Updated: Nov. 25, 2010 (Initial publication: Oct. 2, 2010)
Releases : I. Isolated Articles
ENGLISH
On June 2nd 2010, the European Union (EU) Commission shared its 2010-2011 time-table and action plan for financial markets. It proposed to improve supervision of Credit Rating Agencies, it launched debate on corporate governance in financial institutions and it published a communication on Financial Services 2010-2011 ("Regulating financial Services for sustainable growth"). Indeed, any of these three aspects answer to the EU’s G20 commitment to create a safer regulatory framework for financial markets –itself participating to economic recovery- and implement such system as to prevent future crisis to go off. As Commission President José Manuel Barroso said on that day: "Today the Commission is launching the final push to complete the EU's financial services reform. This is part of our wider agenda to stabilize, consolidate and restore sustainable growth to the European economy".
FRANCAIS
Article: Lancement de "la dernière impulsion pour compléter la réforme des services financiers": La Commission suit-elle le bon chemin?
Le 2 Juin 2010, la Commission Européenne (CE) a rendu public son agenda 2010-2011 ainsi que son plan d'action pour les marchés financiers. A cette occasion, elle a proposé d'améliorer la surveillance des agences de notation, a lancé un débat sur le gouvernement d'entreprise dans les établissements financiers, et a publié une communication sur les services financiers 2010-2011, intitulée "La réglementation des services financiers au service d'une croissance durable". Ces trois aspects en effet répondent aux engagements du G20 de créer un cadre régulatoire plus sûr pour les marchés financiers, pour permettre la reprise économique, et, dans l'éventualité d'une crise future, pour éviter que cette dernière ne dérape. Comme l'a précisé le Président de la Commission Européenne José Manuel Barroso ce jour-là: "aujourd'hui la Commission lance la dernière impulsion pour compléter la réforme des services financiers en Europe. Ceci fait partie d'un agenda plus global pour stabiliser, consolider et restaurer une croissance durable pour l'économie européenne."
GERMAN
Artikel: Lancierung "des letzten Schrittes zur Vervollständigung der EU-Finanzdienstleistungensreform": ist die Kommission auf dem richtigen Weg?
Am 2. Juni 2010 hat die Europäische Kommission ihre Agenda 2010-2011 veröffentlicht, sowie ihre Vorschläge zu den Änderungen der EU-Vorschriften zu Ratingagenturen vorgelegt und eine öffentliche Konsultation zur Reform der Corporate Governance in Finanzinstituten eingeleitet. Die Kommission hat auch eine allgemeinere Mitteilung 2010-2011 über den Finanzdienstleistungssektor verabschiedet („Regulierung der Finanzdienstleistungen für nachhaltiges Wachstum“). So was entspricht der Verpflichtung der Kommission beim G20-Gipfel, ein sicherer und stabiler Finanzsystem sicherzustellen. Kommissionspräsident José Manuel Barroso erklärte aus diesem Anlass: "Die Kommission lanciert heute den letzten Schritt zur Vervollständigung der EU-Finanzdienstleistungensreform. Dies ist Teil eines breitangelegten Programms zur Wiederherstellung von nachhaltigem Wachstum, sowie der Stabilisierung und Konsolidierung der europäischen Wirtschaft“
ITALIAN
Articolo: Verso la “spinta finale per completare la riforma dell’Unione europea dei servizi finanziari”: la Commissione è sulla strada giusta?
Il 2 giugno 2010, la Commissione del’Unione Europea (UE) ha svelato il suo calendario ed il suo piano d’azione per il 2010-2011 in materia di mercati finanziari. La Commissione ha proposto di migliorare la supervisione delle Agenzie per la valutazione dei crediti, ha aperto il dibattito sulla corporate governance nelle istituzioni finanziarie ed ha pubblicato un comunicato sui servizi finanziari 2010-2011 (“Regolamentare i servizi finanziari per uno sviluppo sostenibile”). Tuttavia, nessuno di questi tre aspetti corrisponde all’impegno, preso dall’UE durante il G20, di creare un quadro di riferimento più sicuro per i mercati finanziari – partecipando alla ripresa economica – e di attuare un sistema tale da evitare una crisi futura. Lo stesso giorno, il Presidente della Commissione José Manuel Barroso ha affermato: “Oggi la Commissione sta dando la spinta finale per completare la riforma dei servizi finanziari. Questo fa parte della nostra ampia agenda, al fine di stabilizzare, consolidare e riavviare una crescita sostenibile dell’economia europea”.
