Part of objective 1 of the capital markets union (CMU) action plan, action 4 aims to ensure that banks and insurance companies are not unduly constrained in their long-term investments by EU prudential rules.
Banking rules: Basel III implementation
As part of action 4 of the 2020 CMU action plan, the Commission committed to ensure that the EU implementation of the internationally agreed Basel III bank capital standards would not have an undue impact on banks' long-term investments in SME equity.
With its legislative proposal to amend the Capital Requirements Regulation – part of the banking package tabled in October 2021 the Commission delivered on this commitment. In this proposal, the Commission put forward targeted safeguards to avoid that disruptive effects on banks’ equity investments would arise as a result of the introduction of the new rules. Also, to further reinforce private and public initiatives to provide long-term equity to EU corporates, the Commission proposed that a bank’s investments should not be considered as ‘speculative’ if they are made with the bank’s firm intention to hold them for three or more years. Given the increased capital requirements for ‘speculative’ equity exposures, this proposal ensures that the capital requirements for banks’ long-term equity holdings are not unduly impacted.
In June 2023, the European Parliament and the Council reached a political agreement that largely implements the Commission’s proposal in this area. The new rules are expected to apply from 1 January 2025.
Insurance rules: Solvency II review
As part of action 4 of the 2020 CMU action plan, the Commission also committed to amend the Solvency II framework to promote insurance companies’ long-term investments without affecting financial stability and policyholder protection. The 2020 CMU action plan pointed to the eligibility criteria for the long-term equity asset class, the risk margin calculation and the valuation of insurers' liabilities.
In its Solvency II review package of September 2021, the Commission addressed all of these items. First, the Commission amended the long-term guarantee measures, in particular the volatility adjustment. This will improve how the framework mitigates the effects of short-term market volatility, in particular during crisis situations. In addition, the Commission announced that, as part of the forthcoming review of the Solvency II Delegated Act, it intends to revise the long-term equity asset class. By doing so, the Commission aims to make it easier for insurers to benefit from the preferential capital treatment on equity investments. Lastly, the Commission announced that it intends to revise the risk margin, to reduce both its size and its volatility, also as part of the forthcoming amendments to the Delegated Act.
- Council reached an agreement on its negotiating mandate in June 2022
- The Parliament's ECON committee adopted its report in July 2023
- Trilogues started on 19 September 2023