EBF Annual Report 2007 · European Banking Federation Annual Report 2007 5 half of 2007, the EBF worked with the ECB in the development of the user requirements for T2S and was instrumental

EBF Annual Report2007

D0477A

Closing date: 28 March 2008

Table of Contents Financial Markets....................................................................................................................................4

Markets in Financial Instruments Directive (MiFID) ...................................................................4

Clearing and Settlement of Securities ............................................................................................4

Investment Funds............................................................................................................................5

Credit Rating Agencies ...................................................................................................................6

Transparency Directive...................................................................................................................6

Prospectus Directive and Regulation .............................................................................................6

Market Abuse Directive..................................................................................................................7

Lamfalussy Process..........................................................................................................................7

Banking Supervision ...............................................................................................................................9

Review of the rules on Supervisory Assessments of Mergers & Acquisitions .............................9

National discretions in the CRD.....................................................................................................9

COREP...........................................................................................................................................10

Hybrid Instruments.......................................................................................................................10

Own Funds Definition: Alignment across Sectors ......................................................................10

Large Exposures.............................................................................................................................10

Winding-Up and Reorganisation of Credit Institutions .............................................................11

Liquidity Risk management..........................................................................................................11

Workshop on Proportionality ......................................................................................................11

Incremental Default Risk..............................................................................................................11

CEBS Working Programme..........................................................................................................12

International Affairs .............................................................................................................................13

Liberalisation of Financial Services..............................................................................................13

Financial Sanctions .......................................................................................................................13

Regulatory Dialogues ....................................................................................................................13

Mutual recognition in securities markets ....................................................................................14

Sovereign Wealth Funds (SWFs)..................................................................................................14

Cooperation with the International Institute of Bankers ...........................................................14

Economic and Monetary Affairs ..........................................................................................................15

Economic and Monetary Affairs Committee...............................................................................15

The outlook for the economy of the euro area............................................................................15

Structural reform in the EU..........................................................................................................15

Small and Medium Sized Enterprises...........................................................................................15

Export Credit Insurance................................................................................................................16

Statistics .........................................................................................................................................16

Fiscal Matters.........................................................................................................................................17

VAT................................................................................................................................................17

Company taxation .........................................................................................................................17

FISCO.............................................................................................................................................18

Savings Tax Directive....................................................................................................................18

Qualified Intermediary Agreements ............................................................................................18

Accounting issues..................................................................................................................................19

Measurement of financial instruments ........................................................................................19

Fair Value Measurement...............................................................................................................19

The hedge carve-out ....................................................................................................................19

Removal of reconciliation requirements......................................................................................20

CESR’s Consultation on a mechanism for determining the equivalence of the generally accepted accounting principles of third countries ......................................................................20

CEBS Consultation on Financial Reporting Model (FINRep).....................................................21

Discussion Paper on Insurance Contracts....................................................................................21

Legal Affairs...........................................................................................................................................23

Damages Action for Breach of EC Antitrust Rules......................................................................23

Civil and Procedural Law .............................................................................................................23

Green Paper on the Attachment of Bank Accounts ................................................................23

Conventions on the Law applicable to Contractual Obligations (Rome I) ............................23

EU Contract Law and the Review of the Consumer Law Acquis...........................................24

Company Law and Corporate Governance..................................................................................24

Shareholders’ Rights..................................................................................................................24

Legal Framework for Securities:...............................................................................................24

Review of the Financial Collateral Directive ..........................................................................24

The Future UNIDROIT Convention ........................................................................................25

The Hague Convention.............................................................................................................25

Better Regulation ......................................................................................................................25

European Master Agreement....................................................................................................25

European Banking Industry Committee ..................................................................................26

Consumer Affairs ..................................................................................................................................27

Retail Financial Services ...............................................................................................................27

Bank accounts and Customer mobility ........................................................................................27

Proposal for a Directive on Credit to Consumers........................................................................28

Mortgage Credit ............................................................................................................................29

Collective redress ..........................................................................................................................29

Directive on Distance Marketing of Financial Services ..............................................................30

Review of the EU Consumer Law Acquis....................................................................................30

Financial education .......................................................................................................................30

Fight against Terrorism & Fraud ..........................................................................................................32

Physical security............................................................................................................................32

Third Money Laundering Directive .........................................................................................32

EU Implementation of FATF Special Recommendation VII on Wire Transfers...................32

Co-operation with the FATF....................................................................................................32

IT Fraud .....................................................................................................................................33

Social Affairs..........................................................................................................................................34

Portability of Pension Rights........................................................................................................34

Social Dialogue: Demography.......................................................................................................34

Social Dialogue: Enlargement.......................................................................................................34

Payments ...............................................................................................................................................35

Adoption of the Directive 2007/64/EC on payment services in the internal market (PSD) .....35

Launch of TARGET2.....................................................................................................................35

Cooperation with the EPC............................................................................................................36

EBF PR & Communications..................................................................................................................37

Events.............................................................................................................................................37

Publications ...................................................................................................................................37

Visibility ........................................................................................................................................37

Press relations............................................................................................................................37

Contributions ............................................................................................................................38

Issue Management.........................................................................................................................38

Children’ s rights .......................................................................................................................38

CSR.............................................................................................................................................38

Communications Committee........................................................................................................38

European Banking Federation Annual Report 2007

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Financial Markets

Markets in Financial Instruments Directive (MiFID)

Most Member States implemented the MiFID shortly before November 2007, with institutions adapting their processes and internal systems in parallel. This was possible thanks to national implementation staying in most cases close to the common EU text. This approach also allowed a good degree of convergence to be achieved across Member States, including in core areas such as best execution and conduct of business arrangements. The EBF closely followed the implementation process throughout the year and organised a pan-European conference with leading experts just at the time of implementation.

Some questions remain regarding the practical functioning of the supervision of branches and respective responsibilities and functions of home and host supervisors, for cases where the client is not in either the Member State of the branch or in the Member State of the institution’s head office. CESR issued in October 2007 a protocol on the supervision of branches that set out principles according to which practical solutions should be agreed on a case-by-case basis.

Also the requirements for transaction reporting proved difficult to implement and experienced some delays.

With regard to the reviews required by the MiFID, it became clear throughout 2007 that there is no market failure in the bond market that would imply the extension of the MiFID rules to the non-equities markets. Although the Commission’s final communication on this subject was delayed, several intermediate conclusions confirmed the market’s view in this respect. A second review started in 2007 concerns the exemptions for commodity business, which will have to be given further scrutiny throughout 2008. EBF will continue to closely monitor any development.

Clearing and Settlement of Securities

Market Infrastructures (securities exchanges, clearing houses and settlement providers) continued to implement the European Code of Conduct for Clearing and Settlement throughout the course of 2007. The EBF, through the European Credit Sector Associations’ Users task Force, engaged with Market Infrastructures and the European Commission over the year to ensure that user demands of Market Infrastructures were taken into account in the fullest way possible during the implementation process. By the year end a number of practical effects from the implementation of the Code were in evidence, such as more transparent and comparable prices as well a number of requests for links between the various Market Infrastructures having been made. Whilst the progress made by Market Infrastructures was encouraging, the banks’ message that the implementation required a continuing effort was supported by the wider community of stakeholders, including the European Commission.

The EBF wrote to the European Central Bank (ECB) to express its conditional support for the TARGET2-Securities initiative, announced in July 2006. The idea of TARGET2-Securities is to make the processing of securities and cash settlement possible on a single platform and at the same time. To be in a stronger position to evaluate the EBF’s initial support for the project, we recommended that the ECB provided a thorough business case for the project, involved banks as users of settlement services fully in the governance and pushed for a transparent consultative process with the market throughout the elaboration of the T2S user requirements. In the second


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half of 2007, the EBF worked with the ECB in the development of the user requirements for T2S and was instrumental in securing notable representation of the banking sector in the governance structures of the project.

All associations involved in the consultation process on removing Giovannini Barrier 3 (European Banking Federation, European Association of Cooperative Bank, European Savings Banks Group, European Securities Forum, European Central Securities Depositories Association and European Issuers) decided to join forces in order to tackle the three remaining groups of market recommendations: mandatory distributions with options, mandatory and voluntary reorganizations and transactions management. A new joint working group was created (Corporate Actions Joint Working Group) with main objective to review, update and finalize all available draft recommendations in one and common set of market standards. The group is currently working on producing the final standards by mid-2008 and presenting them in a corporate actions handbook. Considerable progress has been made in 2007 also with the new updated set of market standards on mandatory distributions and market standards on General Meetings. The national implementation of the standards for mandatory distributions is in progress and many Market Implementation Groups reported to the status in their respective countries.

