Ref. Ares(2015) /08/2015. Management Plan 2015 DG FINANCIAL STABILITY, FINANCIAL MARKETS AND CAPITAL MARKETS UNION

Transcription

1 Ref. Ares(2015) /08/2015 Management Plan 2015 DG FINANCIAL STABILITY, FINANCIAL MARKETS AND CAPITAL MARKETS UNION 1

2 Contents PART 1. MISSION STATEMENT...3 PART 2. THIS YEAR'S CHALLENGES...4 PART 3. GENERAL OBJECTIVES OF THE POLICY...6 PART 4. SPECIFIC OBJECTIVES FOR OPERATIONAL ABB ACTIVITIES ABB Activity Financial Services and Capital Markets...13 PART 5. HORIZONTAL ACTIVITIES Policy strategy and coordination Management of the DG

3 PART 1. MISSION STATEMENT OUR MISSION We aim to contribute to a dynamic European economy by integrating financial markets, building confidence and stability in the financial sector and stimulating productive investment. NOTRE MISSION Nous visons à contribuer à une économie européenne dynamique en intégrant les marchés financiers, en créant la confiance et la stabilité dans le secteur financier et en stimulant l'investissement productif. 3

4 PART 2. THIS YEAR'S CHALLENGES As a result of the internal reorganisation of the Commission decided by the college of Commissioners on 5 November 2014, the Directorate General for Internal Market and Services ceased to exist. The newly created Directorate General for Financial Services, Financial Stability and Capital Market Union will combine the strength and experience of the financial services directorates of DG MARKT and the directorate in DG ECFIN responsible for financial stability and macro prudential policies, including the European semester. The single market policy part of DG MARKT has been merged with DG ENTR in the DG Internal Market, Industry, Entrepreneurship and SMEs will be the first year of the new DG FISMA under the authority of Commissioner Lord Hill, with three main policy priorities, described below. As an overarching principle, all initiatives, including those relating to legislation and to delegated or implementing acts, will be considered in the light of the Commission's priorities, the likely contribution to the creation of growth and jobs and the cumulative impact of legislation on the economy. Firstly, the Commission will set out its plans for putting in place by 2019 the building blocks for an integrated, well-regulated, transparent and liquid Capital Markets Union (CMU) for all 28 Member States. In 2015, we will flesh out the context, carry out the analysis of the problems and identify the priority actions that will be needed to achieve the objective. The first step will be publishing a Green Paper in the spring of The purpose of the green paper will be to consult all interested parties. The Green Paper seeks to address three main areas: improving access to financing for all businesses across Europe and investment projects, in particular start-ups, SMEs and long-term projects; increasing and diversifying the sources of funding from investors in the EU and all over the world; and making the markets work more effectively so that the connections between investors and those who need funding are more efficient and effective, both within Member States and cross-border. Progress in this area provides a formidable opportunity to support the creation of jobs and growth in Europe. The consultation will culminate in an action plan that will be adopted by the Commission in autumn In the autumn the first short term results of the CMU will become visible. Around the moment of adoption of the action plan a legislative proposal on securitisation will be adopted. Securitisation of assets increases liquidity and frees up capital for economic growth. An EU-wide initiative on securitisation will ensure high standards of process, legal certainty and comparability across securitisation instruments through a higher degree of standardisation of products. Also autumn a proposal on prospectus will be adopted. The the proposal aims to make it easier for companies (among which SMEs) to raise capital throughout the EU while ensuring effective investor protection. Green Papers on both topics will be consulted to the public together with the CMU Green Paper. 4

5 Secondly, we will set out an agenda for consumers and open, competitive retail financial markets, giving more choice in their savings, insurance and investment decisions. Thirdly, we will complete measures for financial stability, addressing for example the risk deriving from the concentration of derivative trading in Central Clearing Counterparties (CCPs). We will put forward a proposal on recovery and resolution of CCPs and will further our preparation of recovery and resolution frameworks for other systemic non-bank entities. These three priorities will be accompanied by work in a number of other essential areas. In 2015, there will be decisive progress in the implementation of Banking Union. After the completion of the Asset Quality Review and EU wide stress tests exercise, the ECB is now the bank supervisor for the Banking Union countries. We will review the first year of the Single Supervisory Mechanism. We will also pursue our work on the establishment of a Single Resolution Board, recruiting the Board's future staff, preparing the process for the selection of the Board's senior management by Parliament and Council and taking other necessary steps for the establishment of a new agency (building, start of operations, etc.). We will review the framework for macro-prudential policy, including some aspects of the European Systemic Risk Board (ESRB). We will work to improve the functioning of the three European Supervisory Agencies (ESAs), following the Review published in 2014, and analyse how to move towards fully privately funded authorities. We will make decisive progress in the implementation and enforcement of financial reform. We face a significant challenge in putting into place a large number of implementing measures. We will need to get them right, through a sound and transparent process, with good working relationships with the ESAs. We will need to ensure that new rules are properly enforced, and deliver the expected outcomes. Finally, we have a busy international agenda. We must ensure that standards developed at the international level are implemented by all jurisdictions in a consistent way. Implementation of reform will include finalising the details of a number of measures and developing the necessary frameworks for bilateral regulatory cooperation with major partners. The implementation of appropriate equivalence provisions in our legislation will be an integral part of this effort to ensure that global reform is effective. To deliver on the policy priorities under its responsibilities, DG FISMA will need to manage actively its human resources. It will build on a number of actions, which DG MARKT has undertaken to ensure that it has the right staff in the right places and in sufficient numbers. The policy fields under the responsibility of DG FISMA require the recruitment of staff with specific expert profiles. DG FISMA participated in the 2014 specialised competition for financial economists. Results will be published in It will also be able to recruit from the profile list published in Lastly, DG FISMA will continue a pilot project started in DG MARKT to assess workload. The objective of this project is to forecast future HR needs. All these actions will be incorporated in the 2015 HR Strategic Plan, which will be delivered in the first quarter of the year. We use a number of indicators in the Management Plan to measure the results of our work. After careful consideration and in order to measure our contribution to the wider objectives, we selected five key performance indicators that reflect the main priorities of the DG (Growth and jobs, financial stability and consumer protection), namely the level of 5

