EUROPE - Michel Barnier, EU Commissioner for Internal Markets and Services, has claimed 2010 is the "year of convergence" and says legislation to strengthen the regulatory and supervisory systems for financial services will be implemented by next year..
In a speech to the European Institute in Washington on 'Building a new financial frameowrk together', Barnier outlined a number of areas where he claimed Europe is "on track in its reform process" in the wake of the financial crisis.
He pointed out legislation to regulate credit rating agencies, which was agreed by the European Parliament and Council of the European Union in September 2009, "will come into force fully at the end of the year. Tackling conflicts of interests. And bringing more transparency to the existing situation".
These rules will introduce measures to address the quality of credit ratings, the transparency and internal governance of the credit rating agencies and surveillance of the activities of the credit rating agencies. It also intends to tackle conflicts of interest, with the legislation stating: "A credit rating agency should not be allowed to carry out consultancy or advisory services. In particular, a credit rating agency should not make proposals or recommendations regarding the design of a structured finance instrument".
This involvement in designing a structured investment product is one of the allegations in a US legal action against three credit rating agencies launched by the California Public Employees' Retirement System (CalPERS). However in his speech to the Institute Barnier admitted: "We may need to go further", with the regulation. (See earlier IPE article: Rating agencies under pressure as CalPERS lawsuit given green light)
Mentioning the Alternative Investment Fund Managers (AIFM) Directive Barnier told the US attendees: "Final agreement is possible soon. But I will oppose any discriminatory outcome". This is despite the fact that a vote on the Directive was this week postponed by the Economic and Monetary Affairs Committee (ECON) in the European Parliament. (See earlier IPE article: EU Parliament postpones AIFM vote)
Barnier also confirmed that a new European supervisory framework should be in place by the beginning of 2011, and added: "For all the other G20 commitments, you can expect from me that I will table all my proposals within a year".
One issue expected to be addressed in a draft Green Paper later this month is improvements to the corporate governance regime. (See earlier IPE article: EC to publish corporate governance green paper)
"Supervision and new rules are not enough. Behaviour must change. Corporate governance must be strengthened too. Crisis prevention starts from within. Effective checks and balances within financial institutions would have helped mitigate the worst excesses," Barnier continued.
Barnier also highlighted the importance of accounting standards and the need for convergence between the US GAAP system and the International Accounting Standards.
Despite proposals from the International Accounting Standards Board (IASB) on pension accounting last month that could drive the two regimes further apart, the Commissioner said: "I appreciate that the US authorities have made progress towards convergence. But in the EU, we are getting impatient. Going forward, it is crucial that we converge further". (See earlier IPE article: IASB changes fly in the face of harmonisation - LCP)
He added: "So 2010 and 2011 are crucial years. 2010 is the year of decisions and convergence. 2011 needs to be the year of implementation. Political pressure to act remains high. Citizens expect nothing less."
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