The Weekly Report from Brussels, provided by the European Affairs team at the City of London, provides an update on key developments relating to financial services in the EU.

27 January 2017

Welcome to the Weekly Report, prepared by the City of London European Affairs team.

This week includes:

 ECOFIN Chair faces questions from ECON Committee  Meeting of the  PANA Committee  In other news  Upcoming EU Institutions events and consultations

More information about the work of the City of London European Affairs team can be found here.

ECOFIN Chair faces questions from ECON Committee

On 25 January, the Economic and Monetary Affairs (ECON) Committee held a structured dialogue with Edward Scicluna, ECOFIN chair in his capacity as Minister for Finance of . Whilst the dialogue covered a range of topics on the priorities of the Maltese Presidency in economic and financial affairs, Mr Scicluna received a number of critical questions regarding Malta’s corporation tax arrangements, with some MEPs going so far as to describe Malta as a ‘tax haven’.

Background:

Malta took over the rotating Presidency of the Council of the at the beginning of this month, and has set out a list of economic and financial affairs priorities on which it will focus during its Presidency. One item listed is to carry forward a number of ongoing taxation files, including the amendment to the Anti-Tax Avoidance Directive (ATAD) and the re-launch of the Common Consolidated Corporate Tax Base (CCCTB).

However, concerns have been raised as to whether Malta has the political will to push these agendas forward in the ECOFIN Council due to its corporation tax regime, which in 2015 the determined offers generous refunds to companies that are based in the country. Additionally, , Prime Minister of Malta, received criticism last year when a cabinet minister in his government and his chief of staff were both named in the Panama Papers.

Latest Developments:

Mr Scicluna told MEPs that Malta is assuming the Council’s Presidency during the EU’s fourth year of recovery, but is aware that short-term resilience in the economy is no guarantee of long term, stable growth. Because of this, the Maltese Presidency will work to support the recovery by promoting initiatives which can improve access to finance for small and medium-sized enterprises (SMEs) and improve growth and job creation.

The Maltese Finance Minister also remarked that one particular challenge which is holding back growth in the EU is the current uncertainty surrounding the process of the UK leaving the EU. He argues that as the specifics of the UK’s exit become clear, this will reduce the uncertainty for the remaining Member States and should accelerate the recovery in Europe. Regarding investment, the Maltese Presidency will conduct a mid-term review of external lending mandate with the European Investment Bank (EIB).

Turning to fiscal policy, Mr Scicluna announced that in discussion on the Council’s recommendations on the European Semester for 2017, the Maltese Presidency intends to promote sound fiscal policy, investment and structural reform. He also said that that the Presidency will support the Council’s work in economic policy coordination in order to further unlock the productive capacity of EU. He also stated that, whilst the Presidency will continue to support fiscal consolidation policies in the EU, it should be ensured that such policies don’t hinder growth.

Burkhard Balz MEP (EPP, ) and Anneliese Dodds MEP (S&D, UK) both asked Mr Scicluna about the likely approach that the Presidency will take as regards the negotiations on the UK’s withdrawal from the EU. Additionally, Mr Balz queried whether, given Malta’s historic links to the UK through the Commonwealth, Malta would give undue favour to the UK in the negotiations. Mr Scicluna responded that said Malta wanted to be seen as an honest broker in the negotiations, and did not think it would be in the interests of either side to have the other ‘humiliated’ in the negotiations. He also said that it was premature to predict how the negotiations will go, although expressed an interest in having the negotiations led in as centralised an arrangement as possible.

Pierkko Ruohonen-Lerner (ECR, Finland) asked whether Malta could reasonably oversee the tax avoidance discussions during its Presidency, because of its corporation tax regime and questioned whether Malta would pass the EU’s tax haven test. Mr Scicluna responded that Malta has been subjected to many unfair criticisms regarding its tax arrangements. He argued that Malta was fully compliant with international technical standards on money laundering and tax avoidance and has also integrated European anti-money laundering legislation into national law. He also remarked that one criticism made against Malta is that it practices banking secrecy, whereas in reality Malta removed these practices in 1994.

Petr Jezek (ALDE, Czech Republic) also questioned Malta’s suitability to lead the revision of the EU’s Anti-Money Laundering Directive (AMLD), noting the implication of two senior figures in the Maltese Government in the Panama Papers. Mr Scicluna admitted the Panama Papers fallout did raise uncomfortable questions for Malta, but argued that MEPs will see in the first few weeks of the Maltese Presidency that these concerns are unfounded.

Mr Scicluna was also questioned on the level of transparency for the Central Registry of Companies' Beneficial Owners under AMLD, with the Maltese Government offering support for the information to be made available to the tax authorities of other Member States, but not to the general public. Mr Scicluna insisted that it was necessary for information to be shared between tax authorities, but that transparency also had to be balanced against data protection concerns.

