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The EU proposal
The EU proposes to establish, within the TTIP framework, a transparent, accountable and rule-based process which would commit the two parties to work together towards strengthening financial stability. The regulatory cooperation would be based on a number of principles:
These general principles would be backed up by specific arrangements for the governance of the EU-US regulatory cooperation, guidelines on equivalence assessments and commitments to exchange necessary and appropriate data between regulators.
The core element of the EU proposal is the commitment to outcome-based assessments of whether the other party's regulatory and supervisory framework is equivalent. This could potentially lead to mutual reliance on the rules of the other party. It should be stressed that the EU does not envisage each party making binding declarations of the equivalence of the other's entire regulatory and supervisory framework, but rather carrying out a detailed assessment of the consistency of the implementation of each standard.
This approach is fully in line with G20 commitments aimed at promoting transparent and continuously functioning financial markets. The G20 leaders’ declaration from September 2013 states with respect to trade in derivatives that “jurisdictions and regulators should be able to defer to each other when it is justified by the quality of their respective regulatory and enforcement regimes, based on similar outcomes, in a non-discriminatory way, paying due respect to home country regulation regimes". This approach allows the parties to respect each other’s regulatory models and legal traditions, without changing the existing legislation and without slowing down the current regulatory process. At the same time this approach can ensure, if certain conditions are met, that different rules can work together, provided that they are made consistent.
Under the EU proposal, regulators would still have the possibility to take the necessary measures to protect financial stability. Regulators and supervisors on both side of the Atlantic would keep the prerogative to take measures for prudential reasons. Regulators would only be bound by the principle of good cooperation and would need to take into account the potential impact of the rules on the other party when making a proposal. They would need to factor in the negative implications for the other party and explain the choices made if such implications were to remain in the final rule.
The aim of the EU proposal is not to negotiate within the TTIP on the substance of the international standards, on the on-going implementation of these standards or on other elements of on-going regulatory reforms (e.g. the Volcker rule, or rules on foreign banking organisations) that are being currently implemented. Discussions on these subjects may continue in parallel with, but outside of, the TTIP negotiations.
The EU proposal is forward looking and it aims to achieve consistent and high level of regulation across the Atlantic, on the basis of the internationally agreed standards. The new accountable regulatory cooperation framework, to be established by the TTIP, would provide the right setting in which to continue the joint EU/US work and dialogue on substance of financial regulations. Currently, both the EU and the US are similarly advanced in overhauling financial regulation in response to the crisis and are implementing the same set of standards. In fact, the pre-condition for the joint framework for enhanced regulatory cooperation is that both jurisdictions have equally robust financial regulation in place and that both jurisdictions work together to strengthen financial standards, not to weaken them. The EU is proposing this EU/US regulatory cooperation on the premise that the US shares the EU’s ambition to advance global regulatory reforms and that both parties will continue to implement high-quality regulatory standards.
The EU proposal offers the opportunity to lay the long-term foundations of an integrated and stable financial market. Without this framework, in a few years’ time, when the crisis has passed from memory, there is a risk that financial regulation could again be dominated by predominantly national considerations, leading once again to regulatory divergence and opening the door to financial instability.
Conclusion
The EU believes that it is in the interests of both the EU and US to agree within the TTIP on a framework for regulatory coherence in financial services. The benefits of transatlantic integration are clear:
Ombudsman welcomes greater transparency in international trade negotiations, 28.1.14
Letter from EP President Schulz to Ombudsman, 10.1.14
Insurance Europe comment, 28.1.14