Verbatim report of proceedings

Tuesday, 16 December 2008 - Strasbourg

20. Securities settlement systems and financial collateral arrangements (debate)

  President. − The next item is the report (A6-0480/2008) by Mrs Kauppi, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a directive of the European Parliament and of the Council amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims (COM(2008)0213 - C6-0181/2008 - 2008/0082(COD)).

  Piia-Noora Kauppi, rapporteur. − Mr President, I have had the pleasure of being the rapporteur on this topic of settlement finality in payment and securities settlement systems and the directive on financial collateral arrangements. I am leaving Parliament tomorrow – this will be my last legislative report for the European Parliament – so please accept my sincere apologies if I am a little bit emotional tonight.

This is not the most political of items. Sometimes what we do in the European Parliament is quite technical, but I am absolutely sure that this directive, this legislation, will also help Europe to go forward.

The aim of this legislation is to update the directives in line with the latest market and regulatory developments. The main change brought about by the settlement finality directive is to extend the protection of the directive to cover night-time settlement and settlement between linked systems; this is very important, since the number of links and the need for interoperability have lately increased immensely. The MIFID directive, on which I also had the honour to be rapporteur in this House, and the European code of conduct on clearing and settlement systems are expected to become increasingly operable, and that means that we have more need to coordinate our settlement and financial collateral arrangements.

Regarding the Financial Collateral Directive (FCD), it is very important to accept credit claims as financial collateral. The European Parliament also wanted to extend the scope of what is accepted as collateral to interbank credit claims. For me it was acceptable for credit for micro-enterprises and small enterprises to be excluded, like consumer credits.

The establishment of a harmonised legal framework for the use of credit claims as collateral in cross-border transactions helps enhance market liquidity and ensures the proper functioning of settlement systems in rapidly evolving markets. The new directives also introduce several simplifications and clarifications and definitions. These solutions will make an important contribution to strengthening the tools for managing instability in financial markets.

My aim was to reach a compromise at first reading, so we were negotiating with the Council and Commission the whole time. I have also negotiated with other political groups, with Ms Berès and Ms Starkevičiūtė especially, in order to achieve a compromise that could satisfy everyone in the Parliament. I am very happy that the report was unanimously accepted by the Committee on Economic and Monetary Affairs.

In the end I am also quite content with the compromise that will be voted during this week’s part-session. On most of the issues the negotiations went well and we agreed on the basic lines of this legislation. However, there were a few controversial issues as well and I did not get all the goals through.

During the negotiations I was not able to get the support for the ECON proposal to amend the definition of the system which would have made it possible to grant the protection of the directive to systems based on the ECB legal act, and would have allowed the European Central Bank to designate such systems itself. I am happy that the European Commission stated during the negotiations that it is in principle in favour of such an amendment and will probably table a proposal to this effect in the near future.

Regarding the financial collateral directive and the notifications, I could have wished that all the Member States had already abolished the notification requirements, which in my view only add bureaucracy and do not advance any particular objective; however, as I learned that this issue was extremely sensitive to some Member States I am quite satisfied that we got a review clause written in.

I think that after five years the few Member States that still want to request these ex-ante notifications can be persuaded to end this unnecessary practice. As I mentioned already, I am happy that we were able to find a compromise that we could all agree on. I hope that you, my fellow colleagues, will vote on this legislation on Thursday.

Finally, I would like to say that it has been a pleasure to work with all of you during these years. It is my 20th legislative report and it will be the last. I shall miss this Parliament, this House, and all of you.

  President. − Ms Kauppi, once again we thank you for your work and we wish you all the best for your future.

  Charlie McCreevy, Member of the Commission. − Mr President, I would like to thank the rapporteurs, Ms Kauppi and Mr Sakalas, of the Committee on Economic and Monetary Affairs and the Committee on Legal Affairs respectively, for their fast and very efficient work on this file.

The directives on settlement finality and financial collateral are working well and enjoy wide support in the market. Nevertheless, I am glad that we have been able to agree, in less than eight months, on the necessary adaptations to bring them fully into line with the latest regulatory and market developments. This is important for financial stability and in particular for the continued proper functioning of settlement systems, which become increasingly interlinked, while keeping their own identity. There was no need to create super-systems, and this is clearly spelled out in the amendments.

My services started preparing the Commission proposal in early 2007, before the onset of the ongoing financial turmoil. But I believe the changes we have proposed are vindicated by the challenges which the turmoil has raised. The establishment of a harmonised legal framework for the use of credit claims as collateral in cross-border transactions will further enhance market liquidity, so badly needed in the present environment.

We expect that, with easier rules, credit claims will be used more frequently in the future. Of course, this depends on the demand in the market for other forms of collateral. However, we have seen during the first months of the financial crisis that the demand for credit claims was growing, for instance as compared to the notorious asset-backed securities. The explanation is simple: as long as credit claims are not bundled together, which is the case with securitisation, the collateral taker is able to assess their creditworthiness on an individual basis before deciding whether or not to accept them. What you are asked to agree on by the voting on the report by Ms Kauppi is to facilitate the use of credit claims by abolishing some formal requirements.