Investment Funds

Throughout 2007 progress was made in a number of areas related to investment funds and other asset management instruments. The European Commission’s proposals for amendments to the UCITS Directive were for the most part well received by the industry, including a proposal for a radical reform of the overview information to be provided to retail investors, the resolute streamlining of the procedure to notify host Member States that a fund authorised in the home Member State will be marketed in their country, and possibilities for the pooled management of funds and fund mergers. However, the question of the asset management passport proved controversial, with the result of regrettable delays in the legislative process. The Commission’s proposed option of a partial passport was supported as a pragmatic solution by the EBF, but was met with disappointment in parts of the industry, as well as supervisory concerns from some national authorities. The EBF’s main concern was that this part of the amendment package should not hold up the improvements in other areas, on which there exists a broad basis of agreement amongst all interested parties.

In parallel to this, some helpful discussions took place regarding the introduction of passport for other kinds of funds, either within the scope of the UCITS or in a separate legal framework. In particular the work on open-ended real estate funds proceeded well. The question of funds of hedge funds, on the other hand, was approached with more reservations from the Commission, which was regrettable also in view of CESR’s decision that hedge funds indices would be eligible under the existing UCITS rules.

Finally, work started in order to facilitate cross-border private placements of investment funds, against the background that national rules on private placements – where they exist – vary widely across Member States. This problem does not apply to products covered by the Prospectus Directive. Both the Commission and industry representatives agreed that a solution must be found for investment funds and that further work in this area is necessary in 2008.


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Credit Rating Agencies

The crisis in the structured credit markets that started in 2007 raised alongside a number of other issues the question of the role of credit rating agencies (CRAs) in structured finance. These issues were taken up by a number of regulatory bodies, including the IOSCO, the Basel Committee’s Committee on the Global Financial System, and the US Securities and Exchange Commission. The European Commission asked CESR for specific advice, in addition to the review of the CRAs’ implementation of the IOSCO code, on a number of issues including particular conflicts of interest in the rating of structured finance, the transparency of rating methodologies, questions around CRA staffing and resources, and the timeliness of rating decisions. The Commission also asked the European Securities Markets Expert (ESME) Group to provide an opinion from the market side.

The EBF agreed that a number of important issues around the functioning of CRAs had to be reviewed and that there was a likely need for significant amendments to the IOSCO Code of Conduct. However, it also underlined that the problems were not related to the question of compliance with the Code, but were rather new issues that had not been apparent before the market turmoil. It therefore reiterated its concerns about formal regulation, and that rather, amendments to the IOSCO Code were indeed the right response to the events.

Transparency Directive

Most Member States implemented the Transparency Directive by the January 2007 deadline, or with a few months’ delay. For the sake of clarity, some Member States also decided to implement Level 1 and Level 2 in parallel, despite the fact that the EU implementation deadlines diverged by one year.

CESR agreed on accompanying Level 3 work and set up an expert group on the Transparency Directive. The group was mandated to provide an overview of implementation, as well as to conduct further work, in the years up to 2010, on the potential setting up of Officially Appointed Mechanisms (OAMs) for the storage and filing of regulated information.

Most importantly, the group shall work on the areas of inconsistent implementation highlighted by the industry. These included a range of issues which the EBF pointed at, e.g. regarding conflicts of competences between authorities and the practical difficulties in locating information about the notification thresholds applicable in each country in the first place. Another important issue of divergent implementation regarded the requirements for dissemination of information, where a few Member States burden issuers with overly onerous requirements.

Prospectus Directive and Regulation

In preparation of the review of the Prospectus Directive by end-2008, a number of shortcomings were highlighted by the industry in a call for evidence conducted by CESR. Later in 2007, these findings were confirmed by a report of the European Securities Markets Expert (ESME) Group to the European Commission. The EBF also lent its official support to this report, including the recommendation of legislative amendments. Major disappointments included the frequent national goldplating for prospectuses that have already been approved in other Member States and the non-respect of the approval timelines foreseen in the Directive. Furthermore, it appears that the rules have led to prospectuses becoming increasingly lengthy and complex to serve as a


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liability shield for issuers and intermediaries, rather than to focus on their first and foremost objective of investor protection.

Market Abuse Directive

In the second half of 2006 CESR began to consult the market on the supervisory functioning of the market abuse regime in Europe. While some delays in transposition of the Market Abuse Directive (MAD) into national legislation still exist, transposition and implementation are now by and large complete across Europe. The time Member States have taken to complete this process has varied significantly. Therefore, the EBF members’ experiences of the regime differ and the collective experience of European banks varies according to the jurisdiction of the institution.

However, where there has been experience of the MAD regime, the EBF reported that this experience has been broadly positive and that by and large the regime appears to be working well. With this in mind, the EBF called on CESR to allow for further experience of the regime to be gained before taking definitive policy action. EBF members believe that a better decision on which areas could be in need of review should be taken with the benefit of greater experience and towards the end of 2007.

Lamfalussy Process

In preparation for the Inter Institutional Monitoring Group’s (IIMG) consultation on the functioning and future improvement of the Lamfalussy Process in 2007, the EBF made presentations before the Group which set out that the Lamfalussy Process can be considered a success, but with some room for improvement. The EBF stated that no definitive judgements ought to be taken in respect of the development of the Process in the near future.

Nonetheless the EBF believed that it was possible to highlight some general principles:

• the distinction between the four levels of the Process is key to the success of the Process in the future. This should be maintained and better enforced;

• within the four levels Level 1 is where the political discussions must take place and due time should be taken to ensure that difficult political decisions are not then exported to Level 2. Level 2 ought to be the level where the technical implementing measures are taken and not where political discussions are resolved;

• national discussions about how to implement Lamfalussy Directives will inevitably take place in parallel to the corresponding discussions in the respective Level 3 Committees. It is the role of the Level 3 Committees to converge supervisory practices as far as possible without adding an additional level of detail and complexity to national implementation;

• Level 3 Committees could usefully make a distinction early in the Process between issues which require a harmonised approach (i.e. technical issues which relate to market structure) and those where a principle-based approach would be more suitable for issues that relate more to the conduct of business; the most effective legislation is arrived at by consensus. Therefore appropriate consultation in the timeliest manner is the conditio sine qua non of success for the Lamfalussy Process as a whole. Dialogue between legislators, supervisors and stakeholders delivers consensus. Failure to engage in dialogue will only serve to undermine the collective effort to create the Single Market.


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The evolutionary approach to the Lamfalussy Process, advocated by the EBF, was subsequently reflected by the European Commission and the Council of Ministers in their respective reports on possible modifications to the Lamfalussy Process to bring about more effective decision making and enhancing supervisory co-operation, particularly important following the implementation of MiFID in November 2007.


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Banking Supervision

Review of the rules on Supervisory Assessments of Mergers & Acquisitions

The EBF closely monitored the discussion which took place between the European Commission, the Council of Ministers and the European Parliament on the review of the Banking Directive, noting to its great satisfaction that its concerns were largely addressed in the compromise eventually reached. The Directive entered into force on 21st September and will apply as of 21st March 2009. It is planned for revision by the Commission by 2011.

Implementation of the Capital Requirements Directive (CRD)

Member States were broadly in time for the transposition of the CRD into national legislation.

The EBF has informed the European Commission of its “laundry list” of urgent technical changes to the CRD and identified the treatment of collective investment undertakings as a particularly problematic area. Furthermore, it responded extensively to the questionnaire on national discretions which CEBS had published

Concerning Pillar 3, the EBF has urged CEBS and the Basel Committee’s Accord Implementation Group to provide clear top-down leadership to promote the original intention of Pillar 3 and to object to both subsidiary level disclosures and other kinds of goldplating. It highlighted furthermore that supervisors should leave it to the firm to decide on the most meaningful and efficient approach to the Pillar 3 disclosures - including the timing - and that annual disclosures should be sufficient. Moreover, EBF objected to a requirement that information which is disclosed within the framework of Pillar 3 be audited. It also of the view that regulators should consider ways of avoiding exaggerated or misled market expectations as regards the comparability of Pillar 3 figures, as well as other simplistic conclusions. Finally, the EBF observed that amendments to the detailed Pillar 3 requirements of the Basel Framework may be need to be considered based on an analysis of which information items add value to the market’s understanding of firms’ risk profiles and managements.

National discretions in the CRD

The discussion on national discretions in the CRD was again taken up in 2007. The Commission gave a renewed mandate to CEBS for proposals on how to deal with these Member States options in order to facilitate implementation of the CRD and risk management for cross-border groups, to reduce the competitive distortions implied by the divergent rules, and to enhance comparability of the figures provided to supervisors under the Common Reporting framework, and those provided to the market under Pillar 3.

CEBS decided to approach this work from the outset in close cooperation with the industry and following its official consultation, it invited a group of industry expert to contribute on an ongoing basis to the activities of its working group. In spite of the fact that the CRD with all its discretions has by now been implemented by all firms, the EBF maintained its strong stance against the national options, suggesting that there were different ways of dealing with them. A few could be deleted altogether, others will have to be turned into general rules or decisions be taken between several supervisors, and yet others be turned into options for institutions. This approach also found agreement from other industry groups, and a common position of the European Banking Industry Committee (EBIC) agreed with the EBF’s proposals on a larger number of provisions.


