Capital markets union: agreement reached on securitisation

On 30 May 2017, the presidency reached agreement with European Parliament representatives on proposals aimed at facilitating the development of a securitisation market in Europe. 

A framework for securitisation is one of the main elements of the EU’s 2015 plan to develop a fully functioning capital markets union by the end of 2019. Developing a securitisation market will help create new investment possibilities and provide an additional source of finance, particularly for SMEs and start-ups. 

“This initiative will encourage financial market integration in Europe and make it easier to lend to households and businesses“, said Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency. “Tonight’s agreement with MEPs will allow us to relaunch the securitisation market, defining a model for simple, transparent and standardised securitisations.”

The agreement will be submitted to EU ambassadors for endorsement on behalf of the Council, following technical finalisation of the text. Parliament and Council will then be called on to adopt the proposed regulation at first reading.

Securitisation is the process by which a lender – typically a bank – refinances a set of loans or assets, such as mortgages, automobile leases, consumer loans or credit card accounts, by converting them into securities. The repackaged loans are divided into different risk categories, tailored to the risk/reward appetite of investors. 

Following the US subprime cirisis of 2007-08, public authorities took steps to make securitisation transactions safer and simpler, and to ensure that incentives are in place to manage risk. As a result of these reforms, all securitisations in the EU are now strictly regulated. However, in contrast to the United States where markets have recovered, European securitisation markets have remained subdued. This despite the fact that EU securitisation markets withstood the crisis relatively well. 

Building on what has been put into place to address risk, the proposals differentiate simple, transparent and standardised (STS) products. The concept of ‘simple, transparent and standardised’ refers not to the underlying quality of the assets involved, but to the process by which the securitisation is structured. 

Issues resolved 

One of the main political issues resolved relates to a so-called risk retention requirement. This refers to the interest in the securitisation that originators, sponsors or original lenders of securitisations need to retain themselves. The requirement will ensure that securitised products are not created solely for the purpose of distribution to investors. 

The negotiators agreed to set the risk retention requirement at 5%, in accordance with existing international standards and in line with the Council’s negotiating position. 

Other elements agreed with the Parliament include: 

  • the creation of a data repository system for securitisation transactions, which will increase market transparency;
  • a light-touch authorisation process for third parties that assist in verifying compliance with STS securitisation requirements. The aim is to prevent conflicts of interest. The text makes clear that, even when a third party is involved in the STS certification process, liability for compliance with the rules remains completely with originators, sponsors, original lenders and securitisation special purpose entities.

Two regulations 

The agreement with the Parliament covers two draft regulations: 

  • one setting rules on securitisations and establishing criteria to define STS securitisation;
  • the other amending regulation 575/2013 on bank capital requirements. 

The first brings together rules that apply to all securitisations, including STS securitisation, that are currently scatttered amongst different legal acts. It thus ensures consistency and convergence across sectors (such as banking, asset management and insurance), and streamlines and simplifies existing rules. It also establishes a general and cross-sector regime to define STS securitisation. 

The text amending regulation 575/2013 sets out capital requirements for positions in securitisation. It provides for a more risk-sensitive regulatory treatment for STS securitisations.

The regulations require a qualified majority for adoption by the Council, in agreement with the European Parliament. (Legal basis: article 114 of the Treaty on the Functioning of the European Union.)

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Capital markets union: Agreement on venture capital rules

EU rules on venture capital and social enterprises are to be adjusted with the aim of boosting investment in start-ups and innovation.

On 30 May 2017, representatives of the Council and the European Parliament agreed on amendments to rules governing investment funds in this sector.

The proposed regulation is part of the EU’s plan to develop a fully functioning capital markets union, diversifying funding sources for Europe’s businesses and long-term projects. It is also linked to the EU’s investment plan for Europe.

“If European SMEs are to grow and develop, it is indispensable that financing – both bank and capital market financing – is readily available”,said Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency. “This regulation will help stimulate market financing and thereby boost economic growth.”

