months, the European Parliament once again opened their doors to a
dialogue about the state of European financial services. With a series
of presentations and top-notch speakers, we review:
- “The implications for EU integration of globalised financial services”
- “Can the EU legislative framework cope with cross-border developments, worldwide competition and market strains?”
- “Perspectives and Priorities for the EU Banking and Financial Services Industry”
- “What focus for EU securities infrastructure in today’s globalised financial markets?”
- “What are the key challenges and trends for Europe’s retail payment systems?”
- “SEPA: for a sustainable and balanced business case”
and so on.
enough, SEPA does not spell “Sustainable And Balanced Business Case”
(SABBS?), so maybe that last session should have been called “SEPA: for
a Single Euro Payment Already” as it is about to start in less than a
month. On that subject, I’ve just finished editing 35 chapters all
about Europe after SEPA for a book coming out in March 2008 … watch
Anyways, back to the European Parliamentary debate. Speakers included:
- Charlie McCreevy, European Commissioner for the Internal Market and Services
- Neelie Kross, European Commissioner for Competition
- David Wright, Director, DG Internal Market and Services, European Commission
- David Vegara, Spanish Secretary of State for Economic Affairs
- Fernando Teixeira dos Santos, Portuguese Minster of Finance
- Tommaso Padoa-Schioppa, Italian Minister of Economy and Finance
- Henri de Castries, Chairman and CEO of AXA Group
- Elizabeth Corley, CEO, Allianz Global Investors Europe
- Georges Pauget, CEO, Credit Agricole
- Jean-Claude Trichet, President of the ECB
- William Cruger, Managing Director, JPMorgan
- Jean-Francois Theodore, Deputy CEO, NYSE Euronext
… you get the idea.
is pretty heavy duty stuff and will form the basis of this week’s
blogging so – for those who have no interest in Basel II, Solvency II,
the PSD and SEPA, MiFID, Multilateral Interchange Fees and such like –
I’m sorry. This week’s blog will be pretty dull, although I’m sure
I’ll be able to find ways to liven it up. For example, the question
from the Italian consultant to the French politician: " ‘Ow coma, yua
never implementeded alla of zee laws of competition? " to which the
French politician replied, "Qu’est-ce vous direz? Je ne comprend
pas." (loosely translates to "Stop talking rubbish and get lost").
So I was pleased to see they included a repeat of the session: “Should Europe have a single regulator”.
year, they increased the panel from six speakers to eleven. It just
shows what a critical question this is. So the panel comprised
keynotes from Tommaso Padoa-Schioppa, Italian Minister of Economy and
Finance, and Jean-Claude Trichet, President of the ECB.
This was followed by a debate with:
- Edmond Alphandery, Chairman, CNP Assurances;
- Jorgen Homquist, Director General, DG Internal Market and Services, European Commission;
- Sir Callum McCarthy, Chairman, the Financial Services Authority (FSA);
- Daniele Nouy, Chairwoman, Committee of European Banking Supervisors (CEBS);
- Michel Pebereau, Chairman, BNP Paribas;
Steffen, Chairman, Committee of European Insurance and Occupational
Pensions Supervisors (CEIOPS); and last, but not least,
- Eddy Wymeersch, Chairman, Committee of European Securities Regulators (CESR).
of the key Lamfalussy European supervisory bodies in attendance: CEBS,
CESR and CEIOPS, meant that this would be a strong debate … or so I
Instead, what came about was more of a love-in than a
punch-up. I guess the shell-shocked markets of Europe, recovering from
the US sub-prime credit crisis, feel more inclined towards stronger
regulation than ever before, although that was not what was being
In fact, it was more to do with convergence of regulatory and supervisory bodies through cooperation and coordination.
For example, the first keynote from the Italian Minster of Economy and Finance, Tommaso, began with the opening lines:
I join the committee looking at the effectiveness of the Lamfalussy
process for better regulation, as it has been seven years since its
launch in 2000. Our conclusion should be a simple one. I am going to
recommend the European Commission to instruct the relevant committees
to deliver over a short-term horizon, as in during 2008’s French
presidency), two results:
- to reach the point of having a single manual of rules applicable to all supervised institutions in the EU; and
- to have an integrated supervision for institutions that are in more than one EU member state.
is the spirit of Lamfalussy, although it does require some changes to
EU national laws. We need these two results urgently because
multinational European institutions are subject to a very heavy
regulatory burden, which is far heavier than if there were a single
manual of rules. Also, this manual of rules regarding transparency and
investor protection has failed, because of the fragmentation and
diversity across countries.
“The result is that we have paid a very high price for a very poor outcome.”
