers discretionary power on the supervisory authorities (the European Central Bank and the national competent authorities), and sets restrictions on the job market for board member candidates. This paper is a contribution enriching the ongoing discussion about the existing regulatory and policy regime, with a special focus on the specific functions performed by the management body members and particularly by the chairs of the management body’s special committees.

The principles guiding the ECB’s enforcement and sanctioning powers

When the 2007–2008 crisis unfolded, the creation of the European Banking Union (EBU) became a pressing policy issue. As is well known, in fact, the wide array of institutional and substantive challenges brought up by the crisis prompted a legal overhaul that culminated in the creation of an unprecedented architecture.1 This original architecture comprises, amongst other things, a new body of rules—ie the ‘Single Rulebook’—new administrative entities—ie the three European agencies EBA, ESMA and EIOPA—and the conferral of innovative powers and responsibilities on the European Central Bank (ECB), reshaping the contours of this independent European institution.2 The ECB has in fact been endowed with supervisory powers thanks to the ‘enabling clause’3 in Article 127 TFEU. According to Article 127(6) TFEU ‘the Council, acting by means of regulations in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament and the European Central...

Rethinking anti-money laundering supervision: The Single Supervisory Mechanism - a model for a European anti-money laundering supervisor?

Whereas the prudential supervision of credit and other financial institutions has been a core policy concern of the EU legislator in the aftermath of the 2008 Financial Crisis, the supervision of private sector entities within the European Anti-Money Laundering framework has been subject to less attention. However, on 20 July 2021, the European Commission intervened and published legislative proposals for two regulations and one directive, meant to boost the European response to the phenomenon of Money Laundering. This contribution – after having pointed out the shortcomings of the current legislative framework – pursues a twofold objective: first, offering an in-depth analysis of whether the Single Supervisory Mechanism, set up within the banking union for the purposes of prudential supervision, might be a useful precedent of Europeanisation to build up upon in matters of Anti-Money Laundering supervision, and second, commenting the possible approaches to be taken when setting up an EU level Anti-Money Laundering supervisor. The systemic cross-border importance of AML – beyond the euro area – warrants the establishment of a new EU agency specialised on AML, invested with more supervisory powers than EBA, ESMA and EIOPA and taking over the direct supervision of high-risk obliged entities, while indirectly supervising the remaining entities. It is argued furthermore that such institutional reform should necessarily be accompanied by the establishment of a Single Rulebook, which enjoys direct applicability across the EU.

How Many Single Rulebooks? The EU’s Patchwork Approach to Ensuring Regulatory Consistency in the Area of Investment Management

The principle of consistency has undergone a remarkable evolution in the European Union (EU) from a mere political objective to a justiciable constitutional principle of EU law. In the area of financial regulation, regulatory consistency plays a particularly salient role as it is considered a prerequisite for preserving financial stability. In the wake of the 2007/2008 financial crisis, EU policy makers coined the concept of the Single Rulebook, highlighting the importance of a consistent and unified regulatory framework for the EU financial sector with a view to completing the Single Market in financial services and ensuring financial stability. This article examines the progress made towards achieving the Single Rulebook in the area of investment management over a decade after the financial crisis. The post-crisis EU legislation in this area follows a patchwork approach with a multitude of Level 1 and Level 2 directives and regulations that largely rely on the contrived legal form and labels to determine the applicable rules. This form-over-substance approach has created a complicated regulatory regime that is often detached from actual risks for investors and financial stability and thus fails to achieve the overarching policy goal of ensuring regulatory consistency. The central argument put forward in this article is that the Single Rulebook would be better achieved with a substance-over-form approach that addresses substantially similar investor protection and financial stability risks in a consistent manner.

