13. Capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies - Remuneration of directors of listed companies and remuneration policies in the financial services sector (debate)
President. – The next item is the joint debate on:
– the report by Arlene McCarthy, on behalf of the Committee on Economic and Monetary Affairs, on capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies (COM(2009)0362 – C7-0096/2009 – 2009/0099 (COD)) (A7-0205/2010) and
– the report by Saïd El Khadraoui, on behalf of the Committee on Economic and Monetary Affairs, on remuneration of directors of listed companies and remuneration policies in the financial services sector (2010/2009(INI)) (A7-0208/2010).
Arlene McCarthy, rapporteur. – Madam President, firstly, I would like to put on record my thanks to those who have helped to secure the agreement we have reached on CRD III (Capital Requirements Directive) regulating bank capital and bankers’ pay and bonuses. A very special thanks goes to my shadows in the Committee on Economic and Monetary Affairs, to the staff, and also to Commissioner Barnier for his continued support for the committee’s proposals, and of course, not least, to the Spanish Presidency for their persistence and efforts in 12 hours of trialogues to mediate between Parliament’s negotiating team and the 27 Member States.
The final law we are debating today fully implements the Basel rules on capital against the trading book and re-securitisations and it robustly implements the international remuneration rules agreed at the G20. Financial experts all agree that a high risk short-term bonus culture, combined with a lack of capital, were central elements in the 2008 global financial crisis. Governments and taxpayers ended up bailing out the banking sector across the European Union with an injection of some EUR 3.9 trillion of support. In my Member State, the UK, an estimated GBP 1.2 trillion of support was extended, almost equivalent to one full year of GDP. Savers and investors saw the value of their pensions and investments decline as a result of the banks’ risky practices. The bankers walked away with the short-term profits from these risky practices, while the risks they took will remain on the banks’ books for years to come.
The new law amending the Capital Requirements Directive addresses these fundamental flaws and weaknesses in the banking system which led to the crisis. It will force banks to hold more capital against riskier activities on the trading book. The law also forces banks to reform their remuneration and bonus practices with rules that break the link between financial reward and excessive risk-taking. The effect of Parliament’s amendments is also to ensure that those remuneration policies, first and foremost, prioritise the health and stability of a financial institution and indeed, lending to the real economy.
We are constantly told by the banks that they have learned the lessons of the crisis. If that is the case, why did the Bank of England financial stability report state in June that the proportion of bank revenues allocated to salaries and bonuses has, in fact, increased since the banking crisis? The extra GBP 10 billion paid out by UK banks in salaries and bonuses represents GBP 10 billion that could have been put towards banks’ capital and, as such, support, as the Bank of England makes clear, around GBP 50 billion of lending to small businesses and families. Furthermore, the Bank of England reports say that lending to small and medium-sized enterprises in the UK has actually declined in recent months and that mortgage lending is expected to contract in the next few months.
So, colleagues, at a time when governments across the EU are making substantial budget cuts, scaling back public services and support to families and businesses, we cannot continue with a banking culture that prioritises bankers’ pay and perks over sustaining capital and credit for Europe’s economic recovery. It is therefore imperative that these rules on bonuses apply in 2011.
These rules are deferral, in line with the business cycle with annual review clawback; tough measures for bailed-out banks; a cap on the ratio of bonus to fixed salary; payment in contingent capital alongside shares; increased transparency and accountability and improved corporate governance; and, of course, coverage of bonus-like pensions so a banker responsible for the collapse of his own bank will no longer be able to walk away with a GBP 16 million pension pot.
Parliament has insisted on a tough interpretation of the G20 principles to ensure that the upfront cash proportion of a bonus is strictly limited. Paying a large part of the bonus in cash without any deferral or assessment of actual performance leaves, the Parliament believes, an unacceptable incentive for taking dangerous short-term risks.
