Significant changes to the international supervisory system and regulatory regime were underlined as major factors affecting practitioners’ operations.
Prof. Eddy Wymeersch, chairman of the European Corporate Governance Institute and of the Public Interest Oversight Board, outlined the difference between regulation and supervision – the first was about rule-making, influencing behaviour and enforcement, the second about continuous or specific verification of the application of the rules – to explain how the new supervisory system would affect practitioners.
Three European supervisory authorities – the European Banking Authority in London, the European Securities and Markets Authorities in Paris, and the European Insurance and Occupational Pensions Authority in Frankfurt – were not the “supervisors of supervisors”, Prof. Wymeersch pointed out.
However, they had been endowed with specific legal powers and a number of ‘soft’ powers to make recommendations and issue guidelines. They were able to co-ordinate regulation better through Regulatory Technical Standards and with ‘new style’ regulation agreed upon with qualified majority and then endorsed by the Commission.
The new system would initially affect the sector modestly but there was a planned evolution towards a European rulebook. In this way, a level playing field would give unfettered access to all markets, he explained.
The supervisory authorities were also given powers over instances of breaches of Union law, emergency measures, conflict resolution, and to prohibit financial activity.
Prof. Wymeersch explained the primary role of national supervisors were as members of the rule-making process. Nationally, they supervised within limits of EU rules.
The new system could be a major instrument against discrimination and divergent application of EU laws. More identical regulation would see less discriminatory application and translate into passports “with real value” as there were no national add-ons or gold-plating.
Prof. Wymeersch, however, urged practitioners and institutions to make their views heard during consultations.
Europe’s changing regulatory landscape was mapped out by Malta Financial Services Authority chairman Joe Bannister.
Prompted by the financial crisis of 2007 and 2008, the reform of financial supervision had led to the establishment of the European System of Financial Supervision in 2009, and to legislation allowing the setting up of European Supervisory Authorities last year.
The ESAs’ main responsibilities were the protection of consumers and to support financial stability and the transparency of markets and financial products. They were to monitor and identify trends and potential risks, and, among other responsibilities, guarantee a level playing field.
With an integrated network of national and European supervisory authorities, the ESAs are independent of each other but close collaboration between ESAs and national supervisors fosters best practice. National supervisors however continue to provide day-to-day supervision and keep direct links with industry and are involved in activities like stress testing.
The reform also means financial institutions have improved stability and governance. A number of important directives have been proposed, revised and introduced, governing wide-ranging topical and crucial issues such capital requirements, remuneration and bonuses in financial institutions, credit rating agencies, and alternative investment fund managers which will help supervisors detect potentially systemic risks.
Markets now have improved efficiency, integrity, liquidity and transparency, thanks also to a host of new, revised and proposed directives on such issues as market abuse, over-the-counter derivatives, controversial short-selling, and securities law.
To better protect consumers, instil more confidence and ensure inclusion, the Commission had brought forward proposals to reform deposit guarantee schemes and investor compensation schemes. There was also a legislative proposal in preparation for fair practices relating to mortgage credits.
A consultation has been launched on a planned proposal for packaged retail investment productions so that consumers would be able to obtain plainly-worded information on products.
With up to 30 million EU citizens still having no access to a basic bank account, the Commission was currently examining a proposal to ensure ‘financial inclusion’ through electronic payment instruments.
The depositary framework for UCITS will be further strengthened in a bid to protect investors.
Prof. Bannister said he commiserated with practitioners who baulked at the sheer volume of documentation constantly under review. He half-jokingly admitted it took up many hours of his own bedtime and weekend reading but urged practitioners to follow developments on consultations as closely as they could.