EU banks face strict transparency rules

By Alex Barker and James Fontanella-Khan in Brussels

European banks are facing the threat of having to reveal their taxes and profits on a country-by-country basis in the latest twist to the EU negotiations over rules to make banks safer. 

The European parliament is pressing for the tougher disclosure regime along with a demand for strict curbs on bankers’ bonusesas part of the law implementing the Basel III international accord.

While the demanding transparency requirements have the full support of the European Commission, EU member states are largely resisting the initiative, introduced into the overhaul of bank capital rules.

Under the proposal, Barclays, for instance, would be required to publish its profits and taxes in every national jurisdiction – from the UK to Zimbabwe.

Banks are worried that the requirements – which would upend their bookkeeping practices and leave them vulnerable to public pressure over taxes – could be passed in the final haggling over the law.

EU member states and the parliament had been cautiously optimistic of a reaching a deal on the law on Tuesday, after more than 30 negotiating sessions. However, talks broke down over issues including bonuses and the disclosure regime. Fresh talks are scheduled for next week. 

Ireland, which holds the rotating EU presidency and is spearheading the talks, floated options that yielded to parliament’s demand for a bonus cap while revising the conditions to introduce more flexibility. These included raising the maximum ratio to 3:1 or partially exempting bail-in bonds, which are written down when a bank fails.

Parliament was open to discussing some technical details – including the role of shareholders – but insisted on a 1:1 cap, which could be raised to 2:1 with shareholder approval. 

MEPs argue that the transparency requirements for banks are fully in line with the French, German and British demands – made at a G20 meeting in Moscow over the weekend – to crack down on tax avoidance by multinational groups.

Member states are concerned that the requirements are unworkable and argue that such rules would be better dealt with in talks on a separate directive on accounting, which applies similar transparency rules to energy and mining groups. 

Philippe Lamberts, a Green MEP, made it clear that extra disclosure was a condition of the deal for the parliament and challenged finance ministers to defend their publicly case for less bank transparency. 

Mr Lamberts described a tentative offer of a future review to see whether the transparency rules should apply to banks as “an insult to lawmakers and citizens”.

Sharon Bowles, the chair of the parliamentary committee involved, said the disclosure rules were “quite modest” for an industry at the “heart of the economy”. 

“If the council can’t support them then they have something to hide,” she said.

The MEPs have the support of Michel Barnier, the EU commissioner responsible for the reforms. “I fully support the European parliament in wanting to impose transparency requirements for banks by country, for taxes paid, profits and state aid received.”

The move follows a damning report by the OECD that revealed how large companies were country-hopping to pay the least possible amount in taxes. 

In the UK the government has been under mounting pressure to tackle multinational tax avoidance since it emerged that US companies such as Starbucks, Apple and Amazon had set up intricate transaction mechanisms to reduce their tax bills virtually to zero.  Copyright The Financial Times Limited 2013.