Summary
OVERVIEW
The long debate over the future of Europe’s supervisory structure for financial services is almost over. Parliament and Finance Ministers confidently expect to reach agreement in September on the powers of the new European authorities. When these Authorities start work, this will represent a significant shift of power from national regulators such as the FSA to the new European bodies through the binding standard-setting powers. The FSA’s main task as regulator in future will be to negotiate in Brussels, and this change of roe needs to be taken into account in the new UK structure.
Both the Pan European Insurance Forum and CEIOPS have written recently to Commissioner Barnier about Solvency II, in fairly vehement language, following the publication of the specification for QIS5. The battle lines are now clearly drawn between the industry and the regulators. The latter seem to be prepared to try any argument to ensure that capital requirements for insurers are as high as possible, with no regard for the consequences for the cost or availability of insurance. To his credit, in his reply, Commissioner Barnier demonstrates that the European Commission is well seized of these points. Mark Hoban at the Treasury is also supportive. The task over the next six months will be to point out to other Finance Ministries the political risks of following without question their regulators’ arguments.
The shape of the Commission’s review of the legislation governing capital markets is now clearer. The review of MiFID is the centrepiece, with promising signs that the Commission has recognised the need for improved post-trade transparency. There are also reviews of the Prospectus Directive, the Transparency Directive and the Market Abuse Directive (MAD to its devotees). In the autumn we expect new proposals on shirt selling and on derivatives. In the post-crisis climate, both proposals carry a significant risk of increased regulation and cost.
Meanwhile, the issues for review in the retail market are clearer, though the process is as clear as mud. In the autumn, separate units of DG Markt are conducting a consultation on PRIPS, a review of the Insurance Mediation Directive and a review of MIFID. Products may fall into some or all of these reviews, and we can only hope that the units talk to each other sometimes. The issues in all cases will be disclosure and selling practices. It is also worth remembering that this will be a significant review of the retail market, as the Commission is highly likely to write into the Directives – whichever they are – powers for the new Authorities to make binding standards. This will represent a decisive shift in regulatory influence towards the EU level, in the retail market that has always been considered local in nature.
As a result, the ABI European team hopes you had a refreshing holiday.