Colleagues, we have a duty, as legislators, to defend the taxpayers’ interest. We have a duty to respond to the public’s concerns. Our voters demand and expect banks to prioritise stability and lending over bankers’ own pay and bonuses. In the last two years, since 2008, the banks have failed to reform their structures. They have failed to do this and we are now doing the job for them in order to rebuild trust and confidence in Europe’s banking system.
Saïd El Khadraoui, rapporteur. – (NL) Madam President, Commissioner, ladies and gentlemen, I should like to start by thanking the shadow rapporteurs for the constructive cooperation that has enabled us to establish what is, in my view, a coherent package of opinions and recommendations.
The financial crisis has made clear that remuneration policies in the financial sector have been excessively geared towards short-term profits and that this has encouraged risk-taking behaviour, with all the associated consequences for the economy as a whole in the wake of the banking crisis. In addition, the limited impact of non-binding recommendations on remuneration policies has been demonstrated, and so it is important that we lay down ground rules aiming to contribute to sustainable growth of the companies involved and of the economy as a whole. The political agreement concerning the Capital Requirements Directive just proposed by my colleague, Mrs McCarthy, is an important step forward, as it sets out, for the first time, binding provisions concerning the structure and payment of bonuses in the financial sector. The limits on payment in cash, the stipulation that there must also be the possibility of limiting bonuses in the event of underperformance, and the spreading of bonus payments over several years strike me as particularly important aspects.
My report seeks to show that this is insufficient and that we need to look at remuneration policies from a broader perspective and strengthen the corporate-governance rules so that the ground rules and internal procedures for all the companies in the financial sector, on the one hand, and listed companies, on the other, meet the same criteria.
To begin with, it is important to exercise and expand sound internal and external supervision of remuneration policies. Therefore, companies should have a remuneration committee, which must be independent, and is accountable to the shareholders and supervisors, who must also be given access to all the potentially relevant information. This committee should also be able to cooperate closely with the risk committee on the evaluation of the incentives created by the compensation system. People engaged in risk control should, of course, be independent from the business units they control, be able to assert sufficient authority and be compensated independently of the performance of the business units under their supervision.
Risk management arrangements should be reviewed in detail by the supervisor, and companies should establish an internal procedure to address problems and conflicts which may occur between risk management and its operational units.
The remuneration itself must reflect the company’s long-term performance as far as possible. Bonuses should not just be guaranteed. The levels of variable remuneration should be based on predetermined and measurable performance criteria, which should be not only quantitative but also qualitative in nature. In addition, in the interests of social justice and for ethical reasons, the difference between the highest and the lowest remuneration in a company should remain reasonable. A proportion of variable remuneration should be paid out over a sufficient period. Furthermore, more than half should be paid out in shares or share-linked instruments, and effective recovery of a proportion of these bonuses must be possible. Also, an upper limit of two years’ pay should be set for severance pay, which should certainly be banned in cases of non-performance or voluntary departure.
With regard to transparency, it is important that details of companies’ pension and supplementary pension arrangements be published and that shareholders be able to express their views on their company’s remuneration policy. We also call for the development of an international structure enabling disclosure of the individuals earning upwards of EUR 1 million, to include the main elements of salary bonuses, long-term pay and pension contributions.
We call on the European Commission to continue its work and develop strict, binding principles on remuneration in the financial sector on top of those we have already agreed. We call for the establishment of a system for listed companies that provides full transparency, enabling us to find out which companies are keeping to the arrangements and which are not. I think that we can go even further in this matter. Commissioner, I am looking forward to your proposals on corporate governance, which have been announced in the Green Paper, as that is another dossier we shall certainly be continuing to work on in the coming months and years.
Michel Barnier, Member of the Commission. – (FR) Madam President, ladies and gentlemen, we are now debating another aspect of the response to the economic crisis, namely the lessons that can be learnt from it. After supervision has been dealt with, the next issue is how best to reform those remuneration practices which encouraged reckless risk taking, how best to reform capital requirements.
