very complicated…. February 10, 2010
Posted by Bradley in : financial regulation , 1 comment so farpassing the buck (while keeping tight hold of the bucks) January 13, 2010
Posted by Bradley in : financial regulation , comments closedReading reports of today’s hearings at the Financial Crisis Inquiry Commission I am a bit perplexed by the suggestions that part of the problem was that regulators failed to keep up with new sophisticated financial products. This from members of an industry that dedicated enormous effort and money over many years to promoting the idea that governmental regulation shouldn’t interfere too much with market activity, and in particular that it should not stifle useful innovation. And, moreover, that it should be the market which would determine whether innovations were useful or not, rather than regulators. Now, it is pretty inevitable that businesses will put effort into lobbying (I started today looking at a fascinating study of how the tobacco industry worked to influence the incorporation of mandatory impact assessment (of a type that would weight economic interests heavily) into EU policy-making) but there’s something rather dishonest for people who have successfully lobbied for limited regulation to then turn round and blame everyone else for not regulating them enough.
uk, eu, financial regulation December 3, 2009
Posted by Bradley in : financial regulation , comments closedThe struggles in the EU over the shape of financial regulation look a little different now that internal market commissioner is to be Michel Barnier (i.e. not one of those free-wheeling anglo-saxons). The UK’s financial sector has taken exception to criticism of the anglo-saxon model (see, for example, the reaction of British Bankers’ Association here). Meanwhile the Council approved changes to the EU regulatory framework with a view to getting the Parliament on board quickly. The UK’s Treasury Select Committee argued recently that rushing this proposal through wasn’t desirable, in part because:
It is not clear how these proposals relate to global initiatives for regulatory reform.
How much the European approach to financial regulation will change with these developments is as yet uncertain. How will European financial regulation compare in the future with that in the US, and how will it fit with the G20 commitments to harmonize approaches to financial regulation?
uk financial services bill November 19, 2009
Posted by Bradley in : financial regulation , comments closedThe Bill, introduced today, contains provisions which would make the FSA responsible for ensuring financial stability, about remuneration, recovery and resolution, and short selling. The Bill includes new enforcement provisions including provisions for a collective proceedings. The Bill also provides:
6A Enhancing public understanding of financial matters etc
(1) The Authority must establish a body corporate (“the consumer financial education body”) whose function (“the consumer financial education function”) is to enhance—
(a) the understanding and knowledge of members of the public of financial matters (including the UK financial system); and
(b) the ability of members of the public to manage their own financial affairs.
(2) The consumer financial education function includes, in particular—
(a) promoting awareness of the benefits of financial planning;
(b) promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services;
(c) promoting awareness of the benefits and risks associated with different kinds of financial dealing (which includes informing the Authority and other bodies of those benefits and risks);
(d) the publication of educational materials or the carrying out of other educational activities; and
(e) the provision of information and advice to members of the public.
But a schedule to the Bill includes an odd requirement that the new consumer financial education body must have regard to “maintaining confidence in the UK financial system; and … maintaining the stability of the UK financial system”. How could a consumer body hobbled by such a requirement effectively educate consumers?
cra regulation in australia November 19, 2009
Posted by Bradley in : financial regulation , comments closedIt’s hard to be CRA these days. As ASIC acts to remove protection of CRAs from liability (by requiring consent of a CRA for ratings to be included in sales literature (note: the ASIC press release is headlined “ASIC gives credit ratings agencies improved control over ratings use”), the FT reports that S&P (like Moodys) is withdrawing from the Australian retail market. ASIC’s new rules require CRAs to be licensed and subject to requirements which broadly track those which are being applied in the EU and the US. But ASIC requires firms which are involved in the retail market to be involved in an approved external dispute resolution scheme and it is this requirement the S&P Press release describes as critical to its decision:
Standard & Poor’s managing director for Australia and New Zealand John Bailey said, “We are supportive of regulations that strengthen transparency and oversight and improve market confidence. There is, however, a need for international consistency in regulatory oversight because ratings are issued and used globally.
“In terms of the requirements for a retail licence, we are concerned that membership of a local EDR scheme would interfere with the analytical independence of our rating opinions and undermine the global consistency and comparability of ratings.
“This scheme could change the substance of a rating and result in the creation of dual credit ratings – an Australian “EDR” domestic credit rating and a “rest of the world” credit rating. Because the local ombudsman would effectively be second guessing S&P’s analysts, we believe this would ultimately create investor confusion and harm financial markets.
