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Europe announces aggressive FS regulatory upgrade


Europe announces aggressive FS regulatory upgrade

Unexpected move to a common rulebook suggests years of implementation turmoil

London – 28 May 2009.  Just days before the European elections, the European Commission has proposed a comprehensive and aggressive restructuring plan for the way financial services institutions are supervised - and it wants to begin implementing it next month.

Three months after the de Larosière report recommended phased implementation of a new supervisory regime, Commission President, José Manuel Barroso, has rejected his group’s recommendation for an 18 month preparatory period to upgrade the supervisors’ capabilities, establish clear funding and governance and start the development of a consistent set of rules in favour of a more speedy solution.

“I would like the new architecture up and running in 2010," said Barroso.

On the new timeline, the groundwork for a European Systemic Risk Council (ESRC) and a European System of Financial Supervisors (ESFS) will be started in June.  The ESRC will be a new independent body, run and supported by the European Central Bank, which is responsible for safeguarding EU financial stability through macro-prudential oversight.

The current Lamfalussy level 3 committees – CEBS, CEIOPS and CESR - will be renamed and empowered to oversee and manage the current supervisory patchwork.  This ‘network of supervisors’ will be charged with managing development of binding standards and guidelines, supervisory practices, pan-EU controls such as  credit rating agencies and central counterparty clearing houses and crisis response efforts.

Commissioner Charlie McCreevy said financial supervision in Europe has not kept track with market integration.  “The crisis has shown that the current system is not sufficiently responsive and not appropriate for a single financial services market.  This new system will combine the expertise of all those responsible for safeguarding financial stability, with strong European bodies to coordinate their work.”

PJ Di Giammarino, CEO of the JWG-IT think-tank, said the European Commission is creating real risk by rushing the regulatory challenges.

“McCreevy is pushing a radical control programme in a complex, fast moving and high stakes poker game”, said Di Giammarino.  “The crisis has prompted thousands of pages of reports by experts such as de Larosière, Lord Turner and the G20, plus various industry commentaries.  The result may be unwieldy, but the European Commission should not ignore the detailed issues inherent in a common regulatory framework.  The common rulebook will need a long appendix that accounts for massive data challenges and their owners.”

“What is shocking is the speed at which the Commission intends to standardise and centralise Europe’s financial services oversight works,” added Di Giammarino.  “Europe has never had a common set of rules, laws, business practices or language for financial services, but now the EEA is sprinting to build them out with inadequate planning and resourcing.  As with any large technology project, a euro spent in design will save 6 Euros to fix the problems once the system has been implemented.“

“The Commission’s rush will create confusion as a debilitated industry struggles to cope with well intentioned, but ill informed, decisions.  This will naturally be viewed as a sales opportunity by new and incumbent infrastructure providers who will rush to Brussels with their proprietary solutions.  Neutrality is fundamental to getting the right tools to solve the right problems in the right time.”

“The costs of recent regulatory requirements are already unprecedented – the UK’s liquidity risk reporting regime alone was recently estimated by the FSA to cost £2.4 billion– three times that of MiFID.  In addition, EU regulation, like MiFID and AML III, asks the banks and their regulators to put in place efficient and effective systems for conduct of business, trading, and reporting.  Since the crisis, new requirements like liquidity risk, stress testing and customer management have increased the level of control required.”

“We welcome the encouraging discussion around how resources might be deployed, but remain sceptical that the ECB and the mishmash of stakeholders will have the people to do the job.  There is a real risk that the regulators will create even bigger problems if they don’t get this right.” concluded Di Giammarino.

About JWG-IT Group Limited

JWG-IT is the only financial services industry think-tank to facilitate collaborative work to resolve industry issues created by regulatory change.  Based on a working model started in 2005, JWG-IT has established strong relationships with EU administrators, leading firms and companies.  It is neither lobbyist nor consultancy and revenues are restricted to membership and event fees and content sales.  The JWG-IT Think-Tank is designed to help members and participants manage regulatory-driven change better, quicker, cheaper and with less risk.  JWG-IT launched the customer data management group and the liquidity risk action network in 2008.  For more information, see www.jwg-it.eu.

For Immediate Release

Business contact: PJ Di Giammarino, pj@jwg-it.eu, +44 (0) 7811 430 503

Communications contact: Louisa Excell, louisa.excell@hotwirepr.com +44 20 7608 2500



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