Saturday, October 04, 2014

E.U. Financial Services Commissioner-Designate Grilled by Parliamentary Panel

Lord Jonathan Hill, European Commissioner-designate for Financial Stability, Financial Services, and Capital Markets, was grilled by the European Parliament’s Economic and Monetary Affairs Committee this week and will be called back for a second hearing next week. Lord Hill announced a plan to combat risk, close financial loopholes and create a strong capital market. Broadly, he will identify obstacles to the free flow of capital and, specifically, he will encourage investment in high quality securitization by unlocking private investment without engendering the taking of undue risk.

While it appears that corporate governance will not be part of his portfolio, it went to the Justice Commissioner, Lord Hill opined that compensation incentives must be aligned with performance. In his view, the breakdown in aligning pay with performance was a problem that helped cause the financial crisis because it worked against executives acting in the company’s long-term interest. He also said that clawbacks of executive compensation are appropriate in some circumstances. He emphasized his commitment to be a Financial Services Commissioner for all E.U. Member States, not a representative of the U.K. financial services industry.

Responding to a questionnaire from Parliament, Lord Hill promised to work for the consistent cross-border implementation of international standards and principles in all key jurisdictions and close loopholes that can present risks to financial stability, and ensure a level playing field globally. He will seek to deepen regulatory cooperation with the U.S. on financial services, in order to avoid companies having to comply with two sets of similar but not identical rules. He will pursue similar work with other G20 countries and other jurisdictions, especially those with important financial markets.

The regulation of shadow banking is also on his radar screen. He pledged to begin discussions in order to set strong international standards that will then need to be implemented at the E.U. level. One of his first priorities will be to design a recovery and resolution regime for non-bank entities, most notably derivatives central counterparties.