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Need for a New Regulation or Supervision and Resolution Regimes?

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Alternative Lending

Part of the book series: EBI Studies in Banking and Capital Markets Law ((ESBCML))

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Abstract

In the previous chapters, the book focused on the risks of lending as a business strategy and on the tools the Banking and the AIF legislation offer to both banks and AIFs in order to mitigate those risks.

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Notes

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    Margarita Rubio, “Shadow Banking, Macroprudential Regulation and Financial Stability,” https://www.suerf.org/doc/doc_f033ab37c30201f73f142449d037028d_5989_suerf.pdf, 1.

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  16. 16.

    See chapter 4, Alternative Investment Funds and their Lending Risks.

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    Zetzsche, “Finanzintermediation durch Investmentfonds – Zur Behandlung von Systemrisiken im Nicht-Banken-Sektor am Beispiel von Kreditfonds –,” 271ff.

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    The risk-reward principle or in other words the risk-return trade-off states that the potential return in an investment rises when the risk taken increases. For more see: James Chen, “Risk-Return Tradeoff,” Investopedia, https://www.investopedia.com/terms/r/riskreturntradeoff.asp (accessed 18 September 2019).

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    Annex V harmonizes the minimum list with liquidity management tools that should be available anywhere in the Union. In particular, the list includes the following Liquidity Management Tools: (a) suspension of redemptions and subscriptions; (b) redemption gates; (c) notice periods; (d) redemption fees; (e) swing pricing; (f) anti-dilution levy; (g) redemptions in kind; and (h) side pockets. For more see: EU Commission, “ANNEXES to the Proposal for a Directive of the European Parliament and of the Council amending Directives 2011/61/EU and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds”, COM (2021) 721 final.

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    For example, complying with the reporting requirements of Art 24 AIFMD is associated with significant expenses. Further, the AIFMs consider the overall compliance, transaction and operational costs of AIFMD significant. For more see: KPMG, “Report on the Operation of the Alternative Investment Fund Managers Directive (AIFMD) – Directive 2011/61/EU,” Final Report, 2018, 427 at 157.

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    For more about Financial innovation and its relationship with market failures see.

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    “The Age of Asset Management? Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at the London Business School, London, 4 April 2014,” 9ff,; FSB, “Transforming Shadow Banking into Resilient Market-Based Finance”; “IMF, FSB and BIS Publish Elements of Effective Macroprudential Policies”; FSB, “Key Attributes of Effective Resolution Regimes for Financial Institutions,” October 2015, 98.

  106. 106.

    ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper”.

  107. 107.

    Avgouleas, Governance of Global Financial Markets, 432.

  108. 108.

    ECB, “Developing Macroprudential Policy for Alternative Investment Funds,” European Central Bank, “Macroprudential Liquidity Tools for Investment Funds - A Preliminary Discussion,” “IMF, FSB and BIS Publish Elements of Effective Macroprudential Policies”.

  109. 109.

    FSB, “Transforming Shadow Banking into Resilient Market-Based Finance”.

  110. 110.

    FSB, “Key Attributes of Effective Resolution Regimes for Financial Institutions”; Single Resolution Board, “Resolution Tools”.

  111. 111.

    European Central Bank, “Targeted Review of the Macroprudential Framework,’ European Central Bank, https://www.ecb.europa.eu//pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu201804_03.en.html (accessed 4 April 2019).

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    EU Commission, “CONSULTATION DOCUMENT REVIEW OF THE EU MACRO-PRUDENTIAL POLICY FRAMEWORK,” August 2016, 41.

  113. 113.

    ECB, “ECB Contribution to the European Commission’s Consultation on the Review of the EU Macroprudential Policy Framework,” December 2016, https://www.ecb.europa.eu/pub/pdf/other/revieweumacroprudentialpolicyframework201612.en.pdf; ESRB, “ESRB Response to the European Commission’s Consultation Document on the ‘Review of the EU Macro-Prudential Policy Framework,” October 2016, p. 1, https://www.esrb.europa.eu/pub/pdf/other/20161024_ESRB_response_EC.en.pdf.

  114. 114.

