Commission staff working document - Accompanying document to the Proposal for a Regulation of the European Parliament and of the Council establishing a European Banking Authority, Proposal for a Regulation of the European Parliament and of the Council establishing a European Insurance and Occupational Pensions Authority, Proposal for a Regulation of the European Parliament and of the Council establishing a European Securities and Markets Authority : possible amendments to financial services legislation {COM(2009) 501 final} {COM(2009) 502 final} {COM(2009) 503 final} {SEC(2009) 1234} {SEC(2009) 1235}
Date: 2009-09-23
Institutions: European Commission
Subjects: EU financial instrument, EU office or agency, bank, drafting of EU law, financial control, financial institution, financial services, operation of the Institutions, pension scheme, retired person

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.9.2009 
SEC(2009) 1233 

COMMISSION STAFF WORKING DOCUMENT 

accompanying document to the 

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a European Banking Authority 

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a European Insurance and Occupational Pensions Authority 

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a European Securities and Markets Authority 

POSSIBLE AMENDMENTS TO FINANCIAL SERVICES LEGISLATION 

{COM(2009) 501 final} 
{COM(2009) 502 final} 
{COM(2009) 503 final} 
{SEC(2009) 1234} 
{SEC(2009) 1235} 

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Introduction 

The  Commission  Communication  of  27  May  2009,  "European  financial  supervision"1, 
proposed changes to strengthen the architecture of European financial supervision following 
the  financial  market  disruption  that  began  in  2007.  Specifically,  it  proposed  the  creation  of 
two new bodies: 

•  a European Systemic Risk Council (ESRC) to monitor and assess risks to the stability of 
the  financial  system  as  a  whole  ("macro-prudential  supervision"),  and  provide  early 
warning of systemic risks that may be building up and, where necessary, recommendations 
for action to deal with these risks.  

•  a  European  System  of  Financial  Supervisors  (ESFS)  for  the  supervision  of  individual 
financial institutions ("micro-prudential supervision"), consisting of a network of national 
financial  supervisors  working  in  tandem  with  new  European  Supervisory  Authorities 
(ESAs),  created  by  the  transformation  of  existing  Committees  for  the  banking,  securities 
and  insurance  and  occupational  pensions  sectors.2  The  Communication  proposed 
transferring  to  the  new  Authorities  all  of  the  current  competences  of  the  Committees  in 
question and granting them extra competences, including the following: 

•  Developing proposals for technical standards; 
•  Settling  cases  of  disagreement  between  national  supervisory  authorities, 

including within colleges of supervisors; 

•  Contributing to ensuring compliance with Community law; 
•  Exercising direct supervisory powers for defined entities with a pan European 

reach; 

•  Co-ordination and decision-making in crisis situations; and 
•  Collecting relevant information. 

The  Communication  stated  that  the  Commission  intended  to  bring  forward,  as  soon  as 
possible, the legislative changes to put in place the new framework for EU supervision, on the 
basis  of  the  orientations  set  out  in  the  Communication  and  after  further  consultation  of 
stakeholders,  so  that  the  necessary  measures  could  be  adopted  in  time  for  the  renewed 
framework to be up and running before the end of 2010. It invited the European Council to 
endorse this plan.  The Conclusions of the European Council of 18-19 June 2009 supported 
the  creation  of  an  ESRC  (renamed  European  Systemic  Risk  Board,  ESRB)  and  an  ESFS, 
consisting of the three ESAs. 

The Communication also concluded that in order for the ESFS to work effectively, changes to 
the financial services legislation would be necessary, in particular  to provide an  appropriate 
scope to the more general powers provided for in the individual regulations establishing the 
authorities,  ensuring  a  more  harmonised  set  of  financial  rules  through  the  possibility  to 
develop  draft  technical  standards  and  to  facilitate  the  sharing,  where  necessary,  of  micro-
prudential information. 

1 COM(2009) 252 final. 
2 The 3 level 3 committees, CESR, CEBS and CEIOPS 

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This document accompanies the proposals for legislative acts creating the ESFS and outlines 
the possible changes that may be made in the relevant sectoral legislation.  The areas in which 
amendments may be proposed fall broadly into the following categories: 

•  Definition of the appropriate scope of technical standards as an additional tool for 
supervisory  convergence  and  with  a  view  towards  developing  a  single  rule  book 
(Section 1 and Annex I). 

•  Changes to the credit rating agencies regulation to allow the European Securities and 

Markets Authority to exercise direct supervision of such entities (Section 2). 

•  To appropriately integrate the possibility for the authority to settle disagreements in 
a balanced way to those areas where common decision making processes already exist 
in sectoral legislation (Section 3). 

•  General amendments which are common to most sectoral legislation and necessary 
for the directives to operate in the context of new authorities for example, renaming 
the level 3 committees to the new authorities and ensuring the appropriate gateways 
for the exchange of information are present (Section 4). 

This  document  gives  an  overview  of  the  amendments  that  should  be  made  to  the  banking, 
insurance and securities sectoral legislation to ensure the Authorities can operate effectively.  
However they do not constitute a formal proposal.  The Commission will propose a package 
of detailed legislative changes for the Council and Parliament by the end of October 2009. 

General scope of competencies of each respective Authority 

For clarity when discussing the changes outlined in the remainder of this document, the list of 
directives relevant to each authority is provided below. 

European Banking Authority 

•  Financial  conglomerates  directive  (FCD):3  The  FCD  ensures  the  effective 
supervision of financial conglomerates - financial groups active in different financial 
sectors, often across borders.   

•  Capital  requirements  directive  (CRD):4    The  CRD  sets  the  EU  rules  on  capital 
requirements for credit institutions and investment firms.  The CRD implements the 
Basel II accord into EU legislation and deals with a number of areas not covered in 
the accord but critical to the functioning of the single market.   

•  Anti money laundering directive:5  To limit opportunities for money laundering and 
financial crime, those subject to the Directive are required to identify and verify the 
identity  of  their  customer  and  of  its  beneficial  owner,  monitor  their  business 
relationship with the customer; and report suspicions of money laundering or terrorist 
financing to the public authorities. 

3 2002/87/EC 
4 2006/48/EC 
5 2006/60/EC 

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•  Deposit  guarantee  schemes  directive:6    Deposit  Guarantee  Schemes  reimburse  a 
limited amount of deposits to depositors whose bank has failed to help to protect both 
depositors and wider financial stability.   

•  Regulation  on  information  on  the  payer  accompanying  transfer  of  funds:7  The 
Regulation lays down rules for payment service providers to send information on the 
payer  throughout  the  payment  chain.  This  is  done  for  the  purposes  of  prevention, 
investigation and detection of money laundering and terrorist financing.  

European Insurance and Occupational Pensions Authority 

•  Financial conglomerates directive: See above  

•  Institutions for Occupational Retirement Provision directive (IORP):8  The IORP 
directive provides a framework for the prudential regulation of occupational pension 
schemes  that  operate  on  a  funded  basis  and  are  outside  the  scope  of  social  security 
schemes.  It  puts  in  place  minimum  standards  to  facilitate  cross-border  operation  by 
pension schemes. 

•  Current Insurance and Reinsurance Directives:9 The current regime for insurance 
and  reinsurance  supervision  is  contained  in  a  number  of  different  directives  (life 
directives,  non-life  directives,  reinsurance  directive,  winding-up  directive  and 
insurance groups directive).   

•  Solvency  II:  In  spring  2009  Council  and  European  Parliament  agreed  on  the 
Solvency II Directive. The Directive consists of a recast of 14 existing insurance and 
reinsurance  directives  and  a  modern,  economic  and  risk-based  regime  for  the 
supervision of insurance and reinsurance  undertakings, and  of insurance/reinsurance 
groups.  The new regime will come into force end October 2012.    

•  Insurance mediation directive (IMD):10  The IMD introduced a set of requirements 
for the regulation of EU insurance intermediaries, to permit them to operate in other 
Member States, on an establishment or freedom of services basis.  

• 

 Anti money laundering directive: See above 

European Securities and Markets Authority 

•  Financial conglomerates directive: See above  

•  Transparency  directive:11  The  Directive  sets  out  minimum  requirements  which  govern 
takeover  procedures  in  the  EU,  with  a  view  to  giving  adequate  protection  to  minority 
shareholders across the EU in takeover situations and facilitating corporate restructuring. 

6 94/19/EC 
7 1781/2006/EC 
8 2003/41/EC 
9 For a full list please see Article 2 of the draft Regulation establishing a European Insurances and Occupational 
Pensions Authority 
10 2002/92/EC 

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•  Markets  in  Financial  Instruments  directive  (MiFID):12    The  MiFID  provides  a 
harmonised  regulatory  regime  for  investment  services  across  Europe.    It  replaced  the 
Investment  Services  Directive  and  sets,  among  other  things,  requirements  governing  the 
organisation and conduct of business of investment firms, and how regulated markets and 
multilateral trading facilities operate. 

