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EU Commission: Changing the Financial Services Landscape Forever

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INTRODUCTION

I originally prepared this set of references as an aspect of some advisory work on the European Framework for Crisis Management in the Financial Sector. We published it as a note to my colleague's blog in that space. Immediately we have been advised of how useful this simple little list has been to others. That is what we are here for. Although visions of people standing over printers churning out our references fills me with horror. Nevertheless, I am promoting this little list which summarises what is going through the EU institutional decision making process right now, with two more ECOFINs to go before year end, the G20 kicking off today and I think it is one more full blown European Council remaining in the year (I am thankfully no wonk). Although the battles over the budget are taking priority in Justus Lipsius, right now; and believe me, they are, next on the priority hierarchy is Financial Services and this little list gives you an early heads up on the kind of legislative framework which defines the limits of your operating freedom in Financial Services for many years to come (it wont really change much from here);-

 

key EU regulatory reforms and their current planned implementation timeframes

REFERENCES

 

An EU Framework for Crisis Management in the Financial Sector

http://register.consilium.europa.eu/pdf/en/10/st15/st15375.en10.pdf

 

European Systemic Risk Board Proposal(s)

http://register.consilium.europa.eu/pdf/en/10/st12/st12815-re02.en10.pdf

http://register.consilium.europa.eu/pdf/en/10/st13/st13694.en10.pdf

 

European System of Financial Supervisors (European Supervisory Authorities)

http://register.consilium.europa.eu/pdf/en/10/st13/st13780.en10.pdf

 

Establishing a European Securities and Markets Authority (ESMA)

http://register.consilium.europa.eu/pdf/en/09/st16/st16751-re01.en09.pdf

 

OTC derivatives, (establishment of European) central counterparties and trade repositories

http://register.consilium.europa.eu/pdf/en/10/st13/st13917.en10.pdf

 

Report on the funding of the International Financial Reporting Standards Foundation (IFRSF):

http://register.consilium.europa.eu/pdf/en/10/st14/st14209.en10.pdf

 

Credit Rating Agencies (Regulation of)

http://register.consilium.europa.eu/pdf/en/10/st15/st15594.en10.pdf

 

Alternative Investment Fund Managers

http://register.consilium.europa.eu/pdf/en/10/st15/st15053-re01.en10.pdf

 

Enforcement Measures To Correct Excessive Macroeconomic Imbalances

http://register.consilium.europa.eu/pdf/en/10/st14/st14512.en10.pdf

 

PROCESS

Just in case you are not clear and we note from comments on our blogs that a lot of you are not clear; the decision making process in the EU institutions is roughly like this little process model below;-

Commission -> Parliament <-> Council -> "Ministerial" -> Law

Where "Ministerial" means committees like ECOFIN, there is an all encompassing committee just between Council and "Ministerial" where the Permanent Representations of the EU member states get to hack around with text and protocol but in the Financial Services domain it's the Commission experts and the lawyers who are in charge.

asymptotix taxandres

COMMENTS

I would make some brief notes on this process and content described above;-

  1. It is without question "unprecedented" in fact 'unprecedented' doesn't quite do it. The Systemic Risk Board (ESRB) is going to be an extremely powerful new "institution". We have argued here at asymptotix that it doesn't make sense to have the super-SPV, the Systemic Risk Board and the Crisis Management Framework all established as separate and different processes and entities. Particularly entities emasculated from interaction with the Capital Markets; see here; there is only one winner in that "nodal fragmentation" of authority, power and effort (never a good thing for effectiveness and the delight of bureaucracy, of course)!!
  2. ESMA is going to be, by far the most powerful of the ESAs; it has the greatest purview by a long chalk and one can see that in its remit over capital markets, ratings agencies etc etc that it is in fact going to be as much if not more of a banking supervisor than EBA. There is without question an imbalance there. So keep your eye on ESMA.
    1. One could argue that the strength of ESMA almost assumes that the utility/casino break-up argument has been won, which although there does seem to be a European consensus on that, amongst both the professionals and the politicians; actually that debate has not started with minute takers in the room yet; that's for next year.
  3. Transparency in Financial Institutions cannot be achieved if the standards are so arcane that even a profession cannot get its head around the requirements. That seems to me to be a 'no brainer". The ultimate goal of these Commission initiatives should be to restore Transparency to Financial Markets and Banking. That objective should be, if not to eliminate permanently systemic risk then to make it so transparent that informed investors can act without asymmetric disadvantage when making fully rationally informed decisions about capital deployment. Right? But the Commission manages a process where the EU promulgates CAD4 whilst it also supports (funds) IFRSF. Are these standards aligned? No! Does anyone really understand IFRS9?
    1. Is it really possible right now for institutions to ensure their own compliance with requirements of the Transparency objective when there are potentially several road maps of confusing and conflicting rules and regulations which not even the regulators themselves consider coherent once properly compared and considered for impact?

CONCLUSION

It does appear to be a consistent theme in this tsunami of institutional and legislative constraint upon the playing field of financial services in Europe for eons to come, that the people developing these rules and instructions have never been in a Financial Institution in their lives, never mind worked in one. They have never lived through the process model of a single trade in a single security it seems to me. They may have attended committee meetings where representatives of the great European and UK financial institutions paid polite lip-service to their questions but that is not the same thing as actually being in a Credit Department, preparing a set of accounts or trading a Convertible Bond for a High Income fund.

This jurisprudential onslaught is castles in the air until it is engaged with by the institutions of the European and UK financial services industry. They will be ready for this.

It would be far better on the side of those promulgating this worthy corset of constraint for you to be advised in the inevitable multi-step game theoretic by some real expertise, some poacher turned game-keeper, for without that, how can you find the practical path to the righteousness and enlightenment of your transparency objective?

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