ECB Urged to Integrate With Financial-Conduct WatchdogsCorina Ruhe and Maud van Gaal
The rush to get the European Central Bank ready to oversee euro-area lenders mustn’t distract regulators from defending consumers and policing financial misconduct, said Theodor Kockelkoren of the Netherlands Authority for the Financial Markets.
“If this topic is neglected, it could actually be to the detriment of the stability of the whole system,” Kockelkoren, a member of the AFM’s executive board, said in an interview. “You could argue that one of the factors that supported the financial crisis and the outbreak of it was the mis-selling of mortgages in the U.S.”
In preparation for starting supervision in November, the ECB is building an oversight arm and conducting an assessment of euro-area banks, including a stress test. This flurry of activity on the prudential front has left agencies like the AFM, which promotes the fairness and transparency of financial markets, wondering where they fit into the new European regulatory structure.
“We all understand that the urgency is now making the Single Supervisory Mechanism work, which will very much focus on the prudential issues in the here and now,” Kockelkoren said. Daniele Nouy, the ECB’s top supervisor, understands the importance of monitoring financial conduct, and has asked for patience as she builds the SSM, he said.
“It’s also important that we start thinking about how we want to build institutionally the counter-balancing system to the prudential system which is now being built around the Single Supervisory Mechanism,” said Kockelkoren, who also heads a joint task force on financial-consumer protection for the Group of 20 nations and the Organization for Economic Cooperation and Development.
In the short term, the AFM and similar national regulators will need to conclude cooperation agreements with the ECB, Kockelkoren said. European bodies, such as the European Securities and Markets Authority, will have to do the same.
“It’s critical that we, as soon as possible, start thinking about what these agreements can look like and what the topics are we need to agree on so that indeed we can speak of an integrated regulatory system,” he said.
In the future, a European “twin peaks” system, with separate prudential and securities supervision, may be possible, Kockelkoren said.
Financial-consumer protection could also be strengthened if regulators such as ESMA and the European Insurance and Occupational Pensions Authority would be merged, according to Kockelkoren.
The EU’s current system of financial supervision consists of ESMA, EIOPA, the European Banking Authority and the European Systemic Risk Board, which bring together national regulators. The relevance and reach of these bodies is changing with the rise of ECB bank supervision.
“I think it would be very wise if we would contemplate ways to harmonize those approaches and combine those activities,” instead of sticking to a “sectoral” approach, Kockelkoren said. For consumers it can be hard to figure out in which regulatory silo a financial product belongs to, such as an investment fund with an insurance element.
Topics are now typically dealt with in sectors, such as securities, insurance and banking, and that creates distortions in how institutions are incentivized to behave toward customers, Kockelkoren said.