•  Market  abuse  directive  (MAD):13    The  MAD  prohibits  abusive  behaviour  such  as 
insider dealing and market manipulation. It creates obligations aimed at deterring abuses, 
such  as  insiders'  lists,  suspicious  transaction  reporting,  and  disclosure  of  trades  by 
managers of issuers.   

•  Prospectus directive:14  A prospectus is a disclosure document, containing key financial 
and  non-financial  information,  that  a  company  makes  available  to  potential  investors 
when  it  is  issuing  securities  (shares,  bonds,  derivative  securities,  etc.)  to  raise  capital 
and/or when it wants its securities admitted to trading on exchanges.   

•  Undertakings for Collective Investment in Transferable Securities Directive  (UCITS 
Directive):15 
  UCITS  directive  sets  out  common  requirements  for  authorisation, 
management and oversight of undertakings for collective investments, in particular  rules 
relating to fund diversification, liquidity and use of leverage. The UCITS directive defines 
also a list of eligible assets in which the fund can invest. Once authorised, a UCITS fund 
can be marketed to the public across the EU subject to notification in each Member State  

•  Credit rating agencies regulation:  The regulation lays down conditions for the issuance 
of credit ratings.  It introduces a registration procedure for credit rating agencies to enable 
European supervisors to control the activities of rating agencies whose ratings are used by 
credit  institutions,  investment  firms,  insurance,  assurance  and  reinsurance  undertakings, 
collective investment schemes and pension funds within the Community. 

•  Take-over Bids directive:16  The Directive sets out to establish minimum guidelines for 
the conduct of takeover bids involving the securities of companies governed by the laws of 
Member States, where all or some of those securities are admitted to trading on a regulated 
market. 

•  Settlement finality directive (SFD):17 the SFD provides that transfer orders entered into 
payment and securities settlement systems cannot  be revoked  or otherwise invalidated. It 
also  protects  the  collateral  provided  to  a  central  bank  and  collateral  provided  in 
combination with participation in a designated system from the effects of the insolvency of 
the collateral giver.  

•  Financial collateral arrangements directive:18 the Financial Collateral Directive created 
a uniform EU legal framework for the use of financial collateral by abolishing most of the 

11 2004/109/EC 
12 2004/39/EC 
13 2003/6/EC 
14 2003/71/EC 
15 2009/65/EC (recast of the directive 85/611/EC) 
16 2004/25/EC 
17 98/26/EC 
18 2002/47/EC 

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formal  requirements  traditionally  imposed  on  collateral  arrangements  and  by  insulating 
collateral arrangements against insolvency. 

•  Investor compensation schemes directive:19  The Directive requires Member States to set 
up one or more investor compensation schemes. All investment firms supplying investment 
services must belong to such a scheme. 

•  Directive  on  the  admission  of  securities  to  official  stock  exchange  listings  and  on 
information to be published on those securities:20  the directive specifies conditions that 
must be met before securities are admitted to official listing on a stock exchange 

•  Anti money laundering directive: See above 

•  Capital  Requirements  Directive  (2006/49/EC):    For  aspects  not  related  to  prudential 

supervision.  See above. 

•  Distance Marketing Directive:21 the directive sets minimum standards that must be met 

before financial services can be marketed to across borders. 

19 97/9/EC 
20 2001/34/EC 
21 2002/65/EC 

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1.  Technical standards 

The establishment of the three European Supervisory Authorities will be accompanied by the 
development of a single rule book which will ensure uniform application of rules in the EU 
and contribute to a more effective functioning of the internal market. The Authorities will, as 
specified in sectoral legislation, develop technical standards in areas selected on the basis of 
criteria outlined below.   

The  European  Supervisory  Authorities  will  hold  the  key  responsibility  for  developing  draft 
standards which will be adopted by the Authorities on the basis of qualified majority of the 
members  of  the  Boards  of  supervisors  as  defined  in  Article  205  of  the  Treaty.  The 
Community  legal  order  requires  the  Commission  to  endorse  the  draft  standards  by  the 
adoption  of  Commission  Regulations  or  Decisions  in  order  to  give  them  legal  effects  and 
allow financial institutions and other entities or persons concerned to invoke their provisions 
before  national  authorities  and  courts.  The  proposals  for  the  regulations  provide  that  the 
Commission should be subject to a time limit of normally three months for its decision on the 
endorsement. For reasons of Community interest, the Commission may decide not to endorse 
the  standards  or  to  endorse  them  only  in  part  or  with  amendments,  the  reasons  for  which  it 
will make available to the Authority. 

The  Authorities  will  develop  the  standards  using  better  regulation  principles  including 
appropriate  consultation.  The  proposed  regulations  provide  for  the  Authorities  to  consult 
stakeholders  through  open  consultations  and/or  through  relevant  stakeholder  groups.    In 
developing  their  internal  rules  and  procedures,  the  Authorities  should  design  appropriate 
policies building on the relevant guidelines that already exist for the level 3 Committees22. 

Technical standards and the Lamfalussy framework 

The technical standards constitute a complementary instrument to strengthen the current level 
3 of the Lamfalussy structure which is limited to the adoption of non-binding guidelines. The 
new  technical  standards  may  cover  matters  which  are  currently  the  subject  of  non-binding 
guidelines at  level 3, upgrading the guidelines to be binding, as well as genuinely technical 
matters currently subject to a level 2 empowerment under which implementing measures have 
not yet been adopted. Consideration could also be given to whether technical standards should 
also be used to further specify some genuinely technical matters which are covered by level 2 
rules,  which  have  been  adopted  on  the  basis  of  an  empowerment  to  the  Commission  given 
under  the  Level  1  instruments,  without  supplementing  the  level  1  and  2  instruments 
concerned. As per the current remit of the Level 3 Committees, the possibility remains for the 
Authorities to draw up non binding guidelines in order to contribute to consistent supervisory 
practices and application of Community legislation.   

The system set up whereby the Authorities will develop draft standards is without prejudice to 
measures,  other  than  genuinely  technical,  which  the  Commission  is  empowered  to  adopt  in 
the  sector  legislation  at  level  2  under  the  Comitology  procedures.  The  Standards  must  be 
consistent with both the level 1 and 2 legislation.  

22 http://www.c-ebs.org/getdoc/27041300-341c-44ee-878f-5f6e3caf9c96/3L3-IA-GL.aspx 
http://www.c-ebs.org/getdoc/eed60d2e-5caf-494f-9422-2467ba1e4bbb/20080805_CP01rev.aspx 
http://www.ceiops.eu/media/files/consultations/statementonconsultation/cp_0401_ps.pdf 
http://www.cesr-eu.org/popup.php?ref=01-007c 

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The areas where the Authority may develop draft technical standards for endorsement by the 
Commission concern issues of a highly technical nature. Irrespective of their binding nature 
following endorsement by the Commission, the matters concerned by the standards will not 
involve policy decisions, and their content will be framed by the Community acts adopted at 
Level  1.  Development  of  draft  standards  by  the  Authorities  ensures  that  they  benefit  in  full 
from the specialised expertise of supervisors.  

General principles for selecting measures for technical standards 

The  identification  of  areas  for  technical  standards  is  based  on  the  following  high  level 
principles: 

•  Technical issues: those areas selected are genuinely technical, where the development of 
standards is best left to supervisory experts.  They are areas which do not involve policy 
decisions. 

to 

•  Practical  issues/cooperation  procedures:  relate  to  practical  issues  like  procedural 
approaches 
information  exchange  which  could  enhance  cooperation  between 
supervisory  authorities,  and  which  are  of  a  direct  concern  to  the  authorities  involved. 
These areas should include such issues where a common approach or predictability would 
be of benefit to all concerned. 

•  Flexibility: where it is important to have technical flexibility to respond rapidly to future 
market developments or where in some areas it is not necessary to make changes now but 
to have the option to do so if necessary at a later date.   

•  Necessity:  only  those  areas  where  detailed,  technical  and  consistent  rules  are  needed  for 
financial  stability,  depositor,  policy  holder  and  investor  protection,  to  ensure  market 
efficiency and integrity or to strengthen the single market have been selected. This ensures 
an  appropriate  balance  is  struck  between  building  a  single  rulebook,  and  not  unduly 
increasing the complexity of regulation. 

The areas where it is possible to develop technical standards will be specified precisely in the 
sectoral  legislation.  Empowerment  will,  as  is  normal,  be  made  at  level  1.    In  the  case  of 
existing  non-binding  level  3  guidelines  which  are  proposed  to  become  technical  standards, 
they will need to be scrutinised carefully by the Authorities to ensure they remain appropriate 
and be amended if necessary.  

