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New regulatory and supervisory challenges after the financial crisis

New regulatory and supervisory challenges after the financial crisis. Zsuzsanna Kardosné Vadászi SUERF/MNB Conference June 23, Budapest. Objectives. Enhance the resilience of the financial sector Reduce the probability of a future financial crisis

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New regulatory and supervisory challenges after the financial crisis

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  1. New regulatory and supervisory challenges after the financial crisis Zsuzsanna Kardosné Vadászi SUERF/MNB Conference June 23, Budapest

  2. Objectives • Enhance the resilience of the financial sector • Reduce the probability of a future financial crisis • Avoid negative spillovers from the financial sector to the real economy • Protect consumers • Promote effective and efficient supervision

  3. G20 principles and actions (November 2008) • Strengthening market transparency and accountability Disclosure and valuation of complex financial products, accurate disclosure of financial condition • Enhancing sound regulation Credit rating agencies, strengthened capital and liquidity rules, procyclicality, systemically important institutions, risk management, compensation schemes, resolution • Promoting integrity in financial markets Investor and consumer protection, prevent market manipulation, fraud and abuse, information sharing • Reinforcing international cooperation Supervisory colleges, cooperation in crisis prevention, management and resolution

  4. European initiatives: De Larosière report(February 2009) • Revision of Basel II rules • Introduction of Solvency II • Regulation on credit rating agencies • Tightening of invesment fund rules • Treatment of systemically important financial institutions and counterparty credit risk • Crisis prevention and regulation • Regulation on compensation schemes • Convergence of accounting practices • Introduction of new supervisory architecture • Enhanced international cooperation

  5. Steps already taken (or under way) • Deposit Guarantee Schemes • Credit Rating Agencies • Solvency II • CRD II amendment • New supervisory achitecture • CRD III amendment • Alternative Investment Fund Managers • Prospectus Directive amendments • Crisis management

  6. Future steps • Deposit Guarantee Schemes • Investor Compensation Schemes • CRD IV • Market Abuse Directive • MiFID and Derivatives • UCITS depositaries • Implementing measures for Solvency II • Crisis management and resolution • Corporate governance

  7. Future steps – Bank capital • Amendment to the Capital Requirements Directive (CRD IV): • Capital definition • Liquidity standards • Leverage ratio • Anticyclical measures (through the cycle provisioning and capital buffers) • Systemically important financial institutions • Counterparty credit risk management • Single rulebook • Critics

  8. New supervisory architecture • Macroprudential oversight by European Systemic Risk Council (ESRC) • Microprudential supervision by European System of Financial Supervision (ESFS) replacing current Level 3 Committees • Europan Banking Authority (EBA) • European Securities and Markets Authority (ESMA) • European Insurance and Occupational Pensions Authority (EIOPA) • Cooperation arrangements • Existing competences of national supervisory authorities remain

  9. Responsibilities of ESRC • Newly established independent body supported by ECB • Functions of European Systemic Risk Council: • Assessment of macroprudential situation • Issuance of risk warnings having systemic dimension • Issuance of non-binding recommendations • Adresses problem of fragmented individual risk analysis • Access to information from ECB, ESAs and national authorities (confidentiality)

  10. Powers and responsibilities of European Supervisory Authorities Current functions continued by EBA, ESMA, EIOPA: • Advising the Commission on regulatory issues • Defining overall supervisory policies • Converging supervisory rules and practices • Financial stability monitoring • Overseeing supervisory colleges Additional responsibilities from 2011: • Binding mediation rights • Binding supervisory standards and common interpretation • Coordination of supervisory actions in emergency • Conduct of peer reviews • Assessment of market developments • Licensing and supervision of EU-wide institutions

  11. Challenges in regulation • Ambitious regulatory reform (over 30 initiatives) • Speedy conclusion by Spring 2011 • Parallel development, regulatory risk • Impact assessment • Timing and impact on ecomonic growth • Transitional provisions • Effectiveness • Financial innovation

  12. EU and international consistency • Binding vs. non-binding • Flexibility • Running ahead? • Scope of regulation • Proportionality and diversity • Maximum harmonisation vs. national options and discretions • Principle-based vs. rule-based regulation

  13. Challenges in supervision • Global financial services vs. national supervision • International cooperation, supervisory colleges • Branch vs. subsidiary • Macro and microprudential supervision • National cooperation • Single rulebook • Convergence of supervisory practices

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