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COREP

The EBF President alerted CEBS that cross-border banks are faced with a multiplicity of divergent national frameworks and that implementing each of these is time-consuming and costly whilst the added value of the divergences is not apparent. As a result, the CoRep framework is a serious impediment for cross-border banking business and undermines the objective of EU market integration. Cross-border banks expect practical solutions. The EBF proposed that supervisors would approach CoRep requirements with a good deal of flexibility and, in particular, that host supervisors would accept bank subsidiaries’ to report according to the COREP framework of the consolidating supervisor. The medium term objective should be to elaborate a uniform reporting which should be submitted to the consolidating supervisor who will then ensure circulation among the institution’s host supervisors. In addition, CEBS should reduce the amount of COREP fields.

Hybrid Instruments

The EBF informed EU Authorities that it favours a selective approach when it comes up to transposing Basel’s Sydney Press Release into European legislation pending work which the Basel Committee is expected to undertake. The EU should aim to resolve only those differences amongst Member States which truly matter from a competitive point of view.

Own Funds Definition: Alignment across Sectors

In a letter to CEBS and CEIOPS, the EBF highlighted the need to address the main differences between the insurance and banking sector concerning the definition of eligible capital hybrids, deductions and prudential filters and, moreover, the need to calculate capital in both sectors on a consolidated basis. Moreover, it adopted the view that the different nature of the business in which banks and insurance companies are involved should not have any impact on the eligibility of capital instruments.

Large Exposures

In 2007, CEBS launched two consultations to prepare its technical advice to the European Commission on the review of the Larges Exposures’ rules. The EBF responded by agreeing that the purpose of the review should be to remove unnecessary frictions between the regulatory framework and institutions’ own practices. On the basis of its long-standing position, the EBF argued that the primary level of application of the large exposures requirements should be the consolidated level, that the latter should be neutral vis-à-vis banks’ own practices and aligned with the CRD methodologies.

It furthermore identified a number of cases that should be exempted from the LE requirements, such as intra-group exposures and interbank exposures of a short maturity. It finally voiced its concerns on a number of cases where the impact of CEBS’ proposals when aggregated would be severe for banks with cross-border operations.


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Winding-Up and Reorganisation of Credit Institutions

The European Commission consulted on the review of the Directive on reorganisation and winding up of credit institutions in September. The EBF responded by calling for enhanced clarity of the Directive provisions; it supported establishing a centralised point of contact for the provision and compilation of Member States’ information on their respective reorganisation measures and winding-up procedures to improve communication. Finally, it supported the extension of the Directive’s scope to banking groups as well as the facilitation of the possibility to transfer assets between a group’s entities in times of crisis, while insisting on the need to take account of the legal consequences such a move would have as it may require revising EU banking, insolvency and company law.

Liquidity Risk management

The main message which the EBF conveyed to CEBS in the area of the Supervision of Banks’ Liquidity Risk Management was that a further fragmentation in the EU regulatory landscape in this area should be avoided and that Member States should therefore adopt a two-tier approach in parallel. They should continue to develop their opinion in close coordination with the Basel and EU/CEBS work on liquidity risk regulation. The objective of this work should be to both allow banks to implement flexible liquidity risk management techniques and to eliminate barriers to the cross-border flow of liquidity. In the meantime, they should consider and, where possible, take early action to remove obstacles inhibiting the free flow of liquidity within international banking groups.

The Chair of the EBF Working Group made presentations to a European Banking Committee on 27 March 2007 and at an ECB Banking Supervision Committee meeting on 19 April 2007. The main message which he conveyed at both meetings was that regulators and central banks should adopt a concerted and consistent approach globally.

Workshop on Proportionality

The EBF organised a Workshop on the Principle of Proportionality together with the other European Credit Sector Associations under the aegis of CEBS at which the supervisory community encouraged banks and banking associations to engage in a dialogue with domestic supervisors on the impact of the Principle at an early stage.

Incremental Default Risk

In a joint letter to the Basel Committee, the International Banking Federation – of which EBF is a founding member-, IIF, ISDA and LIBA have made recommendations regarding the right approach in considering requirements for incremental default risk modeling.. As a Basel Working Group is close to finalizing a new version of the Principles for Modeling Incremental Default Risk in the Trading Book, the letter called for an impact study to test the different alternatives and proposals being considered. It also informed the Basel Committee that the industry is undertaking a technical impact study addressing two crucial aspects, i.e. capital horizon and the treatment of diversification between default risk and market risk.


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CEBS Working Programme

The EBF has suggested to CEBS that its main priority for the year 2007 should be to make progress towards achieving supervisory convergence and has, more particularly, recommended that its future initiatives would primarily focus on improving cooperation between home and host supervisors and, in general, on developing a true European supervisory culture. It has observed, furthermore, that there is an urgent need for a regulatory pause concerning issues which are not directly aimed at preparing a new supervisory architecture.


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International Affairs

Liberalisation of Financial Services

Following the suspension of negotiations in July 2006, the Doha Round entered into a crisis. However, on 27 January 2007, trade ministers from around 30 key nations, meeting in Davos, agreed to restart talks. Negotiations are now proceeding in a full multilateral context. It remains unclear if and when the Doha Round will be concluded. However, at the time of going to press, a breakthrough on services seemed a real possibility.

Throughout 2007, the EBF has been monitoring events at Geneva. A Global Services Coalition, with EBF participation in the European Services Forum (ESF) visited Geneva on 21-22 February 2007. In a recent letter to Commissioner Mandelson, European banks have reiterated that they expect an outcome for financial services that include bindings, new market access, and a level of comparability with Agriculture and NAMA.

During 2007, the Commission has made progress in its ongoing bilateral Free Trade Agreement (FTA) negotiations with South Korea, India, ASEAN and others. With South Korea, a deal is within reach. On financial services, the Commission has committed to obtaining a level of liberalisation commensurate to that granted to the United States under a similar agreement. The focus is now shifting to India, a jurisdiction of particular interest to European banks. Work is under way within the EBF Committee for International Affairs (CFIA) to provide the Commission with the most important trade barriers in that country.

Institutionally, the EBF has started to participate in the Market Access Advisory Committee (MAAC), a body charged with implementing DG TRADE’s Global Europe strategy. It is envisaged that the EBF will feed some of Europe’s banks most pressing trade barriers into DG Trade’s Market Access Data Base (MADB).

Financial Sanctions

The EBF and the European Credit Sector Associations had expressed concerns with the Commission (DG RELEX) about the functioning and the updating of the electronic consolidated list of persons, groups and entities subject to EU financial sanctions maintained and updated by the European Commission services of DG RELEX.

Contacts are still taken with the European Commission in order to ensure that as a matter of general principle the quality of the data introduced in the electronic list are as precise as possible, published on the day of the publication of Regulations in the Official Journal and that European credit institutions benefit from an exemption of liability when applying the electronic list in good faith.

The EBF expressed also concerns to DG RELEX with the EU implementation of UN sanctions against Iran as provided for in UN Security Council Resolutions 1737 (2006) and 1747 (2007).

Regulatory Dialogues

The EBF Secretariat has provided the European Commission with detailed information regarding existing regulatory problems for European banks in those jurisdictions that have held financial


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regulatory dialogues with the EU throughout 2007: the US, China, Japan and Russia. More ad hoc requests have also been received and answered regarding other countries (e.g. Brazil).

In April, the EU-US Framework for Advancing Transatlantic Economic Integration was agreed. The Transatlantic Economic Council (TEC), the body ensuring that the ambitious objectives in the transatlantic agenda are fulfilled, held its first formal meeting in November. The EBF participated in the first TEC consultation to set out the priorities for action in financial services and has developed a working relationship with the Transatlantic Business Dialogue, the body that officially advises the TEC.

Mutual recognition in securities markets

The EBF, through the EBF Committee for International Affairs (CFIA) and the Global Convergence Issues Group, has been following the debate around mutual recognition in securities markets, an informal proposal originated by key SEC staff members in early 2007 that has not yet been formally set out. The Secretariat has remained in close contact with the European Commission (DG MARKT) on this item and with other important stakeholders through its observership in the EU-US Coalition on Financial Regulation.

Sovereign Wealth Funds (SWFs)

In 2007, Sovereign Wealth Funds revealed themselves as a crucial segment of global financial markets. European banks have developed a position on these vehicles, based on the principles of open markets and non discrimination. The possible concerns raised by SWFs should be addressed through increased transparency by means of voluntary self-regulation. For the EBF it is important to ensure that the issues that arise from SWFs are addressed through a coordinated international response (i.e. within the IMF and the OECD).