Meeting of the Eurogroup

Eurogroup Ministers met in Brussels on 26 January where they heard the initial findings of an International Monetary Fund (IMF) assessment of the economic outlook for the . In addition, the Eurogroup discussed the Council’s recommended economic policy for eurozone Member States in 2017 and received an update on the Greek government’s progress in institutional reforms as part of their Economic Adjustment Programme.

Latest Developments:

IMF eurozone assessment

The IMF regularly monitors the economies of countries and regions in order to identify weaknesses that are causing or could lead to financial or economic instability, and to ensure that IMF members are pursuing policies that are conducive to orderly economic growth. The IMF's monitoring of the eurozone economy is known as an Article IV Consultation.

The IMF updated the Eurogroup on the main findings of the interim mission of its IMF Article IV consultation, which took place at the end of 2016. Ministers were informed that whilst growth in the eurozone is consistent and, for the first time since the financial crisis, all eurozone Member States are expected to see growth in 2017, there are significant policy challenges that the eurozone faces, including from uncertainties regarding the UK’s withdrawal from the EU and the policies of the new US administration.

One of the key recommendations of the IMF was that it advocated a neutral fiscal stance for the eurozone, instead of introducing a fiscal stimulus as was Error! Hyperlink reference not valid. by the Commission in November 2016. In particular, the IMF argued that a stimulus policy would not be appropriate for all Member States of the eurozone as it would not be consistent with the rules set out in the stability and growth pact. The IMF also argued that the existing rules of the Stability and Growth Pact consist of too many targets, proposing that the rules could be reinforced by making access to central funds conditional on compliance.

Further information about the IMF’s Article IV consultation can be found here.

European Semester

The Eurogroup discussed the Council’s draft recommendations on the economic policy of the EU in 2017. The Council’s recommendations set out to maintain the economic recovery of the EU, whilst addressing the differences in employment and social outcomes across Member States.

Ministers agreed with the recommendations for 2017, and argued that economic policy for the EU should focus on growth and job creation, sound fiscal policies and the completion of the banking union. Other priorities include relaunching investment, pursuing structural reforms and ensuring responsible public finances, showing policy continuity and focussing on reinforced implementation.

Full details of the Council’s European Semester for 2017 can be found here.

Greek Economic Adjustment Programme

Ministers were updated on the findings of the second review of the Greek Economic Adjustment Programme, following their review mission to Athens in December. As part of the review, negotiations are ongoing to reach agreement on the necessary reforms that need to be made to the labour and product markets, the energy sector and other areas.

Ministers were also given further information on the decision by the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) to implement a set of short-term debt relief measures for Greece. The measures, which exchange some of the country’s debt from floating to fixed interest rates and ease the repayment burden, are designed to stabilise Greek interest rates.

Negotiations on an agreement for the medium-term fiscal policies that Greece should follow from 2018 onwards are ongoing. An agreement is expected to be reached before the next meeting of Eurogroup ministers.

Next Steps:

Following the meeting, Jeroen Dijsselbloem, President of the Eurogroup, held a press conference to discuss the main issues raised. He highlighted that the recovery in the eurozone is ongoing and it was important reaffirm the EU’s continued support for global free trade and the deepening of the single market. Such policies, he argued, should deliver higher economic growth, job creation and an improvement in living standards.

He also welcomed the news that the Greek economy is recovering faster than expected and that Greece is set to outperform its 2016 fiscal target. Mr Dijsselbloem finished by calling for the second review of Greece’s Economic Adjustment Programme, and for discussions on necessary structural reforms, to be resolved quickly.

PANA Committee

The ’s PANA Committee, that which scrutinises money laundering, tax avoidance and evasion in light of revelations unearthed by the Panama Papers and related scandals, held an exchange of views on 26 January to progress issues raised in a working document drafted by co-rapporteurs Jeppe Kofod MEP (S&D, Denmark) and Petr Ježek MEP (ALDE, Czech Republic).

Latest developments:

Opening the debate, chair of the PANA Committee MEP (EPP, Germany) lamented the decision taken in Coreper last week to postpone the proposed joint meeting with the Economic and Monetary Affairs (ECON) Committee stating that this was “not a sign of good cooperation”. He continued by underlining that the PANA Committee must work more closely with the Maltese Presidency to ensure that the Committee carries out its mandate fully and investigates alleged contraventions and maladministration of EU law in relation to money laundering, tax avoidance and evasion.

The co-rapporteurs set out what they believe to be the biggest issues facing policymakers, namely the role played by intermediaries in facilitating such activities (as well as tax havens); the need for greater tax transparency and access to beneficial ownership information; the creation of a list of non-cooperative jurisdictions (with sanctions for offending parties); and the need to act collaboratively in international fora to combat money laundering, tax avoidance and evasion at a global level.

