Monday, January 02, 2012

UK Finance Minister Skeptical of Blanket Position Limits in EU Derivatives Legislation

As the EU moves towards implementation of a derivatives regulatory regime, it is imperative to adopt consistent, harmonized and high regulatory standards for all Member States, said UK Finance Minister Mark Hoban, adding that the effective regulation of financial services has to be done at an international level. In recent remarks in Helsinki, the Minister was encouraged by the European Commission’s proposal to close loopholes in the Markets in Financial Instruments Directive (MiFID) with respect to the clearing obligation and ensure fair and open access with respect to licenses in future legislation. Indeed, he believes that MiFID offers an opportunity to promote competition and the Single Market in financial services. MiFID has already lowered costs and spurred growth in the equities market, he emphasized, and it is proper to update the Directive to account for the significant changes in the financial markets in recent years.

Specifically, that means updating the Directive to reflect changes in the commodities market, he said, but not succumbing to a form of populism that will simply increase costs for EU citizens. That is why the UK is skeptical about blanket position limits across all markets, noted Mr. Hoban, while at the same time acknowledging that they have a role to play in defined circumstances.
He posited that active position management by exchanges and authorities will be much more effective in tackling market abuse and provide a more rigorous approach. It is incorrect to think that blanket position limits will enable governments to control prices as some would wish, he stressed. More broadly, he noted that the debate on position limits underlines just how important it is to get the evidence base right before embarking on fundamental reform.

He noted that the UK has been vocal in the past about the lack of consultation by the Commission on the Alternative Investment Fund Managers Directive and on short selling. In both instances, he continued, the Commission risked succumbing to political need, with unintended consequences for competitiveness and to the benefit of international competitors

With regard to EMIR (the European Market Infrastructure Regulation), the UK has been pressing for consistent implementation that protects open competition. While EMIR imposes an obligation to use clearing houses, noted the Minister, it is essential that there is genuine competition, which is why the UK has pushed for open access requirements in relation to all derivatives in EMIR. Free and open competition between clearing houses, he emphasized, goes in tandem with non-discrimination between Member States.

He urged policymakers and regulators not to surrender to proposals that would merely fragment European financial services market by currency. This is why the UK has pressed for clear recognition of the principle of non-discrimination in the Council position on EMIR.

On a separate point, Mr. Hoban noted that the UK is in the process of fundamentally reforming its domestic financial regulatory regime. The Financial Services Authority is being abolished in its current form. The FSA’s significant prudential functions are being transferred to a new Prudential Regulatory Authority that will sit in the Bank of England, with a focus on micro-prudential regulation. A new Financial Conduct Authority will oversee the conduct of financial services firms, the operation of markets and the protection of consumers, with new powers to ban the sale of toxic products. A permanent Financial Policy Committee, housed in the Bank of England, will monitor overall risks in the financial system, identify bubbles as they develop, and possess enhanced tools to take corrective action.

1 comment:

Daniel Milstein said...

Very well said Jim, the post has been very informative and being an author it drove my interest in your writings in this blog. Many political views got attention in this one as you wrote about the UK Finance Minister being skeptical of its position. Thank you for this one. Appreciative.