Building Regional Payment Areas: The Single Rule Book Approach

Building Regional Payment Areas: The Single Rule Book Approach

European Banking Union: Context, Structure, Challenges and Opportunities

The European Banking Union (EBU) has had a complex strategic, political, economic and legal formation, and throughout the current turmoil there has been a special emphasis on preserving its stability and further development. The EBU formally consists of three interconnected pillars applicable to the euro area: (1) the Single Supervisory Mechanism (SSM) that encompasses European Central Bank’s (ECB) direct and indirect prudential supervision; (2) the Single Resolution Mechanism (SRM) that provides for a harmonized resolution framework; and (3) an envisaged safety net in the form of the European Deposit Insurance Scheme (EDIS). Additionally, the EBU is based on the common EU-wide Single Rulebook. A strong incentive for the EBU’s creation originated both from the repercussions of the global financial crisis and the European sovereign debt crisis. The EBU has experienced constant challenges from its very beginning, including the opposition to any indication of a transfer union, and criticism related to its design. Although progress is recommended on all elements, the most compelling is timely completion of the EDIS. From its inception, the EBU’s main goal has been to break the “vicious circle” between sovereigns and their banks – and that is in the focus of this article. Furthermore, this article explores the structure, achievements and inadequacies of the EBU pillars, and analyses potential threats and opportunities related to this segment of European integration.

Removing the regulatory barriers to cross-border banking

The establishment of the Banking Union and the introduction of the European Single Rulebook seek to pave the way for a single banking market and to break the nexus between banks and sovereigns. Ideally, banks should be subject to a common set of rules and do business across the Banking Union without having to comply with different supervisory practices and methodologies. However, there are still loopholes and discrepancies in the legislative framework that cause regulatory fragmentation, among others, by allowing national authorities to take restrictive measures to protect national interests against the common interest.The present paper analyzes the current obstacles to the free flow of funds within cross-border banking groups operating in the Banking Union, namely the obligation for subsidiaries to meet prudential requirements (capital, liquidity and internal MREL) at individual level and the restrictions to intragroup exposures. To that end, this paper proposes some amendments to the Union regulatory framework aiming to achieve a dual objective; to strengthen banks’ profitability and overall financial position and to promote financial integration and consolidation of the banking sector, preferably through cross-border mergers and acquisitions (M&As). The proposed changes have become more significant today amidst the COVID-19 crisis and its impact on the European banking sector and the European economy. The European Central Bank (ECB) and the Single Resolution Board (SRB) have granted (temporary) relief measures to banks to withstand the effects of the pandemic and continue lending to the economy. Nonetheless, in light of the ECB’s pressure on banks to address effectively and timely the financial impact from the COVID-19 crisis, it is necessary to establish a framework to relieve banking groups from the unnecessary capital and liquidity burden placed on them. The aim of the proposed framework is to improve the banks’ ability to generate sustainable profits and, hence, to enhance their capacity to absorb the impact from the COVID-19 crisis and any future external shock as well.The proposed regulatory reform is governed by three (3) principles. Firstly, the introduction of a default approach for the application of reduced prudential requirements (capital, liquidity and internal MREL) to subsidiaries accompanied by the lifting of restrictions to intragroup exposures. Secondly, particular emphasis is placed on the Supervisory Review and Evaluation Process (SREP) and the resolvability assessment carried out by the ECB and the SRB respectively whose outcome may result in an increase of the prudential requirements. Thirdly, the establishment of a credible escalation mechanism to ensure that parent entities will remain committed to providing capital and/or liquidity support to subsidiaries should their financial situation deteriorate. The proposed mechanism serves as a safety net to prevent the failure of subsidiaries and, if that happens, to minimize the negative implications for domestic financial stability and fiscal sovereignty of host Member States.Under the proposed escalation mechanism, banking groups wishing to take advantage of the proposed capital and liquidity relief measures should sign intragroup financial support agreements on a mandatory basis. Furthermore, the group recovery plan should cover all the subsidiaries enjoying the proposed preferential treatment, irrespective of their materiality for the banking group and/or the host Member State. Once a recovery trigger relevant to a subsidiary is triggered, recovery action should be taken to restore the subsidiary’s financial position. If the parent entity is reluctant to respond appropriately to the worsening of the financial situation of the subsidiary, the ECB and the SRB should take early intervention measures, which could be extended to the parent entity. As a last resort measure, if a material subsidiary comes into a “failing or likely to fail” situation, the SRB may decide the write-down and/or conversion of internal MREL-eligible instruments into equity either independently or in combination with resolution action.The proposed regulatory measures could promote both financial integration and financial stability in various ways, particularly if were accompanied by the completion of some institutional reforms (e.g. establishment of the European Deposit Insurance Scheme).

