Better regulation -Guillaume Prache
We will not restore investors’ confidence unless they can be indemnified in case of fraudulent and damaging behavior from providers.
Following the 2008 financial crisis, an impressive series of new EU regulatory projects is now flowing through to the European Parliament: in 2011 alone, it should debate on new regulations on short selling, on the review of the Markets in Financial Instruments Directive (MiFID) and of the Insurance Mediation Directive, on investment funds depositaries, on investor compensation schemes, and so on.
Is this good or bad for individual investors and savers throughout the EU? It is now very clear that the two parties mainly responsible for the financial crisis that started in 2008 were the banks and the financial supervisors. It is therefore logical that the EU is trying to tackle these deficiencies. The problem for financial services users is whether these new regulations will restore their confidence and improve their protection or not.
Our experience and analysis tells that these regulations too often rely on weak evidence, miss their key objectives, and are poorly enforced.
A vivid example of poor evidence is the European Commission (EC) consultation on the review of the MiFID rules on capital market structures. Evidence produced by the EC is so thin that it does not even seem to know the extent of the so-called “OTC” share of the equity markets (sources vary between 15 and 50 per cent!).
If only for that reason, the EC project to create yet another category of market venue (“the organised trading facilities”) seems flawed from the start. Moreover, it will complicate further the equity markets for end users (investors and non-financial issuers).
The new EU regulatory projects also too often miss their objectives. For example, the “Prips” (Packaged Retail Investment Products) project, which rightly aimed at harmonising investor information and conduct of business rules for all retail investment products, is now focusing only on a small share of those, excluding for example all personal pension products.
Also, we will not restore investors’ confidence unless they can be indemnified in case of fraudulent and damaging behavior from providers (as it is already the case in a few member states such as the Netherlands). But despite a “coherent collective redress framework in Europe” green paper issued this month, actual EU rules on collective redress still seem unfortunately very far away.
Lastly, new regulations per se will not make a significant difference for investors if they are not properly enforced. The four year old MiFID rules on investor information and on the justification and disclosure of “inducements” (commissions paid by the providers to distributors – often labeling themselves as “advisors”) have not been properly enforced. The “Consumer guide to MiFID” from the European supervisor itself does not even mention the “inducements” rules !
In the end, the severe imbalance between the power and influence of the financial institutions lobbies and those of the “buy side” at the EU level seems to be the main reason for such disappointing results. After all, customer protection is only the sixth and very last objective of the new EU financial authorities.
