Interviewer (Simon Lovegrove): Welcome to this Christmas Edition of the Financial Services Fireside Friday. In this Fireside Friday we take a brief review of 2011 keeping with our key themes of European and Domestic reform.
Jonathan, starting with European reform, what are the highlights for you?
Interviewee (Jonathan Herbst): Well, there is an enormous amount been going on. At the more advanced stage we have got the AIFMD, all of the Level 2 stuff now coming through the advice from ESMA, very chunky, very significant for next year. At Level 1 of course we have got EMIR that is almost finished, not quite and then at the much earlier stage we have got MiFID and we have got various other things going on the CRD and UCITS front. So I think the main problem for people is trying to get a snapshot of where it’s all at, its an enormous challenge.
Interviewer (Simon Lovegrove): What are your thoughts Peter?
Interviewee (Peter Snowdon): Yes, I think I agree with Jonathan, those are the key themes. I suppose the one that everyone’s has been anticipating during this year was the revised edition of MiFID and we saw that, no, I think, great surprises there, many of the proposals had been trailed quite heavily by the Commission. I think probably in fact there was less in it to some extent than some of us were anticipating and it may well be that we will see more coming through at Level 2 but certainly that for me was probably the highlight of the European year.
Interviewer (Simon Lovegrove): And just going back now to the MiFID review we have also seen proposed tighter regulation of third country firms.
Interviewee (Peter Snowdon): Yes, I mean this is a significant new development because effectively what the Directive is proposing is that third country firms, for example, firms from the US or Australia would have to be effectively authorised within the European Union to provide services here. For retail service providers they actually need to have a branch, and for non retail it would appear certainly for ECP’s that they will have to be authorised. Interestingly, there is no real word in the Directive about what happens to professionals so either an oversight or perhaps something rather more sinister there, but I think the key thing to take away is that those firms will have to be authorised in future, if this proposal goes ahead as currently drafted.
Interviewer (Simon Lovegrove): Also, I thought that the MiFID review showed the key themes of European Reform this year, in that you had the move towards the single European Rulebook with more regulation. We also saw that there were proposals to the CRD IV. Also, the tougher standards for the industry and that was the ban of commission for independent advice and finally you had a reaction to technological change if you think of the MiFID review you had the HFT proposals. And then moving to the domestic agenda, we have seen legislation now for the Government’s proposals for regulatory reform, what are your thoughts Jonathan?
Interviewee (Jonathan Herbst): I think there, I mean that is pretty much what we thought it was going to be. I mean next year we are going to have the Bill into Parliament, that is the split up of the FSA which now needs to get moving in terms of creating a stable regulatory environment, very significant and I think the Government is well aware of that. Obviously we have got the beginning, the early papers both from PRA and FCA in terms of their approach documents, a lot of things to talk about there. But just coming back generally to both domestic and European, I think that the really big picture point is what’s the politics behind this? I think at European level, there are incrementalists who believe in a staged, complex kind of debate on various areas. There is also some very high politics for example on commodity derivatives and those in Europe who are simply opposed to the kind of liberal Anglo Saxon tradition. And domestically I think there is quite a complex picture with elements of the Governments programme that are really, I mean hostile is the wrong word, but certainly tough on the industry, for example, on consumer protection. And I don’t think anyone should under estimate that. It’s not just about splitting the organisation from the FCA/PRA point of view, but it is also about the way in which regulation is done, proactive, looking for the event, all those sorts of things which are very very significant.
Interviewer (Simon Lovegrove): Another key part of the regulatory reforms is the Independent Commission on Banking’s Final Report, in particular the ring fence proposals. Where do we think that is going to go?
Interviewee (Peter Snowdon): Interesting question. I think the simple answer is I think we are not sure where it is going but the Government seems very committed to introducing those proposals and that’s been confirmed by George Osborne as recently as the last couple weeks. So I think banks can anticipate that ring fencing will go ahead. They can anticipate that they are going to have higher capital requirements and of course that is one of the issues which came up in Brussels last week. One of the reasons why the UK felt unable to sign up to the revised treaty proposal was that Government wants to have the power to impose super equivalent capital requirements on UK banks. I think in fact one thing that we didn’t mention earlier at European level MIFID is this idea that third country firms are going to be subject to effectively an authorisation regime, so the relationship that many of the bigger institutions in the City have had with firms in the US and Australia and other non European jurisdictions will be quite, potentially quite heavily affected by this new approach.
Interviewee (Jonathan Herbst): And the thing I would finish on that point is almost something to leave with, a thought for the year which is there is a huge connection between highly technical regulatory debate that we are having in terms of MIFID and EMIR and all the rest of it and high politics. You know we saw the events last week you know, much of the collapse of the European summit was about Financial Services regulation and so I think there is this enormous connection and very difficult for the industries to manoeuvre around, to understand the connection between those two. And that is our challenge really for next year for all of us.
Interviewer (Simon Lovegrove): I agree with that. That concludes this Financial Services Fireside Friday for 2011, catch us in the New Year. Goodbye.
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