6 market driven credit intermediation in the EU (in particular for large corporates, midcaps and SMEs), the capital ratios of banks (as measured against the new qualitative requirements introduced by CRD IV/CRR), the reduction of overreliance on ratings (measured by the number of references to credit ratings in EU legislation), the number of EU citizens without a bank account and the average vacancy rate (percentage of vacant posts out of the total number of establishment plan posts). Jonathan Faull Director-General DG Financial Stability, Financial Services and Capital Markets Union 6

7 PART 3. GENERAL OBJECTIVES OF THE POLICY DG Financial Stability, Financial Services and Capital Markets Union (FISMA) aims to provide a regulatory environment that promotes financial stability, enables financial service providers to deliver on their mandate to assess, manage and transfer risk of businesses and households, and provide funding to the economy. Furthermore, the DG will lead and coordinate the Commission's work on building a Capital Markets Union (CMU). The overall objective is to make the EU's financial system less crisis prone and better focussed on delivering the services required by end-users, i.e. citizens and businesses, and as a result make an important contribution to economic growth and employment, social progress and sustainability. The results of our work depend to a large extent on the final texts adopted by the European Parliament and the Council, as well as on the proper transposition, implementation and enforcement of the adopted rules by the Member States. To ensure that citizens and businesses reap the benefits of financial regulation, we monitor closely, in cooperation with the Member States and a number of competent authorities in specific areas 1, how EU law is being applied in practice, and control its full and timely respect. In order to meet the goals set out in the DG s mission statement, the senior management team has established the following general objective: The EU financial sector is properly supervised, stable, transparent and consumer-friendly, it brings benefits for citizens and businesses and is conducive to growth and jobs. In pursuit of this general objective the EU will make progress towards the establishment of a Capital Markets Union: deep European financial markets and innovative financial instruments are increasingly capable of insuring the biggest risks of our citizens and to provide long-term funding including in the strategic areas of Energy Union and Digital Union. Effective consumer protection covering all savings, investment and insurance products promotes a wider and growing choice including via the digital economy. We measure the progress towards meeting our general objectives through indicators that are designed to demonstrate how the DG ensures EU financial market stability and integrity, the integration of financial services markets and progress towards CMU. Some indicators give a very high-level picture of economic reality; others are very specific to a particular objective laid down in a piece of legislation. This is particularly true as regards the effectiveness of the growing body of legislation that seeks to ensure financial stability, which - given that overall knowledge and data is evolving rapidly - is assessed, continuously monitored and evaluated at regular intervals. The DG is continuously working on the improvement of indicators as they are crucial for assessing the impact of new legislation, for the evaluation of existing rules, as well as for the DG's risk management. However, the DG cannot, of course, be held solely responsible for achieving results as measured against these indicators. A range of other factors outside the control of the DG also affects outcomes. 1 Monitoring duties are shared with a growing number of bodies that includes the ESAs, the ESRB, the SSM, the ECB, the IMF, the BIS, the FSB, etc. Also, the DG is hosting the Task Force for setting up the Single Resolution Board, the latter being a crucial building block of the Banking Union which in turn is the EU's strategy for long-term financial stability in the banking sector. 7