    EIF (Helmut Kraemer-Eis), “Institutional Non-Bank Lending and the Role of Debt Funds,” 14f.

  115. 115.

    Art. 4 (1) (1) Regulation (EU) 575/2013.

  116. 116.

    Central Bank of Ireland, “AIF Rulebook,” 144.

  117. 117.

    Zetzsche, “Finanzintermediation durch Investmentfonds – Zur Behandlung von Systemrisiken im Nicht-Banken-Sektor am Beispiel von Kreditfonds –,” 284.

  118. 118.

    ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper”; European Central Bank, “Macroprudential Liquidity Tools for Investment Funds - A Preliminary Discussion”.

  119. 119.

    ESRB, Recommendation A and B, “Recommendation of the European Systemic Risk Board of 7 December 2017 on Liquidity and Leverage Risks in Investment Funds (ESRB/2017/6)”.

  120. 120.

    Zetzsche, “Finanzintermediation durch Investmentfonds – Zur Behandlung von Systemrisiken im Nicht-Banken-Sektor am Beispiel von Kreditfonds –,‘ 284.

  121. 121.

    Loan Market Association (LMA), “Guide to Secondary Loan Market Transactions,” April 2016, 5ff., https://www.lma.eu.com/application/files/9114/6902/4828/LMA_Guide_to_Secondary_Loan_Market.pdf.

  122. 122.

    REFINITIV (Thomson Reuters), “EMEA Secondary Loan Trading Volume Survey,” 2018, https://www.lma.eu.com/application/files/5815/4886/3594/Refinitiv_Volume_Survey_4Q18_RESULTS_.pdf.

  123. 123.

    ESMA, “Opinion: Key Principles for a European Framework on Loan Origination by Funds,” 5–6.

  124. 124.

    For example Germany, France and Ireland allow only closed-ended AIFs to generate loans and they should be established for specific period. Further, almost 2/3 of the credit funds in the market are established as closed-ended, while the ones that are established as open-ended have in place additional tools to limit redemptions. For more see: “§ 285 KAGB - Einzelnorm,” https://www.gesetze-im-internet.de/kagb/__285.html (accessed 20 May 2019) Central Bank of Ireland, “AIF Rulebook,” 148; Ashurst, “Credit Funds Insight - Spotlight: Direct Lending: The Domino Effect,” 8; AIMA, “Non-Bank Lending in the European Union,” 16.

  125. 125.

    Bank, “Macroprudential Stress-Tests and Tools for the Non-Bank Sector”.

  126. 126.

    Antoine Bouveret, IMF, “Liquidity Stress Tests for Investment Funds,” 6ff.

  127. 127.

    ESMA,”ESMA STRENGTHENS LIQUIDITY STRESS TESTS FOR INVESTMENT FUNDS,” https://www.esma.europa.eu/press-news/esma-news/esma-strengthens-liquidity-stress-tests-investment-funds (accessed 4 September 2019).

  128. 128.

    ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper,” 21f.

  129. 129.

    Barbara Novick et al., “Macroprudential Policies and Asset Management,” n.d., 5ff.; European Central Bank, “Macroprudential Stress-Tests and Tools for the Non-Bank Sector.”

  130. 130.

    ESMA, “Consultation Paper: Guidelines on Liquidity Stress Testing in UCITS and AIFs,” 27.

  131. 131.

    See above: Chapter 2, AIF’s business structure and the owners of the assets parts.

  132. 132.

    ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper,” 18.

  133. 133.

    European Central Bank, “Macroprudential Liquidity Tools for Investment Funds - A Preliminary Discussion,” 5.

  134. 134.

    Novick et al., “Macroprudential Policies and Asset Management,” n.d., 13ff.

  135. 135.

    Ben Moshinsky, “BEAR STEARNS, THE SEQUEL: UK Property Fund Suspensions Could Trigger the next Financial Crisis,” Business Insider Australia, 8 July 2016, https://www.businessinsider.com.au/guide-why-uk-property-fund-suspensions-trigger-financial-crisis-risks-analysis-2016-7.

  136. 136.