The EU Bank Insolvency Framework: Could Less Be More?

The framework for bank crisis management in the Banking Union (BU) complies with multiple criteria. Each of these criteria is based on a sound policy rationale; however, when combined, they can generate unintended consequences that undermine the effectiveness of the system, highlighting a case of fallacy of composition. This paper suggests that a piecemeal reform is not adequate to tackle the framework’s shortcomings. A broader effort is required to streamline the current criteria into a single rulebook, achieving effectiveness through simplification. The successful experience of the US framework for bank failure management provides a useful benchmark. It shows that the generalized, if not exclusive, reliance on a single, clearly defined, easily measurable and quickly actionable criterion – the Least Cost Test – makes it possible to offer full protection to taxpayers and to contain the destruction of value caused by bank failures, thereby safeguarding the economy. We suggest that its adoption by the BU would help to frame a common approach to failing banks of all sizes and would provide a unifying force and a solution to the geographic and institutional fragmentation of the current set-up.

EU Financial Market Governance and the Covid-19 Crisis: ESMA’s Nimble, Responsive, and Speedy Response in Coordinating National Authorities through Soft-Law Instruments

The initial evidence indicates that EU financial market governance has performed well in its response to the Covid-19 crisis. In the European Union (EU), the need for coordination and cooperation over this crisis has been a particular concern given that national competent authorities (NCAs) operate under the single rulebook and supervisory action must, accordingly, be consistent. The European Securities and Markets Authority (ESMA) has, however, shown itself to be nimble, responsive, and speedy in deploying its supervisory powers, including those additional powers it has recently been granted under the 2019 ESA Reform Regulation. This has particularly been the case as regards the application by NCAs of ‘supervisory forbearance’ and as regards the application of market disclosures rules, notably the financial reporting standard IFRS 9. ESMA has also been successful in coordinating the few NCAs which decided to impose restrictions on short selling. ESMA’s actions during the Covid-19 crisis underline the de facto power it wields through its soft supervisory convergence powers and the entrepreneurial but effective approach it deploys in their use.See generally, Niamh Moloney, the Age of ESMA. Governing EU Financial Markets (Hart Publishing, 2018), chapter 4.

European Deposit Insurance System (EDIS): Cornerstone of the Banking Union or Dead End?

While the first two pillars of the Banking Union, a Single Supervisory Mechanism (SSM) and a European Resolution Mechanism (SRM) have been realized rather smoothly, the realization of the third pillar, a European Deposit Insurance System (EDIS), proves a bigger challenge. Already in November 2015 the European Commission issued its EDIS proposal. One year later, the European Parliament rapporteur proposed important amendments in her draft report. Since then, the legislative train has stopped, with the Council making the EDIS discussion dependent on additional risk reduction measures for the banking sector. In this contribution we examine the goals of creating EDIS, as well as the reasons and possible solutions for the long-lasting deadlock, and critically assess the main features of the different versions of EDIS currently on the table. We find that the three pillars of the Banking Union are heavily interconnected. The main reason why the realisation of EDIS has been put on hold, are indeed shortcomings in the single rulebook and the first pillar. With the adoption in 2019 of a number of risk reduction measures, progress on EDIS may therefore finally gain momentum. Furthermore, a well-functioning second pillar should drastically reduce the occurrence of DGS payout events. This has changed the nature of DGSs in the EU, which now have a broader responsibility in helping to ensure the availability of deposits at all times, also during resolution proceedings. All current versions of EDIS institutionally anchor this interconnectedness, bringing the SRM and EDIS under the auspices of the same Board, while close cooperation with the first pillar is also ensured. We conclude that the competing visions on EDIS equally further banking stability and equally allow efficient cooperation between the three pillars. From a banking stability perspective, more important than the exact version of EDIS would be other measures to complete the Banking Union, such as the realisation of a common backstop for the Single Resolution Fund and EDIS.

