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Global coordination of capital market regulations and data requirements - Resilience of the EU financial sector in the global context
Capital market regulation; continuous need for international coordination
By Everts Gerben - Member of the Executive Board, Authority for the Financial Markets (AFM), the Netherlands
Although many efforts have been undertaken in the past, the global regulatory framework is still a patchwork with a variety of regulatory approaches based on cultural and social differences. No one can be blamed for that, it is simply a legacy of the past. The fundamental question is not whether these different approaches will completely disappear (they will probably never) but how to manage them to the extent that regulation and supervision work effectively for international financial markets. Recognizing that a global regulatory framework with one set of rules and an overarching supervisor is not realistic, continuous efforts to improve international coordination between regulatory authorities is a pre-requisite for success, fostering economic growth and stability.
A key area in which international coordination is strongly required relates to market entrance. The various mechanisms to allow market parties from third countries to enter our domestic markets still differ a lot around the world. It is evident that trust and confidence in alternative regulatory and supervisory frameworks is a ‘conditio sine qua non’ for the well-functioning of financial markets and adequate oversight. Common ground should be sought on the notion of equivalence and the willingness to accept alternative routes to verify compliance, derived from common principles. A tendency towards line-by-line analysis should be avoided, often resulting in endless discussions and not adding to the equivalence we need.
It is also important to recognize local initiatives that have proven to function in particular markets and could work as a catalyst in other parts of the world. Global organizations like the FSB, BCBS, IOSCO and IAIS are important as initiators of change encouraging coordination. However, one should bear in mind that the actual coordination has to be understood and done on the ground, at the level of the national authorities, by the experts that understand the differences in market fundamentals and existing regulatory frameworks and how to overcome them. The recent agreement on CCP equivalence between the EC and the CFTC is a good example of that.
Another development is the increasing interaction between market and prudential regulators. In the aftermath of the financial crisis, there has been a regulatory trend towards a more macro-prudential perspective and a wide acknowledgement that market/conduct regulators have an important role to play in ensuring financial stability. In recent periods, facing the complexity of financial markets, some have claimed that even further integration of prudential and market/conduct regulators is needed for financial markets to work properly. They argue that a ‘market prudential’ regulatory approach could be the panacea for challenges in all financial markets, including capital markets. While this triggers some interesting thoughts about how to find the right balance between more co-ordination and some integration, it is of utmost importance that both prudential and market/conduct regulators continue to play their own role with their distinctive responsibilities and most effective toolboxes to ensure adequate regulation and supervision of financial markets.
At the European level it is important to remain unified and to see that our supervisory convergence program is successfully implemented. Leading by example is the best way to ensure that specificities of European financial markets are taking into account at the global level. At the same time, Europe should stay flexible to adopt regulatory approaches that have proven to work well in other regions of the world.
It is important that continuous support is given to the three European Supervisory Agencies to continue their convergence activities and their active engagement with third countries. This should result in strengthening the European voice while at the same time striving to ensure contributing to a global level playing field and further improving the much wanted and certainly needed international coordination.