Cooperation with the International Institute of Bankers

Cooperation with the International Institute of Bankers (IIB) has continued throughout 2007 by means of the early warning system regarding US banking/securities legislation of interest to European banking associations and their member institutions. Some shortcomings of the system have been recently addressed (i.e. improved, more targeted briefing information, functioning of the regular conference calls, etc.).


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Economic and Monetary Affairs

Economic and Monetary Affairs Committee

The Economic and Monetary Affairs Committee (EMAC) is composed of chief economists from banks and banking associations in the EU and EFTA countries. EMAC advises EBF members on the economic aspects of different EU financial policy areas, and provides a forum for discussion of economic and financial themes of interest to the banking sector and the public. It also offers a counterpart to the EU institutions in the discussion of economic and monetary matters.

The outlook for the economy of the euro area

Twice a year, EMAC conducts a poll among its members to obtain an idea of the range of euro area economic forecasts in the banking community. The results are published at the middle and towards the end of the year.

The mid-year 2007 Outlook, published in July, was entitled “Strong growth is spurring creation of new jobs”. In this edition, EMAC pointed to the risk arising outside the euro area from the slowing of the US economy, and its housing market in particular. It also remarked on the increasingly worrying phenomenon of the appetite for risk in financial markets.

The December edition of the publication concluded that “The euro area will not be immune to the global slowdown”, drawing attention to the various pressures on the euro area economy in 2008, in particular the US slowdown. However it pointed out that the euro area is in a better state to weather the difficulties than it would have been a year before.

Structural reform in the EU

An EBF letter “Structural Reform in the EU: time to redouble efforts” was issued on 16th July. EMAC’s economists took stock of the scale of the challenge of structural reform and the efforts made so far to restructure and invigorate the EU economy. They stressed that the healthy economic growth being enjoyed at the time made it easier for governments and businesses to introduce unpalatable reforms. At the same time, the likelihood of a slowing in growth globally and domestically in the coming months made reform even more urgent.

Country examples were presented, to show that reforms so far introduced are bearing fruit, but that further efforts will be required.

Small and Medium Sized Enterprises

The Fifth EU Bank-SME Round Table, organised by the European Commission, was concluded on 11th May by the German EU Presidency. The main topics under discussion were: Transparency and dialogue, Mezzanine finance and SME securitization. The discussions took stock of the issues and challenges in the different fields, identified good practice around the EU, provided information on financing techniques, and made recommendations for further action. The three Round Table reports, on each of the main topics, were published on the website of the Commission’s DG Enterprise, and are available from the following link: http://ec.europa.eu/enterprise/entrepreneurship/financing/publications.htm


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Export Credit Insurance

The EBF’s Working Group (WG) on Export Credit, in collaboration with the OECD’s Business and Industry Advisory Council (BIAC), is among the stakeholders regularly consulted by the OECD Working Party on Export Credits and Credit Guarantees. The subject of discussion is the OECD Arrangement – a “gentleman’s agreement” which sets guidelines for official support for export credits – and other OECD accords affecting export credits.

In June, the revised text of the Recommendation on export credits and the environment was agreed. The EBF had participated in stakeholder consultations during the review. We had conveyed our members’ concern about the potential administrative burden of new measures; and highlighted the risk that with the introduction of new standards and procedures by OECD members, the global playing field could become even less level than before.

The text of the new agreement is obtainable from the OECD website on:

http://www.oecd.org/topic/0,2686,en_2649_34169_1_1_1_1_37431,00.html

The Working Group is ready to offer advice and lobby if necessary on any aspect of officially-supported export credit regimes – at global, OECD or EU level – which may have an impact on banking practice and business.

During the last quarter of the year, the EBF began a campaign of lobbying to bring about changes in a draft proposal from the Commission’s DG Competition which suggested that EU State aid rules should apply to medium and long term export credit guarantees.

On 24th September, the EBF Secretary General wrote to EU President Barroso, Vice-President Verheugen, Commissioners Kroes and Mandelson, and the Director General of DG Trade, to express the banking industry’s concern at the proposal. We pointed out that export credit guarantees (including premium fees) are already governed by the OECD Arrangement, and that a new EU regime would seriously distort competition between non-EU bankers and exporters, and those within the EU.

Statistics

The EBF’s Working Group on Statistics monitors developments in EU Statistical requirements, in particular the ECB’s requirements for Monetary Financial Institutions. It also co-ordinates the EBF’s work on statistics of the national banking sectors of EBF Members and Associates.

At a November meeting with the ECB’s DG Statistics, discussion was held on the ECB’s findings of the cost assessment exercise with respect to the proposed enhancements to MFI statistics and on the forthcoming merits assessment. In particular, the following points were raised:

Specifics of the data collection on securitisation, Data collection on the measurement of credit risk transfer, Adequate lead time needed for banks to amend their IT systems and otherwise adapt to the

new requirements, Reduction of banks’ reporting burdens.

The EBF is currently engaged in the process of negotiation with the ECB with the aim to establish a link for data access on the banking sector that could be accessed via the EBF website.


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Fiscal Matters

VAT

The 6th VAT Directive, which is the core VAT legislation adopted in 1977, has remained unchanged for 30 years. In today’s fast changing banking environment, the VAT system applicable to financial services is characterised by its fiscal non–neutrality, which penalizes European banks against non-EU competitors, and by an unacceptable level of legal uncertainty, resulting notably from a lack of updated and uniform definitions of financial services, as well as a lack of clear delineation between exempt and taxable services.

In May 2004, the EBF put forward a set of proposals for reform.

These proposals first expanded on the need for modernizing the language of the 6th Directive.

With a view to tackling the non-neutrality issue, a second recommendation suggested that banks should be given an option to charge VAT with business customers on certain transactions that are currently exempt. The wide adoption of such option would allow banks to supply services to business customers in perfect VAT-neutrality.

As third recommendation, the EBF suggested that VAT should not be charged on transactions between different parts of one company and on transactions between related companies within a group.

With a view to presenting a legislative proposal in 2007 for modernizing the current VAT legislation on financial services and insurances, the European Commission launched mid-2006 a public online consultation. Many of the EBF recommendations were taken up by the European authorities in the consultation paper.

On 28 November 2007, the European Commission presented proposals (Directive and Regulation) for a reform of VAT on Financial Services, including a proposed revision of the definition of financial services, a proposal for cost sharing arrangements and a new option to tax (implementation in 2012).

The EBF is concerned by some orientations taken by the Commission in the proposals. Indeed, these papers include very detailed definitions of financial services, whereas the EBF would prefer a principle-based orientation. The underlying EC proposals would add complexity and legal uncertainty. To the EBF, these proposals are only a starting point and must be improved in consultation with the industry before achieving solutions acceptable for Member States and industry. An EBF letter to Presidency (dated March 2008) is attached for further details.

Company taxation

Ministers at Informal ECOFIN Council meeting in September 2004 agreed to the creation of a working group of Member States, chaired by the Commission, to consider the idea of allowing all companies to use a common consolidated set of rules for calculating their EU-wide taxable profits and a pilot project that would allow Small and Medium Enterprises (SMEs) to use the tax rules of their home state for calculating their EU-wide taxable profits.

The Common Consolidated Corporate Tax Base (CCCTB) is a subject to which the EU institutions have paid more and more attention over the years. The European Commission has now tabled a proposal for July 2008.


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FISCO

In 2005, the EC set up the Clearing and Settlement Fiscal Compliance (“FISCO”) expert group. Its mandate was to identify withholding tax procedures and transaction tax procedures integrated in settlement systems that were obstacles to the functioning of capital markets and/or involved high compliance costs (so-called Giovannini barriers 11 and 12).

Mid-2006, a first Report (fact finding study) was adopted by FISCO.

A second Report on Solutions was adopted in 2007, advocating a relief of tax at source model.

Savings Tax Directive

Article 18 of the Directive requires the Commission to report periodically to the Council on the operation of the Savings Tax Directive and defines to this end evaluation criteria:

- the ability of the Directive to ensure an effective taxation of savings income (ultimate aim of the Directive); and

- the removal of potentially undesirable distortions of competition.

It is our view that the evaluation of the operation of the Directive must be based on operational experience. The EBF has accordingly nominated experts in the Expert Group which the EC has set up. The EBF Experts have expressed their concerns that the working document presented by the EC ahead of Expert Group meetings seems to be solely aimed at a legislative change of the Directive with a view to broadening the Directive’s scope. The second major concern of EBF Experts is about the proposed alignment of customer identification requirements on Anti-Money Laundering concepts, including a look-through approach for legal entities.

Qualified Intermediary Agreements

The EBF is closely monitoring other international developments at the OECD. Among other things, the EBF is also monitoring US tax developments, in particular in relation with the US Qualified Intermediary Agreement tax regime.


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Accounting issues

Measurement of financial instruments

The EBF Working Group on Full Fair Value Measurement prepared a position paper reflecting the range of policy and technical issues that would arise if all financial instruments were to be measured at fair value. This position is shared by the International Banking Federation in response to the IASB initiatives to move towards full fair value model.