CHINESE
欧盟委员会“推动完成欧盟金融服务业改革”是在正确的道路上提出的吗?
The European Union (EU) Commission（欧盟委员会）于2010年6月2日公布了其关于金融市场2010-2011年的时间表和行动计划。欧委会建议完善针对Credit Rating Agencies（信用评级机构）的监管，它发起了有关金融机构公司治理的讨论并且公布了金融服务行业2010-2011年度通讯("Regulating financial Services for sustainable growth")。事实上，这三方面中的任何一项都是欧盟针对二十国集团为金融市场建立一个安全可靠的监管体系所作承诺的回复-自身参与经济重建以及建立应对经济再度衰落的预防体系。正如委员会主席José Manuel Barroso（若泽·曼努埃尔·巴罗佐）在同一天所讲：执委会今天正在推动完成欧盟金融服务业改革，这是我们关于欧洲经济稳定、巩固以及恢复其可持续增长更广泛议程的一部分。
SPANISH
El lanzamiento del “empuje final para completar la reforma de servicios de la Unión Europea”: ¿ira por buen camino la Comisión?
El 2 de junio del 2010 la Comisión de la Unión Europea compartió con el público su calendario y plan de acción para los mercados financieros en el periodo 2010-2011. Ha propuesto mejorar la supervisión de las agencias de notación, ha lanzado un debate sobre la gerencia corporativa en las instituciones financieras y ha publicado una comunicación sobre los servicios financieros del 2010-2011 (“La reglamentación de los servicios financieros al servicio de un crecimiento durable”). Cada uno de estos tres aspectos responde al compromiso de la UE G20 de crear un marco regulatorio más seguro para los mercados financieros – contribuyendo en sí mismo al relance de la economía – y de implementar un tal sistema para prevenir crisis similares en el futuro. En las palabras del Presidente de la Comisión José Manuel Barroso: “Hoy la Comisión lanza el empuje final para completar la reforma de los servicios financieros de la UE. Esto forma parte de nuestra agenda para estabilizar, consolidar y restaurar el crecimiento durable de la economía europea.”
On June 2nd 2010, the European Union (EU) Commission shared its 2010-2011 time-table and action plan for financial markets. It proposed to improve supervision of Credit Rating Agencies, it launched debate on corporate governance in financial institutions and it published a communication on Financial Services 2010-2011 ("Regulating financial Services for sustainable growth"). Indeed, any of these three aspects answer to the EU’s G20 commitment to create a safer regulatory framework for financial markets –itself participating to economic recovery- and implement such system as to prevent future crisis to go off. As Commission President José Manuel Barroso said on that day: "Today the Commission is launching the final push to complete the EU's financial services reform. This is part of our wider agenda to stabilize, consolidate and restore sustainable growth to the European economy[1]".
I) What the Commission intends to achieve
1. Improving EU supervision of Credit Rating Agencies
The first part of the Commission’s proposal is devoted to amending existing EU rules on Credit rating agencies. The reason for this is twofold. First, the Commission expresses a strong will to prevent new financial crisis by strengthening the financial system, which indeed involves amending the EU rules on Credit Rating Agencies. Second, and because the Commission also adopted a broader proposal in which it commits itself to table the remaining financial reform proposals in the next six to nine months (see below), the proposal to amend CRA should contribute and speed up the achievement of the necessary reforms bound to ensure the security and the stability of the EU financial system. In a nutshell, the Commission has two main intentions: “ensuring efficient and centralized supervision at European level, and increased transparency on the entities requesting the ratings so that all agencies have access to the same information”[2].
