The Road to Liikanen

On 6 May 2013, the EU Commission published a roadmap regarding a proposal for a structural reform of EU banks (i.e. the Liikanen reforms).  This followed the publication, on 2 October 2012, of the final report of the High-level Group on reforming the structure of the EU banking sector, chaired by Erkki Liikanen, a summary of which can be found here.

The main issues being considered by the Commission are:

  • The definition of relevant activities to be separated from deposit-taking entities.  This could include:
    • proprietary trading;
    • market-making; and
    • securities underwriting.
  • The nature and extent of separation and governance of separated entities.  Available options include:
    • functional separation (also referred to as “ring-fencing” or “subsidiarisation”);
    • accounting separation; or
    • full ownership separation.
  • Thresholds and de minimis exemptions.  These are likely to be based on:
    • bank balance sheet size; or
    • share of trading activities.

Consideration will also be given to:

  • the treatment of derivatives business (as principal or as agent);
  • the treatment of non-EU assets; and
  • exposures to hedge funds and private equity funds.

A further public consultation will be launched in early May 2013 and a meeting of stakeholders is due to be held on 17 May 2013.  Thereafter, as per its recent update, the Commission intends to adopt a legislative proposal in Q3 2013, although it is not yet certain whether that proposal will take the form of a Directive, a Regulation, or a combination of the two.

This piece is cross-posted from Recovery and Resolution Plans with permission.