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Banks: companies ready to join the future European directive

The proposal for a banking directive currently being debated in the European Parliament, the dreaded CRD VI, will tighten EU law against banks from third countries. In one of its aspects, this text limits the marketing of several services, especially to the African diaspora living in Europe. But Moroccan banks would be more or less protected thanks to their European passports. However, some adjustments to the capital requirements will be necessary.

The very chic Club de l’Automobile in Paris, located opposite the Place Concorde and a stone’s throw from the famous rue Faubourg St Honoré, hosted on Monday 21 November a round table discussion on the draft European Banking Directive, the application of which, d two years from now , should affect the banks’ business in third countries, especially in Africa. Among the audience African bankers, including Moroccans, but also entrepreneurs from the diaspora and managers of subsidiaries of African banks established in France. As a guest star, the law firm Gauvin had invited Edouard Fernandez-Bollo, member of the supervisory board of the European Central Bank (ECB).

The draft CRD VI directive introduces two important developments to harmonize different aspects of prudential regulation and better include new risks, the ECB official explains, responding to bankers’ concerns. To those who wonder if we can still integrate some adjustments into the text, he clearly answers that it is almost impossible, given the complexity of the process of drafting European laws, which requires the approval of 27 states. This directive should be implemented in 2025. The directive introduces a new supervisory regime for branches in third countries, currently defined by each Member State.

To put an end to this complexity and avoid regulatory arbitrage, the text introduces a harmonized framework for minimum requirements for branches of banks in third countries by creating two categories of entities and by allowing competent authorities to require the conversion of systemic branches into subsidiaries , which would thus be fully subject to the very strict capital requirements. This is one of the points that African banks fear.

As it stands, it is unclear whether the proposed directive would prevent African banks from maintaining links with the diaspora in Europe. That the CRD VI Directive requires a bank from a third country wishing to carry out banking activities in Europe to set up a subsidiary or bank branch there is permissible and even imperative, precisely in order to fulfill one of CRD VI’s objectives to ensure the European banking market.

Today, many European states allow foreign banks to carry out their banking activities without a physical presence under the so-called freedom to provide services. This is the case with Italy, Spain, Luxembourg… Tomorrow, when the CRD VI directive is adopted, this will no longer be possible. Moroccan banking groups, via their subsidiaries established in several European states, would be more or less protected by their “European passport”. This status allows a bank from one EU state to carry out its banking activities in the territory of the other member states.

However, it does not open all doors. The advantage of the European passport makes it possible to provide only European banking services and not foreign banking services at all. A Moroccan bank cannot offer its MRE customers in Europe to enter into banking contracts under Moroccan law.

In addition, the new “banking package” integrates environmental, social and governance (so-called “ESG”) risks, especially environmental risks, into the supervisory framework. Emphasis is placed on the institutions’ exposure to the risk of environmental change, i.e. the risk resulting from a lack of preparation for the legislative or political changes required by the ecological transition objectives.

The regulator will ensure that the bank has a business model and an overall strategy in line with the EU’s climate objectives in terms of reducing greenhouse gas emissions. The draft CRD6 directive contains other changes not related to the implementation of Basel 3, which aim to deepen the harmonization of regulations in Europe at several levels.

First, the Commission expands the list of supervisory powers given to the competent authorities. The new supervisory powers will thus include the following operations: when they are significant, a bank’s acquisition of a share of more than 10% of the capital or voting rights in a financial or non-financial entity, as well as significant transfers of assets or liabilities, must be notified to the competent authority.

Regardless of their size, merger or demerger operations will be subject to a prior approval requirement. In addition, Brussels wanted to strengthen the minimum provisions regarding the sanctioning powers. In particular, a harmonized guarding mechanism has been established. The Commission also wanted to clarify the principle of information exchange and cooperation between national supervisory authorities and judicial authorities in the directive.

The draft CRD VI Directive introduces a harmonization of practice, while emphasizing its desire to respect the principle of proportionality: in so-called systemic institutions, members of the management body and holders of key positions (financial director and heads of internal control functions) will thus have to be assessed by the regulatory authorities prior to their appointment.

Abashi Shamamba / ECO Inspirations

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