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framing financial regulation February 5, 2008

Posted by Bradley in : Uncategorized , trackback

I’m working on a range of issues relating to regulation in the financial services industry right now, including self-regulation and lobbying by financial firms and their trade associations. When a large French bank ignores questions raised by an exchange about strange trades, ending up with a loss of over $7bn, that raises some questions about the effectiveness of regulation and, in particular the bank’s internal systems. The sub-prime mess, too, prompts the question why no-one seems to have realised there were problems. In the run-up to the collapse of the credit markets, banks in the US were lobbying hard to keep regulators off their backs. I’m particularly interested in the ways that the multi-level nature of financial regulation (federal, national and supranational, regional etc) allows financial firms to manage the regulatory system to their own advantage. I have just been reading some comments by trade associations on the Committee of European Banking Supervisors’ proposals to amend its consultation procedures. The BBA said:

We would …suggest that CEBS considers, prior to the launching of formal consultation, a further refinement of its practices. This would be the holding of ad hoc roundtables with market practitioners, ahead of the launch of a formal consultation.
The purpose of these would be to obtain specific technical observations on a particular issue from a wide range of market participants, in an informal, but transparent way. This would then in turn inform CEBS Members ahead of themselves developing a view about a particular issue. We recognise that the Consultative Panel already undertakes an important role in relation to inputting market feedback into CEBS, but we are not entirely convinced that this is always sufficiently focussed on ensuring that a complete and well-considered market view prevails. The BBA has substantial experience of organising these industry roundtables and we can assist CEBS in their development.

LIBA, ISDA, SSBA and FASD joined together and said much the same thing:

we would encourage CEBS in the strongest possible terms to build on its informal mechanisms as much as on its formal procedures. Transparency of thinking at an early stage is one of the most powerful tools in achieving proposals that work well for all parties. Secondly we also ask CEBS to consider, when embarking on any stream of work, whether the Consultative Panel is as fully and as widely representative as it needs to be for that specific issue and to identify ways in which industry experience and input can be supplemented. Informal hearings are a good mechanism providing that there is some structure and industry has a clear view of the kinds of issues on which CEBS wishes to understand their attitudes.

These comments date back to June 2007. The real question is how would CEBS react to such statements today?

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