8 External factors: Several factors are likely to impact the achievement of DG FISMA's objectives. The economic and financial situation is likely to have a significant impact. Further financial shocks could limit the DG's ability to bring about greater financial stability in the EU. In spite of the major reforms that have been implemented since the onset of the crisis to improve the resilience of the financial sector, such events can never be excluded. They can stem from third countries, from interactions between macro-economic and financial developments or from the financial sector itself. Isolated cases of market manipulation or fraud could also make it harder to re-establish confidence in the financial system. Furthermore, the overall situation of the economy will have an impact on lending and investment. If slow growth persists, it is likely to reduce the willingness of financial intermediaries to increase productive investment into the economy. The decision-making process constitutes another important external factor. DG FISMA's work in 2015 will consist for a large part in regulatory work. Legislative proposals prepared by DG FISMA, which are then adopted by the Commission, are submitted to the European Parliament and the Council. The final texts adopted by those institutions may differ substantially from the Commission's proposal and alter its intended impacts. Likewise, the European Supervisory Authorities play a leading role in the design of regulatory and implementing technical standards. 8

9 General objective: The EU financial sector is properly supervised, stable, transparent and consumer-friendly, it brings benefits for citizens and businesses and is conducive to growth and jobs. programme-based (please name the related spending programme) Non programmebased The chosen indicators are based on readily available and easily verifiable aggregate data that reflect wider financial stability and financing conditions in the EU. However, careful interpretation is required when assessing the data. The chosen financial stability indicators, e.g. Credit Default Swap (CDS) spreads, are market-based indicators that are highly volatile and are driven by market sentiment and a whole range of other factors that may not be directly driven by our regulations. Continuous monitoring (rather than a simple daily snapshot) is required to observe and understand trends in the CDS data. The chosen financing indicators (value of loans/debt/equity issued) are influenced not only by our regulation and other supply factors, but also depend on the demand for finance in the economy, which is generally unrelated to regulation. Increases in values of these indicators indicate increased financial activity, but not necessarily more finance flowing to the economy. The 15 May 2014 Communication on a reformed financial sector for Europe 2 and the SWD (ERFRA) accompanying it 3 was a first step towards a comprehensive review of the financial regulatory agenda since the start of the crisis, but further analysis is required to understand how much the observed changes in indicators as the ones contained in this document are driven by regulation. The activities of the three European Supervisory Authorities (ESAs) for banking, insurance and securities set up in 2011, together with the European Systemic Risk Board (ESRB), continue to contribute to the achievement of this general objective While any robust indicator directly and regularly measuring impact of their activities cannot be established in the course of an annual monitoring exercise, some indicators may be introduced to vet the quality of DG FISMA s relationship with the ESAs. In any event, DG FISMA will continue in 2015 its monitoring and its dialogue with the ESAs and the ESRB on the question of whether their mandate and their resources are commensurate with the tasks conferred upon them. DG FISMA will further put in place clear working arrangements, notably on the preparation of technical standards and will ensure that these are complied with. DG FISMA will ensure appropriate internal coordination and cooperation on matters related to ESA work, e.g. via regular internal exchanges of views. 2 COM(2014) 279 final, SWD(2014) 158 final,

10 Impact indicator: CDS spreads on sovereign bonds in selected EU Member States Definition: CDS spreads on sovereign bonds serve as an indicator for a credit event of default of the issuer country on its payment commitments. An increasing value for the spreads is an indicator of increase in the probability of default. Source: 5-year CDS spreads from Bloomberg (World Currency Ranking System WCRS screen) Date: DE ES FR UK IT 31DEC DEC DEC Continuous monitoring and avoid spikes Impact indicator: CDS spreads on financial institutions (and banks in particular) Definition: CDS spreads on financial institutions (banks in particular) bonds serve an indicator for a credit event of default of the issuer on its payment commitments. An increasing value for the spreads is an indicator of increase in the probability of default. Source: 5-year CDS spreads (average) for banks in Europe from Bloomberg (Global CDS Chart screen GCDS) 31/12/2012: bp 31/12/2013: 141 bp : 103 bp Continuous monitoring avoid spikes and Daily market data Impact indicator: Intra-EU direct investment, average value of inward and outward Direct Investment flows divided by GDP Definition: Intra-EU direct investment is an important factor that expresses the attractiveness and competitiveness of the single market. Enterprises that are confident to invest in other countries establish a new plant/office, or alternatively, purchase existing assets. These enterprises seek to complement or substitute external trade by producing (and often selling) goods and services in countries other than where the enterprise was first established. Source: Eurostat (last data update on , extracted on ); : EU27, 2013: EU28 10

11 (year) Long-term increase in intensity of Intra-EU direct investment (increase the current trend) * Average inward and outward net FDI based on Eurostat BoP statistics. Services: NACE Ver. 2 codes G U Source: Eurostat, bop_fdi_flow_r2 Impact indicator: Loans by banks to non-financial corporates Definition: This indicator measures the total volume of loans provided by the Monetary Financial Institutions (MFI) to non-financial corporates (NFC); i.e. businesses, at the end of a given year. An increase in the volume of the MFI loans to NFC indicates an improvement in the financing available to businesses. Source: ECB, Quarterly Sector Accounts, ESA Q2: EUR trillion EUR (annual growth: -1.5%) 2014Q1: EUR trillion EUR (annual growth: -2.4%) Continuous monitoring of loans provided to the economy 2013Q4: EUR trillion EUR (annual growth: -2.4%) Impact indicator : Value of equity outstanding Definition: Equity is the most important part of non-financial companies capital structure. The indicator refers to total equity instruments outstanding at the end of the latest available quarter. For data availability and comparability reasons we have chosen the largest available euro area aggregate including all Member States that had introduced the euro as of 2012, but excluding Austria and Cyprus for which the indicator is not available. Source: ECB, Quarterly Sector Accounts, ESA Q2: EUR 14.1 trillion EUR (annual growth: 13.5%) Gradual increase in equity financing 2014Q1: EUR 13.8 trillion EUR (annual growth: 11.0%) 2013Q4: EUR 13.6 trillion EUR (annual growth: 12.5%) 11

