Learning Objectives:

  • Understand the EU banking regulatory structure.

  • Explain key EU regulations: PSD2, MiFID II, EMIR, and CRD IV.

  • Understand the role of the EBA and ECB.

4.1 The European Regulatory Framework

The European banking regulatory framework is harmonised through EU directives and regulations . Key regulatory bodies include:

  • European Central Bank (ECB): Supervises significant banks in the Eurozone under the Single Supervisory Mechanism.

  • European Banking Authority (EBA): Develops regulatory technical standards and promotes supervisory convergence .

4.2 Key EU Regulations

CRD IV: Implements Basel III in Europe through the Capital Requirements Regulation (CRR) and Directive (CRD IV). Key features include:

  • Minimum capital requirements and buffers.

  • Liquidity requirements (LCR and NSFR).

  • Leverage ratio requirements.

  • Risk retention requirements for securitisations .

MiFID II / MiFIR: The cornerstone of European securities regulation . Key features include:

  • Trade transparency and trading obligations for financial instruments.

  • Extended scope to include a wider range of financial instruments.

  • Enhanced organisational and conduct standards for regulated firms.

  • Creation of Organised Trading Facilities (OTFs) for fixed income instruments .

PSD2: The Payment Services Directive 2 aims to foster innovation in the payment sector while safeguarding consumer rights . Key features include:

  • Strong Customer Authentication (SCA).

  • Open banking mandates requiring banks to provide access to account data to authorised third parties.

EMIR: Focuses on the stability of OTC derivative markets . Key features include:

  • Regulatory reporting of all derivative transactions to trade repositories.

  • Central clearing of eligible OTC derivatives through authorised CCPs.

  • Risk management requirements for uncleared contracts .

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