Tommaso was followed by Jean-Claude Trichet of the ECB who had two basic messages and three recommendations for the future.
His two basic messages were:
EU regulatory and supervisory framework needs to promote more movement
to a single market whilst ensuring stability of the core system. The
Eurosystem is convinced the EU framework will meet these challenges
only if the requirements for local practices are reduced to the
minimum, in other words nothing.
needs to be an adequate institution to manage greater integration of
regulation and implementation and this needs cross-border coordination
at a centralised level for convergence to occur.
And Jean-Claude’s three recommendations were:
the role and operating mechanisms of the Committee of European Banking
Supervisors (CEBS). The current regime of a consortium of national
supervisors does not work, and CEBS needs to be bolstered to be a full
part of the L3 committees (the Committee of European Insurance and
Occupational Pensions Supervisors, CEIOPS, and the Committee of
European Securities Regulators, CESR) to create greater EU cross-border
convergence and cooperation.
the level of regulatory convergence as progress is a key issue,
especially in the banking sector where most EU rules, apart from the
Capital Requirements Directive (CRD), were adopted before the
Lamfalussy process started. Even then, the CRD has a lot of
differences in each member state and progress needs to be made towards
more consistent EU banking rules. Regulatory convergence should be
further enhanced through supervisory convergence via CEBS.
arrangements for cross-border information sharing and cooperation for
banks in the EU should be further enhanced. The cross-border
cooperation between supervisors and National Central Banks (NCBs)
should be further strengthened in preparedness for any further
After these two keynotes
was a long-ranging two and a half hour discussion amongst the other
panellists. I think Callum McCarthy gave the most succinct summary of
“Here are the things upon which I think all
the speakers can agree. First, regulation imposes costs on firms in
the financial industry, so the regulation should be properly targeted,
effectively administrated and that avoids duplication. We don’t
currently achieve that. Second, supervisors managing cross-border
institutions need to collaborate as much as possible to control risk
and avoid costs. Third, we need regulatory structures that support
convergence. Fourth, the Lamfalussy process today does need
On the last point, this is why there’s a
Lamfalussy in-depth review taking place right now … this is the one
that Tommaso referred to in his opening words.
clear during the discussions is that there are still very conflicting
views as to what is required, with three different sorts of European
regulatory regime envisaged.
First, there is a view of a
central policymaker at European Commission level with national
regulators acting as administrators and policing the policies. This is
the one that liaises with the SEC in the USA, as well as Japan, China,
India and others. This is the one name-checked in the EC presentation
last week, where the Commission made it clear that they are working
with the G7 and SEC to allow mutual recognition for firms to passport
operations into each other’s geographies under the host regulator
acting at a regional operational level. For example, Bank of America’s
investment operations may be managed under a home regulator, the SEC,
with host supervision through the European Commission’s CESR or other
body. However, this does not work because some countries have more at
stake than others. For example, 80% of European UCITS are sold through
Luxembourg and Ireland; equities are primarily traded through three
exchanges; and so forth. Therefore, you should naturally turn to the
regulator with the most experience and knowledge of the financial
Therefore, a second view is that there should be lead
regulators, who are the lead regulator of the operators’ home state.
This is the approach being taken by CESR for MiFID but, as Callum
McCarthy pointed out, you can then end up with 27 lead regulators and
equally, some nations do not like the idea of being secondary to a
lead. So what do you do? Well you go for the third view, and this is
the one that everyone seems to have agreed to follow.
third view says that you work together in a consensual fashion, with
lots of convergence through committee based upon majority voting.
Where a nation’s regulator wants to follow a different course of action
to that agreed by the majority they have to publicly explain why. If
their explanation is not solid or justified, then they are publicly
named and shamed.
This final example is the one that CEBS,
CESR and CEIOPS appear to agree upon, as does the ECB and EC, so this
is the one they are going to follow.
It basically says there’s
central rule-making but local application. The focus is on the
principles-based spirit of what is trying to be achieved, with a focus
upon the outcomes – the market practices and operations – rather than
the detail and the application. In other words, you can have local
market differences but only to the extent that they do not materially
alter the spirit of what is being required.
On that note, the best question of the day had to be from the audience member from the Bank of Italy (the Italians win for me every time),
who asked: “Could the panel please tell me what they are converging
towards, how they define moral hazard in this context and how their
efforts will ensure we manage moral hazard out of the markets?”
was the best question because (a) it cuts to the heart of why
committee-based consensus does not work, (b) no-one on the panel wanted
to answer it, and (c) everyone gets nervous when an Italian starts
talking about moral hazards.