The 2008 financial crisis put regulation of financial markets firmly atop the agenda of EU policymakers, with more than forty legislative proposals put forward by the European Commission in the years since. These initiatives touch upon all areas of the financial spectrum, from banks and asset managers, to securities markets and financial market infrastructures.
These reforms – some of which are still pending – have dramatically transformed the financial regulatory landscape in Europe, and have been implemented in a very short timeframe, putting a heaving strain on all policymakers to tackle issues affecting an interconnected and global area.
With the bulk of internationally agreed reforms well underway, the Commission is now in the process of assessing the overall coherence of this regulatory framework, the combined impact of the various pieces of legislation, and whether they have given rise to unintended consequences and inconsistencies.
This stock-taking exercise came in the form of a call for evidence launched in September 2015 and, while the results are still pending, they could lead to a detailed action plan during the summer. This would include details on which steps the Commission intends to take in the short, medium, and long run to tackle the issues identified during the process.
However, with more than 300 responses and 600 supporting documents, this process already proven to useful for all interested stakeholders, as it has provided qualitative analysis and concrete evidence on the effect of the financial services regulation put into practice.
During a much awaited public hearing earlier in May, the Commission shared some initial findings on the process, and potential areas for improvement. Directly aligned with the Juncker Commission’s Better Regulation agenda, this exercise will aim at reducing considerably the number of legislative proposals – by 80% less this year compared to the previous Commission – while adapting the existing regulatory framework as required.
Some of the main concerns expressed by industry in the responses to the consultation – high compliance burdens and the need for more proportionality – are likely be taken on board by the Commission when reviewing the different pieces of legislation, and when putting forward new initiatives. In this respect, the action plan due to be presented before the summer should give more clarity on the different workstreams the Commission will use to incorporate the relevant recommendations received into the EU financial services framework.
The preferred instrument will likely be the hundred-plus reviews foreseen under the current regulatory framework, with more than forty different reviews planned for the coming year alone.
The review of the capital requirements framework for banks and investment firms (CRR/CRD IV) and of the Regulation on OTC derivatives, central counterparties and trade repositories (EMIR), both officially planned before the end of the year, will provide the opportunity to apply this directly. All other ongoing policy initiatives should also comply with this principle, as should the ongoing Level 2 measures – over 100 for 2016 – and the potential legislative work that the Commission will present in the future.
Overall, this process has a number of merits but also brings a few questions. Will it lead to deregulation in some heavily-regulated areas, while most of the financial services framework is not even fully implemented yet? What will the trade-off be between adjusting legislation quickly, and the need for regulatory stability?
In the words of Commissioner for Financial Stability, Financial Services and Capital Markets Union, Jonathan Hill: “Financial stability is a prerequisite for growth, but at the moment the biggest threat to stability is the lack of growth itself.” This is precisely what the call for evidence process hopes to achieve through an adequate, proportionate, and modernised regulatory framework for financial services in the EU.