12 PART 4. SPECIFIC OBJECTIVES FOR OPERATIONAL ABB ACTIVITIES 4.1. ABB Activity FINANCIAL SERVICES AND CAPITAL MARKETS In accordance with its mission statement, DG FISMA formulates and implements policies to safeguard financial stability, complete the single market for financial services and thereby facilitate an appropriate funding of the economy. In this way, the DG contributes to the overarching Commission objective of promoting strong and sustainable growth and employment creation in the EU economy. The establishment of a Capital Markets Union (CMU) is particularly key in that respect. The creation of large, deep and liquid capital markets will help to lower funding costs and widen choice for investors, to the benefit of small and medium-sized enterprises in particular, while increasing the resilience of the economy to adverse financial shocks by ensuring a better balance between direct and indirect funding sources. On the basis of these general policy objectives, the main activities of the DG in 2015 can be categorized under the following broad headings: Investment and company reporting The economic crisis has further strengthened the need to ensure that the internal market remains an open and attractive place for both EU and third country investors. We also need to continue to improve the business environment across the EU for investors, shareholders and companies in order to generate growth and jobs. The application of the free movement of capital principle will play an important role in the creation of a Capital Markets Union by 2019, which is a key priority of the new Commission. More specifically, through enforcement of the directly applicable free movement of capital principle, we will aim at removing remaining barriers and unjustified restrictions which hamper investment, while taking public policy and public security considerations into account. Obstacles to the completion of the Capital Markets Union will be directly tackled through targeted enforcement actions. Enforcement will also be used to ensure that Member States implement and apply EU financial services regulations. This work will be done based on legal and economic analysis. The latter also provides perspective and meets the agenda for smart regulation and regulatory fitness, through detailed work in the form of impact assessments and ex post evaluations. It is essential to provide for high quality, reliable and transparent information on companies and adequate internal and external controls within companies and improve quality of credit rating so as to ensure sustainable growth. Furthermore, activities planned in this area will help improve the business environment, especially for SMEs and thus contribute to the 'Europe 2020' objectives. Financial markets The financial crisis has prompted a wide-ranging rethink of the way in which financial sector infrastructures and players operate, how they are managed and capitalised, and how they are supervised by European and national authorities. The European Securities Markets Authority was created to assist the Commission in the development of a single rule-book and to achieve a high degree of supervisory convergence across the EU. The rules governing the trading of financial instruments have been overhauled, sanctions against market abuse have been strengthened, the protection of investors investing in collective investment funds 12

13 has been enhanced, and a new framework has been established for the safe and efficient clearing of derivatives transactions. In 2015, priority will be given to developing and adopting high quality implementing rules to complete the reform undertaken after the crisis. Where already possible particular reporting obligations exist or sufficient time has lapsed since the application of new rules, work should be launched to start assessing the actual economic impact of the new rules. In addition, there will be a need to ensure that post-trading infrastructures can withstand important financial shocks (possibly through the establishment of a recovery and resolution framework for Central Clearing houses) and that international recommendations to improve the transparency and safety of securities financing markets are followed through at the European level. Furthermore, and as part of the creation of a Capital Markets Union, work will have to concentrate on ensuring that financial markets can contribute to higher growth rates and job creation in the EU. These markets should allocate capital to their best uses in the EU with a high degree of efficiency. In this regard, particular attention will have to be given to the development of alternatives alongside traditional bank funding. Consultation on the priority areas for further integration of capital markets will be important to understand the challenges and solutions, for example, the role of developing an EU framework for simple and transparent securitisation that would be attractive for investors; rules governing the issuance of securities should be reviewed; and how to ensure funds from investors can be channelled to those who need them, in particular SME and infrastructure projects, with a high degree of efficiency and at low cost. This will have to be done alongside maintaining an appropriate level of investor protection to ensure confidence. Regulation and prudential supervision of financial institutions A healthy financial system requires safe and stable financial institutions, which are responsibly regulated, managed and supervised. Only then will the financial system support growth and benefit EU citizens, companies and society as a whole. In the last years, huge efforts have been deployed to strengthen EU financial institutions given their role in the stability and functioning of our economy. New regulatory and supervisory frameworks have been put in place and the financial institutions themselves have made a considerable progress in strengthening their resilience. In 2015, DG FISMA will have to ensure a swift and orderly implementation of the new regulatory framework by adopting a large number of delegated and implementing acts (40 for CRR/CRD, 20 for Solvency II etc.). This will require a very intensive interaction with the European Banking Authority and the European Insurance and Occupational Pensions Authority. In addition, DG FISMA will have to carefully monitor the correct transposition of the existing rules, carry out reviews and prepare evaluation reports and take action if shortcomings are identified. Regarding banks, there are still concerns that a small number of large and complex banks, may remain too-big-to-fail, too-costly-to-save or too-costly-to-resolve. A successful completion of the negotiation of the proposal on the bank structural reform will therefore remain important for DG FISMA. In the area of bank supervision, with the creation of the Single Supervisory Mechanism (SSM), the first pillar of the Banking Union, DG FISMA will actively contribute to the successful assumption of powers by the SSM and notably carry out a review of the SSM Regulation by the end of

