Regulation: A European Perspective Rhodri Preece, CFA CFA Institute Centre for Financial Market...
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Transcript of Regulation: A European Perspective Rhodri Preece, CFA CFA Institute Centre for Financial Market...
Regulation: A European Perspective
Rhodri Preece, CFACFA Institute Centre for Financial Market Integrity
Introduction
1. CFA Institute and the Centre
2. Regulatory Structure
3. Regulatory Policy
Congratulations New Charterholders │ 2
1. CFA Institute
• CFA Institute is the global, not-for-profit association of investment professionals that awards the Chartered Financial Analyst®
(CFA®) designation.
• Membership includes more than 100,000 investment analysts, portfolio managers, investment advisors in 131 countries.
• Mission: To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence.
Congratulations New Charterholders │ 3
CFA Institute Centre for Financial Market Integrity
• The Centre is the policy and research authority on global capital markets issues.
• The Centre represents the views of investment professionals before standard setters, regulatory authorities, and legislative bodies worldwide.
• We support measures to improve efficiency, transparency, and integrity in global financial markets.
Congratulations New Charterholders │ 4
2. Regulatory Structure
• Globalised financial markets, products, and services
But...
• Nationalised, fragmented regulatory structure
• Supervisory evolution: Fragmentation Integration
Congratulations New Charterholders │ 5
i) National structures
• Europe operates a single market for financial services…
• But overseen by national regulators. Examples:
FSA – United Kingdom
Unitary authority, responsible for market conduct, consumer protection, prudential supervision
Regulates most financial services markets, exchanges and firms
AFM – Netherlands
Responsible for market conduct and consumer protection
“Twin peaks” structure: Dutch Central Bank responsible for prudential supervision and financial stability
Congratulations New Charterholders │ 6
i) National structures
AMF – France
Responsible for securities markets, conduct
Separate prudential authorities for banking and insurance
CONSOB – Italy
Responsible for securities markets, conduct
Separate prudential authorities for banking and insurance
Congratulations New Charterholders │ 7
• Currently supported by the “Three Level 3” Committees:
– Committee of European Banking Supervisors (CEBS)
– Committee of European Securities Regulators (CESR)
– Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS)
• Mirrored at a global level by the Basel Committee on banking supervision, IOSCO, and IAIS, with the FSB as the hub of the global structure.
Congratulations New Charterholders │ 8
i) National structures
ii) Supra-national structures
• New European Commission proposals:
1) Micro-prudential supervision: European System of Financial Supervision (EFSF)
2) Macro-prudential supervision: European Systemic Risk Board (ESRB)
Congratulations New Charterholders │ 9
ii) Supra-national structures Micro-prudential supervision
• European System of Financial Supervision (ESFS)
– Existing national authorities continue to be responsible for day-to-day supervision of firms.
– Closer cooperation and sharing of information between regulatory authorities with colleges of supervisors for large cross-border institutions.
– Implement common rulebook.
• Three new pan-European Authorities – Banking, Securities, Insurance
– Authorities to act as over-arching bodies for national regulators, replace CEBS, CESR, CEIOPS
Congratulations New Charterholders │ 10
ii) Supra-national structures
Main tasks of the 3 European Authorities include:
(i) legally binding mediation between national supervisors;
(ii) adoption of binding supervisory standards;
(iii) adoption of binding technical decisions applicable to individual institutions;
(iv) oversight and coordination of colleges of supervisors;
(v) licensing and supervision of specific EU-wide institutions (e.g. Credit Rating Agencies);
(vi) strong coordinating role in crisis situations.
Congratulations New Charterholders │ 11
ii) Supra-national structures Macro-prudential supervision
• European Systemic Risk Board (ESRB)
– High-level systemic risk monitoring body to act as an “early-warning” system.
– Chaired by European Central Bank
• Main tasks of the ESRB:
– Analysis and advice on macro-prudential issues
– Provide early risk warning to EU supervisors
– Compare observations on economic developments
– Provide direction and guidance
– No binding powers
Congratulations New Charterholders │ 12
micro-prudential information macro-prudential risk warning
Congratulations New Charterholders │ 13
European Systemic Risk BoardChaired by President ECB
President (ECB), vice-president, 27
national central bank governors
Chairs of 3 Authorities
Representatives of European
Commission
European System of Financial Supervision
European Banking Authority (EBA)
European Securities and Markets
Authority (ESMA)
European Insurance & Occupational
Pensions Authority (EIOPA)
National Supervisors
3. Regulatory Policy
• Rules vs. Principles
• Self-Regulation vs. Formal Regulation
Self-regulation Formal regulation
Voluntary codes & standards Mandatory rules, principles
Congratulations New Charterholders │ 14
3. Regulatory Policy
• Examples:
Credit Rating Agencies
o Codes of conduct regulation and supervision (ESMA)
o Conduct of business, independence, governance
Hedge Funds
o Codes of conduct, registration regulation (AIFM directive)
o Conduct of business for Managers, capital requirements, disclosure requirements, leverage restrictions
o Independent custodians and valuators
Congratulations New Charterholders │ 15
Regulatory Policy
Banks
o Strengthened prudential supervision (CRD)
o More and better quality capital, liquidity, dynamic provisioning
o Governance, executive compensation
o Reform of Basel II framework
Insurers
o Stronger prudential standards – Solvency II
Congratulations New Charterholders │ 16
Congratulations New Charterholders │ 17
www.cfainstitute.org/centre