The European Commission will assess the collective impact of more than 40 pieces of regulation adopted in the wake of the financial crisis, as it turns its attention to job-creation and reviving the economy.
The European Union’s executive arm will evaluate the “unintended consequences” of rules that were pushed through rapidly in an attempt to shore up the banking system after 2008. The commission seeks input until Jan. 6 on unnecessary burdens imposed by regulators, inconsistencies and the interaction of rules that may have led to less resilient financial institutions.
“Given the large amount of legislation put in place and the interactions between them, there is a need to understand their combined impact,” the Brussels-based commission said in the consultation paper published Wednesday. “Additionally there may be areas where action is needed to support the commission’s priority of promoting jobs and growth.”
Jonathan Hill, the EU’s financial-services chief, unveiled his capital markets union plan on Wednesday in Brussels, an attempt to boost funding to companies and remove barriers to investment within the EU. He also seeks to promote the competitiveness of the European economy. Along with the consultation, the commission published its plan to revive Europe’s asset-backed debt market, proposals on covered bonds and venture capital funds, and measures to attract investment in long-term investment projects.
Hill, sent to Brussels by British Prime Minister David Cameron, said the capital-markets push is “totally separate” from U.K. efforts to renegotiate the country’s relationship with the EU.
‘Benefits of Membership’
“My only observation would be to my friends in the U.K. that I am very struck by the number of British financial services companies headquartered not just in London, but world-leading businesses who see the benefits of membership, and the benefits of access to the single market as being an integral part of the their business model, and that I think is a broader point than capital markets union,” Hill told reporters.
The first big step is Hill’s framework for reviving the ABS market by creating a class of “simple, transparent and standardized” products eligible for preferential capital treatment. The commission excluded synthetic ABS, which transfers risk using derivatives, from the new category, but is prepared to consider including some in the future when precise criteria are developed for determining the more simple products,.
The plan also requires originators of asset-backed debt to hold at least 5 percent of any transaction, the document shows. Bundled loans must have been created using the same lending standards as any other loan, meaning no cherry-picking is allowed.
Peter Green, a partner at Morrison & Foerster in London, said Hill’s capital-markets plan is “extremely thorough.”
“There is support across Europe for this welcome effort to reinvigorate the European capital markets and stimulate some very moribund economies,” Green said. “The challenges shouldn’t be underestimated though. There are diverging views on how reform is best achieved and securing consensus on the right approach will be very challenging. It may well have to be baby steps for the foreseeable future.”