Regarding these two points, I should like to thank and congratulate your two colleagues, Mrs McCarthy and Mr El Khadraoui, the shadow rapporteurs who have worked with you, and who have demonstrated the commitment of your Parliament to a more responsible, more sound, more stable economy, to markets that should be placed once more – I repeat – at the service of the real economy, at the service of the citizens, rather than the reverse. This is an objective on which the Commission, in general, and I myself, in particular, are in full agreement.
Since my hearing, I have supported responsible European businesses, focused on the citizens, in order to improve the governance of financial institutions. I would like to thank Parliament for its support on these issues, on these tasks. I agree with your observation, Mr El Khadraoui. There must be binding measures on the remuneration policies of financial institutions. I am therefore delighted with the compromise reached by the three institutions on the revision of the directive on capital requirements, known as CRD 3. It is a balanced, well-conceived compromise which sends a strong political message to the banks and to the public.
This revised directive will strengthen the regulation system and increase the requirements for capital in areas where risks are under-capitalised. It will limit those remuneration practices which, I repeat, encouraged excessive risk taking, which have, rightly, been condemned by European citizens. It is a very important reform which tackles aspects which made a very significant contribution to the causes of the recent crisis: the trading book, complex securitisations, and remuneration practices. It is a text which not only transposes at European level the principles of the Financial Stability Board, which we agreed at the G20 in Pittsburgh, in September 2009, but which also goes beyond this by setting clear and stringent limits on variable remuneration, while allowing credit establishments and investment companies a margin of flexibility.
The payment of bonuses to directors of banks receiving State aid is greatly restricted. I think that that is fair. The clawback mechanism will also allow for a portion of the bonuses to be reimbursed in the event of under-performance. I also welcome the fact that these measures must be implemented by the Member States from 1 January 2011. I think that it is very important for the bonuses awarded in 2010, but not yet paid by 1 January 2011, to be fully covered by these new rules.
Finally, ladies and gentlemen, rapporteurs, we shall propose corresponding rules for the other financial sectors, such as the insurance sector or investment fund sector, while showing respect for, and taking full account of, the particular features of each of these sectors.
A few words about corporate governance in general, because beyond these aspects, Mr El Khadraoui’s report clearly illustrates how necessary it is to improve the governance of all businesses. This is one of the key elements of a more robust and more stable regulatory framework. I have begun this task. I recently put forward an international agenda for a financial regulation for growth. The Green Paper of 2 June 2010 on corporate governance in financial institutions is a first step in this direction. We are examining the role of auditors, of members of management boards, in order to check that everyone with a responsibility is fully competent to fulfil it. This is one of the requests made in your report, Mr El Khadraoui. Your report also deals with conflicts of interests, the role and function of boards of directors, risk management, the roles of shareholders, supervisory authorities and auditors in financial institutions. We shall open a two-month period of genuine consultation on all these issues.
I also intend to undertake a study next year on corporate governance beyond the financial sector, in particular, concerning the role of shareholders, diversity, and the role of women, for example, in the composition of corporate boards of directors.
Thirdly, there is the matter of the modernisation of capital treatment. I have just referred to CRD 3 and the issue of remuneration. This is a different issue to those of the capital requirement for high-risk activities and the bank trading book, which are both at the root of the crisis. We now know that the current levels of capital held against these assets were totally insufficient in the face of the financial crisis. CRD 3 strengthens regulation in this area, remedies deficiencies in the ways in which capital in relation to the trading book has been calculated and considerably increases the levels of capital held against its assets.
Ladies and gentlemen, some of you are undoubtedly concerned that these crucial reforms will not come into effect by the end of 2011. I am very aware of this risk. Nevertheless, when it became clear that the United States would not be in a position to implement the Basel Committee’s new rules on the trading book by the end of 2010, during my recent visit to the United States, I reviewed this matter with the US Treasury Secretary, Tim Geithner, and we reached an agreement, at international level, on a date for the application of the new rules. This international agreement was reached in May, when the Basel Committee agreed that the member countries would apply the new rules by the end of 2011.
