27 November 2007

November 2007

Graham Bishop's Personal Overview

EU financial markets may still be reeling from the ripples that have spread from problems in the US but efforts continue unabated to move towards a genuine single financial system – while reflecting upon any lessons that need to be learnt. So the Commission announced a series of concrete policy initiatives to modernise Europe’s single market and these include further integration of retail financial services markets.
If the example of the Consumer Credit Directive is any thing to go by, this will continue to be a struggle. In IMCO, Rapporteur Lechner pointed to the 236 amendments currently made to the draft proposal but remained optimistic about finding a solution despite serious opposition and Council is concerned that Parliament is diverging from its Common Position. But it seems that an internal "spat" within the European Commission is causing further delays to a ruling on interchange fees charged by card operator MasterCard, raising fears that the uncertainty could hinder the launch of SEPA in January. That might damage the prospects for Juniper Research’s forecast that the popularity of mobile payments is set to rocket over the next few years, with the world-wide value of the market rising from $77.6 million in 2007 to $11.5 billion in 2011.
The European Commission's forthcoming White Paper on Mortgage Credit seems set to reveal plans for new regulations on early repayment, pre-contractual information and the APR - contrary to the expectation that banks would get off lightly in the new policy document. The UK’s Council of Mortgage Lenders has called for an integrated European mortgage market that offers the same products at the same prices in different European countries.
The Commission presented its review of the Lamfalussy process and concluded that although the process has broadly met its overall objectives, important changes are required, in particular, to the Level 3 Committees but rejected either more ad-hoc institutional changes or a radical regulatory revolution. The “Commission decisions” that set up the Level 3 Committees no longer sufficiently reflect their importance in an increasingly integrated European financial market. Possible options include modifying the Level 3 Committees’ current legal framework to align their functions for inter-sectoral convergence and consistency, and modification of the relevant Level 1 directives to significantly strengthen co-operation requirements and to enhance the supervisory competences of the three Level 3 Committees.
Cross-border group supervision and convergence in the EU supervisory system would be significantly enhanced by the existence of colleges of supervisors of specific cross border firms but that would need legal underpinning in EU Directives. During November, both CEBS and CEIOPS published calls for greater legal clarity, though CEIOPS went further as “It goes without saying that these questions touch on basic responsibilities and the balance between the European Union and its Member States, including a possible delegation of national tasks …They are therefore highly political, rather than technical.”
At a GrahamBishop.com seminar on these issues, significant support emerged for use of majority voting (probably QMV) when the Committees are giving technical advice and even the UK’s Treasury/FSA paper said (somewhat delphically) that it “could be used to expedite business”. The paper even suggested “further use of delegation of, or sharing of, supervisory tasks” but the UK rejected any pan-European regulator for financial services.
MiFID finally arrived – with threats from the Commission to take tough action against States that fail to implement in full. Indeed. it launched infringement procedures on the Transparency Directive. CESR announced that its network of transaction reporting systems (TREM) was working by the deadline – though describing it as a miracle. The full implications of MiFID will take several years to come through but a new study from Aite expects to see a rapid pick-up of MTF adoption in the European market, with MTFs taking 20% of European trading volume.
However, the tectonic plates seem to be shifting quite rapidly now: Turquoise has continued with senior staff appointments and inter-dealer broker Icap plans to establish an exchange-based business in Europe and says it has applied to the UK's FSA to be a regulated market under MiFID. NYSE Euronext announced a partnerships with banks to revitalise the trading of big blocks of shares on both sides of the Atlantic, as well as the creation, with BNP Paribas and HSBC, of Smart Pool, a platform that will facilitate the trading of large blocks of shares in a single company.
ECON member Skinner (and Rapporteur for Solvency II) warned that the project has to be finished by next year “before the change of mandate after the European parliamentary elections in 2009.” This has only added to the alarm in the pension fund world about the implications if it is applied directly to DB funds. Renowned commentator David Blake said Solvency II "will kill DB plans" and the EFRP has voiced its concern about the proposal. However, there are now Press reports that it may not be adopted for pension funds after all, as CEIOPS has set up a steering committee to deal with solvency issues for pension funds.
Walker’s final guidelines on private equity transparency were published and firms will need to publish an annual review to include enhanced disclosures, or provide regular website updates to show the same information.
The SEC agreed that foreign private issuers’ accounts will be accepted without reconciliation to U.S. GAAP - but only if they are prepared using IFRS as issued by the IASB, thus encouraging the development of IFRS as a uniform global standard. Commissioner McCreevy expressed optimism about the prospects for “friction-free transatlantic capital markets”, in part because of the measures to enhance the transparency and due process of the IASB’s standard-setting process. This is part of a broader strategy to ensure that the IASB’s standards can be fully endorsed in the EU.

Graham Bishop

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