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Global coordination of capital market regulations and data requirements - Resilience of the EU financial sector in the global context

Global capital markets – what is needed in terms of regulation?

By Ross Verena - Executive Director, European Securities and Markets Authority (ESMA)

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We all know how severely the crisis of 2007-2010 has hit the financial markets. Having to find the appropriate regulatory response to the financial crisis has meant that proper coordination at a global level has been and remains essential. Financial markets are internationally interconnected and so must be the approach taken by regulators.

I believe that the global regulatory community, led by the principles agreed in the G20 and the FSB processes, while by no means perfect, have achieved a lot in terms of better coordination of standard-setting, both on the bank prudential side as well as in the area of capital markets.

Now moving to the implementing phase of much of this overhauled regulatory framework, it should be underlined that an indispensable precondition for an effective supervision of financial markets is access to comprehensive data on market activities and the health of market players. The right information, based on good quality data, is key. Making high-quality information available and usable has to be a joint responsibility of the private and public sector. Legislators and regulators need to be conscious of the costs that data reporting requirements impose on the industry. At the same time market players need to provide good quality data to ensure that the public sector can use it effectively to support its financial stability, orderly markets and consumer protection objectives.

To enhance efficiency and effectiveness of reporting and the use of data, we have made some progress globally, with the setup of the Legal Entity Identifier as a notable contribution. However, there is much more to do to expand common data standards at a global level. At the EU level, ESMA puts a lot of effort into keeping data requirements under MiFID/MiFIR, EMIR and SFTR as consistent as possible and thus cost-efficient for regulators and market participants alike.

Regulators around the globe will need to constantly assess all opportunities and risks related to markets developments, in order to decide whether a new framework is necessary.

The regulatory work on the post-crisis reform is not over yet. Regulators around the globe will need to constantly assess all opportunities and risks related to markets developments, in order to decide whether a new framework is necessary. Any decisions in that area should be ideally made jointly at a global level in order to prevent regulatory arbitrage and avoid unintended consequences.

In parallel, global regulators have started assessing cross-border aspects of standards developed in different parts of the world and how to learn better from each other’s experiences. The IOSCO Report on Cross-Border Cooperation published in September 2015, to which ESMA and ESMA’s members significantly contributed, provides for a comprehensive stock-take in the area of capital markets regulation. Among others, this report concludes that standards agreed globally should be more granular as that would allow for a smoother and more consistent implementation in various jurisdictions. An ambitious approach I admit, but definitely worth consideration by regulators for their current and upcoming work.