EU Financial Services Legislation: A New Chapter?

The European Commission (EC) is taking a new look at pan-EU central authorisation and supervision of capital markets regulation following the appointment of Commissioner Michel Barnier. In a speech at a Financial Services Club (FSC) event in London, EU policy adviser David Doyle outlined how the new regime would affect regulations including the Markets in Financial Instruments Directive (MiFID), Basel III and the Packaged Retail Investment Directive (PRIPs).

Doyle emphasised the cross-border nature of much of the new regulation tabled, as well as the powers awarded to new bodies such as the European Securities and Markets Authority (ESMA), in the interest of creating a ‘common rule book’. This was against the background of the EU’s response to the financial crisis, which broadly encompassed the supervision of any financial institutions of systemic importance, the drive towards a better capitalised finance industry with less leverage and the tackling of ‘perverse incentives’ in remuneration, as well as the restoration of investor and consumer trust.

One proposal being considered by the Basel Committee for Banking Supervision to address inadequate capital levels within banks, and the resulting danger posed to the EU as a whole by the weakness of individual institutions, was a countercyclical buffer to reduce the risk of sovereign failure. A countercyclical buffer or additional capital charge would ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate. National regulators could deploy such an instrument when “excess aggregate credit growth is judged to be associated with a build-up of system-wide risk to ensure the banking system has a buffer of capital to protect it against future potential losses”.

Doyle said the EC was very worried about the dangers default on banks’ debt and was poised to pursue this proposal, in addition to announcing recently a bank resolution initiative, which would introduce preventative measures such as living wills allowing firms to fail with minimum market distruption.

The new Pan-EU supervisory proposals, Doyle said, were designed to put in place the central authority required to clamp down on the divergent interpretation, ‘goldplating’ and late transposition of directives. He noted that the banking community needed to “step up its own dialogue at the pan-EU level to make sure we get the message across.”

Doyle said the new supervisory bodies would have an important role to play in upholding a common rulebook for all sectors of the financial services industry.

These are:

  • ESMA.
  • European Banking Authority (EBA).
  • European Insurance and Occupational Pensions Authority (EIOPA).

Doyle then summarised changes to specific regulation. For MiFID, the main regulations to be adjusted would affect all trading venues including broker crossing networks and promote greater pre-trade transparency. Doyle noted that there was movement towards all capital market players and venues to be in organised trading facilities, but that this would be applied in a “broad and non-prescriptive” way.

He also examined the relation between the EU and the US approaches to capital markets regulation, concluding that although there were core similarities, such as the requirements for central counterparties (CCPs), certain Members of the European Parliament (MEPs) had been pushing for the EU to find its own approach rather than just following the lead of the US.


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