Shadow banking: Council adopts transparency rules on securities financing transactions
A regulation that will improve the transparency of securities lending and repurchase transactions was adopted by the Council on 16 November 2015.
The regulation is intended to counter the risk of trading activities developing outside the regulated banking system, or otherwise without proper oversight.
By introducing binding and reporting requirements, it sets out to discourage banks and other financial intermediaries from shifting transactions to the less-regulated shadow banking sector. It will ensure that information on securities financing transactions is efficiently reported to trade repositories and investors in collective investment undertakings.
Securities financing transactions, often carried out in the shadow banking sector, are transactions that use assets belonging to the counterparty to generate financing. They usually involve the lending or borrowing of securities or commodities, repurchase (repo) or reverse repurchase transactions, or buy-back/sell-back transactions.
An agreement on the text was reached with the European Parliament on 17 June 2015. The Parliament consequently adopted its position at first reading on 29 October.
A package of measures
A proposal was presented by the Commission in January 2014, together with a draft regulation on structural reform of the EU banking sector. Both set out to enhance financial stability. Negotiations on the bank structures proposal will start once the Parliament has agreed its negotiating stance.
The regulation on securities financing transactions will improve transparency in three main areas:
- monitoring of the build-up of systemic risks in the financial system related to securities financing transactions;
- the disclosure of information on securities financing transactions to investors whose assets are employed in the transactions;
- reuse by banks or brokers for their own purposes of collateral provided by their clients.
The regulation was adopted at a meeting of the Agriculture and Fisheries Council, without discussion. It will enter into force on the 20th day following its publication in the EU Official Journal.