Luxembourg Sets Ambitious Priorities For EU Presidency

Over the coming six months, Linklaters will be closely monitoring and analysing political and legislative developments during Luxembourg's presidency of the EU Council. We will be tracking news from the presidency, progress on the various issues Luxembourg has set as priorities, and exploring the whys and hows of decisions and developments as they happen. For this first in a series of communications Patrick Geortay, Luxembourg capital markets and banking partner, will place you at the heart of the upcoming discussions and provide insights into their implications.

Luxembourg, which took over the rotating presidency of the European Union on 1 July, faces a heavy workload during a critical period for the EU. In addition to overseeing the union's response to the unfolding economic and financial crisis enveloping Greece, the grand duchy has set out ambitious priorities in areas including completing the post-crisis reform of financial institutions and markets and enhancing transparency and co-operation in tax matters.

The government also aims to maintain momentum towards establishment of a capital markets union to spur European economic growth, and make progress in areas ranging from energy union and the digital single market to the circular economy and the EU's Transatlantic Trade and Investment Partnership negotiations with the United States. The Luxembourg presidency has set out its full agenda for the next six months at www.eu2015lu.eu.

Banking and financial services

Bank structural reform

Luxembourg will push the negotiations further on bank structural reform, a post-financial crisis initiative prompted by a 2012 report by Finnish Central Bank head Erkki Liikanen. On 19 June EU finance ministers agreed a draft regulation imposing ring-fencing or separation of retail deposit-taking and lending from riskier trading and other investment banking activities on the biggest and most complex "globally systemically important" banks.

The proposal would determine systemic importance according to institutions' size, interconnection with international financial markets and/or exceeding thresholds for trading activities or retail deposits. It distinguishes between proprietary trading and other trading activities, unless the latter present excessive risk, and stipulates that trading banks cannot accept retail deposits protected under guarantee schemes. Exemptions are envisaged for institutions in the UK and elsewhere that are already subject to national rules, but these may face additional requirements.

The legislative process is forecast to take at least six months, but the EU Commission hopes it can be finalised before year-end. Linklaters Luxembourg capital markets and banking partner Patrick Geortay comments: "A great deal of progress has been made toward the EU banking union over the past three years, but there are still some issues to be ironed out, notably a uniform deposit guarantee scheme for the euro zone. That is not among the priorities...