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Graham Bishop’s Personal Overview.
The year opened with an event that is likely to reverberate for some time: the Macquarie-led consortium issued its formal bid documents for the London Stock Exchange. However, the head of the NYSE is now reported to be expecting his exchange to play a "leadership role" in the consolidation of world stock exchanges. But a satisfactory solution to the competition issues raised by clearing and settlement barriers may be the biggest roadblock.
Supervision and regulation seem to be the perennial topics underlying much of the debate on re-structuring the EU's financial sevices industry. The Austrian and Finnish Presidencies published their joint work programme for 2006. At one level, the revived quest for a solution to the problem of the marooned Constitutional Treaty seems remote from finance, but the comitology process is an essential ingredient in the Lamfalussy Process to bring faster, more efficient change to financila legislation and that mey be undermined without that solution.
At a more technical level, the Presidencies have committed to reviewing crisis management arrangements. In particular, that means reviewing the legal foundations of deposit guarantee schemes. But that takes the EU into very sensitive areas for the public purse in possible bank bail-outs.
The lead regulator issue for banks is now constrained by the newly-enacted Capital Requirements Directive and CEBS Guidelines for cross-border supervision are based on information sharing, consultation on supervisory action, on joint model validation under the lead of the consolidating supervisor and more generally on written arrangements for co-ordination and co-operation between home and host supervisors.
But the Insurance industry seems to be learning the lesson and moving swiftly to put this fully on its agenda for Solvency II. The documents submitted ahead of CEIOPS public hearing included powerful call for a lead supervisor concept from both the CEA and ABI, as well as the Chief Risk Officers Forum (representing Europe's largest insurers) and the mutual/co-operative insurers.
In a pre-Christmas speech, Commissioner McCreevy set out the new doctrine on level 2 measures. The bulk of them will take the form of Regulations (as recommended by the Inter-Institutional Monitoring Group in its 2003/2004 reports, after a thorough review of the pros and cons). The objective is clear - to ensure that the direct implementation into national law is not subjected to considerable variations. However, the Association of German Banks (BDB) has responded with a call for "Directives where necessary, regulation where possible" as even the provisions of a Regulation have to be subject to legal interpretation.
Amidst the discussion of new proposals, it is welcome to recognise a Commission decision not to legislate. This was contained in its Communication setting out its approach to credit rating agencies (CRAs) and, in line with CESR's advice, the Commission will not present new legislative proposals. It states that it is confident that the existing financial services Directives applicable to CRAs - combined with self-regulation on the basisi of the newly adopted International Organisation of Securities Commissions (IOSCO) Code - will provide an answer to all the major issues of concern raised by the European Parliament.
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Graham Bishop