A novice European parliament will be scrutinising how untested European regulators implement far-reaching new rules for the financial sector
To the uninitiated – which means most of the world outside Brussels – the workings of the EU can seem labyrinthine at best. But for financial institutions, navigating the labyrinth is essential. A high and increasing proportion of all financial regulation in the EU is harmonised across the 28 member states. The most striking evidence is the growing tendency of European policy-makers to combine directives – which give national discretion on implementation – with regulations, which are normative. Hence the fourth capital requirements directive (CRD IV) that entered force this year came with its CRR, and the second Markets in Financial Instruments Directive (MiFID II) will have its MiFIR.
Alongside this more top-down approach is a slew of recently created European supervisors, including authorities for banking, securities markets, insurance and pensions, plus the European Central Bank’s new single supervisor for the eurozone. And the newest member of the family, the rather complex single resolution mechanism. None of these has yet built a meaningful track record, and all are now involved in implementing some of the most important pieces of post-crisis financial reform, including CRD IV, Solvency II, MiFID II, the bank resolution and recovery directive, and the eurozone banking union.
These inexperienced institutions will need careful scrutiny from European parliamentarians, and the European Commission (EC). Which makes the coincidence of massive regulatory change with elections to the European Parliament and the vote on a new EC president in May 2014, especially unnerving. Of the two most experienced and influential financial policy-makers in the EU, Sharon Bowles, the chair of parliament’s economic and monetary affairs committee, is not standing for re-election. Michel Barnier, commissioner for the internal market, may be reshuffled, as several other commissioners are running for the European Parliament.
Opinion polls for the European elections suggest a strong showing for hard right Eurosceptic parties in the UK, France, Poland and the Netherlands. Meanwhile, the radical left is on the rise in the Mediterranean countries. That could lead to a parliament containing many novice members, some of them with little interest in European integration. This is not the best environment for keeping a close eye on how Europe’s untested regulators implement new rules, while at the same time passing a whole raft of unfinished business, such as reforms to financial benchmarks, money market funds and the legal structure of large banks.
