|
|
Where do we stand on financial regulation?
The three new European supervisory authorities for banks, financial markets and insurance and pensions started working on the 1st of January. Beyond supervision, the agenda aims to achieve four main objectives:
First objective: reinforcing stability and improving the governance of financial institutions
For banks, the EC proposed in July to increase capital and liquidity requirements in compliance with Basel III. Capital requirements will also become stricter, more precise and more risk-sensitive for insurance, with the "Solvency II" Directive taking effect in 2013. Measures were also agreed for hedge funds who will now be obliged to act in a more transparent way.
On credit rating agencies, the first regulation did not go far enough. In a few weeks, the Commission will table a proposal addressing outstanding issues: over-reliance on ratings, conflicts of interest, the lack of competition and the specificities of rating sovereign debts.
Second objective: improving financial markets' effectiveness, integrity and transparency
MiFID will regulate new trading venues and technological developments, such as high frequency trading. It will also address excessive price volatility in commodity derivatives markets, an issue that is being discussed in Cannes today. Finally, the proposals on Market Abuse will help better prevent, detect and punish market manipulation and insider dealing.
Third objective: restoring confidence in the financial sector by enhancing consumers' and investors' protection
On this, there are 5 initiatives:
Fourth objective: a framework for crisis resolution in Europe
This is perhaps the most important piece of the jigsaw puzzle. Since 2008, Member States have massively supported the banks. €4,600 billion have been committed to the financial sector, either through direct funding or guarantees. But the financial sector can no longer be underwritten by taxpayers. Taxpayers cannot and should not have to tolerate such a burden again. Our new framework will equip supervisory authorities with the tools to prevent and manage banking crises.
Barnier gave one last word as a reminder that financial regulation alone is not enough, saying he also has responsibility for the Single Market and that there are real opportunities there for more growth. The UK economy’s trade with the EU remains multiples higher than with the USA or any other trading partner But to exploit this potential, the economy needs to be based on a sound and healthy financial system.
Barnier said he was confident that new rules will allow the financial sector once again to fulfil its role of financing the real economy. On all these issues, he said he was fully aware of the criticisms he faces, e.g.: “You’re undermining the City of London’s competitiveness.” “You’re trying to promote Paris and Frankfurt over London”.