A reminder that it’s not just the substance of the rules that matters, but also how those rules are to be enforced. Meanwhile, the EU Commission announced that had issued a statement of objections with respect to S&P’s practice of charging for the use of ISINs by EEA firms, arguing that it was in breach of Art. 82 (abuse of a dominant position).
uk credit card consultation October 27, 2009
Posted by Bradley in : financial regulation , comments closedThis consultation, which has been foreshadowed in the press comes in a 3 minute MP3 format, and a plain English version as well as the full document and supporting impact assessments (with respect to equality and cost). And it is available via scribd. The full document has some pictures which make it pretty though don’t help much with the content – there’s an attractive woman biting her lower lip fetchingly (though I think she’s meant to be perplexed or worried) and another attractive woman on the phone looking happy. Apparently men don’t use credit cards, or they don’t have problems with credit cards, as the only pictures of men in the document are small pictures of the men in charge – Lord Mandelson and Kevin Brennan.
The plain English version states:
Other organisations like the European Union and the Office of Fair Trading are already looking at what credit companies should be allowed to do, but we think we can do more.
A bit odd that the Department of Business, Innovation and Skills should be distancing itself from the OFT perhaps, and particularly as the OFT under John Fingleton’s leadership was ahead of the curve in being muscular about retail financial services. And it’s a bit odd to juxtapose the EU and the OFT ,like this – as if they are similar “organisations” in any meaningful way. But I suppose that’s what plain English translation does – in simplifying it tends to ignore real distinctions.
cras in the eu October 21, 2009
Posted by Bradley in : financial regulation , comments closedThe CRA regulation is dated 16 September 2009 and should be published in the Official Journal soon. CESR is now providing feedback on its consultation on a central repositary (15 responses all from the CRA and banking sectors) and a new consultation (deadline for comments 30 November, 2009) with a really catchy title: “Guidance on Registration Process, Functioning of Colleges, Mediation Protocol, Information set out in Annex II, Information set for the application for Certification and for the assessment of CRAs systemic importance”.
new eu financial regulation proposals October 21, 2009
Posted by Bradley in : financial regulation , comments closedThe EU Commission has published a Communication on derivatives regulation (the link is to the draft version). And there’s a new Communication on Cross-Border Crisis Management in the Banking Sector, focusing on early intervention, resolution and insolvency, which raises a number of interesting questions, for example about how to address issues of the rights of shareholders in failing banks and how to ensure integrated treatment of multinational corporate banking groups in insolvency. Views are sought by January 20, 2010. The Communication is 18 pages long, and there’s a 53 page working document and a 74 page impact assessment. These 140 or so pages are distilled into a 2 page citizens’ summary which seems to be more about PR (we’re doing something) than about trying to solicit meaningful comments from the public.
fsa mortgage discussion paper 2 October 19, 2009
Posted by Bradley in : financial regulation , comments closedThe industry is reacting to the FSA’s DP in the usual ways, and some in the press are characterizing the DP as an over-reaction (although the FT says the proposals are “crude. But .. should …be welcomed”). The British Bankers Association responds to the DP with the rhetoric which was used to justify the relatively unregulated sub-prime lending market before the crisis:
It should be a firm principle of mortgage regulation that higher-risk borrowers such as self-employed people and first-time buyers are not effectively cut out of the market. The issue that faces all of us – lenders, borrowers and regulators – is ensuring the risk of taking out a mortgage can be shared effectively. Any new rules must not serve to create unreasonable obstacles either for lenders or for borrowers.
And the Council of Mortgage Lenders bangs the consumer responsibility drums:
It is important that the principle of consumer responsibility is not lost in such a regulatory environment, as it is a basic tenet upon which transactions of all kinds between firms and consumers rely.
Seems like the beginning of a lively debate.
fsa mortgage discussion paper October 19, 2009
Posted by Bradley in : financial regulation , comments closedThe FSA published its Mortgage Market Review Discussion Paper today. In keeping with the subject matter the FSA seems to be planning to do more to generate interest in this DP than in some of its other initiatives:
The discussion period ends on 30 January 2010. We intend to run roadshows and set up industry and consumer groups during the discussion period to share views and promote discussion of the main areas for debate.
The issues raised are somewhat complex and described with some complexity (I think the discussion of whether it might be a good idea to adjust prudential rules to protect consumers (the FSA concludes not) requires more than one reading). The FSA does propose to require income verification for all mortgage applicants and to make lenders responsible for verifying affordability. And the discussion paper also raises other questions for consideration, such as whether to prohibit mortgage loans to customers with “low borrowing capacity”. The DP suggests that the FSA wants to do more in future to protect borrowers not just from lenders but also from themselves:
overall, we think that our regulatory strategy needs to change to one that relies less on disclosure as a regulatory tool and looks to influence consumer behaviour in a more sophisticated way.
We signal here a greater realism about the behavioural biases that drive excess borrowing and a willingness to be more interventionist to help protect consumers from themselves (for example, through banning products or prohibiting sales to those consumers exhibiting multiple high-risk characteristics or limiting the amount of equity that can be withdrawn)…
We have also considered how financial capability initiatives may help (for example, by re-educating consumers away from the idea that renting is bad and home ownership good, and away from seeing property as an investment).
But if the roadshows generate consumer interest and consumers say they don’t want to be nannied, what does the FSA do then?