In the view of regulating Credit Rating agencies which are not tied down to national laws nor territory, one of the most important changes proposed by the Commission is to centralize the supervision of these agencies at a supra-national level (since such ratings may be used by any company in any country). The Commission therefore suggests that the new European supervisory authority – the European Securities and Markets Authority (ESMA) – be entrusted with exclusive supervision powers over CRAs registered in the EU. This would include the European subsidiaries of well-known CRAs such as Fitch, Moody's and Standard & Poor's. To quote the Commission, the ESMA “would have powers to request information, to launch investigations, and to perform on-site inspections. Issuers of structured finance instruments such as credit institutions, banks and investment firms will also have to provide all other interested CRAs with access to the information they give to their own CRA, in order to enable them to issue unsolicited ratings”[3]. This way, CRA could conduct business in a much simpler regulatory environment than actual various national legal environments. Furthermore, CRA will have an easier access to any information they need to operate. As for investor’s protection, ratings’ users will be better protected thanks to the suggested centralized supervision of all CRA at the EU level and the reinforcement of competition between agencies. As internal Market and Services Commissioner Michel Barnier said: "the changes to rules on Credit Rating Agencies will mean better supervision and increased transparency in this crucial sector. (…) We are looking at this market in more detail”[4]. Should the proposed amendments be adopted by the EU Council and the Parliament, these should be applicable in 2011.
2. Reforming corporate governance in financial institutions
The Commission has also launched a public consultation on corporate governance, more precisely on a number of issues including how to manage risk more effectively in financial institutions and how to empower shareholders[5]. Such proposal echoes the Commission’s commitment took in March 2009, on response to the financial crisis, in a communication on
"Driving European Recovery" to improving corporate governance in financial institutions. In the words of Michel Barnier, it appears that “on corporate governance, (…) true crisis prevention starts from within companies. If we are to prevent future crises, financial Institutions themselves need to change. We need to ensure more effective internal controls. Promote better risk management. Strengthen the role of supervisory authorities. And existing rules on sound remuneration policies should be implemented quickly to help curb excessive risk-taking[6]." The idea put forth on June 2nd 2010 by the Commission is thus to launch a public consultation on a Green Paper “that details possible ways forward to deal with the following issues: (…) the functioning and the composition of boards of financial Institutions, (…) risk culture and long-term interests, (…) the involvement of shareholders, financial supervisors and external auditors in corporate governance matters (…) and remuneration policies in companies[7] (in order to discourage excessive risk taking). The consultation will be closed Sept. 1st and proposals, legislative or nonlegislative, will also be adopted in the course of 2011.
3. Scheduling the next steps on Financial Services 2010-2011
The last message delivered by the Commission deals with its 2010-2011 action plan for financial services. The Commission calls it "Regulating financial Services for sustainable growth". Indeed, thefinancial and economic crisis not only pointed out how necessary the competition of EU’s reforms was to ensure a safe and sound European financial system, but also - on the bright side - allowed for a global discussion, through the G20, on global changes necessary to prevent the next one. Therefore, the Commission suggested on June 2nd a certain time table for the completion of reform proposals needed to implement fully the EU’s G20 Commitments in the next six to nine months. Based on the Commission’s communication, it appears that key proposals will include matters such as financial market’s transparency and responsibility.
Transparency concerns especially arise in financial environments such as Derivative markets, as they are at the same time important yet very opaque. Therefore, the Commission expects that transparency will be enhanced though proposals to improve the functioning of Derivatives marketswhich will be delivered by the summer. In the same way that transparency will restore further confidence in financial markets, the Commission will also propose “appropriate measures on short selling and credit default swaps, including 'naked short-selling'. The Commission will also table improvements on the Markets in Financial Instruments Directive(MiFID) in order to strengthen pre- and post-trade market transparency and bring more derivatives onto organized trading venues”[8].
Where transparency should restore trust in markets and therefore participate to sustainable growth, investors and depositors also need to be protected for such goal to be reached for good. Therefore, the issue of responsibility will also be rethought by the Commission, which will proposea revision of the Deposit Guarantee Schemes Directive and the Investor Compensation Schemes Directive. Responsibility being such an efficient ex post and ex ante measure for regulation to be truly effective, it should therefore, in the view of fulfilling the EU’s G20 Commitments, be injected at every financial markets’ layer. That is why “legislative proposals on packaged retail investment productswill be presented to promote consumers' interests in the sales process. The Market Abuse Directivewill also be revised in order to extend its rules beyond regulated markets and to include derivatives in its scope of application. The Commission will come forward with amendments to the Capital Requirements Directive (CRD IV)to improve the quality and quantity of capital held by banks, introduce capital buffers and ensure the build up of capital in good times which may be drawn on in more adverse economic conditions[9]”.
Last but not least, the Commission recalled on June 2nd that sanctions in the financial sector are currently largely unharmonised, leading to diverging practices among national supervisors. Therefore, the Commission will present a Communication on sanctions in the financial services sectorto promote Harmonization of sanctions across the range of regulatory activities.