14 DG FISMA will also pursue its efforts to lay the foundation for the creation of an EU-wide single market for payments by completing the negotiations on the revised Payment Services Directive 2 and the Multilateral Interchange Fees Regulation [both agreed by co-leg's]. In the area of insurance (revised Insurance Mediation Directive, IMD 2) and occupational pensions systems (revised Institutions for Occupational Retirement Provision, IORPs 2), DG FISMA will continue promoting greater efficiency, safety and transparency. The successful conclusion of the negotiations of these proposals will be an important goal in this regard. On the prudential / financial stability front, new rules for banks and insurance have been developed and implemented. However, financial groups involving both banks and insurance entities could pose specific risks to the financial system, which need to be appropriately addressed. An appropriate balance has to be reached as regards the financial stability concerns on the one hand, and on the other hand, ensuring that financial institutions are able to efficiently perform their intermediary role and hence contribute towards growth. The work-streams aiming at further deepening the single market focusing on growth will be a key part of the capital markets union workstream. Stimulating growth should go hand in hand with initiatives and measures focusing on promoting consumers' interest in the financial services area. The initiatives would relate notably to financial advice, simple financial products, access to cross-border service provisions, with the aim to promote competition and transparency. Finally, DG FISMA will continue to promote international convergence and contribute to the development of global regulatory standards. Apart from actively contributing to the work of the international standards setters, such as the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, the Financial Stability Board etc., DG FISMA will actively pursue its efforts to ensure convergence of the regulatory and supervisory frameworks also on a bilateral basis. For example, DG FISMA aims at the opening of negotiations with the US on reinsurance in Financial system surveillance and crisis management The DG will monitor and analyse financial-sector developments at the global, EU and Member-State levels, with a view to identifying potential sources of systemic risk. This systemic risk analysis will feed into the EU Semester and form part of the DG s contribution to the work of the European Systemic Risk Board (ESRB). The DG will also contribute to the formulation and implementation of macro-prudential policies at the EU and national levels. With the bulk of a new micro-prudential regulatory framework now in place, the DG will focus on filling remaining gaps, ensuring that the new framework is implemented effectively and on time, and completing the Banking Union. In pursuing this objective, the DG will work closely with the ECB, the ESRB, the three European Supervisory Authorities (ESAs) and the Single Supervisory Mechanism (SSM), as well as with global institutions such as the IMF, the FSB and the Basel Committee. The DG will also work on crisis management, focusing on recovery and resolution arrangements for both banks and non-bank institutions and working with the newly-established Single Resolution Mechanism (SRM). On the Single Resolution Mechanism, which is the second pillar of the Banking Union, the work will consist in initiating the operation of the Single Resolution Board until the appointment of the members of its governing body, in early 2015, and preparing the 14

15 Commission for the role that it will be called to play in such a mechanism. In particular, the Commission will ensure a smooth starting-up of the resolution planning activity by the Single Resolution Board in close cooperation with the National Resolution Authorities from early Finally, the DG will pursue its work on the review of the European System of Financial Supervision, consulting on possible ways to achieve the objective of making the European Supervisory Authorities fully funded by the private sector, and on possible improvements to the ESRB and the ESAs. ABB activity: Financial services and capital markets Financial resources ( ) in commitment appropriations Operational 4 expenditure (commitments appropriations under chapter and article Financial Services and Capital Markets ) (commitments appropriations under chapter, article and item Implementation and development of the internal market ) will be received from DG ECFIN Administrative expenditure (managed by the service) Total Establishment plan posts Human resources Estimates of external personnel (in FTEs) Total Relevant general objective: The EU financial sector is properly supervised, stable, transparent and consumer-friendly, it brings benefits for citizens and businesses and is conducive to growth 4 Estimations for the new Draft Budget