Potential Regulatory Obstacles to Crossborder Mergers and Acquisitions in the EU Banking Sector

Over the past decade, cross-border merger and acquisition (M&A) activity in the EU banking sector has remained far below its pre-crisis levels, despite the regulatory reforms implemented after the financial crisis. While the EU equipped itself with the Single Rulebook, convergent supervisory practices, a common crisis management framework and the creation of the Banking Union, ring-fencing and limits to the circulation of funds across borders are still present and the EU still does not reap the full benefits of the Single Market. The purpose of this paper is to map and analyse the elements of the current EU prudential framework that create obstacles to banking groups operating across borders. The results highlight the existence of a number of potential issues at both regulatory and supervisory levels. First, policy reviews, cases and survey-based evidence suggest that the current regulatory framework relies on a territorial approach (cross-border waivers for capital and minimum requirements for own funds and eligible liabilities (MREL), inefficient intra-group financial support arrangements, a multiplicity of macroprudential tools and the existence of options and national discretions within the Single Rulebook), favours pre-positioning resources with the subsidiaries and entails market fragmentation. Ultimately, this may endanger the comparability of institutions across countries and reduce the incentive to conduct cross-border consolidation. Second, despite the progress made in achieving convergence of supervisory practices across the EU, a number of approaches are not yet fully consistent, in particular with respect to the link between prudential requirements and restrictions on distributions, and to a more transparent approach when setting risk-by-risk requirements. The absence of common and fully transparent EU practices for prudential assessment of M&A transactions, including the determination of capital requirements, further adds to the complexity. Finally, it is also suggested that the completion of the Banking Union, by further strengthening the institutional cooperation among Member States and national authorities, has a fundamental role to play in freeing up the potential of enhanced financial integration. There should also be no further delay in the progress made towards the Banking Union’s achievement of single jurisdiction status.

The European Supervisory Authorities (ESAs) As 'Direct' Supervisors in the EU Financial System

The European Supervisory Authorities (the ‘ESAs’) form part of a large network of EU agencies and are classified as regulatory agencies, their principal tasks being the development and completion of the ‘single rulebook’ for the EU financial system. The ESAs also promote supervisory convergence in order to create a level-playing field in financial supervision and supervisory practices in the EU. In the absence of an explicit legal basis in the TFEU for the allocation of competence to EU agencies, their powers are delimited, shaped and amenable to judicial review in light of relevant CJEU jurisprudence, most importantly, the Meroni doctrine, laying down the core principles governing relations between EU institutions and EU agencies. In this study, we look into the gradually emerging (and increasing) asymmetry in supervisory terms between the ESMA, on the one hand, and the EBA and the EIOPA, on the other. The former’s direct supervisory powers have been progressively expanding and technocratic influence widening, accentuated by recent relevant case-law modernising the Meroni doctrine and the recent amendment of the ESAs’ founding Regulations mirroring the ambition to move towards further centralisation of supervision of EU capital markets. The aim of this paper is to contribute to the ongoing debate arising from the ESAs’ developing role and position within the EU financial system.

I requisiti degli strumenti di capitale primario di classe 1 Appunti per uno studio del capitale delle banche

The need for stability in the financial and economic system arising from the outcome of the most significant of the recent financial crises was the premise for the regulation of banking capital developed by the Basel Committee. In a short time, to respond to similar needs, the European legislator has profoundly renewed the European banking regulation with the result of creating the Single Rulebook. A significant part of this harmonization tool is entrusted to Regulation 575/2013 on prudential requirements (Capital Requirement Regulation, CRR). The CRR identifies capital requirements of banks by determining the rules for the formation of bank capital and the balance ratios between the various elements of bank financing based on the riskiness of the assets. Common equity tier 1 (CET1) is one of the fundamental components of bank capital. The study sets out the structural elements of bank capital and the requisites that the capital instruments must possess in order to be classified as CET1. Furthermore, the essay highlights those profiles in which the prudential discipline overlaps the corporate one and notes those issues on which further analysis of the relationship between the disciplines could be focused.