The sources of complexity in financial instruments’ reporting in the opinion of the IASB are created by the many ways in which financial instruments (FI) are measured. The proposed long term solution is to measure all financial instruments the same way – a single measurement attribute for all financial instruments. The IASB is focused on explaining why fair value seems to be the only measurement attribute that provides relevant information for nearly all types of financial instruments.

EBF on the contrary believes that only the mixed measurement model could provide users with useful and relevant information. The same was stated by the IASB constituents, including the EBF representative at the Roundtables on measurement organized by the IASB in 2007 in different countries.

It is envisaged to publish the document once the IASB issues the Discussion Paper. The EBF will also send a comment letter to the Discussion paper.

Fair Value Measurement

The Inter-federation Working Group on Fair Value Measurement, representing the European banking industry, has sent a response to the IASB Discussion Paper on Fair Value Measurement. This Discussion Paper included IASB preliminary views on the Statement N° 157 issued by the Financial Accounting Standards Board (FASB), the US standard setter. In its response, the banking industry made clear that a single rule can not apply to every circumstance where IFRS require the use of fair value. Discussions should take place in the context of the usage and purpose to which the value will be applied. The banking industry disagreed on the assumption that the fair value should always be an exit price. The application of fair value measurement to financial statements should be consistent with the business model of the entity in order to provide users with a faithful representation of the financial position and performance.

The hedge carve-out

Initial reasons for the adoption of the European Hedge Carve-out in 2004-2005 were that the hedge accounting rules in IAS 39 are not in line with Asset & Liabilities Management (ALM) practices in Europe (fixed rate environment / retail banking)

Since the adoption of the European hedge carve-out, the EBF has been engaged in a dialogue with the IASB in order to define a framework that could support the hedging of a retail banking book under IAS 39, so that removing the carve-out could be envisaged. Amongst other things, demand deposits cannot be designated as hedged items.


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The EBF has developed the proposed Interest Margin Hedge (IMH) methodology. The IMH proposal is based on the ALM practices used in many European countries and is supported by international supervisors. In particular it enables banks to account for macro-hedges in the context of the fixed rate environment and liability gaps (excess of fixed rate assets) that prevail in many EU countries.

End 2006, the IASB made clear that a third hedging methodology on top of the Fair Value Hedge (FVH) and the Cash Flow Hedge (CFH) could not be envisaged. Rather, the concerns addressed in the framework of the IMH proposals should be dealt with in the framework of the CFH method.

During the first half of 2007, the EBF drew a list of issues for the IASB to address. This list identified the main stumbling block to be § 99C of the Application Guidance to IAS 39 (“AG 99C”), which prevents some European banks from designating a liability with a commercial margin (liability yielding below the benchmark interest rate/LIBOR) as a hedged item. As a consequence, a bank with an excess of fixed rate assets on its balance sheet would be unable to hedge its position under CFH method of IAS 39 if it gets resources from its retail network.

The EBF task force held a meeting with the IASB on 21 June 2007 to explain the commercial margin issue (already mentioned in the presentation of December 2006). It would seem from this that we have a difference of view over AG 99C.

Nevertheless, the IASB staff recognized that this issue may require reconsideration. In October, it was instructed by the Board to develop further studies and present some proposals.

Removal of reconciliation requirements

The US Securities Exchange Committee (SEC) approved on 15 November provisions according to which financial statements from foreign private issuers in the U.S. will be accepted without reconciliation to U.S. Generally Accepted Accounting Principles (U.S. GAAP) provided that they are prepared using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). For most companies, the new rules apply to financial statements covering years ended after 15 November 2007.

The entities reporting under EU-IFRSs are in substance compliant with full IFRS. They will formally have to state the compliance in their financial statements. For the entities, using the IAS 39 carve –out and exception was granted n which basis such entities listed in the US will need to provide reconciliation to full IFRS in their filing to the SEC. This provision should be reviewed in 2 years time.

The banking industry has lobbied for the removal of the reconciliation requirements and has therefore welcomed the decision as an acceptable compromise. The industry’s main concern regards the possibility of future late or non-endorsements, for which reconciliation may prove to be very difficult. Every effort should therefore be made to improve the governance of the international standard setting process and the European influence which will lead to a reduction in the instances of divergent approaches taken by European legislators.

CESR’s Consultation on a mechanism for determining the equivalence of the generally accepted accounting principles of third countries

The Committee of European Securities Regulators (CESR) launched in April a consultation on a mechanism for determining the equivalence of the Generally Accepted Accounting Principles (GAAPs) of third countries. The EBF has expressed its support to the proposals made in the


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consultation paper, recalling the importance to respect the principle of mutual recognition. Financial statements prepared under the accounting standards of a third country should only be recognized in the European Union if this country also recognizes the IFRS accounts. In order to ensure the objectivity of the equivalence assessment prepared by the national standard setters of the third country, the EBF has proposed that the assessment be verified by a body at the EU level, e.g. by the European Financial Reporting Advisory Group (EFRAG).

CEBS Consultation on Financial Reporting Model (FINRep)

The CEBS has issued a consultation paper on amendments to the Guidelines on Financial Reporting. In the response, the EBF in general supported the technical changes resulting from the incorporation of IAS 19 – Employee Benefits. The EBF used this opportunity to comment on the issues of more general nature regarding FINREP.

The EBF stressed that the CEBS Guidelines on Financial Reporting should remain non-binding and that regulators should not be obliged to adopt the Guidelines. There are countries where there is a strong belief that IFRS requirements are sufficient and regulators should not require information, in whatever guise, above the scope of the IFRS. The optional character of FINREP should therefore be retained with the Guidelines being made available to supervisors in those jurisdictions which choose to follow the approach. The cross-border nature of many institutions necessitates however a degree of consistency to these additional requirements. Although FINREP does not and should not harmonize the amount of financial information within the EU it should be possible for institutions operating cross-border to work on the basis of a unique reporting format (including breakdowns and taxonomy), from which data may be extracted according to different regulators’ requirements.

It is important that reporting requirements and the supporting IT-framework are synchronized as they are interlinked and changes in one could have a significant impact on others. It is vital to bring into line the reporting content with the validation rules and the XBRL-taxonomy. A more enhanced cooperation with XBRL experts working for regulators would be welcomed. It was stressed however, that there can be no question of XBRL being mandated for the reporting of forward looking information.

The comments were illustrated with the examples of different treatments between FINREP models in some EU countries. These varieties of treatments represent serious problems for cross-border institutions and are clearly in contradiction with the initial intentions of CEBS.

Discussion Paper on Insurance Contracts

Because of the potential impact on the measurement of other liabilities, the EBF set up a working group to prepare comments on the IASB Discussion Paper on Insurance Contracts.

The EBF identified a certain number of issues: the concept of the current exit value, the risk margin, revenue recognition, transfer value versus settlement value, the exclusion of entity specific cash-flows, the impact of insurance liabilities’ measurement on non-financial liabilities (e.g. provisions for legal claims), unbundling, unit of account, credit characteristics, recognition of acquisition costs and pension accounting.

The EBF pointed out that the exit value approach may lead to the recognition of profit at inception for non-trading activities and for activities that are not managed on a fair value basis. We believe it is not appropriate and that it should be distinguished between:


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- assets and liabilities managed on a fair value basis where application of fair value with the

recognition of gain and losses at inception is appropriate; - activities not managed on the basis of fair value, where accruals are appropriate for

revenue recognition

The application of a “current value” measurement such as fair value or current exit value to financial statements should be consistent with the business model of the entity so that users are given with a faithful representation of its financial position and performance. The exit value concept is therefore seen as appropriate for application to insurance contracts as proposed in the DP.


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Legal Affairs

Damages Action for Breach of EC Antitrust Rules

Following the publication of a Green Paper on this matter in December 2005 which included a consultation of stakeholders, the EU Commission prepared a White Paper on damages actions for breach of the EC antitrust rules during 2007. That White Paper, which should be published end of March-beginning of April 2008 should contain proposals for policy choices and concrete measures aiming at ensuring that all victims of EC competition law infringements have access to effective redress mechanisms in order to be fully compensated for the harm they suffered. Some important issues should be addressed such as Collective redress, Inter partes disclosure of evidence and the binding effect of National Competition Authorities' decisions.

Civil and Procedural Law

Green Paper on the Attachment of Bank Accounts

Following the publication by the EU Commission of a Green Paper on improving the efficiency of the enforcement of judgments in the European Union (October 2006) envisaging the creation of an EU procedure for bank attachment, the European Parliament adopted a Resolution on that Green Paper on 25 October 2007.

The Resolution recognised that many points (e.g. jurisdiction, details of the enforcement procedure, payment of fees to banks) still need to be examined more closely before taking further steps on that issue and that no firm decision can be taken at this stage. It also suggests that the real extent to which debtors evade justice should be further assessed. It finally considers “appropriate to examine the question of reimbursing the costs incurred by banks in processing account seizure”, in line with the EBF position.

