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Regulation of Financial Services: Now and Its Future

The European Banking Authority (EBA) was founded ten years ago. Its birth on January 1, 2011 was sanctified as the beginning of a major overhaul of the regulatory architecture for financial services in the EU, and the EBA and its “sisters” ESMA (European Securities and Markets Authority) and EIOPA (European Insurance and Pension Authority) indeed have the type and The way in which regulation in the Union is now inspired and implemented has completely changed.

Two important considerations spring to mind. The first is the question of the possible inconsistency between an idealized goal of centralized regulation at EU level and the leeway that national authorities always need to exercise domestic options, discretion and practices. Second, there is the tension between the often criticized rigidity of the EU regulatory process and the level of flexibility that regulators undoubtedly need in order to remain practical and operationally au courant with non-stop finances. Markets and innovative practices are changing.

In the turbulent financial years of the celebrities of one of the revered fathers of the single European currency, Tommaso Padoa-Schioppa, the often so-called Cassandra of pan-European financial stability, Alexandre Lamfalussy and the EU Council a year before the EBA was founded, much was said about the concept a uniform set of rules spoken and printed.

However, the committee’s special report had shown a strong bias towards “regulations” as opposed to “guidelines”. “Wet squib” could now be the possible response of many practitioners as they ponder not only what has proven to be an endless stream of both over time, but possibly the same additional streams of domestically implemented measures, either during the implementation iter or through decisions of local regulators.

In the past decade, great progress has been made in the development of RTS (Regulatory Technical Standards) and ITS (Technical Implementation Standards) at EU level. Hopefully, over time, these standards will bring practitioners to a stage where everyone is “singing from the same hymn book.” The fact is, however, that the point in time at which one can say that the greatest possible benefit from these standards and from the flow of “guidelines”, “recommendations” and other instruments has not yet been reached. Politics, law and governance remain the seemingly eternal challenges for the EBA in order to achieve a situation in which at least the early detection of diseases by financial institutions can occur as early as possible.

When it comes to this challenge, the EBA is always faced with a twofold reality. On the one hand, there is the conviction that a common, uniform set of rules for all forms of activity in the banking business will ensure that no licensed institution can fly “under the radar” of constant review, control and regulation in general.

The other reality is this constant bottom-up  -peal that the EU must avoid accepting “one-size-fits-all”  -proaches in everything it does. Yes, even in this area of ​​finance, this dichotomy continues to confuse and confuse. And don’t let anyone run away with the idea that fintech is a guaranteed answer to all questions.

Does all this mean that efforts to achieve maximum harmonization should be abandoned? Certainly not. There is always room, for example, to design certain specific guidelines to allow for choice and discretion. Some may say that this is actually already being done, but not to the extent desired, as demonstrated by practitioners’ responses.

For example, CRD 4 (C -ital Requirements Directive) and its accompanying regulation (CRR) were structured early on in such a way that they included 80 options and discretionary leeway for “member states” (later up to around 155 in individual cases). -Case bases) to be able to adopt regulatory authorities. Not bad … but not enough, according to some practitioners.

The implementation and  -plication of standards and EU-based guidelines and rules, an endless reality in which life in the financial services world is still making technological entry into legislation, whether the banking union (let alone the problems with the c -ital union!), Or otherwise an overriding overall harmonization of day-to-day operating practices (which implications for the unified supervisory mechanism) will  -parently continue to be big issues in a financial services world that, when it comes to brass hooks, in reality still fits the old dictum of plus ça change very well , plus c’est la mȇme chose (the more it changes, the more it stays the same).

Regulation guru Edward Kane boldly believed that “Regulation doesn’t exist … Deregulation doesn’t exist … the only reality in the financial world has been, is and always will be constant re-regulation!”

Accept it and take it over … or find something else to do …

John Consiglio has taught banking regulation at the University of Malta for 25 years. He is a former banker, former governor of the MFSA and currently sits on the national committee on the Bank Recovery and Resolution Directive (BRRD).

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