    ESRB, “Recommendation of the European Systemic Risk Board of 7 December 2017 on Liquidity and Leverage Risks in Investment Funds (ESRB/2017/6),” Recommendation A.

  137. 137.

    European Central Bank, “Macroprudential Liquidity Tools for Investment Funds - A Preliminary Discussion,” European Central Bank, 5, https://www.ecb.europa.eu/pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu201810_03.en.html (accessed 15 August 2019)

  138. 138.

    FCA, “Illiquid Assets and Open-Ended Investment Funds: DP17/1,” FCA, 7 February 2017, 22, https://www.fca.org.uk/publications/discussion-papers/illiquid-assets-open-ended-investment-funds.

  139. 139.

    European Central Bank, “Macroprudential Liquidity Tools for Investment Funds - A Preliminary Discussion,” 5.

  140. 140.

    IOSCO, “Open-Ended Fund Liquidity and Risk Management – Good Practices and Issues for Consideration,’ July 2017, 23, https://www.iosco.org/library/pubdocs/pdf/IOSCOPD574.pdf.

  141. 141.

    FCA, “Illiquid Assets and Open-Ended Investment Funds,” 41.

  142. 142.

    Ulf Lewrick and Jochen Schanz, “Is the Price Right? Swing Pricing and Investor Redemptions,” BIS Working Papers (Bank for International Settlements, October 2017), 3ff., https://ideas.repec.org/p/bis/biswps/664.html.

  143. 143.

    The two funds that suspended redemptions were SEB ImmoInvest and the Morgan Stanley P2 Value. For more see: Breuer and Nadler, Real Estate Finance.

  144. 144.

    IOSCO, “Liquidity Management Tools in Collective Investment Schemes: Results from an IOSCO Committee 5 Survey to Members,’ 23.

  145. 145.

    IOSCO, “Open-Ended Fund Liquidity and Risk Management – Good Practices and Issues for Consideration,” 37ff.

  146. 146.

    FCA, “Illiquid Assets and Open-Ended Investment Funds,” 42.

  147. 147.

    Marco Cipriani et al., “Gates, Fees, and Preemptive Runs,” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, April 1, 2014), 1ff., https://papers.ssrn.com/abstract=2423396.

  148. 148.

    European Central Bank, “Macroprudential Liquidity Tools for Investment Funds - A Preliminary Discussion,” 6.

  149. 149.

    IOSCO, “IOSCO Report: Leverage Consultation Paper,” 1; FSB, “Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities - Financial Stability Board,” 27.

  150. 150.

    ESRB,“Recommendation of the European Systemic Risk Board of 7 December 2017 on Liquidity and Leverage Risks in Investment Funds (ESRB/2017/6),” Sect. 1, Recommendation E.

  151. 151.

    AMIC/EFAMA, “Use of Leverage in Investment Funds in Europe AMIC/EFAMA Joint Paper,” 18.

  152. 152.

    ECB, “Developing Macroprudential Policy for Alternative Investment Funds,” 32.

  153. 153.

    AMIC/EFAMA, “Use of Leverage in Investment Funds in Europe AMIC/EFAMA Joint Paper,” 18; ECB, “Developing Macroprudential Policy for Alternative Investment Funds,” 32.

  154. 154.

    IOSCO, “IOSCO Report: Leverage Consultation Paper,” 5ff.

  155. 155.

    AMIC/EFAMA, “Use of Leverage in Investment Funds in Europe AMIC/EFAMA Joint Paper,” 18; ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper,” 23.

  156. 156.

    ESRB, “ESRB Response to the European Commission’s Consultation Document on the ‘Review of the EU Macro-Prudential Policy Framework,’” 9; ESRB, “Recommendation of the European Systemic Risk Board of 7 December 2017 on Liquidity and Leverage Risks in Investment Funds (ESRB/2017/6)”, Recommendation E; ECB, “ECB Contribution to the European Commission’s Consultation on the Review of the EU Macroprudential Policy Framework,” 6–7.

  157. 157.

    Avgouleas, “Bank Leverage Ratios and Financial Stability,” 24–26.

  158. 158.

    ESMA, “Opinion: Key Principles for a European Framework on Loan Origination by Funds,” 8.