16 and jobs. Specific objective: EU companies can operate and move easily within the EU, are well governed and transparent, present high quality and comparable financial reports and are subject to high quality audits and ratings. 5 programme-based (please name the related spending programme) Non programme-based Result indicator: Number of countries using International Financial Reporting Standards (IFRS) Definition: In 2005 the EU took a significant step and made the use of IFRS obligatory for the consolidated financial statements of EU companies which are listed on the EU s stock markets (Regulation 1606/2002). The EU is the largest jurisdiction applying IFRS. In relation to listed companies, the Commission s work extends beyond the EU s borders and goes towards promoting the use of IFRS as the worldwide financial reporting language so enhancing the efficiency and transparency of capital markets throughout the globe. Source: In 2014: 130 countries permit or require IFRSs for domestic listed companies: (128 in 2013, 125 in 2012, 120 in 2011) Maintain positive trend Result indicator: Percentage of standards endorsed in the EU compared to the number of standards issued by the International Accounting Standards Board (IASB) by 2020 Definition Significant, credible and independent technical upstream European input is essential at the development of those standards. The IAS Regulation foresees an accounting technical committee which shall provide support and expertise to the Commission in the assessment of international accounting standards. The committee is called the European Financial Reporting Advisory Group (EFRAG). The function of the Committee is a regulatory one and consists in providing an opinion on the Commission proposals to adopt an international accounting standard as envisaged under Article 3 of the IAS Regulation. The governance of EFRAG was reformed in 2014 in order to strengthen the EU influence on the international standard setting process. If EFRAG is influential enough, the standards developed by the IASB are acceptable to be endorsed in the EU. Source: Commission / FISMA.B.3 As of November 2014, close to 100% of IFRSs were endorsed in the EU (to the exception of the amendments to IFRS 9 on financial instruments, IFRS 14 on rate regulated activities and IFRS 15 on revenue recognition currently going through the endorsement process): 54 standards out of 56, i.e. 96% 100% by 2020 Result indicator: Average rotation period (i.e. duration of the audit engagement) for auditors of public-interest entities in the EU Definition: In the field of statutory audit, the new EU Regulatory framework adopted in April 2014 and entered into force on 16 June 20146, would improve audit quality across the EU to help 5 This specific objective incorporates the objective and indicators set in DG FISMA s programme to support specific activities in the field of financial reporting and auditing for the period of The objective set in the Legal basis is to improve the conditions for the efficient functioning of the internal market by supporting the transparent and independent development of international financial reporting and auditing standards. 6 Regulation (EU) No 537/2014 and Directive 2014/56/EU, OJ L

17 restore investor trust in financial company information. The new rules will apply as of June The Commission's challenge in the following years will be to assess the impact of the new rules based on audit quality indicators and take any further measures that may be necessary to make sure that the reform delivers its full potential across the Single Market. The principle of mandatory rotation is a cornerstone of the new legislation as it is an essential ingredient of audit quality to measure the independence of the auditors. In order to address the familiarity threat, it was important to establish a maximum duration of the audit engagement. The new rules on Statutory Audit requires public-interest entities to change audit firm every 10 years in cases where one auditor has performed the statutory audit (or possibly years after tendering or years after joint audit) (for example in UK 2013, 31 per cent of FTSE 100 companies and 20 per cent of FTSE 250 companies have had the same auditor for more than 20 years, and 67 per cent of FTSE 100 companies and 52 per cent of FTSE 250 companies for more than ten years). Source: Commission / FISMA.B.4 Number of Member States with 20 years (or less) duration of the audit engagement in 2014: 2 Member States 28 Member States by 2020 Result indicator: Number of references to credit ratings in EU legislation Definition: The new regulatory framework on credit rating agencies which entered into force on the 21st of June 2013 aims to reduce reliance on CRA ratings, enhance transparency on sovereign debt ratings, increase competition in the rating industry and reduce risks of conflicts of interests due to the issuers pay s model. With regard to reliance on ratings; the target is to reduce references (not quantified) to credit ratings in EU and national legislation, in general. Source: Commission / FISMA.B.4 Data will be provided in 2015 Decrease the number of references to credit ratings Main outputs in 2015: Description (Commission*/final output**) Indicator Nomination of a candidate for the President of the Board of the European Financial Reporting Advisory Group (EFRAG) Adoption Q Membership of China in the IFRS Monitoring Board Adoption Q Prolongation of the Union programme for EFRAG for the period Commission Implementing Regulation on the mapping of ECAIs Implementation of the revised regulatory framework for CRAs including implementing multiple technical standards and preparation of Adoption Q Adoption Q Adoption Q