With very flexible and internationalised markets, I think that it is extremely important to have global convergence, particularly between the Americans and the Europeans. I believe that by negotiating this deadline, we have ensured that all our international partners, chiefly the United States, will implement the rules in accordance with the amended timetable.
I am aware that these negotiations on CRD 3 have sometimes been very difficult. I should like, Madam President, to thank Mrs McCarthy and the shadow rapporteurs once again for the perseverance, creativity and receptiveness they have shown. I am delighted that I, my staff and my colleagues within the Directorate-General are able to work with you with such understanding.
Ole Christensen, rapporteur for the opinion of the Committee on Employment and Social Affairs. – (DA) Madam President, the financial incentives that bonuses have provided and that have affected the behaviour of stockbrokers, portfolio managers and directors in the financial sector were a major contributing factor to the financial crisis. We know what the outcome of this was, and therefore it is clearly a good thing that the directive is being amended so that we can avoid something similar happening in future. In this regard, I would like to congratulate the rapporteur on the new agreement and thank her for the work she has done.
We actually discussed remuneration policies in the Committee on Employment and Social Affairs, and we therefore welcome those areas of the agreement, for example, that focus on more openness and transparency in connection with the provision of information to all stakeholders, shareholders, employees, the general public and the authorities.
Moreover, in the Employment Committee’s opinion, we were almost unanimously in favour of a ban on stock options. Stock options have been the bonus scheme instrument that has provided the greatest incentive to take unnecessary risks that have resulted in losses. Even the financial sector recognises this problem, and I therefore regret the fact that the agreement does not contain a ban on stock options.
Othmar Karas, on behalf of the PPE Group. – (DE) Madam President, ladies and gentlemen, the Council is again absent. One must presume that the Council is not really aware of the political message conveyed by these regulations or by its absence.
During the negotiations, the Council came out on the side of the bonus recipients. The European Parliament is in favour of clear European regulations. We are in favour of maximum limits. We are in favour of payment methods involving less risk. We are in favour of liability. We are in favour of restrictions on bonuses for managers of banks supported with public funds. We do not want cash amounts to be higher than the tied-up capital. We have managed to get our way with splitting the timetable. We are delighted that Commissioner Barnier has agreed with the Americans that the second part, the banking book and trading book, should be implemented globally together.
It is also important that we have adapted the trading book and banking book. The disclosure requirements have been clearly tightened, the inclusion of risk for re-securitisations in the trading book has been adapted to the banking book and the stress test has been introduced in the trading book to build up capital buffers for crisis periods.
It is also important that we have tightened the preventive measures against insolvency in the trading book, but on this point, I would like to mention that we need a harmonised European insolvency law on top of this. We support this compromise as it takes us further in the right direction.
Olle Ludvigsson, on behalf of the S&D Group. – (SV) Madam President, the area of bonuses and remuneration systems is one in which we have heard a great deal of rhetoric in recent years. On the other hand, there have been very few specific measures. It is therefore a positive move that we are now establishing legislation that is both clear and practicable. This legislation will most likely reduce the short-sighted and exaggerated risk taking in the financial sector. That will reduce the risk level and increase stability.
The financial services industry should have removed the elements of the bonus systems that are damaging to society long ago, but since this has not happened, there is nothing else we can do but legislate. It is too risky for society to largely accept the status quo. Taxpayers have already paid out too much to cover losses in banks that have taken risks that were far too high. It is now vital that the directive is implemented properly in the Member States and that the regulations are used effectively, thereby helping to change the current bonus culture.
Sharon Bowles, on behalf of the ALDE Group. – Madam President, the reform of bank capital is Europe’s most important legislative response to the crisis so far and it deserves big billing. Yes, I mean up there alongside the supervisory architecture. Under-capitalised trading books were a fundamental cause of the crisis, making speculative proprietary trading attractive and almost cost-free. So the three- to four-fold increase of capital required against such trading positions should be welcomed as directly addressing the root cause of the crisis and cutting down on the motive for casino banking.