  159. 159.

    ECB, “Developing Macroprudential Policy for Alternative Investment Funds,” 32; ESMA, “Opinion: Key Principles for a European Framework on Loan Origination by Funds,” 8–9.

  160. 160.

    ECB, “Developing Macroprudential Policy for Alternative Investment Funds,” 34.

  161. 161.

    “Recommendation of the European Systemic Risk Board of 7 December 2017 on Liquidity and Leverage Risks in Investment Funds (ESRB/2017/6),” C 151/45.

  162. 162.

    ECB, “Developing Macroprudential Policy for Alternative Investment Funds,” 33.

  163. 163.

    Global Association of Risk Professionals (GARP), ‘GARP Leverage Letter in Response to Referenced Consultative Document’, 18ff.; Novick et al., ‘Macroprudential Policies and Asset Management’, n.d., 15.

  164. 164.

    Novick et al., “Macroprudential Policies and Asset Management,” n.d., 15; AIMA, “Non-Bank Lending in the European Union,” 12.

  165. 165.

    Emma Cusworth, “Private Debt Funds: The Price of Competition,” IPE, www.ipe.com/reports/special-reports/credit/private-debt-funds-the-price-of-competition/10013133.fullarticle (accessed 4 September 2019).

  166. 166.

    Fuxiu Jiang et al., “Bank Competition and Leverage Adjustments,” Financial Management 46, no. 4 (2017): 995–98, https://doi.org/10.1111/fima.12174; Xavier Freixas and Kebin Ma, “Banking Competition and Stability: The Role of Leverage,” n.d., https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/781.pdf, 1ff.

  167. 167.

    AIMA, “Financing the Economy 2017: The Role of Private Credit Managers in Supporting Economic Growth,” 5, https://www.aima.org/educate/aima-research/fte-2017.html (accessed 12 July 2019); AIMA, “Non-Bank Lending in the European Union,” 9.

  168. 168.

    EIF (Helmut Kraemer-Eis), “Institutional Non-Bank Lending and the Role of Debt Funds,” 40.

  169. 169.

    Berger, Molyneux, and Wilson, The Oxford Handbook of Banking, 49.

  170. 170.

    ESMA, “Opinion: Key Principles for a European Framework on Loan Origination by Funds,” 7.

  171. 171.

    Association of Consumer Credit Information Suppliers, “Principles on Creditworthiness Assessments: A Perpsective from the Credit Reference Industry,” November 2018, https://accis.eu/wp-content/uploads/2018/11/Final-Proofread-Principles-on-Creditworthiness-Assessments-and-the-Role-of-CRAs.pdf, 1.

  172. 172.

    EU Commission, “Directive 2014/17/EU (Mortgage Credit Directive),” Text, European Commission - European Commission, https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-finance-and-payments/consumer-financial-services/credit/mortgage-credit_en (accessed 5 September 2019), Preamble 20; EU Commission, “Directive 2008/48/EC (Consumer Credit Agreement),” Text, European Commission - European Commission, https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-finance-and-payments/consumer-financial-services/credit/consumer-credit_en (accessed 5 September 2019), Preamble 26.

  173. 173.

    See AIFs Risk Management Chapter, Risk Management Part.

  174. 174.

    BaFin, “Rundschreiben 09/2017 (BA) - Mindestanforderungen an das Risikomanagement – MaRisk”; Autorite des marches financiers (AMF), “AMF Instruction: Organisation of Asset Management Companies for Managing Loan-Granting AIFs,” 2ff.; Central Bank of Ireland, “AIF Rulebook,” 144f.; ESMA, “Opinion: Key Principles for a European Framework on Loan Origination by Funds,” 7f.

  175. 175.

    The operational due diligence is becoming more and more important. To be effective it should include: (a) a comprehensive view of the structure, quality and control of the people, operations, technology and data supporting the fund; (b) an assessment of the internal procedures, systems and data flows; (c) evaluation of the services provided by third parties; (d) analyze the unique characteristics of each borrower or fund/strategy; and (e) a periodical and event-driven update of the due diligence process. For more see: “Study Shows Operational Risk Is Key Factor in Hedge Fund Failures,” Hedgeweek, March 20, 2003, https://www.hedgeweek.com/2003/03/20/study-shows-operational-risk-key-factor-hedge-fund-failures (accessed September 2019).