Many MEPs echoed the concerns voiced by the co-rapporteurs, particularly those relating to greater tax transparency. Luděk Niedermayer (ALDE, Czech Republic) gave his support for greater scrutiny of the legal framework, specifically around trusts, which allows money to “go missing from the system”. Cătălin Sorin Ivan MEP (S&D, Romania) agreed and went further to suggest that the Member State Financial Intelligence Units (FIUs) – the platforms which monitor such activities nationally – must cooperate better at an EU level, advocating harmonisation across Member States to be coordinated by a central EU office.

Another issue for the Committee relates to the accessibility of documents which were unearthed by the International Consortium of Investigative Journalists (ICIJ) which, according to MEP (GUE/NGL, Germany), are being withheld by the European Commission. This point was supported by Louis Michel MEP (ALDE, Belgium) and MEP (Greens/EFA, Germany) who added that the Commission, particularly DG JUST and DG TAXUD, and even the Council had been extremely uncooperative with the PANA Committee in this regard. Co-rapporteur Jeppe Kofod also stated that the secrecy of the Code of Conduct Group for Business Taxation, a preparatory body within the Council, was problematic.

In his closing remarks, Mr Kofod reminded colleagues of the recommendations already put forward by parliamentary inquiry committees TAXE and TAXE2 on issues relating to money laundering, tax avoidance and evasion. He stated subsequently that it was important to examine the efforts of Member States in implementing the recommendations and whether there was a need for follow up actions. Co-rapporteur Petr Ježek concluded the exchange of views by outlining the intention to scrutinise the extremely broad spectrum of issues that fall under the mandate of the Committee, with the objective of narrowing the scope of recommendations once initial findings are agreed.

Next steps:

There will be a joint meeting of the PANA and ECON Committees on 31 January, which will include representatives of the Dutch, Belgian and Austrian National Parliaments to discuss the follow up to the Panama Papers and the Bahamas leaks and possible cooperation between the institutions. Thereafter the PANA Committee will reconvene on 9 February.

In other news

 The INTA Committee held a discussion on the conclusion of the Comprehensive Economic and Trade Agreement (CETA)  The INTA Committee held a debate on the priorities of the Maltese Presidency in the area of International Trade  The PANA Committee held a hearing on the role of lawyers, accountants and bankers in the Panama Papers  The ECON Committee voted to approve the text agreed during interinstitutional negotiations on the Prospectus Directive  The ECON Committee voted to to approve the Annual Report of the Banking Union  Valdis Dombrovskis, Commission Vice-President delivers the opening speech at the first meeting with High Level Expert Group on Sustainable Finance  Gabriel Bernardino, Chairman of EIOPA, delivered a keynote speech on 'the Future of the European Insurance Industry in the Digital Era'  Patrick Armstrong, Senior Risk Analysis Officer with ESMA, delivered a speech on 'Financial Technology: Applications within the Securities Sector'  The ECOFIN Council met in Brussels to discuss the European Semester report, the Basel III negotiations and the EU Budget

Upcoming EU Institutions events and consultations

28 January: Deadline for responses to EBA consultation on Joint ESMA EBA Guidelines on suitability of management body 28 January: Deadline for responses to EBA consultation on Guidelines on internal governance (revised) 31 January: Deadline for responses to ESMA consultation on Technical advice to the Commission on fees for TRs under SFTR and on certain amendments of for fees under EMIR 2 February: Deadline for responses to EBA discussion on a new prudential regime for investment firms 3 February: Deadline for responses to EBA consultation on Guidelines on authorisation and registration under PSD2 8 February: Deadline for responses to EBA consultation on RTS and ITS on the authorisation of credit institutions 10 February: Deadline for responses to EBA consultation on Guidelines PD estimation, LGD estimation and treatment of defaulted assets 15 February: Deadline for responses to consultation on Draft technical standards on data to be made publicly available by TRs under Article 81 of EMIR 28 February: Dealine for responses to EIOPA Discussion Paper on Potential Harmonisation of Recovery and Resolution Frameworks for Insurers 17 March: Deadline for responses to Commission consultation on the capital markets union mid-term review 2017

City of London Research

The City of London produces regular research on EU Financial Services which can be accessed here.

Contacts - Brussels

Mike Vercnocke Head of European Affairs +32 (0)2 282 8457 [email protected]

Michael O'Shea European Policy Advisor +32 (0)2 282 8456 [email protected]

Tom Jobling European Policy Assistant +32 (0)2 282 8455 [email protected]

Contacts - London

Sarah Murray European Regulatory Affairs Manager +44 (0)20 7332 3968 [email protected]

Audrey Nelson Senior European Regulatory Affairs Advisor +44 (0)20 7332 1054 [email protected]

Maja Erceg European Regulatory Affairs Advisor +44 (0)20 7332 1451 [email protected]

Michael Chapman International Regulation Manager [email protected]

Duncan Richardson Senior International Regulation Advisor [email protected]

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