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The EU ambitious simplification agenda is both a complicated and difficult endeavor, specifically in the financial services. Recently, the Commission initiated a process to “de-prioritising certain non-essential financial services legislation”, the so-called level 2 acts. The article provides a better understanding of the process, and shows other Commission’s actions.
Background: legislative measures
Specific regulatory process in the EU-wide financial services was first introduced in 2001 in the so-called Lamfalussy Report’s proposals, which recommended the adoption of a new approach to improve the regulatory process in financial services in order to make it quicker and more effective.
The Lamfalussy regulatory approach involved four decision-making levels among the EU institutions:
= At level 1 the European Parliament and Council adopt the basic laws proposed by the Commission, in the traditional co-decision procedure. As this procedure is usually complex and time-consuming, the Lamfalussy report recommends using it only for setting out framework legislative principles.
= At level 2 the Commission can adopt, adapt and update technical implementing measures with the help of advisory and consultative bodies composed mainly of EU countries representatives. This allows the Council and Parliament to focus on the key political decisions, while technical implementing details can be worked out afterwards by the Commission.
= At level 3, committees of national supervisors are responsible for advising the Commission in the adoption of level 1 and 2 acts and for issuing guidelines on the implementation of the rules.
= At level 4, a stronger role for the Commission is seen, to ensure the correct enforcement of EU rules by national governments.
The four-level regulatory approach was first aimed at the securities sector and then extended to banking, insurance, occupational pensions and asset management. Generally, it allowed for a more flexible decision-making process and resulted in an improvement in the quality of legislation.
There are three European supervisory authorities, the ESAs, to facilitate simplification in the financial sector: = the European Banking Authority (EBA), = the European Securities and Markets Authority (ESMA), and = the European Insurance and Occupational Pensions Authority (EIOPA). These authorities have taken over all of the functions of the previous level 3 committees, and have new competences, which include the responsibility of preparing the so-called ‘technical standards’, i.e. the particular category of level 2 measures that they draft and submit to the Commission.
Reference to: https://finance.ec.europa.eu/regulation-and-supervision/regulatory-process-financial-services_en
Level 2 measures
Many level 1 regulations and directives in the area of financial services (the so-called ‘basic acts’) contain empowerments for level 2 measures to be adopted by the Commission by means of delegated acts, implementing acts and/or measures under the former comitology ‘regulatory procedure with scrutiny’.
These measures are endorsed in accordance with different procedures set out in the relevant basic act and may be subject to formal committee decisions or provide for certain scrutiny rights of the European Parliament and the Council.
Present EU basic law -the Lisbon Treaty, which came into force in 2009 – has created the current system of delegated and implementing acts. Delegated acts, as defined in article 290 of the Treaty, are acts supplementing or amending certain non-essential elements of a basic act. Implementing acts, as defined in article 291, are to be used where uniform conditions for implementing basic acts are required.
Where the level 2 measures require the expertise of supervisory experts, it can be determined in the basic act that these measures are technical standards based on drafts developed by the European supervisory authorities.
There are two types of such standards:
= the regulatory technical standards (RTS), which are adopted by the Commission by means of a delegated act, and
= the implementing technical standards (ITS), which are adopted by means of an implementing act.
The Commission’s interinstitutional register of delegated acts provides information to the various steps in the preparation, adoption, scrutiny and publication of delegated acts. It contains an overview of Directorate general for financial stability, financial services and capital markets union’s level 2 empowerments that are in preparation or adopted in the area of financial services.
More on the register in: https://webgate.ec.europa.eu/regdel/#/home
Anti-money laundering legislation
In line with its broader simplification agenda, the Commission has informed the European Supervisory Authorities and the Anti-Money laundering Authority (AMLA) of its plan to deprioritise 115 non-essential level 2 legal acts.
The AMLA is a decentralised EU agency aimed at coordinating national authorities to ensure the correct and consistent application of the EU rules; the authority is to transform the anti-money laundering and countering the financing of terrorism (AML/CFT) supervision in the EU and enhance cooperation among financial intelligence units (FIUs). The package of legislative proposals has been adopted in July 2021.
More in: https://www.amla.europa.eu/index_en
The Directive on Anti-Money Laundering and Terrorist Financing (AMLD IV, which is the 6th in line of that kind of regulations) empowers the Commission to adopt delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the directive. The directive’s main goal is creating in the EU states some “mechanisms for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing”.
Source: https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/anti-money-laundering-and-terrorist-financing-directive-4_en. Note. The directive has to be transposed into national law in phases and the rules apply from 10 July 2027; certain rules (e.g. those pertaining to central beneficial ownership registers) have to be transposed by 10 July 2026, and others (e.g. the setting up of the Bank Account Registers’ Interconnection System) by 10 July 2029.
The EU member states are obliged to:
= carry out national risk assessments to identify, assess, understand and mitigate the risks of ML/TF and non-implementation and evasion of targeted financial sanctions;
= keep the assessments up to date and review them every four years;
= designate an authority to coordinate their response to the risks of money laundering, terrorist financing and the non-implementation and evasion of targeted financial sanctions; and
= keep comprehensive statistics on the effectiveness of their anti-money-laundering and countering the financing of terrorism (AML/CFT) structures.
As to information on payment, bank, securities and crypto-asset accounts, as well as the safe-deposit boxes, the EU member states ensure:
= centralised automated mechanisms (central registers or electronic data retrieval systems) are in place to identify holders of payment accounts, bank accounts identified by an international bank account number (IBAN) (including virtual IBANs), securities accounts, crypto-asset accounts and safe-deposit boxes; and
= the interconnection of the centralised automated mechanisms through the Bank Account Registers’ Interconnection System that is developed and operated by the Commission.
General link: https://eur-lex.europa.eu/legal-content/EN/LSU/?uri=CELEX:32024L1640
The simplification perspectives
The EU has a comprehensive legal framework, in which many of the rules are regulatory and implementing standards (on level 2) that supplement or specify the EU regulations and directives (i.e. level 1).
In the last Commission’s legislative term (during 2019-2024), the European Parliament and the Council (as the EU co-legislators) revised or adopted around 30 level 1 acts concerning financial services: these acts empower the Commission to adopt around 430 level 2 measures.
A high volume of level 2 acts can lead to compliance costs and regulatory complexity for stakeholders, while demanding significant resources from co-legislators to scrutinise them.
In consultation with the EU co-legislators, the Commission informed the three European Supervisory Authorities and AMLA that it will not adopt these non-essential acts before 1 October 2027.
Where empowerments have legal deadlines, the Commission will propose to amend or repeal them during the upcoming revisions of the relevant level 1 acts.
The Commission’s deprioritisation of some level 2 measures is a pragmatic approach that can deliver simpler rules and more effective and efficient implementation, in line with the savings and investments union objectives and the Commission’s simplification agenda.
Note. There are the following implementing and delegated acts under the EU Directives and Regulations, including equivalence decisions. Source: https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts_en