On remuneration, when I first suggested that big bonuses and pension lump sums could be paid in subordinated debt, many said that this could not fly. So I thank the rapporteur and my fellow shadows for supporting this idea, which we transformed into contingent capital and is already becoming part of mainstream thinking elsewhere. I regret that my specific tax-avoidance texts could not be included, but we have prohibited payment in ways designed to undermine the purpose of the directive.
Pascal Canfin, on behalf of the Verts/ALE Group. – (FR) Madam President, Commissioner, my political group is particularly delighted that this directive has been adopted. It is a directive which arguably contains the most ambitious rules in the world on remuneration factors. I must say that the ability to strictly limit the variable remuneration of directors of banks assisted by the public purse, and even the possibility to defer up to 70% of traders’ bonuses in the long-term interests of the bank and, potentially therefore, to take account of the risks taken and the negative effects of these risks in order to reduce these bonuses, are important rules which translate the G20’s commitments in principle into real figures at European level.
However, I must also say that in negotiations with all the other shadow rapporteurs and with the rapporteur herself, we constantly came up against a lack of commitment by the States, against the huge gap between fine rhetoric on the regulation of capitalism, on the raising of the moral standards of capitalism, on the one hand, and the negotiating positions of the Council and the main States, which constantly refused to agree figures, and tried to reduce the scope of and water down all of our ambitious proposals, on the other. I must say, Commissioner, that the Commission has largely been on our side in this struggle. Therefore, I think that this is an achievement which we can share.
Now, there is an important issue at stake. As we lost, we have had to make compromises. We lost a number of battles aimed at agreeing figures, and we have had to replace these figures with a number of words, often rather portmanteau words, such as ‘justified’, ‘appropriate’ and ‘balanced’. The challenge now is for the future European banking authority to translate these principles and portmanteau words into real figures, which will then be applied by all banks and all Member States. I would therefore like to know, Mr Barnier, how you intend to apply pressure on and strictly monitor this future process so that it does not distort the text on which we are going to vote tomorrow.
Franz Obermayr (NI). – (DE) Madam President, we have obviously learnt something from the crisis after all, as irresponsible economic activity is now no longer to be encouraged or rewarded. The system supporting the payment of only some bonuses, in this case 20% or 30%, promotes efforts towards managing companies in a more sustainable way. The regulation should also set an example to citizens, as they have already footed enough of the bill, and it is incomprehensible why their taxes should be used to pay bonuses to irresponsible managers.
We have here a regulation which is unique on a global scale. If the EU wants to avoid the possibility of emigration towards New York or Tokyo, it must now have a second trick up its sleeve, which means pushing more strongly for a common regulation on the international stage. After all, any managers who are successful and responsible also want to continue making a good living.
In addition, it might be worth considering applying corporate governance requirements which do not affect the capping of executive pay, even in companies not listed on the stock exchange. This is a fundamental change towards greater sustainability and cost efficiency, and hopefully away from gambling.
Sławomir Witold Nitras (PPE). – (PL) Madam President, it seems to me we have been able to do something very significant in regulating or creating a new framework for remuneration policy. On the one hand, we have managed to agree that the escalation of remuneration was one factor which helped cause the financial crisis. We have also been able to agree with each other that we have to increase the role of management bodies and particularly of supervisory bodies, including both internal and external supervision in companies. We have also agreed that general principles have to be established for situations when a completely independent management committee has to be formed in a company. We have finally managed to agree what previous speakers have talked about, that bonuses should be linked to long-term financial results and that they can be set aside.