The Commission undertakes that in five years’ time it will report back to you on these changes. In particular we will look at how the abolition of the obligation to register or notify the debtor on the provision of credit claims as financial collateral is working, especially in those Member States that, for the time being, are hesitant and want to opt out from Article 3(1) of the Financial Collateral Directive.

Let me take this opportunity of wishing Piia-Noora Kauppi well for the future. I know she is going back to a very interesting position in Finland. During my time as Commissioner she has been exceptionally cooperative and helpful and always gave the utmost in any task that was assigned to her by Parliament. I know she will make a great success of her future career, and I wish her and her family well.

  Aloyzas Sakalas, rapporteur for the opinion of the Committee on Legal Affairs. − Mr President, I was appointed by the Committee on Legal Affairs to draft the opinion for the main report by Ms Kauppi in the Committee on Economic and Monetary Affairs. I submitted two amendments. The Committee on Legal Affairs approved the draft opinion and is in favour of my submitted amendments that the European Central Bank should be able to designate and notify their own systems directly without interference from the German Bundesbank or other national authorities.

We had a trialogue with experts from the Central Bank, Council and the European Commission. The experts from the Central Bank gave a statement and expressed their strong support for the amendments tabled by the Committee on Legal Affairs. Conversely, the Council had difficulties in the working groups to find a compromise agreement on one of the tabled amendments because Member States are not in favour of giving the ECB the right to designate and notify their own systems directly. I regret that this tabled amendment was not approved by the Council, but I believe that there is a great opportunity to raise this topic in the near future.

IN THE CHAIR: MR VIDAL-QUADRAS
Vice-President

  Othmar Karas, on behalf of the PPE-DE Group. – (DE) Mr President, Commissioner, Mrs Kauppi, ladies and gentlemen, allow me – as I can now speak for the group – to start by saying that I thank Piia-Noora Kauppi on behalf of my group, not just for her immense commitment, but above all for her expertise and for her devotion to the work of Parliament and, hence also, for her willingness to compromise. With her, you always know what she stands for and you also know that she approaches others. She returns to an exciting position and, more importantly, she will have more time as a mother. I thank you for the good cooperation and wish you all the best.

In this review, the European Union is again giving the right answer to the crisis on the financial markets. There are still far too many differences in the individual Member States and the harmonisation undertaken is a step in the right direction. The crisis on the financial markets, as can be seen from this example, is also an opportunity for communication on the part of the European Union and for permanent improvement to our European financial market system. I say quite clearly that guaranteeing a settlement system that functions properly, especially on fast-moving markets, is essential to the stability of the financial markets and, in times such as these, is even more important.

For me, there are three important points. Firstly, the coherent approach taken in these reports. Secondly, I support the simplification and easing in the application of both directives. Thirdly, I shall take account of the results of this report and this directive in my own report on the Capital Requirements Directive, so that they contribute towards a comprehensive report and allow a coherent approach.

  Pervenche Berès, on behalf of the PSE Group. – (FR) Mr President, Commissioner, Mrs Kauppi, please allow me, on behalf of the Socialist Group in the European Parliament, to add to the positive comments that have already been made. It is true that, when negotiating with you, we always know where we are. You have your opinions but at least, when negotiating with you, everything is very black and white. In the end, we knew exactly where we were and could therefore make progress. You again demonstrated your capacity to work with everyone. In my opinion, this is a particular feature of this Parliament’s intelligence. In this specific report, this is what allowed you, as we all wanted from the start, to arrive at an agreement at first reading.

At heart this report concerns an issue on which the Commission is sadly lacking. This is the post-market issue on which, following adoption of the Markets in Financial Instruments Directive, we would have liked the Commission to come forward with weightier proposals for organising, structuring, supervising and regulating the market, known as the post-market.

This report is a very small, very legal and very technical building block, which is useful, but it cannot hide the enormous task before us, on which we are still awaiting proposals from the Commission. The results of what the Commission wanted to start with the code of conduct are very limited. We are now awaiting the assessment of this and we are quite disappointed, just like a number of stakeholders in the market who can clearly see that self-regulation is not enough in this area.

Two main difficulties emerged in the specific and very precise text that we have before us today. The first was to decide whether the European Central Bank should be given specific powers in this measure. I believe that useful suggestions were made. However, the Council did not want to go beyond the current situation and, due to our wisdom and sense of responsibility, we accepted this compromise. This therefore led to the balanced proposal that is now on the table and that we must acknowledge.

The second important element was to ensure that the way in which the systems linked together did not in itself create autonomous systems. Once again, the position adopted by Parliament is a reasonable position which allows this link to be ensured without, however, giving it an autonomy that we did not want to create through this text.

