Sunday, January 12, 2014

E.U. Securities Commissioner Sees China as Partner in Reform of Financial Regulation

Both the European Union and China are singing from the same G20 song book when it comes to the reform of financial regulations in the wake of the global financial crisis, said E.U. Commissioner for the Internal Market Michel Barnier. In recent remarks in Beijing, he noted that the Third Plenum paved the way for reforms for the next ten years. The way in which the announced reforms are implemented in a comprehensive approach will be crucial, not only for China, but for the rest of the world, including Europe.

In recent remarks in Beijing, the Commissioner noted that both China and the E.U. believe that globalization must be organized and needs rules. Similarly, both China and the E.U. consider the G20 as the premier forum. The G20 has been critically important to the development of joint responses to global challenges. Indeed, in the last few years, the commitments made in the G20 have been the roadmap for financial reform and ensuring that every financial product, every market and every activity is suitably regulated.

At its latest summit, the G20 noted that all major jurisdictions have implemented new global capital standards under Basel 3; have completed frameworks for OTC derivatives to be traded on exchanges or electronic trading platforms, centrally cleared, and reported; have identified globally systemically financial institutions and subjected them to heightened prudential standards to mitigate the risks they pose; have set up orderly resolution procedures for large, complex financial institutions without taxpayer loss; and have begun to address potential systemic risks to financial stability emanating from the shadow-banking system.

With regard to financial services, Commissioner Barnier noted that there is a whole body of work to do to implement the rules already agreed upon and to make them work together. It is imperative that both the Chinese and E.U. systems be equally robust so as to avoid a global race to the bottom and the regulatory arbitrage that would ensue. This is especially true with regard to the implementation of the Basel rules and addressing the risks attached to the shadow banking sector.

More broadly, it is important to ensure that market players from one country or region can invest safely in another. Investors must know that their rights will be respected, that they will not be discriminated against as regards the applicable rules; and, where appropriate; that the authorizations obtained at home will be seen as reaching similar outcomes as those in place in the host country.