McCreevy debates the facts

Charlie McCreevy, the Internal Market Commissioner, has a comment piece in today’s FT on EU financial services regulation, disputing the arguments of our recent study, and a leader in the FT that followed its release.

A few interesting points to pull out from the article:

1) McC: “all the main regulatory issues have been agreed unanimously with member states, with the strong support of the European parliament”…This is a puzzling assertion to make: arguably the most important piece of financial regulation to ever come out of Brussels – MiFID – was certainly not agreed unanimously: the Italian Presidency pushed it through the first reading on a majority vote, which was opposed by a number of member states, including the UK and Ireland. And the Irish Finance Minister who voted against MiFID? A certain Charlie McCreevy…

2) McC: “MiFID is a pro-competitive strategic change of direction”. It’s certainly a change of direction, but whether it will be pro-competition, or even of net benefit is still a highly contentious point. Smaller firms don’t see it in McCreevy’s terms – many fear that it is so onerous that it will drive them out of certain business lines, leaving the larger banks – who can absorb the large compliance costs – to mop up. Industry in general is still lukewarm over the supposed opportunities of MiFID. A survey conducted for the FSA said that “firms are particularly sceptical about the likelihood of benefits arising from MiFID, and generally take the view that the costs of MiFID pose greater challenges than the benefits provide opportunities."

3) McC: “Europe’s share of business rose relative to the US between 2001 and 2005”. This is incredibly complacent. Yes - London has succeeded in prising business away from New York. But the reason for this is not so much an enlightened approach from Brussels as a short-sighted, complacent stance from US regulators in pushing through the Sarbanes Oxley Act, which has unquestionably caused business to migrate offshore. Many of the most important FSAP measures have not yet begun to “bite” – MiFID doesn’t come into force until late 2007 – so it’s probably premature for McCreevy to say that the EU is safe from a similar flight of business. In fact, many of the more mobile companies are considering off-shoring already. Complacency was the undoing of regulators in the US in drafting Sarbox. The Commission could easily fall into the same trap with the Financial Services Action Plan.