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Categorized | Economy

Brussels changes tone on finance rules


Posted on September 30, 2015

EU commissioner Lord Hill said he had no intention of disrupting markets in pursuit of 'some theoretical perfection'©EPA

Jonathan Hill was nominated last year as a European commissioner

The EU signalled an end to six years of hitting banks and traders with tougher rules, as Brussels announced a shift towards growing capital markets and cutting red tape that hampers investment.

In a sharp change of tone from that after the 2008 financial crisis, the European Commission on Wednesday appealed for evidence of “unnecessary regulatory burdens” and “other unintended consequences” of banking and markets laws.

    The call for evidence, made by Lord Hill, European commissioner in change of financial regulation, was announced alongside details of a programme aimed at creating a capital markets union (CMU) across the EU that would make it easier for businesses to access financial markets.

    The moves are part of an EU push to improve its investment climate as the bloc tries to overcome sluggish economic growth and high unemployment.

    In addition to the CMU, the plans also include a €315bn fund aimed at long-term investment.

    The centrepiece of the CMU includes cutting the paperwork that companies encounter when issuing shares, a push to simplify the EU’s complex web of national insolvency laws and steps to revive the securitisation market.

    The EU has also pledged to look at fees and other “unjustified barriers” that make it harder for fund managers to operate across borders and to cut capital charges for insurers when they invest in infrastructure projects. Other measures seek to promote venture capital.

    “During the past five years . . . regulators at European level have concentrated on crisis management,” Jyrki Katainen, vice-president of the commission responsible for jobs and investment, told the FT.

    “Stability has come back . . . now we are in the situation where we have to use the European regulatory power to create new markets.”

    The CMU plans have been welcomed by the UK, where the City of London stands to benefit from policies aimed at making it easier for funds to operate across the common market.

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    Harriett Baldwin, economic secretary to the Treasury, said the measures would “strengthen financial stability and create new opportunity for financial services, which Britain is particularly well-placed to benefit from.”

    The UK has often found itself at loggerheads with Brussels, particularly when France’s Michel Barnier was the commissioner in charge of the financial services portfolio from 2010-14.

    Mr Barnier oversaw more than 40 laws aimed at toughening regulations on banks and markets, including measures to cap banker bonuses and to crackdown on short selling.

    Lord Hill, who succeeded Mr Barnier, has specific responsibility for delivering the CMU.

    He said in an interview with the FT on Wednesday that the call for evidence on regulatory problems did not signify any lack of faith in legislation adopted since the financial crisis.

    “It is not to say that the big reforms . . . the architecture we put in place [post crisis] was wrong,’’ Lord Hill said.

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    “It is to say that when you’ve done 40 major pieces of legislation in five years . . . common sense tells you that you are unlikely to have been able to work out all the consequences and interconnections. It is sensible to look at it.”

    Banks and large investors have already warned of unintended consequences from some post-crisis rules, notably that plans to boost the transparency of bond markets threaten their liquidity.

    They also fear measures to open up the market for financial research could backfire on smaller businesses.

    However, Lord Hill also said it would be a mistake for the financial services industry to see the call for evidence on regulatory problems as a free-for-all to water down post-crisis rules.

    “If people come along and simply try to re-fight old issues . . . I don’t think they’ll get very far,’’ he said.