fsa on competitiveness October 5, 2009
Posted by Bradley in : financial regulation , comments closedPublishing new standards for liquidity, the FSA (pursuing its agenda of reinventing itself as a tough regulator) responds to those who argue that if the UK imposes more stringent regulation, firms subject to regulation in the UK will find it harder to compete with other, less strictly regulated firms as follows:
We maintain that, even though our new regime will require a considerable change to firms’ liquidity risk-management practices, strengthened liquidity requirements can bring substantial long-term benefits to the competitiveness of the UK financial services sector. London’s competitive position depends importantly on counterparties’ perception of the financial soundness of the firms that operate here. Low levels of financial soundness cannot provide sustainable long-term competitive advantage. It is in every firm’s interest to demand strong liquidity standards for its competitors, as the current crisis has shown that the weakest firm can precipitate a market-wide crisis of confidence affecting all firms.
fsa on responses to short selling consultation October 1, 2009
Posted by Bradley in : financial regulation , comments closedPublished today. This document doesn’t say that responses were of a high level:
There were 54 responses to DP9/01, including 17 from trade associations (or trade association coalitions) representing the views of their members. Most of the other responses came from authorised firms, but there were several responses both from non-authorised firms and individuals.We thank respondents for their comments.
fsa on responses to turner review September 30, 2009
Posted by Bradley in : financial regulation , comments closedThe FSA has published its report on reactions to the Turner Review (and accompanying discussion paper). The FSA reports that it received 81 responses (which it characterises as being “of a high standard”!) and states that:
… London’s reputation as a financial centre will be enhanced by a strong and effective regulatory framework, implemented robustly by FSA supervisors. Some have argued that the FSA should be very sensitive to the impact of any new regulatory proposals on London’s attractiveness as an international financial centre. While the FSA is certainly required (and will continue) to have regard to ‘the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom’, this is only one of a number of considerations that the FSA is required to take into account…More importantly, the FSA’s overriding concern is to achieve its statutory objectives, in particular maintaining market confidence and protecting consumers. An effective regulatory regime that delivers those objectives is the FSA’s highest priority.”
bank of england payment systems consultation September 28, 2009
Posted by Bradley in : financial regulation , comments closedThe Bank of England, exercising its functions with respect to payment systems under the Banking Act 2009, seeks comments (by October 30th) on its draft principles for recognised payment systems. The principles are pretty broadly drafted so it’s not very clear what they require. The Bank proposes to let system operators know what is required of them and to engage in regular risk reviews of payment systems. I’m not sure how reassured (or otherwise) to be about the statement that:
The Bank aims to follow a fair, reasonable and transparent process in the exercise of its powers, taking account of all relevant considerations.
g20 progress ? September 26, 2009
Posted by Bradley in : financial regulation , comments closedIt’s not entirely clear how meaningful any of this is yet, but there’s much more detail in the G20 leaders’ statement than in the crisis-related statements that came out of earlier meetings. There are some small commitments to the reform of governance of the IMF. And the statement links to the work of the Financial Stability Board, with approval of some of the details, for example with respect to compensation. The FSB published reports yesterday on improving financial regulation, improving stability, and on compensation.
The leaders’ statement claims that progress has been made in improving financial regulation:
Since the onset of the global crisis, we have developed and begun implementing sweeping reforms to tackle the root causes of the crisis and transform the system for global financial regulation. Substantial progress has been made in strengthening prudential oversight, improving risk management, strengthening transparency, promoting market integrity, establishing supervisory colleges, and reinforcing international cooperation. We have enhanced and expanded the scope of regulation and oversight, with tougher regulation of over-the-counter (OTC) derivatives, securitization markets, credit rating agencies, and hedge funds.