Macroprudential aspects of the banking union

The present paper addresses the main macroprudential aspects of the Banking Union, that arose as a reply to the European sovereign debt crisis. After the Great Recession, at international level, a certain consensus was reached regarding the necessity to set out and implement this kind of macroprudential regulation to achieve a robust financial sector. Because of this, from this perspective, each of the fundamental pillars of the Banking Union is analysed, just as its single rulebook, to check if it is in existence and, in this case, if it is sufficient. Equally, some financial indicators are studied to check if regulatory changes are reflected in the data, in the full knowledge that the new mechanism has been in place for a short time. Finally, some ideas and proposals are suggested to improve several macroprudential elements of the Banking Union.

The Single Market's Catch-22: Supervisory Centralisation in a Fragmented Banking Landscape

The key question that the present policy contribution addresses is whether increasingly centralised powers necessarily bring about better coordination and more financial integration. In fact, the post-crisis banking regulation scenario has been characterised by such centralisation efforts in the EU. From a regulatory viewpoint, this approach is epitomised by the Single Rulebook, whereas from an institutional one, this approach is characterised by the arrangements that shape the Banking Union, which comprise the Single Supervisory Mechanism (SSM), Single Resolution Mechanism (SRM), and the European Deposit Insurance Scheme (the much debated EDIS that is yet to be finalised). In this context, supranational authorities (in the present analysis the SSM from a supervisory perspective, and the EBA from a regulatory one) advocate for an increasing centralisation of regulatory and supervisory practices across Member States in order to “reduce regulatory fragmentation and contribute to establishing a level playing field in the banking union”. The present contribution, instead, draws upon the idea that uniformity is not a realistic and perhaps not even a suitable goal. Thus, supervisory and regulatory efforts across Europe should aim at fairly and satisfyingly strike a balance between integration and an unavoidable level of fragmentation, which stems from long-standing traditions and layered structures of national banking systems. Careful design and management of such a systematic balance between National and EU levels seems, therefore, a more feasible and realistic objective. Our analysis focuses on the legal and institutional prudential frameworks, and their evolution before and after the crisis. This helps situating our contribution in the distinctive two time windows, namely between the Euro adoption and the global financial crisis (and its spill-over into the Member States debt crisis) and following the crisis. In particular, our analysis examines the large exposures case study, one of the crucial National Options and Discretions (NODs) granted to Member States by the CRR, which is claimed to be a key obstacle to achieving and smoothly applicating the Single Rulebook. Methodologically speaking, to comparatively analyse the variety of banking systems, especially the German, Italian, and French national case studies will be considered, complemented by descriptive statistics of the various banking systems and their evolution over the time windows. Specific attention will be paid to bank balance sheets, bank corporate organisation, micro- and macro-prudential regulation and supervision, taking into account the transfer of competences from the national to the supranational sphere that took place in the realm of prudential oversight.

The European Banking Authority in Light of the CJEU Jurisprudence: The Case of Innovative Payment Services

The activity of the European Banking Authority (EBA), often implying not only technical, but also political, economic and social evaluations, is hardly compatible with the traditional agency model based on a depoliticized activity. The evolvement of the EBA, and of the European Supervisory Authorities (ESAs) in general, demands profound scholarly attention, including a critical analysis of recent CJEU jurisprudence. In light of such jurisprudence, which is taking distance from the Meroni case (a key authority on the limitations imposed on the ESAs rule-making), this article aims at rethinking EU agencies’ position within the EU executive, with particular reference to the activity of the EBA in payment systems. To this scope, this article explores the role and activity of EBA in contributing to create the EU Single Rulebook through its drafting of the relevant Regulatory Technical Standards (RTSs), such as the ones on strong customer authentication and on secure communication.

The Single Rulebook and the European Banking Authority

Chapter 10 starts with a discussion of the so-called Single Rulebook (SR) and the European Banking Authority, summing up the state of the art and critically examining the most recent developments. As the author shows, the Single Rulebook is not truly an example of maximum harmonization and is not really a ‘single’ document, but is rather a ‘multi-tiered’ structure. Several of the Directives composing the SR leave, in fact, wiggle room to Member States, and in any case local rules might create different regulatory environments in which the shared EU rules apply, with sometimes relevant effects on substantive harmonization. The chapter also analyses how the role of the European Banking Authority (EBA) should be strengthened to facilitate a more effective and harmonized rule-making activity.