This set of measures aims at restoring trust in markets and prevent future crisis, in line with the EU’s G20 commitments, and especially in response to the crisis’ violence and systemic nature. And because the financial crisis showed that it had other causes –such as banks’ own funds or accounting norms- than solely financial markets’ opacity and self regulatory organization, Internal Market and Services Commissioner Michel Barmier concluded the Commission’s communication of June 2nd 2010 with the announcement that the Commission will soon publish an action plan on crisis management “leading to legislative proposals for the prevention and resolution of failing banks. The Commission will also work towards global convergence on one set of high quality international accounting standards”.
II) What lie beneath the Commission’s proposals
1. Regulation to participate to economic growth
The Commission’s proposal to amend EU rules on CDA, and its launching of a public debate on corporate governance clearly puts forth its will to manage the risk which lies under financial systems (risk of lack of information, of biased ratings, of systemic implication etc) while promoting free competition to preserve the EU’s attractiveness to economic actors, and therefore contributing to economic recovery.
The choice to open a consultation on a Green Paper on corporate governance makes sense in the way that the financial crisis revealed failures in financial institutions’ corporate governance: “board supervision and control of management was insufficient; risk management was weak; inadequate remuneration structures for both directors and traders led to excessive risk-taking and short-termism; and shareholders did not exercise control over risk-taking in the financial institutions they owned”. Therefore, trying to launch a debate to implement timely and effective checks and balances in governance systems, i.e. in order to implement rules at the EU level rather than simply relying on national laws to regulate such economic sector which is more and more tied at a regional level rather than a national one, should indeed help to prevent any future crisis.
However, on the subject of Credit Rating Agencies, one must recall that is was less than a year ago that the EU Council and Parliament had adopted an important regulation on CRA (Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies) which was already designed to tackle CRA’s implication in crisis’ triggering, and to regulate closely these institutions in order to ensure safer and more transparent financial markets[10]. One may therefore wonder why the Commission felt like it was already necessary to amend the Regulation only nine months after its adoption. There may be two reasons for that.
2. Regulation and regulatory players
First of all, it must be recalled that §51 of the EU Regulation above mentioned states that “the current supervisory architecture should not be considered as the long-term solution for the oversight of credit rating agencies. Colleges of competent authorities, which are expected to streamline supervisory cooperation and convergence in this area in the Community, are a considerable step forward, but may not substitute all the advantages of more consolidated supervision of the credit rating industry. The crisis in international financial markets has clearly demonstrated that it is appropriate to examine further the need for wide-ranging reforms of the regulatory and supervisory model of the Community financial sector. In order to achieve the necessary level of Community supervisory convergence and cooperation and to underpin the stability of the financial system, further wide-ranging reforms of the regulatory and supervisory model of the Community financial sector are highly needed and should be put forward swiftly by the Commission with due consideration to the conclusions presented by the group of experts chaired by Jacques de Larosière on 25 February 2009. The Commission should, as soon as possible, and in any event by 1 July 2010, report to the European Parliament, the Council and other institutions concerned any findings in this respect and should put forward any legislative proposal needed to tackle the shortcomings identified as regards supervisory coordination and cooperation arrangements”[11].
Clearly, the Commission through its June 2nd 2010 proposal acts in conformity with EU Regulation of September 16 2009, as it shows its determination to implement wide-ranging reforms of the regulatory and supervisory model of the Community financial sector rather than mere surgical strikes.
The second reason for amending so soon Sept. 16th 2009 Regulation might be the same reason why the regulation was adopted in the first place[12]. Both the regulation and its amendment proposal are connected to the EU’s commitment to fulfill the objectives defined by the G20 in its past and further meetings. Indeed, when the Parliament started debating in October 2008 the financial and economic crisis in the light of the Washington G20 summit[13], many European Parliament political group leaders stressed the need for regulatory reform, in particular credit rating agencies, private equity and hedge funds, which is why regulation is the direct consequence of the Member States’ political decision to firmly react to the crisis’ aftermath. As for the commission’s proposal to amend the EU rules on Credit Rating Agencies (CRAs) along with a public consultation on reforming corporate governance in financial Institutions, and “following discussion and hopefully strong support from all heads of State and government at the forthcoming European Council”[14], the Commission’s underlying objective is to present all of these proposals – together with its recent ideas on bank resolution funds (see IP/10/610) – at the G-20 Summit in Toronto on 26-27 June 2010.
