Though Brexit uncertainty and the fragmented nature of European policymaking create obvious challenges, EU policymakers are committed to finding a new way forward that balances effective risk-management and financial innovation.
That was the primary message delivered by Robert Ophèle, chairman of French markets regulator Autorité des Marchés Financiers, in a keynote address at FIA's IDX 2019 conference in London on June 4.
Finding the middle ground between flexible outcomes-based approaches and stricter rules-based approaches in current political environment requires "a new way of building up Europe markets which is both ambitious and pragmatic," Ophèle said. "The challenges in front of us include how to ensure the dynamism of the EU27 capital markets, Europe's attractiveness and competitiveness and how to respond to digital and environmental transitions."
Ophèle acknowledged the highly technical nature of many EU regulations. "When you can't rely on a single supervisor, you are inclined to foster harmonization by putting a lot of details in the primary legislation," he said. However, he stressed the importance of "giving appropriate tools to the ESMA to build up a more unified and more reactive supervision.
Specifically, Ophèle noted that "the constant refusal by the EU co-legislators to grant no-action letter tool to the ESMA illustrates the lack of agility of the European approach" and urged action on the topic.
He also stressed the importance of policymakers looking beyond the initial legislative act. In his IDX remarks, Ophèle pointed to several specific areas where the European Commission can improve how it works with derivatives market participants. Among other items, they included:
- Using Level 1 regulation only for setting out framework principles,
- Setting "realistic implementation dates for all actors," and
- Being more responsive to the feedback of market participants when provisions are unworkable or do not accomplish their goals.
Beyond these specific issues of the day, policymakers also must prioritize broad cooperation on sustainable finance topics such as Environmental, Social and Governance (ESG) issues, he said.
"We have a collective responsibility to demonstrate that finance can effectively integrate ESG factors and be a key contributor to a more sustainable economic model," Ophèle said.
The breadth of all these issues collectively illustrate the importance of information sharing and better cross-border cooperation, Ophèle said, and "a rethinking of day-to-day relations between supervisors" that can be flexible enough to work across jurisdictions. However, Ophèle warned that these concerns should not be used to justify weak or patchwork regulations that fail to protect market integrity by allowing entities to engage in "jurisdiction shopping" to avoid appropriate supervision.
All these challenges are significant, he said, but there is no time like the present to rethink the current approach to European derivatives regulation.
"As the new European legislature opens, and as the U.K. is probably leaving the EU, the time is right to think about the main areas of work and principles that should guide the actions of EU legislators and regulators for the coming years," Ophèle said.