29 November 2005

November 2005

Graham Bishop’s Personal Overview.

The Commission’s White Paper on financial services policy for the remainder of this decade should now be imminent but it is far from certain that it will settle all the issues. In particular, the debate about the future shape of regulation of the industry seems to be gathering pace rapidly. Moreover, it is spreading to include the insurance industry and deepening to reflect the technical details that would need to be resolved as part of any move towards any European-level regulation.

The White Paper should also tackle the issue of scheduling legislative action in the remainder of this Commission/Parliament’s term. Memories may already be fading about the crush of events in the twilight of the previous legislative term but the same is likely to happen again. Contentious issues had to achieve political agreement in Council by the October preceding the EP elections in the following June. So the books will close in the autumn of 2008. As an example, the proposal to remove the “Fazio factor” from Art 16 of the Codified Banking Directive will only appear in summer 2006 so the window for change may be modest. Any Clearing and Settlement Directive could be even more vulnerable to delay.

The reverberations of the US decision to delay implementation of Basel II continue to build as Senator Sarbanes warned that Congress might still stop it being applied in the US. The European Commission negotiated with the Federal Reserve Board on the assumption that it had a political mandate to agree. So there is some question as to why the Washington antennae of both Commission and Member States failed to pick up this potential blow to the blossoming trans-Atlantic relationship.
The Asset Management Green Paper also provoked significant reactions. The ECON Hearing opened up the discussion to public debate and CESR felt there are limits to what can be achieved by changing the existing directive. But the UK’s IMA strongly supported the Commission’s push to open up the market while two other trade bodies – the co-operative banks and Germany’s ZKA – felt that there was little need for further change in key areas.

Returning to the main theme of the month – “lead” regulation: will the White Paper clarify the path forward? Probably not – because the issues are beginning to get much more attention and become even more political. Yet the political wish to see more cross-border integration remains clear, bringing closer the need to grapple with cross-border regulation. The 8 November ECOFIN Conclusions laid it out clearly – again – noting “the Commission study into the obstacles to cross-border consolidation in the financial services sector and ENCOURAGES further discussion on these issues in 2006.”

The supervisors are already busy enhancing co-operation and regulatory convergence in the EU. All Level Three committees have signed an agreement which will see them sharing more information and trying to align their operating procedures more closely. Its practical objectives are to share and exchange information which will facilitate their ability to co-operate, to ensure that the basic functioning of the three committees develops along parallel lines, to reduce supervisory burdens and streamline processes and exchange experience which can facilitate supervisors’ ability to co-operate.

Meanwhile the European Shadow Financial Regulatory Committee (ESFRC) has challenged the view of the leading large European banks who favour a move towards a single European large bank supervisor. In a statement entitled "Reforming Banking Supervision in Europe" the ESFRC says that this is currently not feasible mainly because deposit insurance and bail outs are the responsibility of the EU national Member States. However, the Committee advocates the setting-up of a European Banking Oversight Board as an independent institution. So the guarantee aspect is a crucial component and is already under examination –with a recent CEBS advice to the Commission and a Commission report on the existing systems.

The insurance industry may find that CEIOPS has already pushed them down the road of a “lead” regulator – at least for companies operating cross-border. Could the corollary be insurance guarantee schemes? The Comité Européen des Assurances (CEA) has started arguing against this idea almost before it has surfaced.

A politically-charged debate seems to be getting underway.

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Graham Bishop

© Graham Bishop