Annex I provides an overview of the key areas by directive, such as supervisory standards for 
colleges of supervisors and technical standards for internal model validation in banking and 
insurance.  In  practice,  the  types  of  areas  covered  by  technical  standards  fall  into  three 
categories. Firstly, standards may be developed in those areas where detailed methodological 
or  quantitative  standards  are  required  to  ensure  consistent  application  of  certain  rules  and 
where  there  is  generally  less  need  for  supervisory  judgement.  Secondly,  in  those  areas  that 
would benefit from a uniform approach to reporting or disclosure for example in facilitating 
work towards a uniform reporting format in banking by 2012. Finally, in those areas where 
supervisors  would  benefit  from  a  consistent  approach  to  cooperation  processes  including  in 
terms of supervisory risk assessment and information sharing, for example in situations where 
host  supervisors  of  branches  would  benefit  from  a  consistent  minimum  set  of  information 
from home supervisors.  

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2.  Direct supervision of Credit Rating Agencies 

The Regulation on Credit Rating Agencies should be revised in order to introduce centralised 
oversight  of  credit  rating  agencies  (CRAs)  operating  in  the  EU.  The  ESMA  should  assume 
general  competence  in  matters  relating  to  the  registration  and  on-going  supervision  of 
registered  CRAs  as  well  as  surveillance  of  those  overseas  CRAs  that  operate  under  the 
certification  or  endorsement  regimes.  At  the  same  time,  national  supervisory  authorities, 
acting  in  their  specific  fields  of  competence,  should  have  the  oversight  responsibilities 
regarding  the  use  of  credit  ratings  by  the  supervised  entities  (like  credit  institutions  or 
insurance undertakings) which employ those credit ratings for regulatory purposes.  

In  order  to  ensure  sufficient  supervisory  and  enforcement  capacity,  the  ESMA  should  be 
empowered  to  require  all  necessary  information  from  CRAs  and  other  persons  related  to 
credit  rating  activity.  It  should  be  able  to  start  investigations  into  potential  breaches  of  the 
Regulation  and  in  the  remit  of  those  it  should  be  able  to  exercise  supervisory  powers 
corresponding  to  those  already  available  to  national  supervisory  authorities  (e.g.  examining 
records  and  other  relevant  material  and  taking  copies/extracts  thereof,  requiring  oral 
explanations,  hearing  a  person,  requiring  records  of  telephone  and  data  traffic).  The  ESMA 
shall also be able to conduct on-site inspections.  

Where  necessary  or  appropriate  for  reasons  of  efficiency,  in  its  supervisory  activity  the 
ESMA  should  be  able  to  seek  the  assistance  or  cooperation  of  a  national  supervisory 
authority.    As  the  necessary  underpinning  to  its  supervisory  authority,  the  Commission  will 
consider further enforcement issues. 

As a result of introduction of the new, single supervisory authority for the oversight of CRAs, 
existing provisions, which envisage a college type of supervisory co-ordination and ultimate, 
formal  decision-making  by  a  competent  authority  of  the  home  Member  State,  should  be 
changed.    National  supervisory  authorities  should  nonetheless  contribute  to  the  supervisory 
activity of the ESMA, by ensuring all necessary information exchange and co-operation.  In 
limited  cases,  they  should  be  able  to  take  some  clearly  defined  measures  (for  example, 
to request  the  ESMA  to  examine  whether  the  conditions  for  withdrawal  of  a  CRA's 
registration are met).  

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3.  Settlement of disagreements 

The  explanatory  memorandum  accompanying  the  three  regulations  explains  the  proposed 
process  for  settlement  of  disagreements  in  detail.    The  possibility  for  settlement  of 
disagreements  arises  in  all  areas  of  sectoral  legislation  where  cooperation,  coordination  or 
joint  decision  making  by  competent  national  supervisory  authorities  from  more  than  one 
Member  State  is  required.  In  the  event  of  a  disagreement,  and  on  request  of  one  of  the 
authorities concerned, the ESAs can assist in finding a resolution within a time limit set by the 
ESA  which  takes  into  account  any  relevant  time  limits  in  the  sectoral  legislation,  and  the 
urgency and complexity of the disagreement. In the event that such disagreement persists, the 
Authority can settle the matter as outlined in the Regulation establishing the each Authority. 

In  general,  disagreements  between  supervisors  are  intended  to  be  fully  covered  by  the 
regulation  with  no  consequential  changes  to  the  sectoral  legislation  required.  However,  in 
those areas where there is already some form of non-binding mediation process possible, or 
where  there  are  time  limits  for  joint  decisions  to  be  taken  by  one  or  more  supervisors, 
amendments  may  be  needed  to  ensure  there  is  clarity  over  and  minimum  disruption  to  the 
process for reaching a joint decision, but also that where necessary, the Authorities are able to 
resolve  disagreements.  The  remainder  of  this  section  outlines  those  areas  of  sectoral 
legislation where changes may be needed. 

Banking 

The  Capital  Requirements  Directive  (CRD)  requires  supervisors  to  cooperate  closely  with 
each  other.  In  particular,  they  must  provide  one  another  with  any  information  which  is 
essential  or  relevant  for  the  exercise  of  their  supervisory  tasks23  or  likely  to  facilitate 
supervision24. Planning and coordination of supervisory activities by the consolidating (group) 
supervisor should be carried out in cooperation with the supervisors involved.25  Supervisors 
are also required to have written coordination and cooperation arrangements in place26 and are 
required  to  consult  each  other  before  taking  a  decision  in  a  number  of  areas,  including 
licensing  and  decisions  regarding  major  sanctions/measures27.  Therefore,  the  disagreement 
settlement mechanism in the regulation establishing the European Banking Authority (EBA) 
will not require specific amendments to apply. There are also a number of areas where a clear 
joint decision making process involving more than one supervisor already exist and for which 
amendments  will  be  required  to  ensure  the  EBA,  where  necessary,  is  able  to  effectively 
resolve disagreements. These are discussed below. 

Determination of significant branches in the CRD (article 42a) 

The  CRD  as  amended  in  2009  requires  that  supervisors  of  all  'significant'  branches  may  be 
invited  to  participate  in  the  activities  of  supervisory  colleges,  and  receive  specific 
information.  Home and host supervisors, and the consolidated supervisor for banking groups, 
are required to do everything within their power to reach a joint decision on the determination 
of a significant branch. If no joint decision is reached within two months, the host supervisor 

23 Article 132 in the context of banking group 
24 Article 42 in the context of home/host arrangements for branches 
25 Article 129(1) 
26 Articles 131 and 132 
27 Articles 15, 132 and 143 

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is  able  to  take  its  own  decision,  taking  into  account  any  views  or  reservations  of  the  other 
authorities. 

Model Validation (article 129(2)) 

The  CRD  has  introduced  a  joint  decision  process  for  the  purposes  of  authorising  the  use  of 
internal rating based system and internal models.  National supervisors must work together, in 
full  consultation,  to  decide  whether  or  not  to  grant  the  permission  following  an  application 
from  the  firm  and  to  determine  the  terms  and  conditions,  if  any,  to  which  such  permission 
should be subject.  

National supervisors are required to do everything within their power to reach a joint decision 
on the application within six months. In the absence of a joint decision, the group supervisor 
may make its own decision. 

Group risk assessment in the CRD (article 129(3)) 

A key area of cooperation and joint decision making in the CRD is in the assessment of the 
adequacy  of  the  overall  group  capital  (in  terms  of  the  level  and  distribution,  known  as  the 
'pillar II process') with respect to its financial situation and risk profile.  The CRD as amended 
in 2009 requires that the group supervisor and the supervisors of the group's subsidiaries do 
everything within their power to reach a joint decision on the application of the directive with 
respect to these matters to determine the adequacy of the capital held by the group and to each 
entity within group.   

A  joint  decision  is  required  to  be  taken  within  4  months.    In  the  case  of  disagreement,  the 
current Level 3 Committee (and in future the EBA) can be consulted for advice.  At the end of 
the four month period, supervisors can take their own decisions within their respective fields 
of  competence,  but  any  deviation  from  the  advice  of  the  Level  3  Committee  must  be 
explained. 

Additionally,  Annex  I  of  this  paper  includes  a  possible  area  for  the  authority  to  develop 
technical  standards  which  will  cover  pillar  II  issues.    The  further  clarity  and  consistency  of 
application  of  pillar  II  standards  should  mean  there  is  less  scope  for  disagreement  between 
supervisors, or where disagreements do occur, more scope for the Authority to resolve them 
with reference to existing standards. 

