When the European Union’s markets regulator wheeled out 844 detailed pages of draft rules covering everything from dark pools to high-frequency trading, it gave banks 10 weeks to respond.
The European Securities and Markets Authority’s period for comment on the “very large and very important” proposal, a set of technical plans to flesh out legislation known as MiFID II, was a challenge, though banks are “working very hard” to provide “helpful input,” said Gerry Cross, a managing director at the Association for Financial Markets in Europe, a lobbying group. EU regulators aren’t at fault, as they’re bound by the “tight” schedules set out in law, he said.
ESMA isn’t alone. Regulators around the world are racing to meet deadlines set by politicians intent on overhauling the financial industry after the crisis that toppled Lehman Brothers Holdings Inc. The pace of reforms, and the shrinking time for feedback, has led to concerns about the quality of new standards.
“Arbitrary deadlines can lead to bad regulation,” said Kay Swinburne, a U.K. Conservative Party lawmaker in the European Parliament. “I would rather things took a little longer and were then right the first time instead of needing endless revisions that are costly to businesses and to consumers.”
The Bank of England this month bowed to pressure from U.K. lawmakers and extended its deadline for responses to a report on a leverage ratio, a type of capital requirement for banks, from four to nine weeks “to avoid any suggestion that these important proposals have not been adequately and properly considered,” the central bank’s governor, Mark Carney, said in a letter to U.K. conservative lawmaker Andrew Tyrie on July 22.
Group of 20
At the global level, the Basel-based Financial Stability Board, which consists of central bankers and regulators from the Group of 20 nations, published 15 recommendations on July 15 for overhauling the setting of benchmarks underpinning the foreign-exchange markets. The deadline for submitting comments: Aug. 12, or one recommendation for every 48 hours.
“The FSB seeks to give a minimum of 4 weeks for public consultation on policy documents, other than in exceptional circumstances, and longer if possible,” the group’s secretariat said in an e-mailed statement.
The Aug. 12 deadline “has been set so as to allow sufficient time for the comments to be properly considered and reflected in the final version to be transmitted to the Brisbane Summit” of G-20 leaders, the FSB said.
There’s no easy fix. For ESMA and the EU’s equivalent agencies for banking and insurance, the short consultation periods are a product of fixed deadlines in EU financial laws for the agencies to draw up so-called level 2 implementing rules and technical guidance.
“The issue isn’t necessarily the length of the consultations per se, important as that is; it’s to do with the deadlines set out in legislation, which in turn drive very tight periods for the preparation of the implementing regulations,” AFME’s Cross said. “It’s more that the overall process becomes unduly squeezed.”
David Cliffe, an ESMA spokesman, said the timetable “is set by the legislature and we aim to work within those parameters to provide as much time as possible for everyone to respond.”
The EU has adopted more than 40 financial-services laws since the 2008 crisis to rein in the banks and get taxpayers off the hook when they fail. These laws collectively require around 480 supplementary measures to flesh out key provisions, according to European Commission data. Plans for 20 such technical measures are out for comment at present.
“Once the highest level policy makers get together to decide objectives, they tend to disregard the implementation part of it, and this is now coming all at once with a huge upfront effort,” said Diego Valiante, head of capital markets research at the Centre for European Policy Studies.
Organizations from HSBC Holding Plc to the European Fund and Asset Management Association were among those to call, in response to a survey by the European Commission last year, for the EU regulatory agencies to be given longer and more flexible deadlines to prepare technical rules, so leaving more time for them to carry out consultations, and take into account the responses.
The European Commission is weighing how to address the issue as part of a review of how well the agencies, set up in 2011, are functioning. The commission didn’t have immediate comment.
“Given a tight deadline, a bank will focus on the points that have the biggest impact on its profits, and is less likely to look constructively at the long term effects of these rules,” Valiante said. “It’s less likely to apply its expertise to revealing unintended side effects.”