The European Securities and Markets Authority (ESMA) has published a speech by its chairman, Steven Maijoor. The speech is entitled Regulatory measures to prevent another crisis.

In his speech, Mr Maijoor covers three items:

  • how regulation and supervision responded to the 2008 financial crisis;
  • the implementation of the new regulatory framework; and
  • an outlook on current and future risks, as well as on the opportunities offered by the proposal for a Capital Market Union.

In the first part of his speech Mr Maijoor provides three examples of the major steps that were taken in the EU in response to the financial crisis. Mr Maijoor briefly discusses over-the-counter derivatives reform and the European Market Infrastructure Regulation (EMIR), securitisations and the CRA Regulations, and hedge funds and the Alternative Investment Managers Directive. He mentions that all these ambitious reforms were possible because fairly common views were reached at the global level. However, he also adds that whilst global agreement on regulatory reform is a big step forward an equally important step is consistent implementation. He mentions that “we are only half way there and we need to ensure that the regulatory reform is properly implemented and the financial sector changes its practices as intended.”

Mr Maijoor then discusses making the new regulation work in practice and briefly covers some of the challenges and opportunities. He states that probably the biggest contribution to improved data availability will come from the implementation of MiFID II. This is on the basis that it will broaden the range of instruments for which market participants will be required to store or report data, which in turn will extend the data set available to competent authorities, including identifiers which will enable regulators to detect the trader executing a specific transaction, the algorithm used, and the client on whose behalf the transaction is conducted.

In sharing his outlook on current and future risks, Mr Maijoor highlighted remaining challenges with regards to market infrastructures like central counterparties (CCPs), which have been given a more central role due to EMIR. Although the failure of a CCP is probably very low, Mr Maijoor maintains that it cannot be fully excluded and therefore defining an appropriate recovery and resolution framework is paramount. Proposals are currently being prepared at the global and EU level. Additionally, potential risks that the asset management industry poses to the functioning of the broader financial system have recently attracted the attention of a broad range of policy makers and regulators, with ESMA following closely the work done by the Financial Stability Board and the International Organization of Securities Commissions on the designation methodology of systemically important funds.

Lastly, Mr Maijoor mentions moving from a bank-dominated financial system to a system with more diverse sources of funding with the creation of a Capital Market Union (CMU), something that ESMA strongly welcomes. In his view, the CMU will accelerate integration of EU capital markets by focusing on greater diversity in funding, increasing the efficiency of capital markets, strengthening and harmonising supervision, and increasing the attractiveness of capital markets for both EU and foreign investors. The CMU is now a concept under construction and Mr Maijoor states he is looking forward to the proposals from the European Commission.

View Regulatory measures to prevent another crisis, 19 November 2014