In  each  of  the  articles  outlined  above,  an  amendment  is  needed  to  ensure  competent 
authorities  make  full  use  of  the  periods  foreseen  in  the  joint  decision  making  procedures  to 
come to an agreement between them. If this fails there exists the possibility for EBA to settle 
the matter as outlined in the Regulation establishing the Authority. The EBA's disagreement 
settlement mechanism would be triggered at the end of the time period stated in each of the 
above  articles  in  the  sectoral  legislation,  following  a  request  from  one  of  the  supervisors 
involved.  In these situations, the time period stated in each of the articles would also count as 
the conciliation period envisaged in the EBA's disagreement settlement mechanism, and after 
that  period  the  EBA  would  have  one  month  to  take  a  final  decision.    Supervisors  would  be 
required to wait for and act in conformity with the EBA's decision before issuing their final 
decisions to the firms involved. Finally, the amendment should clarify that once supervisors 
have issued their decisions; the matter can no longer be referred to the EBA.   

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Insurance 

As for banking, the Solvency II directive requires supervisors to cooperate with each other in 
a  number  of  areas.  Additionally,  the  Solvency  II  directive  lays  down  a  comprehensive 
approach  to  group  supervision  which  allocates  tasks  and  responsibilities  to  either  the  group 
supervisor or supervisors of individual entities.  In a number of areas supervisors are required 
to  take  decisions  following  consultation,  coordination  or  cooperation  with  other  supervisors 
and/or  CEIOPS.28    Therefore,  the  disagreement  settlement  mechanism  of  EIOPA  will  not 
require specific amendments to apply.  However, there are also a number of areas where the 
Solvency II directive provides for an explicit procedure to be followed by supervisors who are 
required to do everything within their power to reach a joint decision on certain issues, and in 
certain  cases  the  possibility  exists  to  refer  the  matter  to  CEIOPS  prior  to  taking  a  decision, 
outlined below. 

Group model approval  

Article 229 provides for the possibility for an insurance group to apply an internal model to 
calculate  its  solvency  capital  requirement  (SCR)  across  all  of  its  European  operations.    At 
present,  following  an  application  from  the  firm,  supervisors  have  six  (or  eight)  months  to 
make  a  joint  decision.    In  the  absence  of  a  joint  decision,  the  group  supervisor  can  take  its 
own decision. 

Decision on the application of supervision of group solvency for groups with centralised risk 
management 

Article 235 requires the supervisory authorities concerned to do everything within their power 
to reach a joint decision on the application mentioned above. In the absence of a joint decision 
the group supervisor can take its own decision.  

Determination of the SCR of a subsidiary   

Article 236 requires the college of supervisors to do everything within their power to reach an 
agreement on the proposals of the solo supervisor on the SCR of a subsidiary (e.g. to impose a 
capital add-on). The supervisory authority having authorised the subsidiary can take the final 
decision.  

Non-compliance with the SCR 

Article 238 requires the supervisors within the college to do everything within their power to 
reach  an  agreement  on  the  recovery  plan  and  the  measures  to  be  taken  in  deteriorating 
financial conditions. The supervisory authority having authorised the subsidiary has the final 
say. 

Determination of the group supervisor 

The group supervisor plays a key role in coordinating supervisory activities for the group and 
taking certain decisions.  Article 251 allows any supervisory authority to request a discussion 

28  For  example  articles  211,  212,  213,  214,  218,  219,  225,  242,  248  and  249.    All  article  references  are 

provisional pending finalisation of the text. 

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be  opened  as  to  whether  the  criteria  used  to  determine  who  the  group  supervisor  is  are 
appropriate.    A  joint  decision  is  required  to  select  a  different  group  supervisor  within  three 
months.    Following  this,  a  consultation  with  the  level  3  Committee  is  possible  and  the 
deadline is extended by a further 3 months. 

In each of these articles, an amendment is needed to ensure supervisors make full use of the 
periods  foreseen  in  the  joint  decision  making/consultation  procedures  to  come  to  an 
agreement between them. If this fails there exists the possibility for EIOPA to settle the matter 
as  outlined  in  the  Regulation  establishing  the  Authority.  EIOPA's  disagreement  settlement 
mechanism  would  be  triggered  at  the  end  of  the  time  period  stated  in  each  of  the  above 
articles in the sectoral legislation, following a request from one of the supervisors involved.  
In  these  situations,  the  time  period  stated  in  each  of  the  articles  would  also  count  as  the 
conciliation period envisaged in EIOPA's disagreement settlement mechanism, and after that 
period EIOPA would have one month to take a final decision.  Supervisors would be required 
to wait for and act in conformity with EIOPA decision before issuing their final decisions to 
the firms involved. Finally, the amendment should clarify that once supervisors have issued 
their decisions; the matter can no longer be referred to EIOPA.   

Securities 

As  for  banking  and  insurance,  securities  legislation  contains  a  number  of  cooperation 
obligations.  For example, both MiFID and UCITS require supervisors to cooperate with each 
other whenever necessary for the purpose of carrying out their duties or making use of their 
powers whether set out in the directive or in national law.29  Additionally, there are no joint 
decision  making  processes  in  securities  legislation.  Therefore,  the  disagreement  settlement 
mechanism of ESMA will not require specific amendments to apply. 

29 Article 56(1) in MiFID and 101 in UCITS 

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4.  General amendments 

There  are  a  number  of  areas  where  consequential  amendments  which  are  common  to  most 
sectoral legislation and necessary for the directives to operate in the context of new authorities 
may possibly be needed.  This section outlines these areas. 

To discharge the current tasks of the present Level 3 Committees 

In order to ensure that the new Authorities can continue to undertake the current tasks of the 
level  3  Committees  smoothly,  in  all  of  the  directives  listed  above,  the  following  references 
would need to be replaced: 

'Committee of European Banking Supervisors' with 'European Banking Authority' 

'Committee  of  European  Insurance  and  Occupational  Pensions  Supervisors'  with  'European 
Insurance and Occupational Pensions Authority' 

'Committee  of  European  Securities  Regulators'  with  'European  Securities  and  Markets 
Authority' 

Cooperation obligations and information sharing with the ESAs 

The  new  supervisory  architecture  will  require  national  supervisory  authorities  to  cooperate 
closely  with  the  European  Authorities.  In  particular,  they  should  receive  sufficient 
information  from  the  national  supervisory  authorities  in  order  to  be  able  to  discharge  their 
duties under the regulation. 

Where necessary, specific information sharing requirements to facilitate the above will be set 
out in sectoral legislation.  However, in the vast majority of cases, it will not be possible to 
specify  in  legislation  the  exact  type  of  information  that  will  be  needed  for  the  delivery  of 
these  tasks,  not  least  because  a  number  of  them  are  situation  and  context  dependent.  
Therefore  amendments  to  the  relevant  legislation  will  clarify  the  obligations  on  national 
supervisors  to  provide  the  necessary  information  for  the  discharge  of  the  tasks  of  the 
authorities and appropriate information gateways to ensure there are no legal obstacles to the 
information sharing obligations included in the Regulations establishing the Authorities. 

Interaction with third countries 

It is proposed that the ESAs be given an appropriate role with regards to the dealing with third 
countries.  The two broad areas envisaged are general interaction and cooperation agreements 
and  assisting  the  Commission  in  preparing  equivalence  decisions.    In  terms  of  general 
interaction,  amendments  will  be  needed  to  allow  the  ESAs  to  conclude  cooperation 
agreements  with  third  countries  and  exchange  information  where  those  third  countries  can 
provide guarantees of professional secrecy. 

List keeping and other amendments 

It is proposed that the ESAs will be given the duty to establish, publish and regularly update 
registers and lists of financial actors in the Community, which is currently the duty of each 
national competent authority, e.g. to keep the register of all investment firms according to Art 
5  (3)  MiFID  or  the  list  of  regulated  markets  according  to  Art  47  MiFID.  Having  one 

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consolidated  list  or  register  for  each  category  of  financial  actors  in  the  Community  may 
improve transparency and better reflects the single financial market. 

Additionally, in the context of the reduction of national options and discretions, forthcoming 
amendments  to  the  Capital  Requirements  Directive  could  entrust  the  authority  with  the 
responsibility  for  assessing,  monitoring  and  mapping  external  credit  assessment  institutions 
(ECAI), which are active in different Member States. 

