Politics

DCGK wants a higher female quota

The German Corporate Governance Commission (DCGK) fleshed out its existing diversity recommendation for German supervisory boards more at its plenary session on 26 May. The proportion of women and international representatives on German supervisory boards should be sustainably increased. Thus, a supervisory board should in future set specific targets for its composition that should lead to more diversity and a higher proportion of women. The supervisory board’s proposals to the AGM should take account of these targets. The DCGK further recommends in future disclosing the supervisory board’s specific target and progress on reaching it in the corporate-governance section of the business report. At the same time, the Commission made a recommendation to boards that in filling executive functions in future it should pay attention to diversity and aim at involving more women. Also newly laid down in the Code are provisions that supervisory board members should undertake the necessary training and refresher courses needed for their tasks on their own responsibility. In the existing Code recommendation to supervisory board members not to take more than three appointments, appointments with unlisted companies that comparable demands on members will in future also count.

Activism against short-selling

The Federal Institute for Financial Services Oversight (BaFin) in mid May, surprisingly and with no prior coordination with its European partners, banned short-selling in Germany. Initially, BaFin banned naked short-selling by ten German financial groups including Allianz and Deutsche Bank, as also sovereign Credit Default Swaps (CDSs) on Euro-zone States and naked short-selling of Euro-zone government securities. Once the euro’s fall has stopped and the first attacks on the German manoeuvre have died away, Finance Minister Schäuble is planning to extend the ban to all naked short-selling of shares on the regulated market and of currency derivatives on the Euro that are not being used to hedge real transactions. Additionally, according to the draft, there will also be a ban on euro currency derivatives. Through increased disclosure thresholds, Schäuble also wants to prevent investors from secretly creeping up on firms in takeovers. Schäuble’s bill is to be decided in cabinet in June.

Horse-trading over transaction tax

If things go as Finance Minister Wolfgang Schäuble (CDU) wants, the G20 meeting in June in Toronto, Canada, should mark a turning towards introduction of a worldwide transaction tax, imposing a levy on trading in shares, derivatives and bonds. If, however, Canada, Brazil and Australia continue to oppose this tax on stock-exchange transactions, so that there cannot be an international arrangement, then Germany’s Finance Minister will alternatively look for a European solution. Accordingly Schäuble, by contrast with Angela Merkel and Jean-Claude Juncker, who heads the group of Euro-area finance ministers, is initially aiming at worldwide taxation of transactions. Juncker had announced in mid May that all sixteen Euro countries were basically agreed on introducing a stock-exchange turnover tax and were thus also paving the way for a possible European solution without the US. Merkel too seems to have laid aside any belief in a worldwide arrangement, relying instead on the International Monetary Fund, which, like Merkel, prefers a tax on financial-market activities. It would tax the bonuses and salary payments of bankers. In the course of negotiations over support for the euro, Merkel was able to get the Liberals on board for the introduction of a global or at least Europe-wide tax – whether in the form of a tax on financial transactions or on financial activities. The German government wants to use this new tax to make the financial industry take a share of the cost of the financial crisis, additionally to the bank levy.

Bank levy takes shape

The German government wants banks to be involved in the rescue costs resulting from the financial crisis. Alongside a tax, of whatever form, financial institutions are according to a cabinet resolution to be asked to pay a bank levy, depending on their systemic risk. The financial institutions are to pay this into a fund of the Financial Market Stabilization Institution (FMSA). This is to be run by bank rescue fund SoFFin, and collect up to €1.2bn a year. Criticisms are coming in from the German cooperative banks, who point out that they neither caused nor benefited from the governmental rescue measures, so that they ought to be spared. The Federal Association of German Cooperative and Raiffeisen Banks (BVR) is threatening if necessary to go to court against any such levy. The insurance industry too has called for exemption of insurance firms and pension funds from the levy.

In a paper, EU Commissioner Michel Barnier has called on EU States to set up a national rescue fund. This would be fed from the compulsory levies on banks. Barnier wishes in this way to create uniform minimum standards within the EU for a bank levy and national rescue fund, thus avoiding the risk of distortions of competition among European countries. According to Barnier’s ideas, the bank rescue fund should be separate from the national budget and not mixed with deposit guarantee funds, which should remain reserved to savers alone. The funds precise tasks, as well as what assessment basis should apply, are points left open in the paper. The proposals are to be discussed at the EU summit in mid-June and to lead to detailed proposals in autumn.

Resistance to EU banking oversight

In Strasbourg a conflict is growing between the European Parliament and three Member States, Germany, Britain and France, over banking oversight. MEPs called in a draft agreed among various political groups that border-crossing institutions should contribute to a European bank rescue fund and be directly subject to a new EU oversight body to be set up. The national authorities for banks, insurers and stock exchanges would on this model henceforth just work under the European authority, giving up their powers. In disputed cases, the EU authority would have the last word and be able to give the institutions instructions directly. The new European fund would then step in to rescue the institutions in crisis cases. Britain, Germany, and also France, are sceptical as regards such intervention rights for the EU and do not want to see the powers of their national oversight authorities clipped. In late 2009 the EU had also drawn up a safeguard clause. According to this, EU decisions would not apply if a national government’s currency was affected. Parliament now wishes to build in high hurdles against this suspension of EU decisions, with the objective of making it very hard for States in future to keep themselves free of crisis management by the EU watchdogs.

European corporate governance for banks

Just as banking oversight is to made to be made uniform Europe-wide, EU internal-market Commissioner Michel Barnier is now also advocating harmonizing corporate governance rules for banks and insurance companies Europe wide. In a green paper he wishes to present in early June, the French Commissioner warns that many Supervisory Boards had not understood risky products from their companies and thus slivered blindly into the crisis, as Financial Times Deutschland (FTD) writes. To guarantee that in future Supervisory Board members will be able to get a better grip of the matter in future, they are not to be allowed to take more than three appointments. Supervisory Boards are to set up specialized risk committees which may also, at the bank’s expense, call in external advice. For investments decisions, a veto right should be reserved for the Chief Risk Officer. According to Barnier’s ideas, institutional investors are in future to disclose their voting behaviour. Auditors are additionally to check important indicators such as a bank’s or insurance company’s capital ratio. Interested parties are to be able to state positions on Barnier’s proposals through mid-August. Then decisions will be taken on possible legislative initiatives.

Tighter rules for real-estate funds

Finance Minister Wolfgang Schäuble wants to radically change the business model of open real-estate funds in future. With a minimum holding period of two years and a notice period of six to 24 months, investments in open real-estate funds would in future no longer be available daily. Additionally, the funds are to take back shares only twice a year in future, and to evaluate their properties every six months, not every twelve as hitherto. Furthermore, the Federal Institution for Financial Services Oversight (BaFin) is to audit prospectuses henceforth economically and not merely formally as hitherto, putting the funds on the same basis as shares and bringing them under the Securities Trading Act. With this bill, Schäuble is reacting to closed real-estate funds’ liquidity problems during the financial crisis. The Bundestag will discuss the bill in September.