We were also able to agree with something else, which seems to me no less important – we were able to agree that remuneration policy, although undoubtedly incorrect, was not the main cause, and certainly not the only cause, of the financial crisis. I welcome this last point in particular, because if we had written this into the report – and there were such suggestions – we would have accepted information which is simply not true, and this would not have helped us fight the causes of the crisis. Thank you to all fellow Members for their cooperation on this report.
Carl Haglund (ALDE). – (SV) Madam President, I was shadow rapporteur for the second report, and I would first of all like to thank our rapporteur for his excellent cooperation.
After the extensive financial crisis, it is probably only natural for us to review remuneration policy within this sector. At the same time, we have to admit that the issue has, without a doubt, been politically interesting and quite simply populistic. It is clear that we need principles that promote and create guidelines for a sound remuneration policy. We know that there have been individual cases where remuneration policy could have given rise to the problems that we have seen over recent years.
At the same time, we must avoid broad generalisations and blaming the sector as a whole. We should perhaps remember that it is hardly in the interests of an individual company to encourage exaggerated risk taking. I am therefore also pleased that we were finally able to agree on the comply-or-explain principle, among other things. In the end, we succeeded in achieving a relatively balanced result. I believe this is a good result, even though I think that as politicians, we should perhaps, in principle, not go into as much detail as we are doing in this case.
Burkhard Balz (PPE). – (DE) Madam President, Mr Karas has already mentioned some key points. I fully concur with him on them. I think that we need better capital requirements for financial institutions in both qualitative and quantitative terms. One thing is therefore certain, namely that the Basel rules need to be developed further. However, it does not help to force the situation as this could have totally the opposite effect.
The financial crisis is obviously a global crisis. The lessons we need to draw from it must therefore be drawn at a global level as well. This means that if we tighten capital requirements, we must coordinate this measure internationally too. The level playing field must be retained. Judging in particular by the decisions that have been made in the last few days by our friends in the US, I have certain doubts about this.
Another consideration, which is especially important to me, is that the accumulation of current projects must not result in inconsistency. For example, texts and annexes must remain consistent. Calculation examples in the annex must also match the wording. However, the future supervisory authority will be responsible for the interpretation.
There is one other thing we should not forget. The financial economy and the real economy are not two self-contained systems. Capital requirement regulations have an impact on the real economy. However, at the moment we do not know exactly what this will be. We therefore need at least to carry out thorough impact assessments before we make any further changes to the legal framework. This has been the negotiating line adopted by the Group of the European People’s Party (Christian Democrats) from the outset. The compromise which has now been reached with the Council is therefore, in my view, the only sensible solution. I wish to thank Mrs McCarthy and Mr Karas, in particular, for the work they have put in to this report.
Roberta Angelilli (PPE). – (IT) Madam President, Commissioner, ladies and gentlemen, I would like to thank the two rapporteurs for their excellent work. The restriction on bonuses to top managers is a very important sign: first of all, because it is the first time, anywhere in the world, that a ceiling on payments to bank directors has been established; secondly, because this is a package of clear rules – managers’ bonuses must only be paid when the bank has collected the profits and no longer only on the basis of forecast results; and thirdly, because the new measures will put an end to the encouragement to take excessive risks. Finally, there will be greater transparency and responsibility since shareholders will be able to take part in shareholders’ meetings and exercise the right to vote on the remuneration of directors.
Miroslav Mikolášik (PPE). – (SK) Inappropriate systems of remuneration contributed to excessive and careless risk taking at the expense of employees, savers, investors and overall economic growth, which finally also contributed to the financial and economic crisis.
For this reason, I welcome the initiative leading to the regulation of remuneration policies in the financial services sector, which takes account of the fact that managers are often led by their own financial interests when managing a company.
Excessive risk taking is also, in many cases, contrary to the long-term interests of a company and its shareholders. In the case of banks and other financial institutions, moreover, taxpayers are faced with the risk that they will have to take part in rescue measures in case of financial difficulties.