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Annex I:  Possible areas for amendments to existing legislation concerning technical standards 

FINANCIAL CONGLOMERATES DIRECTIVE 

2002/87/EC 

Area 

Description 

Rationale 

Durable 
criterion 
identification 
Article 2(11) 

link 
for 
- 

The detection of relationships of the conglomerate with entities that may pose 
additional  risks  to  the  group,  also  otherwise  than  through  a  control-  or 
ownership-relationship 

Currently no level playing field, nor legal certainty, in application 
of durable link criterion to detect participations 

Relevant  competent 
authorities, 
i.e. 
membership  of  the 
core 
- 
Article 2(17) 

college 

The  criteria  for  the  determination  of  the  "relevant  competent  authority",  as 
different from the other "competent authorities" (all those who authorised one 
or more legal entities of the group) 

Determination  of  which  supervisor  may  be  invited  to  the  core 
college  is  not  clear,  important  for  consistent  approach  across 
colleges 

Identification  of  a 
by 
conglomerate 
other 
of 
means 
criteria  than  balance 
sheet  and  solvency 
figures - Article 3(5) 

The  basic  identification  method  builds  on  two  relative  indicators  and  one 
absolute  indicator:  balance  sheet  ratios,  solvency  ratios,  and  balance  sheet 
total. To enable the identification of other, less straightforward, complex and 
cross sectoral groups as financial conglomerates, also criteria such as income 
structure and off balance sheet activities may be used, but the legal provision 
does not prescribe how these alternative criteria should be applied 

Use of other criteria than balance sheet total and solvency figures 
for the identification of conglomerates neither clear nor predictable 

Method 
of 
calculation of capital 
at 
conglomerate 
level - Article 6(2) 

There are two basic methods eligible for aggregating the capital figures of all 
the legal entities in a group and calculating available group capital, known as 
the  consolidation  method  and 
the  deduction-and-aggregation  method, 
consistent with CRD and Solvency II. However, the inputs into these methods 
are not prescribed, leaving scope for significant variation 

Although the directive restricts the methods which can be used for 
the  calculation  of  capital,  many  degrees  of  freedom  remain, 
potentially  causing  unjustified  different  outcomes  for  similar 
conglomerates 

Supervision  of  risk 
concentrations 
- 
Article 7 

The  aspects  which  need  to  be  checked  by  supervisors  in  order  to  detect 
whether the same risk adds up throughout the financial conglomerate 

The directive allows for many approaches and potentially overlaps 
of  supervision  on  risk  concentrations  within  sector-silos.  It  is 
important  to  align  application  across  directives  applicable  to 
conglomerates 

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Supervision  of  Intra 
group  transactions  - 
Article 8 

The  aspects  which  need  to  be  checked  by  supervisors  in  order  to  detect 
whether  risks  in  one  part  of  the  conglomerate  may  spread  to  or  affect  other 
parts of the conglomerate 

The directive allows for many approaches and potentially overlaps 
supervision  on  intra  group  transactions.  It  is  important  to  align 
application across directives applicable to conglomerates 

Supervision 
internal 
mechanisms 
Article 9 

on 
control 
- 

Supervision  on  internal  control  mechanisms,  such  as  risk  management  and 
internal  governance.    Closely  related  to  elements  in  the  supervisory  review 
process, required by both the CRD and Solvency II. 

As far as relevant for the cross sectoral elements of conglomerates' 
risk  management  and  internal  control,  need  for  alignment  of 
application across directives applicable to conglomerates 

of 

Appointment 
coordinating 
supervisor  -  Article 
10 

of 

Tasks 
coordinating 
supervisor  -  Article 
11 

The  coordinator  is  determined  following  several  criteria  but  the  directive 
provides  flexibility  in  case  the  involved  supervisors  would  favour  a  certain 
choice. Article 10 should be read combined with articles 11, 12 and 15 

To  limit  the  scope  for  disagreement  over  who  should  be  the 
coordinator of the supplementary supervision 

The coordinator's tasks are clearly listed but the directive does not prescribe 
how  these  tasks  should  be  carried  out.  Article  11  should  be  read  combined 
with articles 10, 12 and 15 

Variation  of  practices  and  lack  of  clarity  with  respect  to  the 
application of the tasks listed can create uncertainty 

Information 
exchange 
requirements 
Article 12 

Supervisors on the same conglomerate are obliged to share information based 
on a prescribed list of items. Article 12 should be read combined with articles 
10, 11 and 15 

Variation  of  practices  and  lack  of  clarity  with  respect  to  the 
application  of  the  information  exchange  requirements,  including 
for emergency situations 

- 

Delegation of tasks - 
Article 15 

Supervisors  on  the  same  conglomerate  can  decide  to  delegate  verification 
tasks to each other. Article 15 should be read combined with articles 10, 11 
and 12 

Variation  of  practices  and  lack  of  clarity  with  respect  to  the 
application of this provision 

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CAPITAL REQUIREMENTS DIRECTIVE  

2006/48/EC and 2006/49/EC30 

Area 

Description 

Rationale  

Pillar  2  –  interest 
rate  risk  -  Article 
150(2)(a) 

Specification  of  the  size  of  sudden  and  unexpected  changes  in  the  interest 
rates referred to in Article 124(5) 

Technical issue to strengthen supervisory convergence 

Temporary  changes  
to 
- 
requirements 
Article 150(2)(b) 

Temporary modification of the  minimum level of own funds and/or the risk 
weights in order to take account of specific circumstances in view of ensuring 
financial  stability.    This  will  also  extend  to  temporary  modification  of  the 
disclosure framework (Pillar 3) 

Flexibility  required.    Technical  standards  would  provide  some 
flexibility to respond to financial stability developments 

Supervisory 
disclosure  -  Article 
(e) 
150(2)(d)  and 
and Article 144 

Framework for supervisory disclosure 

Technical  issue  to  strengthen  supervisory  convergence.    CEBS 
guidelines already exist in this area 

Authorisation 
Article 6 

- 

Specification  of  requirements  for  a  credit  institution  to  be  authorised  in  a 
Member State 

Technical issue to strengthen supervisory convergence 

Prudential 
assessment 
of 
acquisitions - Article 
19-21 

Specifications  of  procedure,  assessment  criteria  and  information  exchange 
when making a prudential assessment of an acquisition 

Technical/practical  issue,  to  strengthen  supervisory  convergence.  
CEBS guidelines currently exist in this area 

of 

Exercise 
the 
passport  -  Articles 
25, 26, 28 

Relates to the transmission of information between home and host authorities 
for the purpose of implementing the provisions relating to freedom to provide 
services/of establishment.  

Practical  issue.    Supervisors  best  placed  to  deal  with  cooperation 
procedures.  CEBS guidelines are being developed in this area 

Information  sharing  List of information to be shared in the context of home/host cooperation 

Technical/practical issue, to strengthen supervisory convergence 

30 Unless otherwise specified references are to Directive 2006/48/EC 

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- Article 42 

Hybrid instruments - 
Article 63a(6) 

CEBS are required to produce guidelines on Tier 1 hybrid instruments under 
the amended CRD due to come into force in 2011 

Technical issue, to strengthen supervisory convergence 

Reporting 
– 
solvency  and  large 
exposures  -  Article 
74 and 110(2) 

agencies 
Rating 
(ECAI) 
– 
recognition  -  Article 
81(2) and 97 

Model  validation  – 
IRB system - Article 
84 

CEBS  are  required  to  develop  a  uniform  reporting  (format,  frequency  and 
dates)  to  be  applied  by  2012  for  credit  institutions  and  investment  firms' 
minimum capital requirements and large exposures 

Technical issue, to strengthen supervisory convergence 

Standards regarding the recognition of ECAI's in relation to the credit rating 
agencies regulation 

Conditions under which supervisors permit credit institutions to use their own 
models for calculating credit risk – known as the IRB Approach 

Technical  issue,  to  strengthen  supervisory  convergence,  avoid 
duplication  of  work  and  reduce  the  burden  of  the  recognition 
process  where  an  ECAI  is  registered  as  a  CRA.  Further  to  the 
adoption  of  the  CRA  regulation,  existing  CEBS  guidelines  will 
need to be amended in this area  

Technical  issues,  to  further  specify  existing  requirements  to 
strengthen supervisory convergence. CEBS guidelines already exist 
in these areas 

Model  validation  – 
- 
operational 
Article 105 

risk 

Conditions under which supervisors permit credit institutions to use their own 
models  to  calculate  operational  risk  –  known  as  Advanced  Measurement 
Approaches 

Large  exposures  - 
Article 106(2), 113 

CEBS  are  required  in  the  amended  CRD  to  clarify  exemptions  in  points  c) 
and  d)  relating  to  money  transmission,  and  other  exemptions  provided  in 
Article 113 

Technical issue to strengthen supervisory convergence 

Securitisation 
Article 122a(10) 

- 

Standards to specify due diligence and retention requirements for institutions 
involved  in  securitisation  activity,  in  particular  regarding  the  measures  that 
can  be  taken  to  deal  with  breaches  of  due  diligence  requirements.  CEBS 
guidelines are required under the amended CRD 

Pillar  2  -  Article 
124, 129(3) 

Standards regarding the joint decision process for assessing a groups overall 
risk profile and capital requirements, and the application of Pillar 2 (internal 
capital  adequacy  assessment  process,  supervisory  review  process,  and 
decision to require additional own funds). Guidelines are required under the 

Technical  and  practical 
convergence 

issue 

to 

strengthen 

supervisory 

Practical issue.  Supervisors best placed to deal with cooperation-
related issues, and group risk assessments 

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amended CRD 

Colleges 
131a(2) 

