Bankers demand review of Europe’s financial services laws

Financial services laws implemented in the wake of the financial crisis are in urgent need of review, according to an influential body representing British-based financial services firms.

In a new report, TheCityUK argues that some of the regulation brought in after the economic downturn – such as strengthening the power of national parliaments over the financial industry – has proved “problematic”.

Such rules were introduced in a hurry to guarantee to financial stability across EU member states. However, this meant there was little time to assess the likely impact of the regulation on individual financial services companies, the industry as a whole, or the economy.

Alan Houmann, head of government affairs for Europe, the Middle East and Africa at Citigroup, said the combined effect of these various measures was ultimately hindering growth and job creation.

Mr Houmann, who oversaw the report, singled out laws around data privacy, the reform of bank structures and the introduction of the Financial Transaction Tax as “job-destroying pieces of legislation”.

TheCityUK’s calls for reform come as the European Commission runs its Better Regulation strategy, which seeks to ensure that EU laws and policies are designed in a manner that meets their minimum objectives at the lowest possible cost.

As such, TheCityUK believes the strategy represents a perfect opportunity to take another look at the regulations governing the financial services sector.

Changes recommended by the independent body include:

• The introduction of mandatory reviews of all European Commission rules by the parliaments of member states after they have become laws.
• A requirement that all new bills are first examined by MPs before they are approved.
• Lengthening the timeframe for parliaments using the “yellow card” early warning system from two months to three.
• The evaluation of all EU rules to establish their cumulative effect, rather than their individual impact. This should also become part of the Commission Regulatory Fitness and Performance Programme, which evaluates existing EU legislation.

The report goes on to describe the European Single Market as “the most secure way to support economic growth” and stresses its importance to the future prosperity of member states and Europe as a whole. 

However, it warns that the market must be fit for purpose, with regulations that cover “only those areas where common rules are necessary for the common good and constructed so as to deliver the results that are intended”.

Present arrangements have a number of shortcomings, according to TheCityUK, some of which are down to omission or commission, and others that are borne out of the institutional processes used to formulate and develop them.

Furthermore, the report authors point out that there have been seismic changes across the 28-member bloc in recent years. This means the dynamics and challenges faced by individual states have altered dramatically since the design of many of the European Commission’s existing rules, while the relationship between its institutions and national governments has also changed significantly.

“Now is the time to modernise, refresh and update the EU to make it more relevant to citizens and put it on a more efficient footing,” TheCityUK concludes.