The EU has been falling behind the United States in this sector. According to the Commission, an extra €90 billion would have been available between 2009 and 2014 for financing European companies if venture capital markets had been as developed as in the US.

The proposal adjusts rules adopted in 2013 to encourage investment in European venture capital funds (Euveca) and European social entrepreneurship funds (Eusef).

Amending regulations 345/2013 and 346/2013, it makes those funds available to fund managers of all sizes and expands the range of companies that the funds can invest in. It also makes the cross-border marketing of such funds cheaper and easier.

Regulations 345/2013 and 346/2013 lay down requirements for investment in Euveca and Eusef funds, which relate respectively to:

  • young and innovative companies;
  • enterprises whose aim is to achieve a positive social impact.

Presidency and Parliament representatives agreed on the following amendments:

  • larger fund managers, i.e. those with assets under management of more than €500 million, will henceforth be able to market and manage Euveca and Eusef funds;
  • the range of companies in which Euveca funds can invest is expanded to include unlisted companies with up to 499 employees (small mid-caps) and SMEs listed on SME growth markets.

Next steps

The agreement will be submitted to EU ambassadors in the coming days for endorsement on behalf of the Council. The Parliament and the Council will then be called on to adopt the regulation without further discussion.

The regulation will start to apply three months after its entry into force.

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Services package: Council agrees conditions to ease provision of services and mobility of professionals

The Council agreed on general approaches on two proposals of the “Services Package” to make the internal market more effective:

– a draft directive laying down rules on notification for authorisation requirements in the services sector, and

– a draft directive aimed at carrying out a proportionality test before adoption of new regulation of professions.

A Council general approach allows starting negotiations with the European Parliament.

“Businesses and professionals are still confronted with disproportionate regulation to provide services across borders. The Services Package is an essential tool to facilitate the movement of people and services. Companies, professionals and consumers will benefit greatly from better access to different professional activities and services”, said Chris Cardona, Minister for the Economy, Investment and Small Business of Malta.

Notification procedure in the services sector

The draft directive seeks to ensure that new national measures approved in member states fulfil the necessary conditions to facilitate the competitiveness and integration of the single market in the services sector.

More specifically, it aims at improving the current notification procedure of the Services Directive (2006/123/EC). This procedure provides that member states must notify to the Commission new or changed authorisation schemes or requirements falling under the scope of the Services Directive in order to guarantee its correct implementation.

The Council’s text takes into account the need to enhance the existing notification procedure and the need to respect the principles of proportionality and of subsidiarity, in particular the prerogatives of national parliaments and administrative authorities.

The objective of the Services Directive is to remove barriers to the establishment of service providers and the temporary provision of cross-border services.

Professions: tests before adoption of new national rules

The draft directive seeks to improve transparency on the way certain professions are regulated in the member states.

More specifically, it aims at ensuring that national measures are proportionate and do not unduly restrict access to professions or create unjustified burdens in the internal market.

When regulating professions, member states will have to make an assessment as to whether the new or amended rules are justified so as to appreciate their effect on stakeholders and businesses. The future directive will therefore harmonise the way in which these proportionality tests are carried out and the criteria that have to be applied, in accordance with the European Court of Justice rulings.

The obligation to carry out a proportionality test before introducing new regulation of professions will supplement provisions of the Professional Qualifications Directive (2013/55/EU).

The Services Package

The “Services Package”, released on 10 January 2017, contains the following legislative proposals:

  • Proposal for a services e-card
  • Proposal for a services notification procedure
  • Proposal for a proportionality test before adoption of new regulation of professions

It also includes guidance on reform recommendations for regulation in professional services.

Promoting the competitiveness of services markets is essential for the creation of jobs and growth in the EU, with the services sector accounting for around 70% of the EU’s GDP.

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Car emission controls: Council agrees to reform type-approval and market surveillance system

The Council agreed on a general approach to reform the system of type-approval and market surveillance for motor vehicles.

This major reform will modernise the current system, adapt it to new technologies available on the market and improve control tests on car emissions data.

