Tag Archives: European Union

European regulatory perspectives: Less is more!

Maxime Bablon, 9 September 2016

Post originally published on SAB

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Jonathan Hill, former European Commissioner, took stock of his achievements on July 12, during a speech at the Bruegel Institute. He drew up the work carried out during his mandate as Commissioner for Financial Stability, Financial Services, and Capital Markets (FISMA) and detailed upcoming challenges for the institution.

Strong supporter of ‘smart regulation’ taking into account the financial sector’s specificities, the former Commissioner stressed the possibilities to enhance the regulation by stepping back and to harmonize the multiple texts issued in recent years.

Here are five key take-home messages from his speech, providing a good overview of ongoing challenges regarding EU financial regulations:

  • Growth and risk dilemma: In holding that ‘without risk there is no growth’, the British has put a cat among the pigeons. Main target: the aggregation of individual risk aversion which may cause a market risk and impact negatively the financial stability as a whole. This argument correlates with the analysis carried out by a consulting firm, estimating the decrease of the net banking income from -1.64% to -1.93%[1] for major banks subject to the Tax on Systemic Risk over the next decade. For the Commission, the decrease of the European growth domestic product (GDP) shall reach around -0.15% for each percentage points increase of the common capital ratios (CET1). Negative impact should remain cyclical and be cleared after 2019[2].
  • Keep it simple to rule: For the former Commissioner, the current regulation is so complicated that only a handful of lawyers and compliance officers can fully understand it. This constitutes a strong challenge for the long-term sustainability of the banking union. The lack of clarity in textual reference feeds the reluctances of national compliance officers in charge of the implementation of these regulations (for example financial reporting (FINREP) refers to a whole variety of texts to fill out the templates, some of which go back as far as 1978[3]).
  • Streamline and create synergies: Several regulations can conflict in their scopes and objectives. For instance, the leverage ratio has increased the cost of clearing, in contradiction with European Market Infrastructure Regulation (EMIR) requirements which aims to… increase the number of transactions going through central counterparty clearing houses (CCPs)! On these points, Jonathan Hill called for capitalizing on direct consultations to avoid crossfire between regulations and seize the opportunity to review existing regulations. For further flexibility, he also proposed to exempt certain players from clearing obligations (non-financial counterparties, pension funds and some small non-systemic financial companies, etc.).
  • Differentiation and proportionality principles: It occurs that enforced regulations do not take sufficiently into account the diversity of players, whether in terms of business model, risk profile and entity size. The capital requirement regulation review should focus on this point, especially regarding prudential requirements. The former Commissioner has mentioned the standard approach taken to define the credit risk and the margin for systemic risk. He implied that these factors impact negatively on the competitive advantage of small and medium banks. The simplification of the capital requirement calculation or the introduction of a specific exemption for smaller players – such as the credit unions – could be carried out to better take into account each actor’s specific characteristics.
  • Reduce the reporting burden: In accordance with the consultation carried out last year by DG FISMA, several entities have complained about information overlapping between the reports displayed (ex. EMIR, Markets in Financial Instruments Directive II (MIFID II) and the Securities Financing Transactions Regulation). For instance, Jonathan Hill mentioned the possibility to review EMIR to “avoid ‘dual reporting’ obligation, at least for non-financial firms”. Moreover, if the Commissioner welcomes the increase of data exchange between the national and European regulator, he wonders if “it [data exchanged] is all essential”. This quote also reflects the need to clarify tasks between the multiple regulatory layers (National authority, European Central Bank (ECB), European Banking Authority (EBA) etc.).

In the wake of the crisis, the banking union was set up within a very short time. It permitted to harmonize the prudential and resolution standards over a set of heterogonous countries, which was anything but easy. Given that the framework is now defined, regulators can start focusing on quality, in particular, by taking into account feedbacks given by financial services’ professionals (inter-text synergy, proportionality, optimization of the reporting scope, subsidiarity principle, etc.).

Valdis Dombrovskis (the new Vice-President of DG FISMA) has declared his will to pursue the work building upon the guidelines set up by his predecessor. However, other challenges are looming ahead, in particular the complex issues of the European deposit insurance scheme or the implementation of the capital markets union. Eventually, the main recommendation granted by the former Commissioner is to regulate less but better.

To go further:

[1] Banks reviewed are BNPP, CASA, SG and BPCE (see here)

[2] Capital Requirements – CRD IV/CRR – Frequently Asked Questions (see here)

[3] This is the case in particular with 4th council directive (78/660/CEE)

 

 

Maxime Bablon – Marie Sklodowska-Curie promotion (2012) – works as bank regulatory compliance consultant between Paris and the Maghreb in a French FinTech (Sab IT).

Germany Follows Cameron’s Lead In Treating EU Workers As Foreigners

Post originally published on socialeurope.eu, 5 May 2016

Ideas spread fast, bad ideas spread faster. Over the last few months, the European Commission has tried to give new impulse towards achieving a ‘Social Triple A’ rating. At the beginning of March, Employment and Social Affairs Commissioner Marianne Thyssen launched a social package comprising an outline of the European Pillar of Social Rights and some ideas to facilitate labour mobility. Continue reading

Six ‘E’s for promoting human rights abroad

On 9 October 2014, Mr Stavros LAMBRINIDIS, EU Special Representative for Human Rights, gave the first “EU Diplomacy Lecture” in a new annual series of high level lectures organised by the Department of EU International Relations and Diplomacy Studies of the College of Europe in Bruges. This is a short summary of his speech. A full report and more photos are available here.