In my opinion, we should ensure a high degree of transparency in remuneration and strengthen the rights of shareholders to supervise remuneration policies for company managers and to express their opinions on this at AGMs.
Andreas Mölzer (NI). – (DE) Madam President, there is a real wave of post office closures at the moment in Austria while, at the same time, there has been a 40% wage hike at Post AG, but only for executive salaries. However, particularly during times of crisis, the general population is unable to comprehend such fantasy salaries, bonus excesses and serial severance pay recipients. It will not be that easy to put an end to this.
It is well known that the German law on the appropriateness of management board remuneration has simply brought about more red tape and greater influence from foreign investors on remuneration policy and company strategy. The attempt to make management executives more accountable with retentions was thwarted by new insurance policies. The EU draft should draw a lesson from this.
When one hears that disclosure of managers’ salaries in the US has led to their increase, it becomes clear that our plan is tantamount to fighting against a hydra. A chief controller will, at any rate, find it difficult to be responsible for two companies at the same time which compete with each other. The factors determining the bonuses must definitely be transparent.
Mairead McGuinness (PPE). – Madam President, I would like to thank the rapporteurs and the Commission. This is a specialist area but every single citizen in Europe is pleased that Parliament, the Commission and the Council are tackling the issue of excessive remuneration. We only know about the excesses of the banking sector because of the disasters that have happened. I would argue that, even if things were profitable in banking, the remuneration is way out of line from the general public perception.
Transparency is the key to all of this. When people have knowledge of what is happening, then we can take action on it. We published the payments of farmers, from the very smallest right up through the chain, and we regard this as transparent. In my view, bankers make profits from public money, from their shareholders and those of us who take out loans, so it is time to tackle this particular problem. I am not, however, convinced that the mindset of many bankers has changed at all and I fear that when this does eventually blow over, unless the Commission is very strong, we will revert to type.
Michel Barnier, Member of the Commission. – (FR) Madam President, I am deeply touched that you still have the patience to listen to me as I have been with you for four hours now, and I am delighted to be here, to answer your questions and to listen to your debate on some very important matters.
Once again, my thanks go to Mrs McCarthy and Mr El Khadraoui and to all the members of the Committee on Economic and Monetary Affairs for their commitment, their contributions, and the important improvements that you, the rapporteurs, have made to these texts.
We still have a great deal of work to do on the issue of the financial sector, on remuneration in the other financial sectors, on corporate governance, on CRD 4, on derivatives and on short selling, and I shall propose some regulations on these areas in September.
Only today, the College approved two legislative texts on deposit guarantees and compensation for investors, and a White Paper on guarantees in the insurance sector.
To return to today’s texts, on which you will vote tomorrow, I think they are sound texts which have benefited from a considerable number of contributions in the course of the negotiation process, from positive amendments, tabled by your committee, in particular, concerning details on the calculation of remuneration, transparency in remuneration policies, restrictions on bonuses in those companies which have benefited from State aid, and clawback.
With regard to international competitiveness, I would like to remind you that the Financial Stability Board’s remuneration principles are general principles designed for states, which differ considerably in terms of their economic development. There is considerable diversity amongst these states and, where the Financial Stability Board’s general principles allowed them too much room for manoeuvre as regards the implementation of those principles, it was indeed necessary, at European level, to ensure that the Member States implemented the text of the directive consistently. Clear rules have been implemented which cannot be interpreted in different ways. As I have already said on numerous occasions, I do not believe that a clear, consistent legislative framework would in any way compromise our international competitiveness. I even believe that if Europe becomes one of the very first continents to implement these intelligent regulations and intelligent supervision, it will enjoy a competitive advantage.
With regard to what you were saying about the workings of the new European authorities, we still need to establish these authorities. They have not yet been established. This is the aim of the debates we are having with the Council at this very moment. In my view, these new authorities will have to have real powers of coordination and be able to ensure that these common rules are applied coherently and consistently. Furthermore, there must be the opportunity to take decisions relating directly to institutions, in the event that European law is not applied correctly. This includes, Mr Canfin, decisions on rules relating to remuneration.
