After two contentious hearings, the E.U. Parliamentary Committee on Economic and Monetary Affairs favorably reported out the nomination of Lord Jonathan Hill of the U.K. as Commissioner for Financial Services and Financial Stability by a vote of 45-13. A final vote by the whole Parliament is set for October 22, with the new Commission expected to begin its duties on November 1. Lord Hill will replace Michel Barnier of France as the E.U.’s top securities and banking regulator. Similar to Commissioner Barnier, Lord Hill emphasized that the avoidance of regulatory arbitrage is a paramount concern, both within the E.U. and with the United States. He will continue Commissioner Barnier’s fight to achieve financial regulatory convergence with the U.S.
Recently, Commissioner Barnier called on Lord Hill to continue the effort to have mandated cross-border financial regulatory convergence included in the trade talks with the United States and convince U.S. regulatory partners that this approach will not lower standards but will achieve greater financial stability. During his conformation hearings, Lord Hill addressed the concerns of some MEPs that U.S. regulators have implemented increasingly stringent extraterritorial requirements for financial firms operating cross-border. The Commissioner-designate noted that, while the U.S. tries to regulate its global financial firms even when they are operating in the E.U., the Commission should recognize U.S. regulations as equivalent when it can; and defer to such regulations.
On the issues around shadow banking, Lord Hill said that the Commission must be alert to the emergence of new risks in this sector. Shadow banking is a broad term, he noted, and it encompasses some activities that policy makers and regulators may want to encourage. The challenge is to implement effective regulation while not suppressing innovation.
He emphasized the free flow of capital, to which he is totally committed, greatly depends on restarting a private, high quality securitization market. This will be one of his top priorities. He said the choice between regulation and growth is a false dichotomy. Regulators can encourage better securitization without increasing risk.
The Commissioner-designate is also committed to the principle of regulatory proportionality, and eschews a one-size-fits-all approach to regulation. The Commission should look at the size of the firm and scale the regulation accordingly.
While noting that corporate governance is not part of his remit, it will go to the Justice Commissioner, Lord Hill said that incentive compensation should be aligned with performance and the long-term interests of the company. That alignment broke down during the run up to the financial crisis, he noted, when executive compensation was not geared to the long-term interest of the company and its shareholders. He supports clawbacks of bonuses and other forms of incentive compensation.