18 several reports for the EP and Council)* Endorsement of new International Financial Reporting Standards IFRS (IFRS) to maintain high quality consolidated accounts by EU firms listed on regulated markets* Equivalence decisions on Country by Country reporting and Transparency/ Prospectus Directives to reduce regulatory burden for EU companies* Adoption Throughout 2015 Adoption Q Equivalence of third countries national accounting Adoption Q standards* Commission Staff Working Document "European Completion of the Q Financial Stability and Integration, April 2015" and organization of a joint conference with the ECB in Brussels where this is presented together with a sister publication of the ECB "Financial Integration in Europe, April 2015"* SWD; organization of the joint EC-ECB conference Planned evaluations: Annual report on the activity of the IFRS Foundation and of EFRAG (Financing Regulation 58/2014), 4th quarter 2015 Commission Report on the evaluation of the IAS Regulation, 2 nd quarter Commission Report on European creditworthiness assessment for sovereign debt, 3 rd quarter Relevant general objective: The EU financial sector is properly supervised, stable, transparent and consumer-friendly, it brings benefits for citizens and businesses and is conducive to growth and jobs. Specific objective: Free movement of capital is applied in a coherent way in the EU, enabling access for European companies and States to capital and ensuring the integrity of financial markets. programme-based (please name the related spending programme) Non programme-based Result indicator: OECD FDI regulatory restrictiveness index: average for the EU Member States in the index. Definition: This OECD FDI index measures statutory restrictions on foreign direct investment in 58 countries, including 24 EU Member States, and covers 22 sectors. The index gauges the restrictiveness of a country s FDI rules by looking at the four main types of restrictions on FDI: (i) Foreign equity limitations; (ii) Screening or approval mechanisms; (iii) Restrictions on the employment of foreigners as key personnel; and (iv) Operational restrictions, e.g. restrictions on branching and on capital repatriation or on land ownership. The index ranges from 0 (the country is fully open to FDI) to 1 (the country is fully closed to FDI). Therefore, a decrease or lack of change in the index is an indication of the achievement of this specific objective. Source: OECD, In 2013 the average index for 24 EU Member States was (In 2012 the average index was 0.04) Decrease or lack of change in the average OECD FDI regulatory restrictiveness index for the EU* 18

19 Result indicator: The Chinn-Ito Index (KAOPEN): average of EU Member States in the index. Definition: KAOPEN is an index measuring a country s degree of financial account openness, based on a codification of restrictions on cross-border financial transactions reported in the IMF s Annual Report on Exchange Arrangements and Exchange Restrictions. The index is currently available for 27 EU Member State (and can also be normalised from 0 to 1). The index takes on higher values the more open the country is to cross-border capital transactions. Therefore, an increase or a lack of change in the index is an indication of achievement of the specific objective. Source: Menzie Chinn and Iro Hito, "A New Measure of Financial Openness", Journal of Comparative Policy Analysis, Volume 10, Issue 3 September 2008, p Available at: In 2012 the average index for 27 Member States was 2.10 (in 2011 the average index was 2.185). The average normalised index in 2012 was Increase or lack of change in the KAOPEN for the EU* * A lack of change can be considered as an indication of the achievement of the objective because the EU has already on average the best scores in both indicators worldwide. There is, therefore, little scope for further improvements. At the same time, there is a real threat that the EU scores might worsen, given the current strong protectionist pressures and high risks posed by financial instability. Thus, a lack of deterioration in the value of both indices for the EU in such a context can be considered an indicator of success. Relevant general objective: The EU financial sector is properly supervised, stable, transparent and consumer-friendly, it brings benefits for citizens and businesses and is conducive to growth and jobs. Specific objective: Appropriate supervision, robust market infrastructures and a high level of transparency contribute to the stability and integrity in financial markets. 19 programme-based (please name the related spending programme) Non programme-based Supervision, and lack thereof, was one of the factors that led to the financial crisis. A tighter, mor time system of supervision and one that can take the global nature of a modern financial system ful account, could have led to earlier preventive measures and avoid some of the peaks during th financial crisis. Since 2007, the entire regulatory framework embedding financial institutions, fin market infrastructures, conduct, and products has been redesigned with very few pending compared to what had been agreed at the G20. To widen the use of central clearing was one of the elements within a strategy to arrive at more transparent markets especially for financial deriv Central clearing of standardised OTC derivative contracts removes the bilateral counterparty credit transactions, with the CCP assuming the obligations of each counterparty. CCPs are designed to be a make good any losses upon the default of a participant in its service, thereby mitigating the po systemic risk caused by the default and associated losses of a highly connected market participant and MiFID, as well as a number of other pieces of legislation, have been the vectors of regulatory act increase market transparency and market integrity under this objective. Another, more broadly approach that is now being continued under the objective of CMU, is to lower the overall reliance on finance as non-bank finance, in particular equity finance, has advantages in terms of cross-bord sharing and shock absorption. Making market-based savings and investment vehicles more attr (UCITS) contributes to this objective.

