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Graham Bishop’s Overview
The situation in Greece continued to dominate financial markets – but as an economic issue, and not yet as a regulatory problem. The European Council announced its full support for Greece but conditional on “their commitment to do whatever is necessary”. As details of the exposure of European banks to Greek debt unfold, then any failure by Greece to meet these conditions is likely to trigger another profound “regulatory” debate.
But the current debate is far from complete as the EP’s ECON Committee wants a bigger transfer of powers for European supervisory agencies than the Commission’s proposal. All four EP rapporteurs questioned the Council compromise that emerged from December's ECOFIN meeting. The safeguard clause protecting member states' fiscal powers, which the rapporteurs consider over-restrictive, was the major bone of contention. Although willing to preserve the four separate bodies, the rapporteurs suggest grouping them together under the European System of Financial Supervision and that a common location should be chosen - Frankfurt.
Commission President Barroso argued that the De Larosière Group’s ideas shaped the direction of the G20 work and the EU set the global standard for the ambitious reform needed in supervisory structures. But my visit to Tokyo made me realise that that some devils may leap out of the detail of implementing G20 recommendations in Japan. The recently-elected Japanese Government may be more forceful in G20 negotiations in areas of technical detail if Japan’s interests are divergent. So it is too early to assume that the G20 process will glide to a smooth set of global standards.
Indeed, the ideological underpinnings of the liberalization of financial markets over the last two decades were publicly challenged by the FSA’s Lord Turner and he even raised the issues of taxes to put “sand in the wheels” of speculation. That idea was echoed in calls from both ECON and Japan.
Turning to technical details, the ECON Committee exchanged views on CRD III – and underlined the need for a clear timeline for CRD II, III and IV. They also discussed cross-border crisis management in the banking sector and CEBS commented on an EU framework for cross-border crisis management in the banking sector, believing that a common set of tools should be coupled with an enhanced cooperation framework between competent authorities.
ECON also reviewed the derivatives market and underscored the need to maximize the use of central clearing – in complete agreement with the Commission. Commodities speculation is one priority for the Commission and they are closely working with DG agriculture to better understand the challenges. The Council has already established working groups on derivatives and the Commission is preparing workshops with experts in order to have an exchange of views and understand what the industry needs. ECON later published its OTC draft report - broadly endorsing the Commission's proposals and recommending that ESMA should be competent for the approval of the central clearing houses in the European Union and from third countries.
CEIOPS published its final advice on Solvency II Level 2 implementing measures and considers that the level of confidence provided for in the Level 1 text needs to be ensured by the calibrations for most Solvency II risk modules. CEIOPS received 6,856 comments from 126 stakeholders and the FT reported that the strongest reaction came from UK life assurers
The FSA reported on assessing possible sources of systemic risk from hedge funds and concluded that, in late 2009, major hedge funds did not pose a potentially destabilising risk across the surveyed banks. The data showed a relatively low level of ‘leverage’ and suggested a contained level of risk from hedge funds at that time. IOSCO published a systemic risk data requirements template for hedge funds to facilitate international supervisory cooperation in identifying possible systemic risks in this sector.
The Spanish Presidency published its second compromise text on AIFMD but AIMA warned of a protectionist provision from re-instating Article 35 that requires non-EU based managers’ regulator to co-operate with those in the EU. ECON Committee Chair Sharon Bowles commented that “my Committee has tabled over 2000 amendments. With this in mind, I remain optimistic that we will improve the Directive”.
Accounting and governance issues continue to generate much heated debate: The FT reported that the IASB was softening its position on convergence but Gerrit Zalm immediately fired back that “Nothing could be further from the truth.” In the UK, the NAPF launched “Putting a stronger corporate governance culture into practice” to assist UK pension funds to play their part and Lord Myners said that “No-one wants corporations, run by senior executives in their own interest rather than in the interests of shareholders.”
Commissioner Almunia laid out his vision for competition policy in Europe: fighting against cartels, preventing dominant companies from abusing their market power in any sector or any country in Europe, and maintaining a rigorous scrutiny of proposed mergers. As regards state aid control, he stressed that the most pressing issue is to manage the financial crisis and its impact, but he will also examine to what extent it is possible to streamline state aid control procedures.