Financial Regulatory Framework Discussed At EU Conference

by Ulrika Lomas, Tax-News.com, Brussels

18 June 2009

On 12–13 June an international workshop entitled “Towards a New Financial Regulatory Framework” was held in Prague. The participants in the workshop discussed the newly-established architecture for financial market supervision, issues relating to hedge funds, rating agencies and insurance companies and, in particular, the political agreements of Ministers concerning the future organisation of financial market supervision.

The event, organised by the Czech Ministry of Finance within the scope of activities of the Czech Presidency, was attended by representatives of the European Commission and experts from EU Member States, including representatives of supervisory bodies and professional associations.

In her opening speech Deputy Finance Minister Klára Hájková remarked that although the anti-crisis measures to stabilise the financial markets are gradually taking effect, long-term legislative measures aimed at the root causes of the crisis are still being developed. “In the last few months legislation has been drafted in a hasty manner. Should this trend continue, there is a risk of serious regulatory errors despite the good will of all partners,” warned Klára Hájková.

The conference pointed out the drawbacks in the concept of regulation and supervision over multinational financial groups, including the limitation of systemic risks. Most of the participants agreed on the need to encourage the sharing of competence between national supervision bodies and the newly-proposed European authorities in the field of micro- and macro-prudential supervision. Participants largely agreed that, although the model of shared competence is not entirely consistent, it seems to present the only suitable alternative to a step-by-step disintegration of the internal market or total centralisation of supervision at European level.

The Committee of European Banking Supervisors (CEBS) said that the pan-European stress testing of financial institutions was struggling against the problem of differences in national legislations. National supervision bodies consider the testing to be merely a complementary mechanism running as a parallel to their own, more stringent tests focused on conditions at home. Leaders stressed that banks should pass tests simulating the worst possible scenarios so that the market would no longer doubt their financial soundness.

During the course of the forum, the European Commission had to face severe criticism from the administrators of alternative pension funds and professional associations. It is their opinion that the proposed directive concerning the majority of funds which so far were unregulated overhauls the market organisation too radically and could thus result in the delocalisation of this sector to countries outside the EU. The regulatory framework provided for in the recently-adopted Solvency II Directive will introduce qualitative changes in the risk management of insurance companies.

The conference participants nevertheless expressed their wish to maintain a part of the rules within the remit of the new European Insurance Agency on account of their excessively technical character instead of including them in the transposition measures of the Directive.

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