  176. 176.

    AIMA, ‘Financing the Economy 2018,” 28–29, https://www.aima.org/educate/aima-research/fte-2018.html (accessed 12 July 2019).

  177. 177.

    Li Cai, Chris Jiang, and Marat Molyboga, “The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors,” The Journal of Portfolio Management 43 (1 January 2017): 2ff., https://doi.org/10.3905/jpm.2017.43.2.077.

  178. 178.

    EU Commission, “Green Paper, Long-Term Financing of the European Economy,” 3 and 11.

  179. 179.

    EU Commission, “GREEN PAPER: Building a Capital Markets Union,” February 2015, 15 and 20, COM (2015) 63 final.

  180. 180.

    ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper,” 6 and 24.

  181. 181.

    Iris H-Y Chiu, “Macroprudential Supervision: Critically Examining the Developments in the UK, EU and Internationally Analysis,” Law and Financial Markets Review, no. 3 (2012): 184.

  182. 182.

    FSB, “Transforming Shadow Banking into Resilient Market-Based Finance,” 3.

  183. 183.

    FSB, “Thematic Review on the Implementation of the FSB Policy Framework for Shadow Banking Entities - Financial Stability Board,” 17.

  184. 184.

    For a more detailed analysis of the transparency framework see: AIFs Risk Management Chapter, Part f.

  185. 185.

    KPMG, “Report on the Operation of the Alternative Investment Fund Managers Directive (AIFMD) – Directive 2011/61/EU,” 152ff.

  186. 186.

    “Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities - Financial Stability Board,” 39ff.

  187. 187.

    IMF also underlines that closing the informational gaps and collecting granular, frequent and timely data will improve the effectiveness of the macro-prudential policy. The national authorities can ensure the homogeneity of their data by also comparing them with the liquidity and leverage databases maintained by international bodies such as IMF and BIS. For more see: IMF, “Key Aspects of Macroprudential Policy,” 26.

  188. 188.

    Novick et al., “Macroprudential Policies and Asset Management,” n.d., 2ff.

  189. 189.

    Cranston et al., Principles of Banking Law, 158.

  190. 190.

    High-Level Group on Financial Supervision in the EU, “Report of the de Larosiere Group,” February 2009, 48, https://ec.europa.eu/info/system/files/de_larosiere_report_en.pdf.

  191. 191.

    Giuseppe Boccuzzi, The European Banking Union: Supervision and Resolution, 2016, 28.

  192. 192.

    Chiu, “Macroprudential Supervision,” 189.

  193. 193.

    Busch and Ferrarini, European Banking Union, 93ff.

  194. 194.

    European Union, “Consolidated Version of the Treaty on the Functioning of the European Union,’ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12012E%2FTXT (accessed 9 September 2019).

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    The conditions that a credit institution shall meet in order to be consider significant are: (a) the total value of its balance sheet assets should exceed €30 billion; (b) the ratio of its total asset over GDP in that participating state exceeds 20%; (c) the total value of assets exceeds €3 billion and the ratio of its cross border transactions to its total transactions is more than 20%; (d) it is one of the three most significant institutions in a Member State; and (e) it receives direct assistance from the EFSF and ESM. Art.6 (4) SSM Regulation. For more see: EU Commission, “Council Regulation (EU) No 1024/2013 of 15 October 2013 Conferring Specific Tasks on the European Central Bank Concerning Policies Relating to the Prudential Supervision of Credit Institutions,” (SSM Regulation) Pub. L. No. 32013R1024, 287 OJ L (2013), http://data.europa.eu/eli/reg/2013/1024/oj/eng.

  196. 196.

    Cranston et al., Principles of Banking Law, 165f.

  197. 197.

    Busch and Ferrarini, European Banking Union, 120ff.

  198. 198.

    Boccuzzi, The European Banking Union, 32.

  199. 199.