20 Result indicator: Level of market driven credit intermediation in the EU, in particular for large corporates, midcaps and SMEs Definition: This indicator measures the value of short-term and long-term debt securities held by non-financial corporates. This measures the amount of market-based debt finance to the economy. Increased market driven credit intermediation is a sign that financial markets are functioning and facilitating the flow of finance to the economy. Access to market-based finance helps reduce the reliance on bank finance and diversify financing sources in the EU economy. Source: ECB Statistical Data Warehouse Q2: EUR trillion EUR (annual growth: 8.8%) 2014Q1: EUR trillion EUR (annual growth: 6.5%) 2013Q4: EUR trillion EUR (annual growth: 5.8%) Continuous monitoring of the increase in the market driven credit intermediation in the EU, in particular for large corporates, midcaps and SMEs level Result indicator: Percentage of settlement fails (weighted average by settlement volume) Definition: One of the objectives of the proposal for a Regulation on Central Securities Depositories is to improve the efficiency and stability of settlement systems. Source: ECSDA (European CSD Association) In general, data is scarce, largely because there is no harmonised definition of a "settlement fail". This will change in the future. CSDR, once adopted, will introduce a harmonised definition and a requirement for ESMA to report on the number of settlement fails (Article 74(1)(a)). The data provided is an indicative baseline which is based on intermittent industry surveys. No more recent data is currently available. 2012: 1.09%. 2009: 2.59% Reduce the number of settlement fails Result indicator: % of OTC derivatives centrally cleared Definition: As part of the 2009 G20 Pittsburgh agreement, it was agreed that jurisdictions should introduce a clearing obligation for standardised OTC derivatives contracts. EMIR transposed the clearing obligation into EU law. The high number of cleared transactions is an indication of a safer and more transparent derivatives market. Source: FSB s Progress Reports In mid-2012, around 28% of OTC derivatives were cleared. In 2014, this figure had risen; 56% of the amount of transactions that could theoretically be centrally cleared are currently cleared, and 44% of all estimated "notional 20 Increase in the % of OTC derivatives centrally cleared The difference between what firms

21 outstandings" are cleared. had actually cleared and the notional amount that could have been cleared suggests that there remains substantial potential for additional uptake of central clearing. Figures should increase significantly with the advent of mandatory clearing from 2015, and with the incentivisation of clearing through margin requirements. Result indicator: Number of authorised EuVECA and EuSEF funds Definition: In order to facilitate cross-border funds for SMEs and for social entrepreneurs, the European Venture Capital Fund (EuVECA) and the European Social Entrepreneurship Fund (EuSEF) were created in Most of the first wave funds became operational only in These European passported funds are important as national fund vehicles for financing for ventures and social enterprises often do not achieve a critical mass. They also reflect the increasing interest of investors in combining pure financial return with a social impact and job-creation. Together with ESMA and Member States, the Commission is working to increase the uptake of these funds. Source: ESMA As of November 2014, 2 EuSEF and 21 EuVECA have now been authorised. Main outputs in 2015: Significantly increase the number of authorised EuSEF and EuVECA. Description (Commission*/final output**) Indicator Capital Markets Union package: Green Paper on Capital Markets Union* Action Plan on Capital Markets Union* Review of the Prospectus Directive* Framework to facilitate investments into high quality securitisation* Delegated acts and RTS/ITS in financial markets: Markets in Financial Instruments Directive and Regulation (MiFID II) area* Markets Abuse Regulation (MAR) area* Delegated acts and RTS/ITS in the area of posttrading: European Market Infrastructure Regulation (EMIR) area, including RTS on clearing obligations, RTS on margins for uncleared trades, and Implementing acts on equivalence with third countries on CCPs, trade repositories and transactions* Regulation on central securities depositories Adoption Adoption Adoption Q Q Q Q Q Q Q Q

22 (CSDR) area* Delegated acts and RTS/ITS in the area of investment funds: European Social Entrepreneurship Fund Regulation area* European Venture Capital Fund Regulation area* PRIIPs Regulation area* Alternative Investment Funds Managers Directive (AIFMD) turning on the third country passport* UCITS IV Directive area (Article 50a securitisations)* European Long-term Investment Funds (ELTIF) Regulation area* Finalisation of the following ongoing negotiations: MMF Regulation (part of the shadow banking package)** Regulation on Benchmarks** Regulation on Securities Financing Transactions (part of the shadow banking package)** Adoption Q Q Q Q Q Q Adoption by the EP and the Council Q Q Q Planned evaluations: Report on the review of EMIR under Art. 82* Report on Crowdfunding (follow up of Communication COM(2014)172 of )* Commission Report on the use of empowerments in UCITS IV Commission Report on the use of empowerments in AIFMD Relevant general objective: The EU financial sector is properly supervised, stable, transparent and consumer-friendly, it brings benefits for citizens and businesses and is conducive to growth and jobs. Specific objective: Effective investor protection is ensured through strict conduct-of business and disclosure rules. programme-based (please name the related spending programme) Non programme-based An indirect strategy to contribute to the general objective of stable financial markets at the service of the EU economy is to strengthen market-based savings and investment vehicles and thereby strengthen alternatives to bank finance. As a result the potential for the banking sector to create and amplify systemic risk should decrease. Making market-based savings and investment vehicles more attractive (UCITS) contributes to this objective. 22