But the FSB suggests that it is nervous about some of the domestic developments in these areas. For example, with respect to CRAs the FSB notes:
Attention is needed to avoid requirements coming into place in different jurisdictions that have features that fragment rating markets or impose unnecessary burdens on CRAs.
the sec and regulation of credit rating agencies September 18, 2009
Posted by Bradley in : financial regulation , comments closedThe SEC announced a bunch of new rules on rating agencies (details to be provided later). And the SEC will be seeking views on further de-emphasis of ratings in regulations and on the liability issue. Meanwhile, in the EU, Charlie McCreevy, discussing the reform of financial regulation notes the EU’s actions in this area and claims that the G20 is “broadly on the same line” as the EU on a range of matters, including CRAs. Of course, the EU’s role in regulating CRAs is a bit odd given that the dominant agencies are based in the US. On the other hand, the SEC’s Inspector General’s report on the SEC’s feeble oversight of NRSROs may suggest that a bit of a push from elsewhere, as well as some domestic political attention, is necessary to encourage the SEC not only to focus on developing appropriate rules, but also to apply the rules it does adopt.
sec enforcement as seen by judge rakoff: not a pretty picture September 15, 2009
Posted by Bradley in : financial regulation , comments closedJudge Rakoff’s decision not to approve the proposed consent judgment in SEC v Bank of America takes the high road:
The proposed Consent Judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.
credit rating agencies September 3, 2009
Posted by Bradley in : financial regulation , comments closedI just posted a paper on credit rating agencies to SSRN. Here is the abstract:
The market for credit ratings is a transnational market dominated by a small number of credit rating agencies (CRAs). The article examines how CRAs have used market protection rhetoric and harmonization rhetoric during the crisis in the financial markets. As criticisms of pre-crisis financial regulation proliferated one might have expected CRAs to be less forceful in their resort to market protection rhetoric. CRAs’ lobbying strategies have evolved as discussions about the broader future of financial regulation have evolved, and they have conceded a greater role for regulation in 2009 than they had before the crisis, but they continue to emphasize, with some success, that as a global business they should not be subjected to different rules in different jurisdictions, and to insist that the core of their methodological approaches to rating should be unregulated.
fsa develops eyebrows? September 1, 2009
Posted by Bradley in : financial regulation , comments closedIt used to be said that the UK financial markets were controlled by the Governor of the Bank of England’s eyebrows. It seems that interviews with the FSA have resulted in 10 per cent of candidates for senior management positions at UK financial institutions withdrawing before hearing whether the FSA would approve of them or not.
protection, not protectionism September 1, 2009
Posted by Bradley in : financial regulation , comments closedIn today’s New York Times, Daniel Price writes about an increase in protectionism, focusing in particular on protectionism in the financial markets. The specific examples he gives seem to be all about EU rules (although there is a reference to “several countries” (not named) having taken steps to “increase domestic lending at the expense of cross-border lending”). Now, in the context of a global crisis where defects in US policy and regulation were significant causal factors I have some sympathy for protective, if not protectionist, impulses.
But I think the EU examples don’t reflect so much European protectionism as a European negotiation with the market. Before the crisis, Commissioner McCreevy was a noted proponent of better regulation. The crisis changed the world, but perhaps not really so much in the context of technical rules of financial regulation. Rather than European clearing of credit default swaps just being a matter of European rules imposed on the markets by protectionist regulators, the new clearing system reflects a negotiation between the Commission and market participants:
In response to the Commission’s call for central clearing of credit default swaps (CDS), ten major dealers committed to clear CDS on European reference entities, and indices based on these entities, through one or more central counterparties (CCPs) established and regulated in the European Union by 31 July 2009. The Commission has set up a working group, involving dealers, the buy-side (e.g. banks, insurance companies and funds), CCPs and supervisors, to monitor the orderly roll-out of this commitment.
Market participants responded to an invitation by the Commissioner. OK, there was a big stick in the background, but the result was not just a matter of protectionism.
The EU’s proposals to regulate credit rating agencies, also referred to in the article, developed over time, and as the result of energetic lobbying about the ratings business being a global business (in fact dominated by three large US raters) and the need for the EU to back off its original position. The requirement for ratings developed by non-EU raters to be endorsed by EU-based entities doesn’t apply to smaller non-EU firms ( a certification system will apply to such firms instead). The details are still being worked out, but the story is at least as much an example of a victory for harmonization rhetoric, as it is an example of protectionism.