Brussels, 08/12/2010 (Agence Europe) - On Wednesday 8 December, European Commissioner for the Internal Market and Services Michel Barnier informed the press of two initiatives to re-establish order in the financial markets, which have been transformed by technological innovation and the instability created by the crises over the last two years. He declared that “a safer and more transparent financial system serving the real economy is what we are working towards with this amendment to the Markets in Financial Instruments Directive (MiFID)”. The Commission also adopted a communication for implementing minimum harmonised penalties to curb irregularities in this sector.
Consultation on the MiFID. On Wednesday 8 December, the Commission launched a consultation on revision of the Markets in Financial Instruments Directive (MiFID). This directive has been in force since November 2007 and defines an overall framework for investment companies providing services linked to financial instruments, as well as rules to protect investors. MiFID enables trading venues and investment firms to operate freely throughout the EU. Rapid technological progress, financial market complexities and volatility, as well as the lessons from the financial crisis, require far-reaching revision every time shortcomings are observed or when improvements are deemed necessary. The objective of this consultation is to compile information from all the different stakeholders, which will be used to strengthen the legislative proposals planned for spring 2011. The deadline for contributions is 2 February 2011.
Michel Barnier explained that MiFID alone covers “half the field of the Dodd-Frank Act”, the major financial reform voted on last July in the US. All actors, intermediaries and bankers are covered by the MiFID “together with the shortcomings and imperfections we seek to correct”, explained the commissioner.
Michel Barnier has two major objectives in pushing through this reform: making the financial markets safer and more transparent. He said that “we want to know who is doing what and that market operators are prepared to take account of this”. This will involve updating the regulatory framework, particularly by adapting this framework to recent structural changes in the markets. Barnier is particularly focusing on the appearance of new negotiating platforms, the “crossing network” and technological development, such as “high-frequency trading”, which are posing a number of problems. The Commission is also seeking to extend transparency to certain markets that are not regulated enough, such as the derivatives market and the notorious “dark pools” market. To clarify, transparency rules currently defined in the MiFID only cover investments.
Michel Barnier also wants good supervision and transparency for derivatives in the raw materials sector, particularly in agriculture. He explained that “we want to improve the way in which these markets function. We are going to work in the energy and agriculture arenas, on the relationship between financial and physical markets”. As part of the consultation on MiFID, the Commission is looking at the issue of introducing “position limits”, which has already been done in the US (at the Chicago stock exchange). Barnier stated: “I think the hyper-speculation on agricultural materials is scandalous” and he is determined to “introduce transparency and the strictest regulation” in this domain. A Commission communication on market regulation of raw materials will be published by the Commission in 2011.
The Commission is also envisaging other measures on the subject of investor protection. It is posing the following question: what measures are necessary to enhance investor protection so that investment firms treat investors appropriately and according to their specific profiles? The Commission is also suggesting that supervision is enhanced and harmonised. This will involve clarifying the role of the European Securities and Markets Authority (ESMA), which will be operational as from January 2011.
Toughening up the sanctioning regimes. The European Commission adopted a communication on possible ways of strengthening the sanctioning regimes in the EU financial services sector. There is currently a range of different sanctions and application in EU countries varies considerably. The risks are plain to see if a financial institution does not respect European financial market rules. “Each trader or senior manager must know that the response will be tough wherever irregularities have been committed in Europe”, explained Barnier. For example, in seven EU countries there are administrative fines for banking sector infringements, such as reporting failures, which are below €150,000. In other countries, however, for the same kind of infringements, fines can reach several million euro (in the United Kingdom, which has a very strict policy in this domain, a fine of £17 million was recently imposed for failure to transmit important information on the banking sector to the supervisor).
Nonetheless, the Commission is proposing to allow “a certain flexibility to member states when applying these sanctions”, Barnier acknowledged. He does, nevertheless, consider that there are reasons for establishing “minimum standards” on certain key points, so that sanctions are “dissuasive, efficient and proportionate”.
The Commission considers that it is necessary to increase convergence in the sanctioning regimes if they are serious about preventing any risk of financial market dysfunction. This objective could be attained by setting out common minimum rules for certain essential questions to ensure the efficient, proportionate and dissuasive nature of the sanctioning regimes: the kinds of available sanctions, especially envisaging civil and criminal sanctions; the level of sanctions; the possibility of sanctioning both financial establishments and individuals responsible for infringements; and publication of the sanctions.
In light of the different reactions to this communication, the Commission will carry out a transversal review of a certain number of texts on penalty implementation (the market abuses directive, the Solvability II directive, MiFID, the prospectus directive, rating agencies and Basel III). Stakeholders have until the 19 February 2011 to send in their contributions.
Timetable. Michel Barnier noted that “memories are short” among some of the actors involved in financial services, with regard to what provoked this financial crisis and its extremely serious consequences, which is continuing to have an impact at an economic, social and political level. Before June 2011, the commissioner would like to put on the table of the Council and the European Parliament “the totality of proposals that Europe must implement” in order to achieve “smart regulation and efficiency”. He highlighted the agreements recently reached on the supervisory framework (the three new authorities and the systemic risk council), on regulation of hedge funds and private equity, and (just a few days ago) the second stage of the rating agencies regulation. (L.C./transl.fl)