Asset managers, along with other financial companies, are concerned over how the new pan-European authority being set up to regulate the securities market will affect national watchdogs and impinge on their
The European Securities and Markets Authority, replacing the existing regulatory body, the Committee of European Securities Regulators, will have more decision-making power than its predecessor, raising the question whether the new body will intervene directly in the companies it oversees.
Currently individual supervision of companies is carried out by national regulators, such as the UK’s Financial Services Authority and France’s Financial Markets Authority, rather than through a centralised body.
“A single rule book [for EU financial regulators] should ensure a stronger single market,” according to Kay Swinburne, a member of the European Parliament’s Committee on Economic and Monetary Affairs, at a discussion held by the Policy Exchange and Open Europe in London last week. But she says “intervention in firms is one of the key ‘red lines’ in many countries”.
Some clarification is forthcoming. Individual company supervision will remain at national level and Esma – and the other two new pan-European authorities to oversee banking and insurance and pensions – will make direct decisions on companies only as “a last resort option” or if [national] supervisors do not comply with its decisions, says Salvatore Gnoni, a policy officer at the European Commission.
He also rules out concerns over possible overlaps between national and EU regulations on individual companies as the new authority will “ensure consistency between the two levels”.
Eddy Wymeersch, Cesr chairman, agrees. “Esma will not intervene directly in asset managers as they will not supervise companies. The day-to-day supervisory work will be done by national supervisors,” he says.
Peter de Proft, director general of Efama, the European fund association, does not expect asset managers to see much change from current national supervision in the early stages of the new authority. “Esma would need to have about 400 people [employed] if it was going tackle asset managers. It is not going to substitute national powers.” The new authority is expected to have about 80 staff to begin with.
He believes the only way forward to reach a harmonised supervision of the securities market is for “everyone to co-operate together”. There has to be “a centralised way of reacting to regulation” and he does not expect Esma to “intervene in national regulation but to work with supervisors”.
Without centralised co-ordination, member states act individually in different ways, he says. During the money markets crisis “each regulator was acting independently without any consultation with others [in the EU]. If it is just national regulators it does not work,” he adds.
The FSA says it is too early to comment on how the new authority will affect it or what overlaps there might be.
Details are still being thrashed out between the European Parliament and Council, both of which need to approve any legislation to overhaul Europe’s patchy system for supervising securities markets in the wake of the financial crisis. “[The EU] parliament is pushing hard [for more centralised power] but the Council is holding out for national power,” says Jarkko Syrilla, director of international relations at the Investment Management Association in the UK.
One of the sticking points is the use of emergency powers and whether member states or Esma should determine if a financial emergency has arisen.
Another concern over the pending new powers is the need for a strong industry voice and fund management associations are currently lobbying for a place at the table.
“We want to ensure the buy-side has a representational voice at EU level and is not swamped by the big banks,” says Mr Syrilla. “Esma has to listen to the voice of all the stakeholders. Asset management has a big role in pensions,” he adds.
The Commission has proposed setting up a stakeholder group made up of industry representatives, consumer bodies and others and a similar group for each of the banking, securities and markets, and insurance and occupational pension authorities.
One proposal from Philip Warland, head of public policy at Fidelity International, is for the new authority to invite a single representative voice from the buy-side such as a big asset manager, rather than an association. He says this approach would give a better view of industry needs.
Mr Wymeersch maintains stakeholders will have a voice through a consultative panel of about 30 members, including the asset management industry. “Asset managers should be present at the table,” he says.
In spite of concerns, the shift to a centralised supervisor should bring benefits. A single rulebook should harmonise cross-border rules, says Mr Syrilla, who believes “it will be a big plus for the industry”. Marketing cross-border funds should become more efficient as national regulators will follow the same rules to roll out Europe-wide products.
Currently there is “too much scope for interpretation” of regulation across member states, says Mr Warland. Co-ordinating rules “would reduce the number of cross-border problems for asset managers” and should also “bring down costs”, he says.
Tussles are also going on between member states on where the new financial authorities will be located. Cesr is based in Paris and views differ over the three being in a single country or spread across London, Paris and Frankfurt.
The new body is expected to be up and running early next year.
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