The EU Commission will conduct an impact assessment on the attachment of bank accounts in 2008.

Conventions on the Law applicable to Contractual Obligations (Rome I)

The proposal for a Regulation on the law applicable to contractual obligations (‘Rome I’) was voted in 1st reading at the European Parliament in November 2007 with a number of amendments aiming to ensure the adoption of the text by the Council in 1st reading (the vote should take place in spring 2008).

The text as amended can be considered as a success for EBF and the banking industry since Article 5 goes back –as strongly supported - to the choice of law as in the Rome Convention, although that principle is watered down by the protection of overriding mandatory provisions. The text also provides important exclusions such as financial instruments, subscription and redemption in UCITs; contract to right in rem in immovable property.


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EU Contract Law and the Review of the Consumer Law Acquis

The project of building a Common Frame of Reference (CFR), launched by the EU Commission on 15 December 2004, progressed during 2007 with a series of workshops gathering experts in the area of European Contract Law (CFR-Net) and academics in charge of drafting relevant basic definitions for general Contract Law as well as for specific contracts and the circulation to the group of a draft Common Frame of Reference (DCFR) in December.

The DCFR is presented as an academic work which could serve as a basis for a “political CFR” for the Commission and contains:

- Principles and definitions which are meant to be used as a basis to the development of a European Legal Terminology

- Model rules which constitute the most important part of the DCFR. These are soft law rules but they could be used as models for hard law rules.

In 2008 the EU Commission and the Council are expected to make a clear statement on how the CFR will be used while the European Parliament should try and be involved in the decision process. The final CFR should be published end of 2008.

Company Law and Corporate Governance

Shareholders’ Rights

Following the adoption of the Directive on Shareholders’ Rights, the EU Commission carried out a consultation followed by an impact assessment on the possibility to adopt recommendations on issues that are not covered by the Directive (language of meeting documents, depositary receipts, stock-lending and chain of intermediaries and management companies of investment schemes).

It seems that the EU Commission has had difficulties to gather evidence of the need to adopt such recommendations. The EBF itself had expressed important reluctance as to the need for the EU to intervene in the envisaged fields. Recommendations, if any, could be adopted in April 2008.

Legal Framework for Securities:

Review of the Financial Collateral Directive

After conducting a consultation in which the EBF participated, the EU Commission has conducted an impact assessment and prepared a proposal to review simultaneously the Collateral Directive and the Settlement Finality Directive. That targeted revision should include the extension of the scope to credit claims only when used in central banks operations and should remove the opt-out provision allowing excluding the right of appropriation. No initiative would be considered on close-out netting at this stage. The EBF is supportive of this review, although it would expect a more ambitious approach.

An official proposal for a review of the two Directives should be published in April 2008.


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The Future UNIDROIT Convention

The International Institute for the Unification of private Law (UNIDROIT) continued the debate on the amended draft Convention on the substantive law applicable to intermediated. An intergovernmental session was held in Rome in May 2007. The debate led to further changes of the Convention and, although some important issues remain open, led to an invitation to a diplomatic conference to be held in September 2008.

The EU Commission has been given the mandate by the Council to negotiate the content of the draft Convention and EBF as observer at UNIDROIT has kept following the debate and will contribute also in 2008.

The Hague Convention

In 2007 the opportunity to adopt the Hague Convention has been discussed by Council members with no significant evolution of Member States’ diverging point of views.

The European Commission sent a Reflection paper to the members of the responsible Council working group for discussion. That document concludes that it is very doubtful that the Hague Convention would ever be adopted by the European Community and suggests introducing country code for securities accounts. The EBF will send a position paper to the Commission on this latter point.

Better Regulation

Following the decision of the Executive Committee in September 2006, the EBF Post FSAP Task Force held several meetings and published its report in November 2007. The report contains an assessment of the EU guidelines, methodology and practice on better regulation. It shows the promising developments conducted recently such as the creation of the Impact Assessment Board but also notices that further improvements need to be conducted.

Moreover, the report has 2 annexes that have a high practical function: the first describes the different national experiences in Better Regulation through a standard form for each country while the second is a checklist structured in ‘working flows’ based on the various steps of the legislative process at EU level. This checklist has been adopted as a useful support to all consultative committees to verify if a proposal has respected the better regulation standards throughout the legislative procedure.

European Master Agreement

As of 31 December 2007, two new countries have joined the EMA (Slovenia and Cyprus) while several others have updated or are in the process of updating their legal opinion attached to the EMA (Denmark, Austria, Germany, France, England & Wales, Italy, Greece, The Netherlands and Switzerland).

Moreover, the idea of organizing a conference in Poland in order to market the EMA in Eastern European countries has been proposed. The conference should take place in the middle of 2008.


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European Banking Industry Committee

As part of the rotation rule in EBIC, the EBF held the EBIC Secretariat in 2007. The role of the EBIC Secretariat is to coordinate the work of the different working groups and inform the members of the plenary. The former Chairman and several members of the Plenary showed their appreciation to the EBF for holding the Secretariat in a very efficient and professional way during 2007.


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Consumer Affairs

Retail Financial Services

On 2 May 2007, the Commission published its Green Paper on Retail Financial Services. This paper sets out the Commission's overarching objectives in the field of retail financial services. The Commission seeks to develop integration in EU retail financial services markets by:

- ensuring that properly regulated open markets and strong competition deliver products that meet consumers' needs, offering choice, value and quality;

- enhancing consumer confidence by ensuring that consumers are properly protected where appropriate, and that providers are financially sound and trustworthy;

- empowering consumers to make the right decisions for their financial circumstances through improved financial literacy; clear, appropriate and timely information; high-quality advice; and a level playing field between products perceived as having similar characteristics.

The publication of the Green Paper on Retail Financial Services in the Single Market launched a public consultation. Comments were submitted by 16 July 2007 and a public hearing took place on 19 September 2007 to draw the conclusions of the consultation. The EBF was represented in the hearing by its Secretary General, G. Ravoet. The results of the consultative process were incorporated into the Single Market Review.

On 20 November 2007, the Commission adopted a package of initiatives to turn its Citizens’ Agenda into a consistent set of actions. In particular the documents consist in a communication on “Single Market review for 21st century Europe”, which concludes the review initiated in 2006 and proposes an operational set of initiatives to re-position the Single Market. This communication is supported by five main staff working papers on a) the Single Market: review of achievements; b) Instruments for a modernized Single Market policy; c) implementing the new methodology for product market and sector monitoring; d) the external dimension of the Single Market review; e) initiatives in the area of retail financial services.

The Single Market review includes a document dedicated to the initiatives on retail financial services aimed at improving customer choice and mobility within the Single Market, with particular regard to the following areas: Mortgage Credit, Bank Accounts and Customer Mobility, Payments, Product Tying, Credit Data and Financial Education.

Moreover, the EBF will hold the Secretariat of the EBIC Integration WG for a term of 2 years (January 2008- January 2010). This Working Group deals with horizontal retail issues.

Bank accounts and Customer mobility

As a follow-up of to the Sector inquiry on retail financial services of 2006, the EU Commission has started analysing the functioning of bank accounts and the issue of how to improve customer mobility therein.

An expert group gathering representatives of the banking industry and consumers was set up at the beginning of 2007 and delivered a report in May indicating diverging views of the experts on both the definition of the problems to tackle (whether or not the mobility of customer is enough in the EU) and the possible solutions thereto (i.e. binding or non biding rules for switching).


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EBF followed very closely the discussions of the expert group and contributed to the consultation on the final report by indicating that many countries have already adopted solutions at national level in order to facilitate customer mobility to satisfy the demand while in others the market structure has adapted naturally to such a demand without requiring any regulatory intervention to ensure a high level of customer mobility. EBF also recalled the importance of the SEPA project in this context, which - by enabling customers to operate their bank account from one country towards another as in a single territory - would certainly diminish the need for cross-border switching when entering into force.

In the light of the differences among countries, EBF, together with the European Banking Industry Committee, has committed to developing by mid-2008 a common approach to switching to serve as guidelines for those countries where customer mobility can be improved.

Proposal for a Directive on Credit to Consumers

Under the rotating Council Presidency, in the second semester of 2007 Portugal took over from Germany the responsibility of adopting a common position on the file, after 6 months of intense discussion chaired by the latter. The common position adopted in September 2007 was then passed to the European Parliament that presented more than 200 amendments.

In the plenary session of 16 January 2008 the European Parliament adopted a resolution amending the common position, based on a compromise (unofficially) accepted by the Council. In the course of the first months of 2008 the proposed directive should then be formally adopted. The approved text bears the important novelty of fully harmonising provisions in a number of key areas, as advised by the impact assessment conducted in 2007:

- definition of APRC, - pre-contractual & contractual information, - right of withdrawal (with a limited exception for linked credit agreements) - partially, early repayment

Yet, in the compromise reached between the European Parliament and the Council grey zones of national discretion have been left so that discrepancies in the national implementation are still an actual risk. Divergences from one country to another are detrimental to the efforts put in building a legal infrastructure for consumer credit products to be offered across the borders.