There are obviously still many issues to be tackled and I hope that the Commission, through its monopoly on initiative in this area, will shoulder its responsibilities.

  Margarita Starkevičiūtė, on behalf of the ALDE Group. – (LT) The document presented only appears technical. In truth it ensures the functioning of a safe securities settlement system, which is important for many people who are members of pension funds, insurance schemes or investment schemes. The rapporteur’s document is excellently prepared, as are all of her documents. I am very pleased that I had the honour of working with her in the preparation of many financial documents and I am very sorry that today is her last day in the European Parliament. We – the Group of the Alliance of Liberals and Democrats for Europe – can agree with this document, as our position is reflected in it. What is that position? Firstly, we believe that the European Union’s common market of securities settlement must be expanded, as it is very fragmented. We do not, however, want to see the establishment of a monopoly; therefore we believe that in the report presented, conditions have been created to flexibly form a cooperation agreement for various systems and to introduce new links.

On financial collateral arrangements, we thought it very important that procedures be simplified and made clearer and that, in insolvency and various critical cases, it should be easier to resolve disagreements over property and that all conditions should be clearer. It seems that this goal has also been achieved.

Like the other rapporteurs, I am sorry that it has not been possible to solve the problem with the settlement systems established by the European Central Bank. I would very much like to urge the Commission to prepare a compromise proposal on this matter as quickly as possible, because the European Central Bank will have to devote more and more attention to the functioning of such systems and the question of their maintenance should be resolved, which is perhaps what is stopping the expansion of these regulations to existing systems under the influence of the European Central Bank.

  Dragoş Florin David (PPE-DE). – (RO) I would like to congratulate the rapporteur, Piia-Noora Kauppi, for her report concerning the directive on financial collateral arrangements, which contains three major amendments to the current directive. These are the exclusion from the directive’s scope of application of credit agreements for consumers and small businesses; the introduction of a sunset clause of five years with regard to the right of Member States to require notification or registration, and last but not least, the widening of the directive’s scope of application by proposing its extension to include inter-bank loans as eligible collateral, instead of just central bank loans as the original proposal suggested.

I believe that the amendments tabled comply with the European provisions in this area, which is one reason why I support the adoption of this report. I would like to conclude by thanking Mrs Kauppi for all her hard work in the European Parliament and I wish her every success in her new venture. Thank you.

  Zuzana Roithová (PPE-DE). – (CS) I would like to thank you, Mrs Kauppi, for your work, professionalism and dedication in negotiating a compromise over the proposed directive, which will undoubtedly help to stabilise the financial markets. I congratulate Mrs Kauppi for achieving an agreement at first reading. I would also like to thank her today for all of her work in the European Parliament, not just for the 20 or so reports, which have included topics such as cultivating good practice in the banking sector, for example the codex mentioned earlier. However, Piia Kauppi has also shown her professionalism in discussions over many other reports. I appreciate very much the stance she is taking in our joint struggle against software patenting at a time when the European Union has no European patent. We will feel her absence until we perhaps negotiate this patent some time in the future. Thank you for your cooperation.

  Charlie McCreevy, Member of the Commission. − Mr President, I would like to thank everybody for contributing to the debate and, as I said in my earlier statement, I wholeheartedly welcome Parliament’s report.

The directives on settlement finality and financial collateral are the two cornerstones of the post-trading environment, and there is no doubt that the current amendments represent very substantial progress.

The Commission supported the ECB’s request to designate systems directly to the Commission, but there is insufficient support at present in the Council. However, it is something that we will come back to and look at again in the near future.

Again, I express my best wishes to Ms Kauppi.

  Piia-Noora Kauppi, rapporteur. − Mr President, I would like to thank my colleagues for their kind words and also the Commissioner for his cooperation over the years.

I would like to make a couple of political points, firstly about the code of conduct for clearing and settlement. I do not think the time is right to make the final judgement on the delivery of the code. This has been one of the reasons why some of the market participants have been against the development of links and interoperability. They say that there are problems in settlement finality and also with the coordination of different rules. I think that when we now accept this directive it will make it easier for market participants to accept links and interoperability with their systems.

The second issue concerns the ECB. I think that we can cooperate more with the Commission, especially in creating a Community approach to different topics. We already have a practical development which leads to Community systems, and the ECB has been creating network-based systems which do not operate under any particular Member State law. It would be stupid not to take this everyday practical development on board when we are trying to update European laws. So I am very happy that the Commission will be taking a look at this issue. Perhaps the time will be right during the next parliamentary term to make these ECB-established systems part of the Settlement Finality Directive.

Finally, concerning the Hague Convention, we have seen how difficult it is to agree on details when this has to be done through European Community directives. It is very important to go forward with the Hague Convention and with the negotiations on different private law issues. It was particularly difficult to try to find a compromise on moments of entry and moments of revocation. These are very small items, but I think that the Commission is also moving ahead on those important topics, maybe during the next term.

  President. − The debate is closed.

The vote will take place on Thursday.