One can therefore witness through the EU Commission’s intervention, as part of its work on preventing a future financial crisis and strengthening the financial system decided during G20 meetings, that the regulation of financial market, a global economic sector rather than a national one, may not be regulated by national or regional regulatory systems but demands to be regulated at a supra-national level.
3. Regulation to tackle supra-national and precarious markets
Indeed, for these specific sectors which are global (such as financial markets or the environment), only global rules, global supervision and global sanctioning power, i.e. global regulatory power, may be effective. Therefore, regulating financial markets which, according to Marie-Anne Frison-Roche’s definition of regulation[15], basically comes down to manage the dialectic between free competition and risk (in the case of financial markets), demands that a global regulator be put into place (moreover, the fact that the Commission also launched a public debate on corporate governance related to risk shows that regulation is bound to balance risk vs. competitive markets). Such ideal regulator, which does not yet exist as there is yet no such thing as a global state (with no global government; the closest to it being the G20’s periodic decision making), may however already be foreseen in the shadow of the newly created Financial Stability Board (FSB) to which the EU Commission recently became a member. Therefore, step by step, at the global level, and because there is a consensus that financial markets should not be left self-regulated (where, for other global sectors such as Internet, some still support self regulation), the EU collaborates with its international partners, inter alia by actively taking part in the G20 and other international fora, to improve global financial supervision and crisis management, to tackle political and technical difficulties linked with globalization, and to plant the seeds of a global regulation of financial markets.
4. Towards inter-regulation?
As for the time being, the EU Commission’s proposal to implement a centralized supervision of CRA at the EU level by the ESMA also corroborates the idea that a supra-level regulator is the right way to go when it comes to implement true regulation, that is to say to put into balance free competition and another principle, i.e. in the present case, risk management. Indeed, to quote the Commission, “users of ratings would also be better protected as a result of centralized EU supervision of all CRAs and increased competition among CRAs”, which means that centralized supra-national supervision may achieve the teleological purpose of regulation, i.e. to find the right equilibrium between risk prevention and enhanced competition. This solution does not eradicate the idea of a global regulation but rather shapes it in another manner, through implementing supra-regional cooperation between all regional financial markets regulators. Indeed, where one global regulator is still, for the time being, utopia, building regional regulators bound to lead national ones and then meet up at the global level may be one alternative –as long as such institution is also supervised by other entities, e.g. in a “check and balance manner”; which yet not done at the national level in France where Regulators are only expected to be as independent as possible. Such solution has a name: inter-regulation, i.e. « une régulation réticulaire qui découle de la multiplication des niveaux de décision se substituant à l’Etat-nation »[16]. Because when it comes to risk, and when the crisis is global, provoked by exogenous elements, the shape of regulation must be reframed and must avoid incoherencies, which, realistically, can only lead out to inter-regulation. Inter-regulation therefore reinforces the gear of Regulation and its regulatory triangle made up of nationalistic state sovereignty, global economic matters and legal intervention .
[5] To complement this package of proposals, the Commission has also published two reports on how Member States have put into practice the Commission's two Recommendations of 2009 (see IP/09/673 and IP/09/674) on remuneration policies in the financial services sector and for directors of listed companies.
[10] “They contributed to the financial crisis by underestimating the risk that the issuers of certain more complicated financial instruments might not repay their debts. In response to the need to restore market confidence and increase investor protection, the Commission put forward new EU-wide rules that put in place a common regulatory regime for the issuance of credit ratings”.
Id.
[11] Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies.
[12]See Margot Sève,“Credit Rating Agencies: Post-Crisis regulatory measures adopted by the European Union Regulation of 16 September 2009”, Regulatory Law Review 2010,II-6.8.
[13] Summit on financial markets and the world economy, November 14-15, 2008.
[15] Regulation puts into balance the principle of free competition and another principle, such as risk.
[16] Audrey Baudrier, « La Démocratie à l’épreuve de la Société numérique », Jean-Jacques Gabas (Dir.), Collection Gemdev – Karthala (Ed.), pp. 93-108, P. 375, referring to Marie-Anne Frison Roche, “Exemples de régulation et de contrôle étrangers : la puissance publique, l’organisation et le contrôle du marché”, 2001, Petites affiches n°185.
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