The European Commission has committed to fundamental changes to key elements of the regulatory framework – if the industry can show substantive real evidence to support change. In response to the recent consultation, firms have provided evidence of unintended consequences, inconsistencies and lack of coherence.
Early signals from the European Commission are positive. In a speech* to industry, Commissioner Hill has given a clear indication that action will be taken to address many key areas of concern including:
• Taking a more proportionate approach and being better attuned to firms’ business models, risk profiles and size.
• Ensuring financing to economy is maintained by amending capital requirements.
• Reducing the compliance burden to help market liquidity.
In the speech, that also focused on CMU, he concluded by saying that without risk, we will not have growth.
In this report we look at what should be the priorities for financial regulation; the timeline; and how firms should be preparing for change. We also discuss some of the major themes which have emerged from industry responses to call for evidence.
This recent review stems from the Capital Markets Union (CMU) Action plan published in September 2015. CMU is a European Commission priority in order to better link investors to investment opportunities by removing barriers and strengthening the single market. The drivers are the sluggish levels of economic growth, high unemployment and a lack of investment in infrastructure and SMEs.
Firms are continuing to manage the suite of new rules that are challenging and changing their strategy, business models and operating procedures – at the same time addressing fundamental issues around profitability, return on equity and future plans.
Implementation programmes of the major inflight wholesale and retail markets regulations continue to strive to meet the tight deadlines. This means that systems, data, reporting and process change programmes will need to build in optionality in certain areas to avoid costly reworking in the future.
KPMG member firms responded to the call for evidence and recommended that the Commission takes the opportunity to produce a complete roadmap of regulations including those still being discussed by international bodies. This could then be used to identify where the key interactions are and where future adjustments could be made to make the framework more appropriate within the context of growing and effective capital markets. Read KPMG's response.
* EUROFI High Level Seminar, Amsterdam, April 2016