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ftas oppose legal harmonization January 18, 2008

Posted by Bradley in : Uncategorized , trackback

I have an ongoing interest in how financial trade associations engage with multilevel financial regulation. Today a body which calls itself the Joint Associations Committee (it describes itself as being “sponsored by: European Securitisation Forum (ESF), International Capital Market Association (ICMA), International Swaps and Derivatives Association (ISDA), London Investment Banking Association (LIBA) and Securities Industry and Financial Markets Association (SIFMA)) responded to the EU Commission’s request for comments on the idea of harmonizing rules on ‘substitute’ retail investment products. As today was the deadline for submitting comments it is likely that the response was timed to make it difficult for anyone to respond to the arguments in the submission. In contrast to their common practice, these organisations oppose the idea of harmonization in this context because of the need for national regulators to be able to respond to local conditions:

Not only are national regulators best placed to understand and respond to developments in their local markets, they are also best placed to judge the type of regulatory intervention most likely to be effective in addressing a particular local market issue. Thus, effective regulation in this area must leave scope for national regulators to act in their local markets. Conversely, the imposition of Europe-wide regulation at a detailed level, if not precisely calibrated, could result in significant customer detriment in some national markets. Put simply, we doubt whether it would be possible to create a Europe-wide regime in this area capable of addressing the vagaries of all of the EU national retail financial markets.

Presumably the underlying concern here is that harmonized EU rules would provide more of a constraint on the products financial firms could develop than a lot of different national rules. But the invocation of the danger of consumer detriment does remind me of the lobbying about sub-prime lending which focused on the problem that consumers would be deprived of opportunities to borrow money if the states regulated sub-prime loans too aggressively and in ways which interfered with securitization of those loans. Some of those poor customers might have been better off had they been regulated out of those loans.

On the other hand, altough the lobbying against state rules about sub-prime lending can be portrayed as a preference for supralocal rules (harmonised national standards rather than divergent local rules) at the time it was also an expression of preference for regulation by a body which preferred not to regulate.

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