EU finance ministers must embrace bank transparency
Transparency International EU calls on finance ministers to publicly state their support for greater bank transparency ahead of tomorrow’s crucial meeting that will finalise sweeping financial sector reforms.
Following last week’s breakthrough in negotiations between representatives of the European Parliament and national governments, EU-based banks will be required to publicly disclose information on profits, taxes paid, revenues, public subsidies and staff numbers on a country-by-country basis. Such reporting will provide a clearer picture of banks’ financial contribution to the countries where they operate and their use of low-tax jurisdictions. The deal needs to be formally endorsed by finance ministers before becoming law.
The proposals are a new addition to the EU legislation that will implement global banking reforms agreed by the G20 in 2009. It will be the first time that financial institutions are required to publicly disclose detailed financial information of this nature.
“The EU has an historic opportunity to lead the way on bank transparency”, said Jana Mittermaier, Director of the TI EU Office. “EU citizens know more than most the consequences of an opaque and unaccountable banking sector, where cross-border financial flows are shrouded in secrecy. This legislation will be a major step in making banks more answerable to the concerns of citizens and investors alike, particularly at a time when all are being asked to shoulder the burden of austerity. Finance ministers should be clear about their commitment to this standard of transparency and publicly voice their support”.
Research by Transparency International has shown the poor track-record of country-level disclosures in the financial sector. An assessment published last year of 24 of the largest financial firms globally showed that on average they scored 2.3% for country-by-country reporting (where 100% means full transparency). EU-based banks such as Lloyds and BNP Paribas scored 0%. Barclays - which reportedly has 390 subsidiaries located in tax havens - scored 0.8%. The results for all 24 firms can be seen here.
The proposed disclosure regime will come into effect in 2015 subject to a European Commission review that will assess the impact on the competitiveness of EU banks. Similar rules for the oil, gas, mining and logging sectors are currently under negotiation, with a final decision expected in the coming months. The US finalised its version of the rules for the extractive sector in August 2012, but an extension of country-by-country reporting requirements to other business sectors is not envisaged.
The Economic and Financial Affairs Council (ECOFIN) composed of Member State finance ministers will meet on Tuesday 5 March to agree the EU version of reforms to the global banking system agreed by G20 heads of state in 2009. The so-called “Basel III” rules impose minimum capital and liquidity standards on banks. The EU version of the rules also includes additional disclosure requirements and caps on remuneration not agreed at the global level.
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