    “Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union Macro-Prudential Oversight of the Financial System and Establishing a European Systemic Risk Board,” Pub. L. No. 32010R1092, 331 OJ L (2010), http://data.europa.eu/eli/reg/2010/1092/oj/eng.

  200. 200.

    ESRB, “ESRB Response to the European Commission’s Consultation Document on the “Review of the EU Macro-Prudential Policy Framework,” 11.

  201. 201.

    ESRB, “Macroprudential Policy beyond Banking: An ESRB Strategy Paper,” 24.

  202. 202.

    Chiu, “Macroprudential Supervision,” 193.

  203. 203.

    For more on their analysis and proposal see: Danny Busch and Mirik B. J. van Rijn, ‘Towards Single Supervision and Resolution of Systemically Important Non-Bank Financial Institutions in the European Union,’ European Business Organization Law Review 19, no. 2 (June 2018): 348ff., https://doi.org/10.1007/s40804-018-0107-5.

  204. 204.

    ESRB, “ESRB Recommendation on the Macro-Prudential Mandate of National Authorities (ESRB/2011/3) Follow-up Report – Overall Assessment,” June 2014, 14, https://www.esrb.europa.eu/pub/pdf/recommendations/2014/ESRB_2014.en.pdf?600ec3fed1d5300e6a16ef0767b75cc5.

  205. 205.

    Nicola Doyle, et al., “Shadow Banking in the Euro Area: Risks and Vulnerabilities in the Investment Fund Sector,” June 2016, 27, https://www.ecb.europa.eu/pub/pdf/scpops/ecbop174.en.pdf?2cc4d889706adbcb918c06de4e5df144.

  206. 206.

    EU Commission Communication, “Mid-Term Review of the Capital Markets Union Action Plan,” Text, European Commission - European Commission, 10, https://ec.europa.eu/info/publications/mid-term-review-capital-markets-union-action-plan_en (accessed 10 September 2019).

  207. 207.

    Danny Busch, Emilios Avgouleas, and Guido Ferrarini, eds., Capital Markets Union in Europe, First Edition, Oxford EU Financial Regulation Series (Oxford, UK: Oxford University Press, 2018), 31.

  208. 208.

    “ESMA Ceases Renewal of Product Intervention Measure Relating to Binary Options,” https://www.esma.europa.eu/press-news/esma-news/esma-ceases-renewal-product-intervention-measure-relating-binary-options (accessed 10 September 2019).

  209. 209.

    EU Commission, “Public Consultation on the Operations of the European Supervisory Authorities,” March 2017, 17f., https://ec.europa.eu/info/sites/info/files/2017-esas-operations-consultation-document_en.pdf.

  210. 210.

    Christos Gortsos, “The Powers of the ESMA in Case of Breach of European Union Law: The Particular Case of Breaching the “Non Bis in Idem” Principle,” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, 27 December 2016), 4, https://papers.ssrn.com/abstract=2890444.

  211. 211.

    For example, Art. 14–18 CRA Regulation (Registration of CRAs). For more see: EU Commission, “Regulation (EU) No 462/2013 of the European Parliament and of the Council of 21 May 2013 Amending Regulation (EC) No 1060/2009 on Credit Rating Agencies Text with EEA Relevance,” Pub. L. No. 32013R0462, 146 OJ L (2013), http://data.europa.eu/eli/reg/2013/462/oj/eng.

  212. 212.

    For example, Art. 14 EMIR. For more see: Stefan Grundmann, “Staub Handelsgesetzbuch Großkommentar, Bd. 11/2: Bankvertragsrecht – Investment Banking II,“ 5. Aufl. Berlin/München/Boston, de Gruyter, 2018, 7. Teil, 3. Abschnitt, Rn.187ff.

  213. 213.

    Art. 55 EMIR.

  214. 214.

    For example, Art. 40 MiFIR endows ESMA the power to temporarily prohibit or restrict the marketing, distribution or sale of financial instruments to address a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets.

  215. 215.

    EMIR and CRA Regulation.

  216. 216.

    Similarly Avgouleas and Ferrarini argue that a European Listing Authority (EULA) should be created as a supranational supervisor for listings in EU. For more see: Busch, Avgouleas, and Ferrarini, Capital Markets Union in Europe, 68.

