RBS 2011 Annual Report Download - page 243

RBS Group 2011 241
Prudential and related reforms
Akey focus during 2011 was work on amending the EU’s Capital
Requirements Directive (CRD): a key step in that process was the
publication of draft legislative text in September 2011, the CRD IV
package, which is expected to be finalised during 2012 and will
implement Basel III in the EU.
Another key area of work was the EU’s “crisis management” legislative
package, aimed at dealing with issues similar to those addressed by the
FSB work on G-SIFIs. An early 2011 EU Commission consultation
included proposals on enhanced supervision and early powers of
intervention; recovery and resolution planning; resolution frameworks;
resolution funds and debt write-down (but not capital surcharges). Draft
legislation to implement these measures was at the time of writing
expected to be issued in early 2012, after several postponements.
Other initiatives in the prudential space have included, notably, continued
work on developing the Solvency II framework for insurers; the
development of legislative proposals on corporate governance in financial
institutions; and the further development and UK implementation of the
EU’s common reporting framework (COREP) for banks.
Market and structural reforms
Key developments in this space included:
xEuropean Markets Infrastructure Regulation (EMIR) - negotiations
continued during 2011 on this draft Regulation on OTC derivatives,
central counterparties and trade repositories, which represents a
major element of the financial crisis regulatory response agenda.
Agreement was close to being reached in early 2012.
xMarkets in Financial Instruments Directive Review (MiFID2) - the EU
review of this directive, which sets the framework for investment
markets, culminated in the publication of draft legislative text in
October 2011.
xFinancial Transaction Tax (FTT) - the EU Commission published
proposals for an FTT, which would see trades in bonds and shares
taxed at 0.1% and complex derivatives taxed at 0.01%. However,
the proposal requires approval from all 27 EU members, but is
opposed by some, including notably the UK, which reduces the
likelihood of it being imposed.
xOther initiatives - these have included changes to the market abuse
regime and prospectus requirements, initiatives on short-selling,
further legislative developments impacting credit rating agencies and
changes to depositor and investor protection.
EU retail market reforms
Notwithstanding the focus on prudential and market reforms in response
to the financial crisis, the EU Commission during 2011 also continued to
work on a wide range of retail agenda initiatives. These included a draft
legislative proposal for a mortgage credit directive, with a focus on
responsible lending and borrowing; the development of proposals on
collective redress; and ongoing discussions with the banking industry to
improve the transparency and comparability of bank fees. The Group also
continued to work on implementing the requirements coming into force at
the end of 2011, contained in the EU Payment Services Directive.
UK regulatory developments
UK regulatory developments during 2011 continued to be extensively
determined by global and EU developments, with UK regulators working
to implement requirements coming into force, such as the CRD III
package of reforms, and actively participating in policy development at
the EU and global levels. In addition, there were a number of
developments specific to the UK.
Independent Commission on Banking (ICB)
The ICB was appointed by the UK Government in June 2010 to review
possible structural measures to reform the UK banking system in order to
promote, amongst other things, stability and competition. It published its
final report to the Cabinet Committee on Banking Reform on 12
September 2011 (the ‘Final Report’), which set out the ICB’s views on
possible reforms to improve stability and competition in UK banking.
The Final Report made a number of recommendations, including in
relation to: (i) the implementation of a ring-fence of retail banking
operations; (ii) increased loss-absorbency (including bail-in, i.e. the ability
to write-down debt or convert it into an issuer’s ordinary shares in certain
circumstances); and (iii) promotion of competition.
On 19 December 2011, the UK Government published its response to the
Final Report and indicated its support and intention to implement the
recommendations set out in the Final Report substantially as proposed.
The Government indicated that it would work towards putting in place the
necessary legislation by May 2015, requiring compliance as soon as
practicable thereafter and a final deadline for full implementation of 2019.
The Group will continue to participate in the debate and to consult with
the UK Government on the implementation of the recommendations set
out in the Final Report and in the Government’s response.
Regulatory architecture reforms
Work on the UK coalition government’s plans for reforming the UK’s
regulatory structure continued during 2011, with major consultations from
HM Treasury, a number of calls for evidence from parliamentary
committees and the publication of a draft Bill for pre-legislative scrutiny
purposes in June 2011. In addition, the FSA and Bank of England
published policy documents setting out initial high-level policy thinking on
the new regulatory bodies; and an interim version of the Financial Policy
Committee started to meet in advance of legislation being enacted.
However, the timescale for completing the legislative process and fully
implementing the new framework has been delayed until 2013 (from the
end of 2012).