Do Europe’s financial regulators have a chance of understanding the real economy?

May 18, 2011

How seriously is ESMA taking the impact on non-financial end users of the new financial regulatory regime on Europe? The answer now may be….not at all. Over the last few months ESMA has been considering who to appoint to the Securities and Markets Stakeholder Group, a new body established to ‘to help facilitate consultation with stakeholders in areas relevant to the tasks of ESMA’. I should at this stage declare an interest; I was a candidate for appointment, as were the group treasurers of some of the largest companies in Europe. Nobody from this group has been appointed.

You might well ask, how on earth can ESMA accomplish its difficult task to lead in the implementation of derivatives market regulation (EMIR, in Europe) unless it properly recognises three things:
– very material open issues in the implementation of the new regulation revolve around how non-financial end users should be treated;
– ESMA desperately needs good advice from those who are directly affected by the uncertainties (and potentially, the unintended consequences) of the new regulatory environment; and
– these markets would of course not exist were it not for the underlying risks being managed in the real economy by precisely those people who sought to sit on the advisory group.

I have to admit to being left almost wordless by what has happened. This seems to be a huge snafu on the part of the European Commission and ESMA. Of course, as in most sorry stories it actually gets worse. The background of the seven people appointed to ‘represent users of financial services’ are:
– an Italian trade association representing issuers (could be useful)
– a Portuguese ratings company
– a Spanish hedge fund
– EFRAG – an EU advisory group on financial reporting
– EFAMA – a European trade association representing asset managers
– a German bank (surely some serious mistake?)
– the Shell asset manager for its pension fund

Do we see the real economy – the widget manufacturers and service providers – in this list? Not at all.

To add insult to injury those selected to represent ‘financial markets participants’ are almost entirely drawn from clearing houses and exchanges, with just one banker (an ex-regulator) on this list.

It makes no sense to drag the real economy into financial markets regulation and then fail to invite a single treasurer to become a member of ESMA’s stakeholder group. Whilst that real economy, on which Europe depends for growth and employment, has never been the source of systemic risk it is profoundly impacted by the new regulatory environment.

One Response to “Do Europe’s financial regulators have a chance of understanding the real economy?”

  1. Europe’s chosen financial regulators know exactly what they’re doing at every time of everyday. It is foolish to think that they are not swaying the economy to someone’s favor or benefit but it is also necessary to believe that there are individuals within that group that are so looking out for the benefit of European nation.

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