Furthermore, on a number of key provisions, the text approved does not seem in line with the need to boost consumer credit in the internal market, since for a number of products the conditions for marketing have been made more difficult, thus more expensive and less attractive for lenders (one example for all: the scope of application now ranges from EUR200 to EUR75000 which is much beyond the actual market for consumer credit with an average amount of EUR2500 per loan).

This is the reason why EBF, together with the European Banking Industry Committee, considers this piece of legislation only as a first step in the right direction, while more work has to be done in order to allow a real opening of retail market in Europe.


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Mortgage Credit

At the end of 2007 the long-awaited White Paper on the Integration of Mortgage markets in the EU was released, together with an extensive impact assessment. The conclusions drawn by the Commission after the various activities undertaken in 2006 indicated the need to further explore some areas where it is not clear at present whether an actual barrier to integration exists and how this should be addressed.

Accordingly, among the conclusions of the White Paper, various studies should be highlighted the which the Commission envisages to conduct during 2008 on the following topics:

the role and regulation of non-credit institutions in EU mortgage markets

the structure of equity release loans

tying and other unfair practices for credit, accounts, payments and insurance

the need for and the justification of interest rate restrictions

Such studies should deliver a clearer picture of the situation in EU countries with respect of the areas assessed.

In particular, a possible legislative intervention in order to increase the protection of consumer rights in the areas of early repayment, pre-contractual information, Annual Percentage Rate of Charge, access to credit registers, assessing creditworthiness and advice standards, has been put under the review by an impact assessment, in order to avoid any unnecessary measure from a costs/benefits point of view.

In addition, more information on the actual appreciation by consumers of the mortgage credit market has become necessary, for which consumers testing will be adopted as a method of direct enquiring. Comparable information will be also gathered on a scoreboard on the length and costs of national foreclosure procedures as a preliminary step towards the reduction of both in all Member States. At a second stage, a Recommendation on land registration, foreclosure and property valuation should be adopted.

EBF, together with the European Banking Industry Committee, appreciated the consistent approach of the Commission with the “better regulation” principles and supported the efforts put into this assessment phase. EBF will follow very closely the forthcoming undertaking of these studies and continue the fruitful dialogue established with the EU institutions on this key topic.

Collective redress

On 31 January 2008 DG SANCO launched a consultation on 10 benchmarks on collective redress in the EU. In the course of 2008 two studies will be published on the existing solutions for collective redress at national level, followed by a green paper presenting the policy options by DG SANCO to solve the problem of effective redress for consumers.

EBF participated in this debate, since consumer confidence is an essential requisite for the functioning of the internal market and cannot be established without ensuring that consumers can have simple, non-costly, effective, satisfactory access to redress mechanisms. Yet, we are not convinced that means of collective redress may prove to be a better solution for consumers than using efficient Alternative Dispute Resolution mechanisms.


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The financial services sector is a special case in the whole internal market, since a mechanism of ADR to be used cross-border already exists: FIN-NET, a network based on the co-operation of 49 out-of-court national schemes. EBF asks for its improvement, development and increased visibility to consumers, before any legislative initiative is presented that would waste its added value. EBF believes that the focus of the debate should be on out-of-court systems first and, only as extrema ratio, on judiciary instruments of collective redress, to be opened upon condition of having exhausted first all non-judiciary means of redress available. Out-of-court mechanisms indeed should be preferred since they are (i) characterised by shorter length and lower costs for plaintiffs compared to the traditional judiciary procedures in all Member States; (ii) less disruptive when introduced into the judicial system of Member States; (iii) more proportionate to the real dimension of the cross-border collective redress; (iv) more in line with the current actions put in place by some Member States, in particular new EU countries, to adapt their redress mechanism.

Directive on Distance Marketing of Financial Services

A review of Directive EC/2002/65 has been launched in spring 2007 by the Commission, as provided by the Directive itself (revision clause). A legal and economic study of the implementation in the EU-27 has been commissioned to a consultant that should deliver the results in the first months of 2008.

A twofold problem was underlined by the preliminary report adopted by the Commission on the follow-up of the directive, namely the low level of timing transposition by Member States by the date laid down in the Directive, and a scarce result in those countries where Directive 200/65 had been implemented. The Commission wishes to understand why such a tool adopted to boost cross-border marketing of financial services has not delivered the expected results so far.

EBF, together with the European Banking Industry Committee, has established a dialogue with the Commission on this topic and is participating in the ongoing study.

Review of the EU Consumer Law Acquis

With the publication of the Green Paper on the Review of the EU Consumer Acquis in 2007, the Commission aimed at gathering input on the possibility of rendering more consistent across sectors a number of provisions laid down in several EU Directives. A consultation of stakeholders on this point followed in spring 2007 and gathered support to the option of adopting a horizontal legislative instrument (framework directive) addressing some key definitions and provisions applicable across sectors.

EBF took part in the consultation and expressed support for the horizontal instrument although the scope of the review remains of limited impact for the financial services sector.

A proposal for directive should be presented by the Commission by the end of 2008.

Financial education

A conference organised by the EU Commission in spring 2007 was the occasion for the EU institutions to mark their interest for a topic that has already been tackled in some countries by public authorities but has not received yet a proper consideration at European level.


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Financial education and literacy takes a big part in the debate on the appropriate level of consumers’ information and protection and the capability of the latter to take informed choices when shopping for financial services inland or cross-border.

The debate has started within the framework of a limited action possible at EU level, considering the diverse situation in each EU country in this regard, and the different solutions that may have been already put in place by national authorities and banking communities.

EBF has been looking very closely at this problem, also within the wider context of guidelines for Corporate Social Responsibility (CSR) for the banking sector. Best practices will be explored in the course of the year with a view to making them known and available sources of inspiration to the whole EBF membership.


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Fight against Terrorism & Fraud

Physical security

For the fifteenth consecutive year, the EBF published in November 2007 its Report on Bank Robberies and other Bank Raids. The Report (confidential circulation) contains figures on bank raids, risk rates, modus operandi, etc..., and gives an overview of the situation regarding robberies and respective security arrangements as of the end of 2006.

The general conclusion reached in the Report is that there were many improvements to be seen among EBF Members for 2006. Those improvements can certainly be attributed to the fact that European banks have increased and improved security measures, and reorganized themselves in order to better counter the criminals.

However, some tendencies are still worrying: the violence of certain modus operandi and the means used by the perpetrators such as the threatening of personnel and subcontractors, kidnapping, gas attacks, and use of explosives…

Third Money Laundering Directive

The EBF followed with its member associations the consequences of national implementation by Member States of Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (Deadline for the implementation: 15 December 2007).

Regular contacts taken with the European Commission services enabled to share the difficulties of some national implementations and interpretations of the Directive.

EU Implementation of FATF Special Recommendation VII on Wire Transfers

Regulation (EC) No 1781/2006 on the information on the payer accompanying transfers of funds (EU transposition of FATF Special Recommendation VII on wire transfers) was directly applicable as of the 1st January 2007 (Sanctions for non compliance applied as of 15 December 2007) after its publication in December 2006.

The EBF provided input to the drafting of the EPC guidance notes to the European banking sector for the implementation of the Regulation. It also followed with its member associations problems encountered at national levels with the practicalities/ different interpretations of the Regulation.

Co-operation with the FATF

The Financial Action Task Force (FATF) continued its dialogue initiated with the banking and securities industry on the risk based approach to combating money laundering and terrorist financing. The EBF, as a member of the International Banking Federation (IBFed) was one particular interlocutor of this dialogue.

In addition, a joint project with the private sector on the role of intermediaries and other third parties in performing customer due diligence will be launched. Public sector information sharing with the private sector, and the scope for applying cost/benefit analysis to AML/CFT systems


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could also be explored further with the private sector in a consultative forum in which the EBF participates.

IT Fraud

Following several demands from members, the EBF has created a new Working Group on the specific issue of IT Fraud. Members stressed that the current organization does not permit to specifically address the technical issues of IT Fraud and consequently, creating such working group is of a great interest in order to allow a more active cooperation in this quickly evolving area. The new WG will start its work in 2008.


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Social Affairs

Portability of Pension Rights

The EBF updated its position on the Commission’s proposal for a directive on the portability of pension rights (renamed Directive on minimum requirements for enhancing worker mobility by improving the acquisition and preservation of supplementary pension rights) after the publication of the Commission’s modified proposal of 9th October 2007.

