Communication from the Commission to the Council and the European Parliament. Shadow banking – addressing new sources of risk in the financial sector

Since the financial crisis began in 2007/2008, the European Commission has undertaken the biggest reform of financial services ever seen in Europe. The aim is to restore sustainable health and stability to this sector by addressing the shortcomings and weaknesses highlighted by the crisis.

The Commission's approach consists of tackling all financial risks, globally and comprehensively, and ensuring that the benefits achieved by strengthening certain actors and markets are not diminished by financial risks moving to less highly regulated sectors. Such regulatory arbitrage would greatly undermine the impact of the reforms. The Commission therefore published a Green Paper on shadow banking in March 2012, with a view to gathering input on how best to tackle risks stemming from credit intermediation that involves entities and activities outside the regular banking system.

Following consultation on the Green Paper and at a time when financial regulation is set to be significantly reinforced and enhanced in Europe, the Commission wishes to set out its roadmap for the coming months which is aimed at limiting the emergence of risks in the unregulated system, in particular risks of a systemic nature. These could arise especially through the shadow banking sector’s interconnectedness with the regulated financial system.

This Communication outlines a number of priorities where the Commission intends to take initiatives such as transparency of the shadow banking sector, establishment of a framework for money market funds, reform of rules for undertakings for collective investment in transferable securities (UCITS), securities law and the risks associated with securities financing transactions (principally securities lending and repurchase transactions) and establishment of a framework for interactions with banks.

See also:
- Proposal for a Regulation of the European Parliament and of the Council on money market funds

ESO: Background information: EU steps up regulatory pressure on 'shadow banks' http://www.europeansources.info/record/eu-steps-up-regulatory-pressure-on-shadow-banks/

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