Compared with previous years, the 2009's legislation plan from Brussels for financial services in the EU is moving faster, now propelled by pressures arising from the financial turmoil. The European Commission's previous efforts to converge EU legislation is seen by one key bystander, among others, as having been "substantially delayed". This can be put down to the European Commission having to tip-toe with the utmost caution. It always fears arousing dissent from Member State governments.
So, under a new political climate, will this year's programme deliver ‘jam today'? In the children's story ‘Alice Through the Looking Glass', the White Queen offers Alice jam yesterday and jam tomorrow, but no jam today. Consequently, when tomorrow comes, it will become another jam-less ‘today'. But, now, economic distress is actually in line to put some legislative jam on the table this year. With luck, there could be more next year.
Among incremental upgrades to financial services legislation being promised by the European Commission is coverage of subjects such as capital requirements, aspects of company law such as market abuse, securities trading, and accounting standards.
More strategically, during 2009 the Commission has planned a broad review over regulatory and supervisory arrangements for all financial market actors in the EU. Rhodri G Preece, policy analyst at the CFA Institute, which represents investment analysts, trusts that this step will look after the badly bruised interests of investors and should address the issues of fairness, transparency and market efficiency. The review stems from a report from a High Level Expert Group, set up in November 2008.
The group is chaired by Jacques de Larosière, a former managing director of the International Monetary Fund. Its initial recommendations are due this month, in time for European input into the next G20 discussions at the start of April. Following that, the Commission is due to publish a comprehensive white paper setting out policy initiatives.
Also strategically, there are governance issues in the pipeline to upgrade oversight, as covered by the three Level 3 financial regulation committees. These are the Committee of the European Securities Regulators (CESR) in Paris, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) in Frankfurt and the Committee of European Banking Supervisors (CEBS) in London.
As reported in the November 2008 issue of IPE, the major parties in the European Parliament have demanded that teeth be given to these structures. In its response, the Commission writes that it will define "a coherent set of powers in the relevant financial services directives" and consider "financial support under the EU budget for specific EU-wide projects that are requested from the Level 3 Committees". It will also study "the possibilities for EU funding .… to help build a common supervisory culture by the Level 3 committees".
Furthermore, it plans to conduct a "cross-sectoral stock-taking exercise" to look at "the coherence, equivalence and actual use of sanctioning powers among member states". It will investigate the "variance of sanctioning regimes". It will also study "differences in supervisory powers and objectives between national supervisors".
Another item coming up includes more discussion on capital adequacy rules for institutions of occupational retirement provision, for which there will be a public hearing on 16 February. Here the position of the European Federation for Retirement Provision remains constant. Secretary General Chris Verhaegen hopes for a conclusion that avoids a full-blown legislative change.
However, Leonardo Sforza, European head of research at Hewitt Associates, the international pension consultancy, comments: "It is time for the European Commission to deliver a comprehensive report on the state of implementation of the 2003 pension fund directive. Such a report is a legal requirement. An EC failure in this would be a bad signal."
On the supervision of hedge funds, Sforza asks for a reassessment of the Commission's position "in light of the financial crisis". In fact, a Commission consultation has been brought forward from a February/March deadline to around the beginning of February. This will make it in time for a hearing in late February. The International Organization of Securities Commissions, based in Madrid, is also tackling the issues of liquidity risk and due diligence for hedge funds.
The Brussels approach to hedge funds (and private equity funds) is not enough to please a group of socialist members of the European Parliament. In a letter to EC president José Manuel Barroso, party president Poul Nyrup Rasmussen refers to a consultation concerning hedge fund regulation that took place two years ago. "We don't need new consultations, we need…. actions", he writes. He is supported by Martin Schulz and Pervenche Berès. The three pilloried Charlie McCreevy, internal market commissioner, for using inflammatory language about "trigger happy regulators" at a recent meeting of the British Venture Capital Association in London.
Disquiet on another matter comes from the Association of Chartered Certified Accountants. Clive Booth, director of public affairs, calls for improved consulting by Brussels with consumers. He notes that of 1,680 responses to 46 financial services consultations, during a three-year period, only 13 derived from consumer groups. He complains of slow progress on the Lisbon Agenda.
During this year, the European Commission will be working on the impact assessment exercise of its plans for a Common Consolidated Corporate Tax Base (CCCTB) for EU companies. The CCCTB programme is intended to tackle problems resulting from lack of corporate tax harmonisation. The Commission hopes for implementation to start in 2010.
The European Commission's financial services agenda 2009Feb Commission consultation on hedge fund supervision Feb Public hearing on capital adequacy for pension funds June Proposal for amendment of Market Abuse Directive June Commission Decision concerning adequacy of third country competent authorities Oct Proposal for amendment of the Prospectus Directive Oct Amendment of Capital Requirements Directive on trading book and securitisation issues Oct Proposal for amendment of the Prospectus Directive Dec Draft proposals for legislation on ‘legal certainty' of cross-border securities transactions