Financial Services

The Cyprus Presidency of the Council of the EU is committed to actively work for strengthening the regulation and supervision of the financial sector, in ensuring the proper and sound functioning of the financial institutions and financial markets.  In particular, during the Cyprus Presidency particular attention will be given to the revision of the Markets in Financial Instruments Directive, the Crisis Management and Bank Resolution Framework, the revision of the Credit Rating Agencies Regulation, the Omnibus II Directive and the Capital Requirements Directive and Regulation.

  • The Markets in Financial Instruments Directive (MiFID) has been in force since November 2007 and regulates trading in the securities markets and the provision of investment services by banks and investment firms, in financial instruments. Even though MiFID has served the market well, by creating competition in the financial services sector and bringing more choice to investors, changes are necessary. The rapid technological advances, the complexity and changing make-up of the financial markets, as well as the lessons learnt from the financial crisis, call for an extensive review of the legislation, targeted at addressing all of the areas where shortcomings have been identified or improvements are needed. The two proposals, a Directive and a Regulation, address issues related to changes in technology, such as high frequency trading, which drastically increases the speed of trading and the possibility of systemic risks. Moreover, the Commission’s proposals extend the requirement for information disclosure to other financial products such as bonds, structured finance products and derivatives. The new framework will also increase the supervisory powers of regulators and provide clear operating rules for all trading activities. The general objectives of the revision of MiFID are to make financial markets more efficient, resilient and transparent and reduce systemic and market disorder risks. It also aims to reduce unnecessary costs for participants and strengthen investor protection.

  • The financial crisis has provided clear evidence of the need for more robust bank intervention and resolution measures at national level, as well as of the need to put in place arrangements better able to cater for cross-border banking failures. The European Crisis Management Framework will be broad-ranging and in line with the EU’s G-20 commitments. It will aim to equip authorities with common and effective tools and powers to tackle bank crises at the earliest possible moment, and avoid costs for taxpayers. Furthermore it will ensure that banks can be resolved in ways that minimise the risks of contagion and ensure continuity of essential financial services, including continuous access to deposits for insured depositors. The framework will provide a credible alternative to the expensive bank bail-outs which have characterised the recent crisis.

  • The euro debt crisis has highlighted various weaknesses relating to the credit ratings and credit rating agencies (CRAs). As credit ratings can have such a major impact in the financial markets, the Commission has put forward in November 2011, two proposals, a Regulation and a Directive, to address these weaknesses. These two proposals put forward provisions to mitigate the over-reliance on credit ratings and increase the transparency and frequency of sovereign debt ratings. They try to bring about more diversity and stricter independence of CRAs so as to eliminate conflicts of interest. At the same time, CRAs are made more accountable for the ratings they provide.

  • The Omnibus II is a horizontal Directive, which proposes specific changes to legislation in the area of insurance (“Solvency II” Directive) and securities regulation (Prospectus Directive) in order to ensure that the new European supervisory authorities, European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA) can work effectively. Regarding in particular the "Solvency II" Directive, the proposal contains amendments to the Directive which would provide for more specific tasks/powers for the European Insurance and Occupational Pensions Authority, such as the development of technical standards, and settling disagreements between national supervisors. The Omnibus II Directive, upon approval, will also change the implementation date of the Solvency II Directive. In addition, the envisaged amendments will enable the Commission to specify transitional measures in certain areas, if it is considered necessary, in order to avoid market disruption and to allow for a smooth transition to the new regime under Solvency II.

  • The two proposals of the Commission, aim at strengthening banks and investment firms, by requiring them to hold more and of better quality capital and be able, to better deal with future crises on their own. Banks especially, entered the last crisis unprepared, which led to the need for unprecedented financial support from national authorities. These proposals will also implement the Basel III agreement for enhanced prudential supervision of banks and investment firms in the EU, in line with the EU’s G-20 commitments. Furthermore, the new proposals put forward provisions for a governance framework that gives supervisors new powers to monitor banks through a single rulebook, taking action as soon as risks are identified, through sanctioning and other measures. The Cyprus Presidency will work on the finalisation of the proposals of the Capital Requirements Directive and the relevant Regulation.