Therefore, I assure you that the Commission will be extremely vigilant as regards these various points in the coming days.
I should now like to say a few words about the application of these new rules. They must apply to all investment banking firms. The directive includes a general principle of proportionality, which allows for the application of the principles to be adapted to different credit institutions, taking into account their legal structure, size, complexity and the nature of their activity. We firmly believe that CRD 3, thanks to you, will make significant changes to practices which have been all too frequent until now, and which have led to excessive risk taking by the banks and hence to the economic crisis, the consequences of which we are suffering today.
I should like to thank Mr Karas for his support on the issue of implementation, as agreed, in parallel with the US, in respect of insolvency law. We shall work on this issue within the framework of the programme for resolving the crisis, but it is a long-term project.
Mr Christensen, you stressed the need for transparency. This is a very important point on which the European Parliament still has a great deal to do to improve the Commission’s original proposals, and I thank you for it.
Mrs Bowles mentioned the central issue of capitalisation, as did Mr Balz a short while ago. Capitalisation is indeed important. However, I think that an appropriate internal and external supervisory framework, which we are also debating, is equally important. Regarding CRD 4, which is under discussion with the banks, I must tell you, Mr Balz, that I am extremely anxious to carry through to the end and with great care the impact and macro-economic studies that we need in order to adjust the measures contained in CRD 3 and CRD 4. There is the adjustment within the Basel measures themselves, there is the adjustment between the Basel measures and the other measures relating to precaution and prevention, internal and external supervision, corporate governance, resolution funds and the range of tools for precautionary purposes, and then there is the final adjustment, with regard to which I am very vigilant – I say this one last time, by way of conclusion – which is a confident but clear-sighted adjustment between what the United States is doing and must do, on the one hand, and what we ourselves must do from a European point of view, on the other.
We need to achieve exactly the same objectives. They have been set by the G20. We must achieve them in parallel, and I shall be careful to ensure that this does indeed happen.
Arlene McCarthy, rapporteur. – Madam President, just very briefly, I agree with Mrs McGuinness that mindset and culture have not changed. In fact, over the last week, some banks and institutions have attempted to derail and undermine the proposals that we will be voting on tomorrow. It is why enforcement is vital, it is why national regulators must have the backbone to enforce this legislation and it is why tomorrow, Members will have to give a strong vote and a strong signal to banks and the public that we do intend to reform and, indeed, transform the discredited bonus culture in the long term. I believe, colleagues, that it is the beginning of the process, not the end. Therefore, I urge colleagues to give a strong vote to this report in the plenary tomorrow.
IN THE CHAIR: Edward McMILLAN-SCOTT Vice-President
Saïd El Khadraoui, rapporteur. – (NL) Mr President, ladies and gentlemen, I too shall keep it brief. I believe we all agree that ground rules are needed for remuneration policies, and it is clear – from an evaluation of the Recommendations on remuneration policies published by the Commission one year ago – that these must be as binding as possible. I am, of course, aware that not everyone wants to go as far in this matter and not everyone is as ambitious, but we must all agree that what we are discussing today and will hopefully be adopting tomorrow is just an initial step in the right direction. It cannot be the end of the story.
It is clear that there is still work to be done. Supervisors must be strengthened so as to enable external monitoring, too, of companies’ remuneration policies. The role of the remuneration committees must be clarified, as must the link with those engaged in risk management. The role of the shareholders must also be strengthened. Therefore, Commissioner, I am delighted to hear that you are in favour of a corporate governance regulatory framework for all companies, and I gather that there is to be an in-depth discussion on this with stakeholders in the coming months. This is important, and it is also an important signal to our citizens that we are serious about establishing solid ground rules for this in the interests of the companies themselves and of the economy.
President. – The debate is closed.
The vote will take place tomorrow (Wednesday, 7 July 2010).