  217. 217.

    “Judgment of the Court of 13 June 1958. Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community. Case 9–56,” https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A61956CJ0009 (accessed 12 September 2019).

  218. 218.

    The core of the Meroni’s doctrine is the following: “The balance of the powers assigned to the institutions is an essential characteristic of the Community structure, and a fundamental guarantee afforded by the Treaty to European citizens. With this in mind, if we can allow that the Community institutions delegate powers which have been conferred on them by the Treaty to bodies having their own legal personality, such delegation must be limited to implementing powers clearly defined and entirely supervised by the delegating institution on the basis of specific and objective criteria. On the other hand, such delegation cannot concern discretionary powers involving a margin of political judgment, or this would jeopardise the balance of powers between the institutions. To act otherwise would require an amendment of the Treaty.” For more see: Jean Monnet Center for International and Regional Economic Law & Justice, “Delegation of Regulatory Authority in the European Union,” http://www.jeanmonnetprogram.org/archive/papers/01/010301-04.html (accessed 12 September 2019).

  219. 219.

    Busch, Avgouleas, and Ferrarini, Capital Markets Union in Europe, 69–73.

  220. 220.

    Busch, Avgouleas, and Ferrarini, 75ff.

  221. 221.

    ESRB, “ESRB Response to the European Commission’s Consultation Document on the ‘Review of the EU Macro-Prudential Policy Framework’,” 1.

  222. 222.

    EU Commission, “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Framework for the Recovery and Resolution of Central Counterparties and Amending Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365 COM/2016/0856 Final - 2016/0365 (COD),” 2–3, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52016PC0856 (accessed 14 September 2019).

  223. 223.

    Zetzsche, “Finanzintermediation durch Investmentfonds – Zur Behandlung von Systemrisiken im Nicht-Banken-Sektor am Beispiel von Kreditfonds –,” 283.

  224. 224.

    See above: Part 2, “Direct use of the banking legislation?”.

  225. 225.

    “Recovery and Resolution of CCPs,” CEPS (blog), 9 August 2018, https://www.ceps.eu/ceps-publications/recovery-and-resolution-ccps-obsession-regulatory-symmetry/.

  226. 226.

    “Elements of Effective Macroprudential Policies - Financial Stability Board,” 5, 11 and 18.

  227. 227.

    FSB, “Key Attributes of Effective Resolution Regimes for Financial Institutions,” 1–3.

  228. 228.

    Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council Text with EEA relevance.

  229. 229.

    “Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 Amending Directive 2014/59/EU as Regards the Loss-Absorbing and Recapitalisation Capacity of Credit Institutions and Investment Firms and Directive 98/26/EC,’ Pub. L. No. 32019L0879, OJ L 150 (2019), http://data.europa.eu/eli/dir/2019/879/oj/eng.

  230. 230.

    “Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 Establishing Uniform Rules and a Uniform Procedure for the Resolution of Credit Institutions and Certain Investment Firms in the Framework of a Single Resolution Mechanism and a Single Resolution Fund and Amending Regulation (EU) No 1093/2010,” Pub. L. No. 32014R0806, 225 OJ L (2014), http://data.europa.eu/eli/reg/2014/806/oj/eng.

  231. 231.

    “Regulation (EU) 2019/877 of the European Parliament and of the Council of 20 May 2019 Amending Regulation (EU) No 806/2014 as Regards the Loss-Absorbing and Recapitalisation Capacity of Credit Institutions and Investment Firms (Text with EEA Relevance),’ Pub. L. No. 32019R0877, 150 OJ L (2019), http://data.europa.eu/eli/reg/2019/877/oj/eng.

  232. 232.

    Single Resolution Board, “Single Resolution Mechanism (SRM),” Text, Single Resolution Board, 11 September 2017, https://srb.europa.eu/en/content/single-resolution-mechanism-srm; EU Commission, “Single Resolution Mechanism,” Text, European Commission - European Commission, https://ec.europa.eu/info/business-economy-euro/banking-and-finance/banking-union/single-resolution-mechanism_en (accessed 14 September 2019).

