Banks face fines if they flout tough new rules

Banks in the European Union could face fines of up to 10 per cent of turnover if they fail to comply with tougher capital and liquidity rules, the bloc’s financial services chief said yesterday.

Michel Barnier, the EU’s internal market commissioner, unveiled draft laws in Brussels to implement the new global Basel III accord, which will force 8,200 banks in the EU to hold more and better quality capital over six years from 2013 in a bid to shield taxpayers from a future financial crisis.

Banks will have to raise €460bn of extra capital to fully comply by the start of 2019, Mr Barnier said.

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The draft measures largely mirror Basel III, which was approved by leaders of the top 20 economies (G20) last November.

But it goes further in some cases by introducing tougher sanctions, ways to dilute the influence of credit ratings, and improvements to corporate governance, such as requiring boards to consider more female members and introduce whistle-blowing programmes.

Sanctions should have real teeth, too, Mr Barnier said.

Administrative fines could be up to 10 per cent of an institution’s annual turnover, or there could be temporary bans on members of the institution’s management body.

The fines would apply to breaches such as unauthorised banking services or failing to meet governance, liquidity and capital requirements.

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Mr Barnier stuck to his plan for making the Basel standards fixed in EU law, meaning that states can only require banks to hold extra capital under a limited set of circumstances.

He wants to create a “single rulebook” so that the same standards are applied in every corner of the EU to avoid distorted competition, a step the cross-border banks that dominate the sector welcomed for its supervisory consistency.

“Done well, this should contribute strongly to deepening integration, reinforcing financial stability and supporting sustainable economic growth,” said Michael Lever, managing director at the Association for Financial Markets in Europe (AFME), a banking lobby group.

Britain, Spain, Sweden and other EU states want to keep a free hand to require banks locally to hold capital above the levels fixed in the new EU law.

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Many of the United Kingdom’s banks, for example, hold capital of around 10 per cent. EU states and the European Parliament have the final say on the draft measures, and some changes are likely.

National supervisors can require more capital to cool an overheating property market or dampen excess lending.

“I am convinced you need the same rules for all. There is enough flexibility for supervisors to cater for risk where they have identified it to set extra capital they deem appropriate,” Mr Barnier said.

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