Ten years ago, the European Banking Authority (EBA) was established. Its birth on January 1, 2011, was hallowed as the start of a major overhaul of the EU’s financial services regulatory architecture, and the EBA, plus its ‘sisters’ ESMA (the European Securities Markets Authority) and EIOPA (the European Insurance and Occupational Pensions Authority) have, in fact, totally changed how regulation is now both inspired and effected within the Union.
Two important considerations immediately come to mind. The first is the issue of potential inconsistency between an idealised goal of centralised regulation at EU level and whatever room is always needed for national authorities to exercise domestic options, discretions and practices. The second is the matter of the tension between the often-criticised rigidity of the EU’s rule-making process and the level of flexibility which, no doubt, regulators require to keep au courant, in a practical and operative manner, with non-stop financial markets and innovative practices changes.
During the tumultuous financial years of prominence of one of the venerated fathers of the single European currency, Tommaso Padoa-Schioppa, the often so-called Cassandra of pan-European financial stability, Alexandre Lamfalussy, and the Committee of Wise Men set up by the EU Council one year ahead of the birth of the EBA, much talk and print was produced related to the concept of a single rule book.
But that committee’s Special Report had shown a strong bias towards ‘regulations’, as opposed to ‘directives’. ‘Damp squib’ could now be the possible reaction of many practitioners when they ponder not only what, over time, have proved to be an endless flow of both of these, but also possibly the equal additional flows of domestically introduced measures, either during transposition iters or through local regulatory bodies’ decisions.
Much progress has come to be registered over this past decade in the development at pan-EU level of RTS (regulatory technical standards) and ITS (implementing technical standards). It is hoped that these standards will, over time, bring practitioners to a stage where all will be “singing from the same hymn book”. But the fact remains that the time when it would be possible to say that the maximum benefit possible from these standards, plus from the flow of “guidelines”, “recommendations”, and other tools, has been reached, is still not upon us yet. Policy, law and governance remain the apparently eternal challenges for the EBA towards achieving a situation where, at least, early detection of financial institution ills can be done as early as possible.
When facing this challenge, the EBA is always facing a dual reality. On the one hand, there is this belief that having a common single rule book for all forms of activity in banking will ensure that no longer will any licensed institution be able to “fly under the radar” of constant vetting, control and regulating in general.
The other reality is this constant appeal, bottom-upwards, that, in whatever the EU does, it must eschew acceptance of any “one-size-fits-all” approaches. Yes, even in this area of finance, this dichotomy continues to bemuse and confuse. And let nobody run away with any notion that fintech is any guaranteed answer to all issues.
Does all this mean that efforts towards achieving maximum harmonisation should be given up? Certainly not. There is always room for, for example, certain specific directives to be structured in manners that allow for option and discretion. Some might say that indeed, this is already being done, but not to the desired extent, it seems from practitioners’ reactions.
The CRD 4 (Capital Requirements Directive), and its concomitant regulation (CRR), for example, were early on structured in a manner that included 80 options and discretions for ‘member states’ (later going up to some 155 on certain case-by-case bases) regulators to be able to adopt. Not bad… but not enough according to some practitioners.
The implementation and application of standards and EU-sourced guidelines and rules, an endless reality where life in the financial services world has technology continuing to force its way into legislation, whether the Banking Union (let alone the problems with the Capital Union!) must, or otherwise, mean an all-controlling total harmonisation in daily operating practices (what impact on the Single Supervisory Mechanism), these will all apparently continue to be big issues in a financial services world which, when it comes down to brass tacks, has in reality continued to fit very well the old dictum of plus ça change, plus c’est la mȇme chose (the more it changes the more it remains the same.
Regulation guru Edward Kane boldly believed that “regulation does not exist… Deregulation does not exist… the only reality in the world of finance was, is, and always will be that of constant re-regulation!”
Accept it and adopt it… or find something else to do….
John Consiglio has been teaching banking regulation at the University of Malta for the past 25 years. He is a former banker, former governor of the MFSA and presently sits on the national Bank Recovery and Resolution Directive (BRRD) Committee.