  233. 233.

    Single Resolution Board, “What Is the Single Resolution Fund?” Text, Single Resolution Board, 20 May 2016, https://srb.europa.eu/en/content/single-resolution-fund.

  234. 234.

    Christos Gortsos, “The Single Resolution Mechanism (SRM) and the Single Resolution Fund (SRF): Legal Aspects of the Second Main Pillar of the European Banking Union (Fifth- Extended and Fully Updated - Edition),” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, April 30, 2019), 145ff. and 193ff., https://papers.ssrn.com/abstract=2668653.

  235. 235.

    EBA, “Calculation of MREL,” European Banking Authority, 4 July 2019, https://eba.europa.eu/single-rule-book-qa/-/qna/view/publicId/2015_2120.

  236. 236.

    EU Commission, “Adoption of the Banking Package”.

  237. 237.

    For more see: FSB, “Guidance on Central Counterparty Resolution and Resolution Planning,’ https://www.fsb.org/2017/07/guidance-on-central-counterparty-resolution-and-resolution-planning-2/ (accessed 15 September 2019); EU Commission, “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Framework for the Recovery and Resolution of Central Counterparties and Amending Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365 COM/2016/0856 Final - 2016/0365 (COD)”.

  238. 238.

    For example, the national resolution regimes are only the starting point in an effective macro-prudential resolution framework. The differences in the national resolution regimes, the complexity of the industry and the various legal entities which have cross-border activities, and the lack of an EU resolution framework make rapid and orderly resolutions under the national resolution regimes impossible. For more see: FSB “Reducing the Moral Hazard Posed by Systemically Important Financial Institutions - Financial Stability Board,” 3.

  239. 239.

    Avgouleas, Governance of Global Financial Markets, 453.

  240. 240.

    FSB, “Key Attributes of Effective Resolution Regimes for Financial Institutions,” 3f. Also see Busch and van Rijn, who propose the extension of the scope of the SRM to include all financial institutions who might pose systemic risks and which will work as a centralised EU resolution authority for ensuring the application of the resolution rules across the EU: Danny Busch and Mirik B. J. van Rijn, “Towards Single Supervision and Resolution of Systemically Important Non-Bank Financial Institutions in the European Union,” European Business Organization Law Review 19, no. 2 (June 2018): 356f, https://doi.org/10.1007/s40804-018-0107-5.

  241. 241.

    EU Commission, “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Framework for the Recovery and Resolution of Central Counterparties and Amending Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365 COM/2016/0856 Final - 2016/0365 (COD),” 58ff.; FSB, “Key Attributes of Effective Resolution Regimes for Financial Institutions,” 7ff.

  242. 242.

    FSB, “Reducing the Moral Hazard Posed by Systemically Important Financial Institutions - Financial Stability Board,” 4.

  243. 243.

    For example by the use of risk sharing guarantee facilities or the use of the EIB Group Risk Enhancement Mandate (EREM). For more see: “EIB Support to the Financial Sector: Risk Sharing Guarantees,” European Investment Bank, https://www.eib.org/en/publications/acp-fs-risk-sharing-guarantees (accessed 16 September 2019); EIF (Helmut Kraemer-Eis), “Institutional Non-Bank Lending and the Role of Debt Funds,” 32.

  244. 244.

    Gortsos, “The Single Resolution Mechanism (SRM) and the Single Resolution Fund (SRF),” 251ff.; Avgouleas, Governance of Global Financial Markets, 452f.

  245. 245.

    BIS, “Core Principles for Effective Banking Supervision,” 15.

  246. 246.

    For example, India published a circular on prudential framework for resolution of stressed assets mandates all lenders. For more see: “Non-Bank Lenders May Become Part of ICA,” The Financial Express (blog), 8 August 2019, https://www.financialexpress.com/industry/non-bank-lenders-may-become-part-of-ica/1669483/.

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    Promitheas Peridis

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Peridis, P. (2022). Need for a New Regulation or Supervision and Resolution Regimes?. In: Alternative Lending. EBI Studies in Banking and Capital Markets Law. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-13471-5_7

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