-  Article 

Requires that operational functioning of Colleges of supervisors be based on 
written arrangements, underpinned by CEBS guidelines  

Practical  issue.    Supervisors  best  placed  to  deal  with  cooperation 
procedures 

risk 
Liquidity 
management 
- 
Annex  V,  points  15 
to 17 

Rating 
agencies 
(ECAI)  –  mapping  - 
Annex  VI,  Part  2, 
points 12, 13 and 14 

Model  validation  – 
market  risk  -  Annex 
V of 2006/49/EC 

Standards relating to the application of certain principles relating to liquidity 
risk management 

Technical  issues  to  strengthen  supervisory  convergence  in  these 
areas 

Standards regarding the mapping of ratings external ratings into risk weights.  
CEBS guidelines already exist in this area 

Conditions under which supervisors permit credit institutions to use internal 
models  to  calculate  their  market  risk.  This  includes  specification  of  the 
requirements regarding the validation of internal models for incremental risk 
and migration risk and specification of the calculation of the stressed value-
at-risk 

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INSTITUTIONS FOR OCCUPATIONAL RETIREMENT PROVISION DIRECTIVE 

2003/41/EC 

Area 

Description 

Rationale  

to  be 
to 

Information 
provided 
competent 
authorities  -  Article 
13 

Cross-border 
and 
activities 
cooperation  between 
competent 
authorities  -  Article 
21 

There are persistent differences with regard to the amount of information that 
has  to  be  submitted  to  the  supervisory  authority,  as  well  as  on  the 
interval/frequency and the institution /party on which the reporting obligation 
lies 

The  prudential  requirements  are  supervised  by  the  competent  authorities  of 
the home Member State, while the national social and labour law relevant to 
the  field  of  occupational  pension  schemes  is  supervised  by  the  competent 
authorities  of  the  host  Member  State.  In  practice,  however,  for  cross-border 
activity  as  referred  to  in  Article  20  it  is  difficult  to  know  for  each  Member 
State which rules fall within the scope of prudential law and which rules fall 
within  the  scope  of  national  social  and  labour  law.  This,  in  turn,  acts  as  a 
barrier 
the  cooperation  between 
competent authorities as referred to in Article 21 should be facilitated 

to  cross-border  business.  Moreover, 

Technical  issue,  to  strengthen  supervisory  convergence.    Standards 
will enhance the level of transparency and comparability 

The  prudential  matters  refer  to  aspects  dealt  with  in  the  Directive, 
such as the maximum interest rates or the biometric tables used. The 
technical  standards  should  specify  more  clearly  the  rules  falling 
under  the  mutual  recognition  principle  and  supervised  by  the 
competent authorities of the home Member State 

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SOLVENCY II 

The Solvency II directive is yet to be finalised and therefore will not be included in the October package of legislative changes described in the introduction 

Area 

Description 

Rationale  

and 
of 

Transparency 
accountability 
supervisory 
authorities  -  Article 
30 (a)-(e) 

Supervisory authorities are accountable for how they enforce compliance with 
prudential  regulations.  Therefore,  appropriate  disclosure  by  supervisory 
authorities on supervisory approaches and their legal basis is necessary 

Standards  on  the  format  and  structure  of  the  disclosures  to  further 
specify the key elements set out in the implementing measure could 
further  improve  transparency  and  accountability  and  strengthen 
supervisory convergence 

Supervisory 
reporting  and  public 
disclosure  -  Article 
35 and 55 

Information  to  be  provided  by  insurance  and  reinsurance  undertakings  to 
supervisory  authorities  and  information  to  be  disclosed  to  the  public  in  the 
Solvency and Financial Condition report.  The public disclosure requirements 
aim to enhance market discipline and transparency 

Standards  could  contribute  to  enhanced  convergence  by  further 
specifying the principles set out in level 2, in particular in relation to 
reporting and disclosure templates 

Prudential 
assessment 
acquisitions31 
Article 56-62 

of 
- 

Technical Provisions 
- Article 85 (a)-(h) 

Specifications of procedure, assessment criteria and information exchange 

Technical/practical issue.  To promote supervisory convergence 

Technical  provisions  are  the  main  component  of  an  insurance  undertakings' 
liabilities.    Implementing  measures  will  be  developed  to  underpin  the 
valuation of technical provisions 

Standards  which  further  specify  the  requirements  set  out  at  level  2 
could  contribute  to  ensuring  the  necessary  flexibility  whilst  at  the 
same time maintaining a level playing field 

Own  funds  -  Article 
92,  article  97  and 
article  99 

Eligible  own  funds  are  classified  into  three  tiers.  The  characteristics  and 
criteria  to  do  so  need  to  be  interpreted  in  the  same  way  in  order  to  ensure 
harmonisation 

Standards which further specify the principles set out at level 2 could 
contribute  to  ensuring  the  necessary  flexibility  whilst  at  the  same 
time maintaining a level playing field 

Solvency 
Capital 
Requirement  (SCR) 
-  Article  109,  112 

The SCR represents the level of capital insurers are expected to hold. Insurers 
will  be  able  to  use  either  the  Standard  Formula  or  an  internal  model  to 
calculate  the  SCR.  Implementing  measures  will  be  developed  for  both 

If the standard formula is to remain truly risk sensitive over time, it 
may  need  to  be  regularly  reviewed  and  if  necessary  updated  to 
ensure  that  its  calibration  remains  appropriate.  Given  each  internal 

31 Directive 2007/44 

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and 125 

methods 

Information - Article 
253 

Information  to  be  gathered  and  disseminated  systematically  by  the  group 
supervisor  to  other  supervisory  authorities  or  to  be  transmitted  to  the  group 
supervisor by other supervisory authorities 

Disclosure  -  Article 
260 

Information  which  must  be  disclosed  and  the  means  by  which  this  is  to  be 
achieved as regards the single solvency and financial condition report 

model will be tailored to the undertaking, it will also be difficult to 
be  too  prescriptive  at  level  2  particularly  as  practice  is  likely  to 
evolve over time 

The  directive  sets  out  the  general  principles  and  the  future  level  2 
measures could be complemented with standards in order to ensure 
the  obligatory  character  of  certain  technical  details  such  as  the 
reporting and disclosure templates 

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INSURANCE MEDIATION DIRECTIVE 

2002/92/EC 

The IMD is currently under review and these issues will be covered in its revision and the resulting legislative proposal due by the end of 2010 

Area 

Description 

Rationale  

Professional 
indemnity  insurance 
- Article 4(3) 

Information 
provision 
-  Art. 
12(1),  (2)  and  (3). 
Additional 
legal 
basis:  Art.  13  on 
information 
conditions 

This  requirement  is  part  of  the  professional  requirements  for  insurance 
intermediaries  (IIM).    It  obliges  insurance  and  reinsurance  IIM  to  hold 
Professional  Indemnity  Insurance  covering  the  whole  territory  of  the 
Community or some other comparable guarantee against liability arising from 
professional negligence, for at least EUR 1000000 applying to each claim and 
in aggregate EUR 1500000 per year for all claims (certain exemptions to this 
rule are contained further in the article) 

Art. 12 contains a list of (minimum) information to be provided by the IIM to 
the customer prior to the conclusion of any initial  insurance contract, and if 
necessary, upon amendment or renewal thereof 

The  amounts  are  subject  to  regular  review.  Technical  standards 
might  establish  a  mechanism  for  carrying  out  these  updates  and 
consequently  introduce  a  higher  clarity  for  (especially)  supervisory 
purposes, including the precision of methods of calculation 

The current Art. 12 will be thoroughly reviewed during the prepared 
revision of the IMD as the current minimum harmonisation does not 
represent the necessary guarantee for effective consumer protection. 
Technical  standards  in  this  area  might  further  strengthen  the 
harmonisation of these standards across the Single Market 

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TRANSPARENCY DIRECTIVE 

2004/109/EC 

Area 

Description 

Rationale  

Notification 
of 
major  holding  of 
voting 
- 
12(8)(a), 
Article 
13(2)(c) 

rights 

Supervisory 
convergence - 
Article 24(4)  

Standard  form  for  the notification  of  major  holdings  of voting rights  and  of 
financial instruments giving access to voting rights 

Relates  to  practical  implementation  of  provisions  of  the  Directive 
which  is  best  left  to  supervisors.  Standards  could  strengthen 
supervisory convergence 

Standards  could  establish  a  standard  form  to  be  used  throughout  the 
Community when notifying required information on holdings of voting rights 
to the issuer and when filing this information with the competent authority 

Standards  as  regards  supervisory  practices  and  exercise  by  competent 
authorities  of  their  powers  in  order  to  ensure  compliance  with  directive's 
obligations. 

Relates  to  the  coordination  and  consistent  exercise  by  competent 
authorities of their powers. This is an area where CESR already can 
adopt  non-binding  guidelines.  However,  standards  in  future  could 
strengthen convergence. 