“Public health, air quality and innovation are at the core of this agreement. The only way to restore and increase trust in the European automobile industry is to help to develop clean and safety technologies. Reliable control tests for cars will be established so that emission irregularities that happened in the past cannot reappear in the future”, said Chris Cardona, Chair of the Council and Minister for the Economy, Investment and Small Business of Malta.

The aim of the reform is to achieve a high level of safety and environmental performance of motor vehicles and to address the main shortcomings identified in the existing type-approval system.

The Council general approach will have to be negotiated with the European Parliament before becoming law. The Parliament voted its position on 4 April.

Important changes will be introduced in three areas by strengthening:

  • the quality of testing that allows a car to be placed on the market through improved technical services
  • market surveillance to control the conformity of cars already available on the market, with the possibility for member states and the Commission to carry out spot-checks on vehicles in order to detect failures at an early stage
  • the oversight of the type-approval process, in particular through the establishment of a Forum for the exchange of information on enforcement, made up of representatives of national approval and market surveillance authorities

All member states agreed to improve the harmonised implementation of the rules across the EU so as to reduce the possible differences in interpretation and application by national type-approval authorities and technical services. They also agreed that more effective market surveillance rules should apply to better detect non-compliance at an early stage.

A minimum number of cars to be checked

The new market surveillance obligations agreed by the Council would require every country to conduct a minimum number of checks on cars each year. This minimum number of checks will be 1 in every 50,000 new vehicles registered in that country the previous year.

The checks will include verification of emissions under real driving conditions.

The general approach foresees an obligation for member states to finance market surveillance activities. The fees for type-approval activities would be levied on manufacturers who have applied for type-approval.

Those countries with fewer resources to carry out the required tests will be able to ask other countries to carry out the tests on their behalf.

More robust oversight to detect failures

The Commission will be empowered to carry out tests and inspections of vehicles to verify compliance and react to irregularities immediately. This will increase the independence and quality of the EU type-approval system.

The Commission could also impose fines for infringements on manufacturers and importers of up to €30 000 per non-compliant vehicle.

An audit system based on peer reviews will be established. The type-approval authorities would be peer-reviewed by two type-approval authorities of other member states at least once every five years. The Commission will be able to participate in peer evaluation teams and should draw up a summary of the outcomes of peer evaluations and make them public.

Type-approval authorities however would not be subject to peer evaluation when they designate all their technical services on the basis of accreditation of internationally recognised standards.

Furthermore, an advisory Forum for exchange of information on enforcement measures would be established with the purpose to harmonise different interpretations and practises among the member states. This Forum should also examine the outcomes of peer evaluations.

In addition, the national authorities will have to submit each year to the Forum a comprehensive overview of their planned market surveillance checks.

As far as technical services are concerned, the Council text proposes the involvement of the national accreditation bodies in the assessment of the technical services and the establishment of joint assessment teams.

The position of technical services vis-à-vis manufacturers will be strengthened, and will include the right and duty to carry out unannounced factory inspections and to conduct physical or laboratory tests.

The technical services will carry out the tests for type-approval under the responsibility of type-approval authorities. The proper functioning of technical services is crucial for ensuring a high level of safety and environmental protection and so maintain consumer confidence in the system.


The draft regulation to modernise the type-approval system of motor vehicles was presented by the Commission on 27 January 2016. It will replace the EU’s current legal framework which is set out in directive 2007/46/EC.

It preserves the general purpose of directive 2007/46/EC to facilitate the free movement of motor vehicles in the internal market and apply the principle of mutual recognition by laying down harmonised type-approval requirements.

A fundamental overhaul of the existing system, which was designed ten years ago, was already foreseen in the EU’s work programme.

However, irregularities discovered on the use of illegal defeat devices by certain car manufacturers have made public opinion, authorities and economic operators aware of the need to implement robust provisions on type-approval, as well as to improve testing methods with respect to pollutant emissions from vehicles, to prevent similar cases in the future.

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