It was stressed that the amended proposal was not the right approach to improve the workers mobility and that the establishment of common rules across Europe on supplementary pension’s schemes was not the right angle to tackle workers’ mobility. EBF judged that the policy-makers should first propose a piece of legislation aiming at reducing the fiscal obstacles which represent a real issue for the workers’ mobility.

Social Dialogue: Demography

The Banking Committee for European Social Affairs (BCESA), together with the European Savings Banks Group, the European Association of Cooperative Banks and the Trade Union UNI-Europa (the European social partners on banking) discussed the contents of a possible joint statement on demography following their common project carried out in 2006.

Social Dialogue: Enlargement

After successful projects run in the accession and “new” Member States countries from 2000 till 2005 during which social partners on both sides exchanged information and experiences on national industrial relations’ and social dialogues structures in the banking sector, the Sectoral Dialogue Committee for the Banking Sector successfully applied in 2007 for a project aiming at enhancing the participation of "new" Member States in the European Social Dialogue.

Three multilateral meetings (Budapest, Prague, and Brussels) will be held during which social partners will explain in a practical way how their industrial relations are organised in the banking sector, what they expect from the European Social Dialogue and what are the means available to enable more participation in the European Social Dialogue.


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Payments

Adoption of the Directive 2007/64/EC on payment services in the internal market (PSD)

In April 2007, the Payment Services Directive (PSD) was adopted by the European Parliament. Banks were finally given the legal basis on which they could fully develop and implement the Single Euro Payments Area.

The EBF supported this adoption after long negotiations and numerous amendments. Having achieved the work they had committed to doing in view of SEPA, banks were eager to go ahead with further progress on the legal side.

The EBF generally feels that the Directive is an acceptable compromise which has been reached on some key aspects of the proposal between the various points of view. It will in particular allow for a proper implementation which will make payments technically workable although some fine-tuning may be necessary at the time of implementation.

From that reason the European Credit Sector Associations in close cooperation with international card schemes established an Expert Group to focus on interpretation and implementation issues in relation to the transposition of the Payment Services Directive.

While the Payment Services Directive is a maximum harmonisation Directive, many provisions give Members States discretion in implementation in addition to which numerous interpretation issues arise from the text. The Expert Group’s goal is to identify the provisions where diverging interpretations could be an issue and evaluate which issues are horizontal and shared across EU/EEA Member States in on order to achieve as consistent implementation of the Directive as possible.

The aim of the Expert Group is also to contribute to the work of the Commission Transposition WG by identifying the issues for further clarification.

Launch of TARGET2

On 19 November, Eurosystem launched the single shared technical platform of TARGET2, the payment system used for settlement in real time of predominantly high-value euro payments in central bank money, replacing the existing decentralised technical platforms.

Countries of the first migration group composed of the national central banks and the respective TARGET user communities in Austria, Cyprus, Germany, Latvia, Lithuania, Luxemburg, Malta and Slovenia are now successfully connected to TARGET2.

Belgium, Finland, France, Ireland, The Netherlands, Portugal and Spain, the countries allocated to the second migration window were connected to TARGET 2 on 18 February 2007. The third countries’ window will migrate to TARGET 2 in May 2008.

As acknowledged by the Eurosystem representatives the users’ involvement was crucial for the success of the TARGET2 project. In June 2008 TARGET2 will enter into a new – operational phase. The introduction of a pan-European single technical platform in TARGET2 effectively requires a combination of centralized (i.e. pan-European) and decentralized cooperation (i.e. at national level). In the operational phase, this cooperation should continue but responsibilities and interactions between centralized and decentralized cooperation would benefit from clearer


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definition, as with the single shared platform, there will be more and more need to centralize the technical discussion at the European level.

The TARGET WORKING GROUP (TWG) of the 3ECSAs will continue the effective cooperation with the Eurosystem in the work around future changes in the T2 system to ensure that the work performed by Central Banks in this field are best aligned with user expectations.

Cooperation with the EPC

The EBF was very active throughout 2007 within the framework of the activities of the European Payment Council (EPC).

The reporting period was dominated by activities related to the launch of the first SEPA instrument. The adherence window for SEPA Credit Transfer (SCT) opened at the beginning of September 2007. The register of participants for SCT was published for the first time early November, listing 91 banks whose adherence packs had been approved at the first meeting of the SMC late-October. By end of November, a total of 1516 participants had been approved.

The EPC SEPA payment Schemes Working Group (SPS WG) presented for approval at the December plenary the SEPA Direct Debit B2B and a Service description for the e-mandate solution. A process has been defined to identify standards support for e-mandate work. The next version of the SEPA Direct debit Core Rulebook (v.3.1) was virtually completed and will be submitted to the April 2008 Plenary. The next version of the SEPA Credit Transfer Rulebook (v.3.2) will be submitted in June Plenary 2008.

EPC established a Scheme Management and voting into office 12 members of the Scheme Management Committee (SMC). SEPA Credit transfer (SCT) was successfully launched on 28 January 2008

For the cards Working Group the main focus remained on the monitoring of the cards Standardisation Programme. The main deliverables were a consultation in the terminal-to-acquirer domain and the completion of acquirer-to-issuer business requirements.


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EBF PR & Communications

Events

As always, EBF supported several conferences throughout the EU on key issues which are directly part of its remit: payments, retail banking, supervision, etc. In some cases, EBF sent a speaker to the conferences, in other cases, a delegate was present to attend. EBF delegates also attended key events organised by other financial services leaders.

In June 2007, the EBF Secretary General was elected Chairman of the Advisory Group of the European Parliamentary Forum on Financial Services. This Forum aims to establish regular dialogues between Members of the European Parliament and the financial services industry. Monthly events are organised, which the EBF always attends. The Secretariat was also actively involved in the coordination of the Forum work and in the recruitment of staff to establish a separate Secretariat for the Forum as of the end of 2007.

Usual EBF landmark events, such as the Commission Dinner, an informal gathering of Commission contacts, and the EBF Annual Cocktail were also organised and proved very popular with participants.

Agreements were also made with the Maleki Group, organiser of the Frankfurt Euro Finance Week. A full day dedicated to MiFID was organised jointly with the Maleki Group in November.

The EBF September Board meeting proved a very good opportunity to organise a gala dinner with all members of the Board, of the Executive Committee and with the participation of Commissioner McCreevy, who addressed the participants in an open and informal manner.

Publications

Reports prepared by EBF were published and circulated through the usual channels, mostly in electronic format, in order to facilitate further circulation to members of members, i.e. individual banks in all Member Associations. Despite its limited circulation, the report on Bank Robberies as always attracted much attention from the press. The Report on Better Regulation was also promoted to members and generated positive feedback and attention.

The EBF prepared the publication of a first report on Financial Services Integration, involving all departments of the Secretariat. In this broad report, various approaches to integration are presented and analysed. The Report was launched in a specific conference involving numerous press representatives, in early December. EBF Board member A. Profumo, CEO of Unicredit, participated in the panel of speakers, as well as think tank and EU institutions representatives.

Visibility

Press relations

Throughout 2007, a number of press releases were issued and specific press contacts established and further developed. A core number of journalists have regular contacts with the EBF and several of them refer to EBF for background information on key issues as well as for quotes on burning topics. A press review was distributed to Executive Committee members in June and


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December, showing a broad press coverage in various countries and languages on most of the key issues dealt with at European level.

Contributions

EBF regularly contributes to various specialised publications by preparing background articles on key issues (MIFID implementation, VAT regime, etc). These articles are prepared by the Secretariat and published in specialised magazines with which EBF has often made specific agreements.

Issue Management

Children’ s rights

Pan European communications issues were brought to the agenda of the EBF, such as the fight against child pornography on the Internet. The European banking industry declared its support to the US initiative of a coalition of financial services against this form of crime and followed up by participating in high level meetings on the issue at European and global level. A common position of the European banking industry was agreed in April. The Secretariat now continues to monitor the developments of the creation of a similar coalition at European level, under the auspices of the Commission. The monitoring is coordinated by the Legal department and the Communications unit.

CSR

On the initiative of the Communications Committee, the EBF decided to launch an overview of existing measures on CSR at national level, while always bearing in mind the possibly competitive questions such a study may raise amongst member banks. Information gathering was carried out in the autumn.

Communications Committee

The Committee met only once in 2007 and extensively discussed CSR issues and possible developments for a joint publication. It was agreed that the Committee would support the creation of a joint publication the background of which should be gathered and compiled by the EBF Secretariat.

The Committee also continued to analyse the image problem related to the banking sector at large. Members compared experience and solutions related to current communication issues in the various countries represented and exchanged information by means of pan-European surveys on specific questions of common interest (these surveys remain for internal use only).

Finally, the Communications Committee supported the EBF communication unit in the management of specific communication issues such as the ones mentioned above. Common approaches were devised and agreed on pan-European issues.

EBF Annual Report 2007 · European Banking Federation Annual Report 2007 5 half of 2007, the EBF worked with the ECB in the development of the user requirements for T2S and was instrumental

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