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MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE 

2004/39/EC 

Area 

Description 

Rationale  

Requirements 
for 
authorisation  -  Art., 
7, 9, 10, 12  

Prudential 
assessment 
acquisitions 
Articles 10- 10b  

of 
- 

Information 
exchange  -  Art  56-
58, 60  

MiFID sets out various requirements that  must be met before an investment 
firm can be authorised 

Technical  Standards 
for 
authorisation  (e.g.  the  'fit  and  proper'  requirement)  could  help  to 
ensure  uniform  application  of  authorisation  process  and  strengthen 
convergence 

requirements 

specifying 

certain 

Specifications  of  procedure,  assessment  criteria  and  information  exchange 
[There is currently 3L3 guidance on cross border mergers and acquisitions] 

Technical/practical  issue.    To  further  specify  existing  requirements 
to promote supervisory convergence 

Requires  supervisory  authorities  to  cooperate  with  each  other.    Standards 
could  encompass  templates  to  facilitate  cooperation/information  exchange 
between  home  andhost  (e.g.  such  as  the  standard  notification  template 
referred to above)  

Supervisors  may  benefit  from  a  more  standardised  process.    Will 
also strengthen convergence 

EN 

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MARKET ABUSE DIRECTIVE 

2003/6/EC 

Area 

Description 

Rationale  

Information 
exchange - Art. 16  

Under  the  MAD  regime,  supervisory  co-operation  –  a  prerequisite  for 
effective  cross-border  enforcement  –  is  expected  to  take  place  by  way  of 
exchanging  information,  alerting  about  suspected  abuses  and  acting  upon 
such notifications, seeking and offering assistance as well as collaborating in 
facilitate 
investigations  and 
cooperation/information  exchange  between  supervisors 
(e.g.  standard 
notification template) 

inspections.  Templates/standards  could 

Competent authorities are likely to engage more willingly and more 
effectively into supervisory co-operation if some of the co-operation 
aspects are standardised and/or formalised.  

EN 

27 

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PROSPECTUS DIRECTIVE 

2003/71/EC 

Area 

Description 

Rationale  

Cooperation 
between authorities - 
Art. 22.2  

Obligation  of  the  competent  authorities  to  exchange  information  and 
cooperate  with  each  other. 
information 
exchange/cooperation between home/host   

  Standards  could  facilitate 

Supervisors  may  benefit  from  a  more  standardised  process.    Will 
also strengthen supervisory convergence 

EN 

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UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES DIRECTIVE 

85/611/EEC (work on level 2 implementing measures is ongoing. The Commission intends to adopt the measures by 1 July 2010) 

Area 

Description 

Rationale  

of 

Content 
application  for 
authorisation 
UCITS. – Art. 5(8) 

the 
the 
of 

The UCITS Directive requires UCITS to be authorised by its home competent 
authority. The authority has to approve (i) the application of the management 
company  to  manage  a  common  fund  (or  the  investment  company,  where 
relevant), (ii) the fund rules or the instruments of incorporation, and (iii) the 
choice of the depositary. Once a UCITS is authorised in one Member State, it 
can  market  its  units  in  another  Member  State  –  subject  to  the  notification 
procedure  of  Article  93  –  without  going  again  through  the  same  process  of 
authorisation.  

throughout 

Since  UCITS  benefit  from  the  EU  "passport",  the  authorisation 
process  should  be  consistent 
the  Community. 
Competent  authorities  should  require  similar  documentation,  no 
matter  in  which  Member  State  the  authorisation  is filed. In order 
to  develop  consistent  supervisory  practices  and  to  ensure  legal 
certainty,  standards  could  specify  the  precise  information  that 
promoter of a UCITS has to submit to competent authorities to get 
the authorisation. 

UCITS  management  company  and  the  self-managed  investment  company 
have  to  meet  the  conditions  required  by  the  Directive  in  order  to  be 
authorised. Once authorised, both entities can operate on a cross border basis. 

Conditions  for 
the 
authorisation  of  the 
management 
company  and 
investment 
company.  –  Arts. 
7(6) and 29(5) 

the 

Organisational 
requirements 
minimise 
of 
Art.12(3) 

interests 

to 
conflicts 
– 

Management companies are required to adhere to some minimum prudential 
and  organisational  requirements.    Level  2  provisions  will  set  out  the 
requirements in more detail.   

Since  both  entities  benefit  from  a  "passport"  in  the  EU,  the 
competent  authorities  should  interpret  these  conditions  in  a 
consistent  way.  In  order  to  develop  consistent  supervisory 
practices  and  to  ensure  legal  certainty,  standards  could  further 
specify  the  information  to  be  provided  in  the  application  for  the 
authorisation,  the  content  of  the  programme  of  activities  and 
operations  and  the  description  of  the  organisational  requirements 
and  conduct  of  business  rules.  In  addition,  the  standards  could 
further  specify  the  criteria  for  assessing  the  suitability  of  the 
persons conducting the business and of qualified shareholders. 

Technical  standards  could  further  specify  level  2  provisions  to 
contribute  to  a  common  understanding  and  consistent  application 
of  the  rules  on  organisational  arrangements  on  internal  control 
functions,  complaints  handling,  personal  transactions,  electronic 
data  processing,  record  keeping,  accounting  and  organisational 
arrangements for minimising conflicts of interest. 

Rules of conduct  for 
management 
companies  –  Art 

UCITS  Directive  requires  management  companies  to  (i)  act  honestly,  fairly 
and with due skill, care and diligence in the best interest of the UCITS; (ii) 
employ its resources effectively and performs its business activities properly; 
(iii) identify, prevent, manage or disclose conflicts of interests. These general 

In  order  to  promote  the  common  understanding  and  consistent 
application of conduct of business rules, technical standards could 
complement level 2 measures by further specifying due diligence 
requirements and criteria for identifying and managing conflicts of 

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29 

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14(2) 

principles will be complemented be Level 2 implementing legislation. 

interest. 

Merger  of  UCITS  - 
to  be 
information 
provided 
to  unit-
holders - Art. 43(5) 

UCITS  involved  in  a  merger  have  to  provide  their  unit-holders  with 
appropriate  information  (listed  in  Article  43(3))  about  the  merger,  so  that 
investors can make an informed judgement in advance of the operation. The 
specification of the content, format and method for providing the information 
will be implemented at level 2.  

In order to strengthen supervisory convergence and to promote the 
same  level  of  investor  protection  in  the  Community,  technical 
standards  could  clarify  certain  elements  related  to  the  content, 
format and method of delivery of the information. 

of 
Clarification 
investment 
UCITS 
criteria as referred to 
in  Article  50  –  Art. 
50(4) 

Article  50  of  the  Directive  enumerates  the  categories  of  assets  that  UCITS 
can acquire and criteria according to which UCITS can invest. It is essential 
that UCITS and the competent authorities share a common understanding of 
the  investment  criteria  of  UCITS.  Due  to  the  constant  innovation  in  the 
financial  sector,  new  financial  instruments  are  very  often  launched  in  the 
financial markets and traditional assets are further developed or present new 
features.  

In order to ensure consistent supervisory practices throughout the 
Community  and  respond  to  market  innovation,  standards  could 
provide for a common understanding of the investment criteria of 
UCITS. Standards would represent the technical specifications of 
the categories of assets and criteria enumerated in Article 50 of the 
Directive  and  would  not  modify  the  content  or  scope  of  such 
Article. 

Criteria for assessing 
the  adequacy  of  the 
management 
risk 
process employed by 
management 
a 
company 
–  Art. 
51(1) and 51(4) 

The risk management requirements laid down in the UCITS Directive will be 
further  developed  at  Level  2.  Level  2  measures  should  define  the  main 
principles  governing  the  risk  management  process,  in  particular  (i)  the 
organisational arrangements, (ii) requirements on risk measurement that will 
allow fund managers to identify and manage properly the risk, (iii) report on 
derivative instruments.  

Master-feeder 
structures  –  Arts. 
60(6),    61(3)(a)  and 
(b),  62(4), 
  and 
64(4)(a) and (b) 

The  recast  of  UCITS  Directive  has  introduced  a  new  and  detailed  legal 
framework  for  master-feeder  structures.  The  Commission  will  adopt 
implementing  measures  specifying  the  regime  applicable  to  master-feeder 
structures. 

In  order  to  develop  a  common  supervisory  approach  to  risk 
management  built  on  mutual  trust  between  supervisors  and  to 
ensure  a  high  standard of  investor  protection,  technical  standards 
could  further  specify  technical  aspects  of  risk  management 
process.  Technical  standards  would  ensure 
flexibility 
necessary  to  react  to  market  developments  and  address  particular 
cases  or  situations.  Technical  standards  can  further  specify  the 
requirements  for  the  risk-measurement  process  and  the  content, 
form  and  frequency  of  communications  to  the  management 
company's home Member State required under article 51(1).  

the 

In order to strengthen supervisory convergence as well as be able 
to  respond  to  market  developments,  technical  standards  could 
further specify elements of the level 2 implementing measures on 
the  relationship  between  master  and  feeder  UCITS  and  their 
depositaries and format and process for providing information. 