25 years after the fall of the Berlin Wall, the world is still far from universal democratisation and respect for human rights. The end of the Cold War was not “the end of history” as many had expected. The space for civil society appears to be shrinking around the world and the voices questioning the universality of human rights are again growing louder. The promotion of human rights seems even more necessary today.

How can the EU promote human rights abroad? The challenge can be summarized in six ‘E’s.

The first is to empower the state institutions, courts, civil society organisations, media and activists who fight for rights in their own countries. By funding and keeping an eye on local human rights defenders and those who wish to silence them, the EU prevents human rights violators from sweeping their crimes under the carpet.

Second, where the EU cannot bring economic and hard power to bear on offenders, it can practice more subtle means of persuasion to encourage foreign governments to see the human value and interest of defending human rights.

Third, the EU must engage even with governments that are guilty of grave and widespread human rights violations, some of which, in spite of all appearances to the contrary, are often sensitive about their international reputation – while taking care not to provide them with a fig leaf of respectability.

EU Special Representative for Human Rights speaking at the College of Europe 9 October 2014

EU Special Representative for Human Rights speaking at the College of Europe 9 October 2014

Fourth, the EU must enlarge the defence of human rights against their attackers by reaching out to local governments and regional organisations such as the African Union, the Arab League and the Organization of Islamic Cooperation. Human rights do not pit one human culture or religion against another: they are the universal language of the powerless against the relativism of the powerful.

Fifth, while empowering defenders, engaging with offenders and supporting locally driven change are essential, the EU and the international community must at times be prepared to ”enforce” human rights, including through vocal public statements.

Sixth, the EU must continually strive to embody human rights at home and to ensure consistency across is actions and actors. And when dealing with third countries, whether business, development or security issues be on the agenda, EU and member states must sing from a common songbook, embed human rights clauses in all policies and agreements and stand ready to invoke them against any country, big or small.

Mr Lambrinidis concluded with a more semantic, but thought-provoking point: That our choice of words also matters, and that the EU should extend the language of promoting human rights more widely to its economic and security policies to emphasise their overarching ambition to advance human rights in all of their dimensions.

European banking regulation: treat the cause, not the symptoms

by Olivier Colin, 11 September 2014

Remember Nassim Nicholas Taleb’s turkey story? A butcher feeds a turkey on a day-to-day basis in order to eat it at Christmas. By repeating this behaviour, the butcher confirms to the turkey the statement that he will continue to feed it every day, as predicted by the previous days, bringing more confidence every day to that belief. But one knows however that the situation is not to last and one day, there will be a surprise for the turkey…

The famous author of the Black Swan tries to explain that lots of beliefs are built on past behaviour, without even reconsidering them as being wrong. The world of banking is full of statements, concepts and beliefs taken for granted. However, only few of them have been reconsidered after the crisis. In line with the past, a crisis period is always followed by increased regulatory constraints. Despite recent changes in European Regulation as a response to concerns raised by the banking crisis, the new regulatory framework introduced by Basel III and the Banking Union are unfortunately only part of the answer.

www.cliffkule.com

Source: cliffkule.com

Excessive leverage ratio in banking has been highlighted as a crucial factor in the development of the crisis. While banks used to operate with high level of equity (near to 50%) in the 19th century, this percentage has consistently decreased to an average level of roughly 5%. Despite the well-known and recognized risk associated to excessive leverage, banks continue to operate with extremely high leverage level, sometimes even higher than before the crisis. It seems that nothing has been learned from the past.  Continue reading

The Battle for Brains: Why is EU the Loser?

by Petar Cimentarov, 9 September 2014

High-skilled migrants are a scarce resource for which countries worldwide should be fighting. Here is why. They contribute not only to the GDP of the host country, but also to its budget by paying high taxes on their generally high salaries. In addition, bright and skilled migrants are a tool for useful knowledge diffusion in society and for putting competitive pressure on the local workforce. Last but not least, immigration raises the level of innovation in receiving countries. In other words, the beneficial social welfare effects of high-skilled migration for the host country are numerous and undisputed. So, how is the EU performing in attracting high-skilled workforce?

EU-Blue-Card

Source: Opulentus, 2013

“We should take more account of what statistics tell us: 85% of unskilled labour goes to the EU and only 5% to the USA, whereas 55% of skilled labour goes to the USA and only 5% to the EU. We have to reverse these figures with a new vision, and that calls for new tools. And we are starting to have those new tools.” (Franco Frattini)

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Our Future

The actual creation of the E.U., was one of the most brilliant ideas ever conceived by a human mind in the history of the last 70 years.

Europe, a continent where many evidences show that it is the place that the first modern human inhabited, has suffered from lengthy and extremely unnecessary “turbulences” throughout its history.
Continue reading

We need a Eurozone Parliament

I was happy to read Wolfgang Schauble’s recent commentaries on the necessity to create a Eurozone Parliament. I would add, it should possibly be a democratic chamber set up as part of a Eurozone government, possibly less dysfunctional than the EU’s.

The German finance minister is essentially saying is that we need a whole new institutional infrastructure to govern the Eurozone in a) an efficient way and b) a democratic (better, legitimate) way.  Continue reading