Specification  of  the 
content  and  format 
the  prospectus, 
of 
report 
the  annual 

UCITS  have  to  keep  investors  and  markets  periodically  informed  by 
publishing  a  prospectus,  an  annual  report  and  a  half-yearly  report.  The 
information  items  that  should  be  displayed  in  these  documents  are  listed  in 
Annex  I  of  the  Directive.  Where  a  UCITS  is  marketed  in  a  host  Member 

In  order  to  ensure  the  same  level  of  investors'  protection 
throughout the Community and to promote consistent supervisory 
practices, standards could further specify the content and format of 
the prospectus, the annual report and the half-yearly report and the 

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and  the  half-yearly 
report  –  Art.  69(2) 
and (3) and Art. 73 

State, investors should receive these documents in the way prescribed by the 
laws  of  that  host  Member  State.  Hence,  the  different  competent  authorities 
should interpret in the same way the information requirements. In particular, 
competent  authorities  should  share  a  common  understanding  of 
the 
accounting requirements for UCITS. 

accounting  obligations  for UCITS. They  will  consist  of  technical 
clarifications of the elements listed in Annex I of the Directive.  

Key 
investor 
information  (KII)  – 
Art 78 

The  manager  of  UCITS  is  obliged  to  draw  up  a  short  document  containing 
key investor information (KII). The KII shall include appropriate information 
about  the  essential  characteristics  of  the  UCITS,  so  that  investors  can  make 
informed  investment  decision  and  can  understand  the  nature  and  the  risk 
related to investment in a UCITS. Level 2 measures will define the detailed 
content and form of the KII.  

Technical  standards  could usefully  complement  these  definitions, 
contributing to common understanding and consistent application 
of  provisions,  in  particular  to  the  preparation,  presentation  and 
calculation  of  the  information  to  be  provided  in  the  KII.  Such 
standards would contribute to ensure a consistent level of investor 
protection throughout the Community. 

for 
Conditions 
the  re-
suspending 
the 
or 
purchase 
redemption  of 
the 
units  of  UCITS  – 
art. 84 

UCITS are obliged to repurchase or to redeem their units at the request of any 
unit-holder.  In  exceptional  cases,  if  justified,  a  UCITS  may  temporarily 
suspend  the  repurchase  or  redemption  of  its  units,  taking  into  account  the 
interests  of  the  unit-holders.  The  UCITS  should  inform  without  delay  the 
supervisors of the Member States where it markets its units. 

In  order  to  ensure  the  same  level  of  investor  protection  and 
consistent  supervisory  practices  throughout  the  Community, 
standards  could  further  specify  the  conditions  for  the  temporary 
suspension  of  the  re-purchase  or  redemption  of  the  units  decided 
by the UCITS. 

Notification 
of  
marketing of UCITS 
host  Member 
in 
States – Art. 95 

When  a  UCITS  intends  to  market  its  units  in  a  host  Member  State  it  must 
inform  the  competent  authorities  of  its  home  Member  State  by  submitting  a 
notification letter. The process of the cross-border marketing of units involves 
the competent authorities of both UCITS home and host Member States. The 
notification letter is a piece of information addressed to competent authorities. 

In order to promote an efficient cooperation between supervisors, 
standards  could  further  specify  technical  arrangements  of  this 
obligation,  in  particular  the  form  and  content  of  the  notification 
and  the  attestation,  conditions  for  the  electronic  transmission  of 
documentation and cooperation between supervisors.  

for 
Procedures 
exchange 
of 
information  between 
authorities  and  on-
the-spot 
and 
verifications 
investigations  –  Art. 
105 and 101(9) 

The exchange of information between home and host authorities is crucial in 
order to allow supervisors to discharge their duties properly in relation to the 
cross-border activity of UCITS and their managers. Standards and procedures 
for  handling  requests  for  information  should  be  defined  in  a  consistent 
manner  and  the  exchange  of  information  should  be  subject  to  the 
confidentiality  rules  of  Articles  102  to  104  of  the  Directive.  In  addition, 
UCITS  Directive  requires  competent  authorities  to  cooperate  among  them 
when needed to carry out on-the-spot verifications and investigations. 

Standards  may  further  specify  the  procedures  for  exchange  of 
information between competent authorities in order to organise an 
efficient  and  adequate  information  flow.  In  addition,  in  order  to 
ensure consistent supervisory practices throughout the Community 
and  to  develop  an  efficient  cooperation  between  the  competent 
authorities,  technical  standards  could  further  specify  the practical 
arrangements  for  cooperation  between  supervisors  when  carrying 
out  on-the-spot  verifications  and  investigations.  These  provisions 
are of direct concern to supervisors 

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CRA Regulation 

Area 

Description 

language 

Registration  process,  including  on 
the information set out in Annex II, 
for 
and 
applications 
the 
ESMA  -  Art.  21(2)(a)  empowering 
provision32 

submitted 

regime 

to 

CRAs  are  required  to  submit  their  applications  for  registration  including  necessary 
information set out in Annex II. Further in the registration process they may be required 
to  provide  additional  information  and  documents  to  support  their  application  for 
registration.  

Rationale/explanation  

Technical  issue  which  could  strengthen 
convergence, expertise with supervisors 

for 

Information  that  the  credit  rating 
agency  must  provide 
the 
application  for  certification  and  for 
the  assessment  of 
its  systemic 
importance to the financial stability 
or  integrity  of  financial  markets 
referred 
in  Article 5  -  Art. 
21(3)(d) empowering provision33 

to 

A  CRA  from  a  3rd  country  that  seeks  to  operate  under  the  certification  regime  is 
proposed  to  register  with  the  ESMA.    The  ESMA  may  take  a  decision  on  registration 
only  after  it  establishes  that  specific  conditions  are  met,  on  the  basis  of  information 
provided  by  the  overseas  CRA  in  accordance  with  Article  5.  Not  being  of  systemic 
importance  to  the  financial  stability  or  integrity  of  financial  markets  is  one  of  the 
preconditions for such certification.  

Technical  issue  which  could  strengthen 
convergence, expertise with supervisors 

the 

Presentation  of 
information, 
including structure, format, method 
and  period  of  reporting,  that  credit 
rating  agencies  shall  disclose  in 
accordance  with  Article 11(2)  and 
point  1  of  Part  II  of  Section  E  of 
Annex I 
21(2)(d) 
- 
Art. 
empowering provision34 

A CRA to make available in a central repository established by CESR information on its 
historical  performance  data  including  the  ratings  transition  frequency  and  information 
about credit ratings issued in the past and on their changes. In future, ESMA could make 
that information accessible to the public and shall publish summary information on the 
main developments observed on an annual basis. (Art. 11(2), Annex I.E.II.1) 

Technical  issue  which  could  strengthen 
convergence, expertise with supervisors 

32 Under existing text of the CRA Regulation to be developed as guidance by CESR 
33 Under existing text of the CRA Regulation to be developed as guidance by CESR 
34 Under existing text of the CRA Regulation to be developed as guidance by CESR 

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ANTI MONEY LAUNDERING DIRECTIVE 

2005/60/EC 

Area 

Description 

Rationale/explanation  

consolidated 
AML 
group  approach 
- 
Article 31(1) + 34(2) 

Sets  out  the  high  level  principle  requiring  EU  financial  institutions  to 
establish  adequate  and  appropriate  policies  and  procedures  of  customer  due 
diligence,  reporting,  record  keeping,  internal  control,  risk  assessment,  risk 
management,  compliance  management  and  communication  equivalent  to 
those  defined  by  the  Directive  in  their  branches  and  majority-owned 
subsidiaries  located  in  third  countries.  Non-cooperative  countries  and 
jurisdictions  constitute  a  specific  subset  of  third  countries  that  deserve 
peculiar attention. 

Supervisory 
convergence 
Article 37 

Standards  as  regards  supervisory  practices  and  exercise  by  competent 
authorities of their powers in order to ensure compliance with the directive's 
obligations 

- 

Technical  standards  could  be  developed  to  establish  minimum 
criteria  and  practices  for  the  supervision  of  compliance  by  EU 
credit  and  financial  institutions  with  AML  consolidated  group 
approach  and  the  "know-your-structure"  principle  in  Articles 
31(1) and 34(2) in connection with non-cooperative countries and 
jurisdictions 

Relates to the coordination and consistent exercise by competent 
authorities of their powers. In this area, CESR already can adopt 
non-binding  guidelines.  However,  binding  standards  may  be 
needed in future in this area to strengthen convergence. 

EN 

33 

EN