MiFID, Lamfalussy and Convergence: Where Next

1
MiFID, Lamfalussy and Convergence  Where Next?

• CEI SUMMIT ECONOMIC FORUM
• Sofia 20 November 2007
• Hannes Huhtaniemi
• European Commission, DG MARKT

2
Overview

• MiFID
• Transposition update
• Enforcement
• Late transposition and the passport
• Gold-plating
• MiFID Reports
• Other initiatives
• Beyond FSAP
• Dynamic consolidation
• Better regulation
• Targeted new initiatives
• Supervisory convergence
• The global dimension

3
MiFID Transposition update

• 23 Member States have notified the transposition
  of Level 1 and Level 2
• Still to notify (L1 and L2) CZ, ES, HU, PL
• ?a few incomplete notifications
• ?verification ongoing

4
(No Transcript)
5
Enforcement

• Infringement proceedings have been launched and
  continue against Member States for late
  transposition
• Commissioner has also personally written to
  finance ministers to urge high priority
• Lamfalussy league table name and shame shows
  those who have and havent transposed
• Business lobbying also important to maintain
  pressure on transposition

6
Late transposition and the passport

• CESR issued practical arrangements in October to
  facilitate the continuity of the passport
• No major issues for firms based in MSs that
  transposed on 1 November
• More issues for firms based in MSs that transpose
  after 1 November
• Validity of the passport?
• Limited to ISD business wont cover investment
  advice, commodity derivatives business
• For services and branches, host MSs have the
  ability to apply precautionary measures via
  Article 62 of MiFID

7
Gold-plating

• Article 4 of Level 2 Directive imposes strict
  limits on gold plating by Member States
• additional requirements can be imposed by a MS
  only if objectively justified and proportionate
  to address risks to consumer protection or market
  integrity not adequately addressed by L2
  Directive
• Of particular importance in the circumstances of
  the market structure of the MS concerned or
• emerge/become evident after Nov 2007 and not
  otherwise regulated by EC law.
• Level 1 allows for national discretion
• Regulation is generally fully harmonising

8
Gold plating cont.

• So far, UK and IE have notified measures
• UK softing unbundling, menu, IDD, etc.
• Discussions led to significant cut-back in
  notified items/repackaging of rules as
  non-binding guidance
• IE client asset rules
• We rigorously examine justifications given
• Notifications published on our website and
  updated where appropriate

9
Industry changes

• We are very pleased with market developments so
  far
• Announcements from SIA, Equiduct, LSE, ITG
  Europe, Euronext, Microsoft, Deutsche Börse,
  Chi-X, Project Turquoise, Project Boat to name a
  few
• Changed, more competitive game
• Not a single big bang event
• Already having major impacts
• Market structure will continue to evolve
  post-MiFID
• Level of awareness differs between regions and
  sectors
• The winners will be those who see MiFID as a
  strategic opportunity and not just a compliance
  issue
• Those who fail to adapt and prepare themselves
  for greater competition will be the losers

10
Evaluation MiFID Reports

• Non-equities transparency Whether to introduce
  mandatory transparency for (certain) non-equities
• ?Final report under preparation (planned Q1
  2008)
• Commodities markets Review of exemptions for
  commodities business
• ?Final report Q4 2008
• Other topics
• Transparency II review of delay tables,
  availability of execution quality data, etc.
• Tied agents review
• Article 4 review
• Telephone recording review

11
Other initiatives

• MiFID QAs
• Vade-mecum on MiFID and funds
• Assistance to CESR Level 3
• Guidelines, communications etc
• Work on substitute products

12
Supervisory convergence

• The problem
• Market integration
• Companies are integrating
• National supervisors/national practices
• The objective
• Closer cooperation
• Tangible convergence of supervisory practices
• Streamlining of reporting formats
• Elimination of any redundant reporting
  requirements

13
Supervisory convergence cont.

• A solution?
• Make the Lamfalussy architecture work better
• European supervisory culture
• Exchange of staff/training programs
• Supervisory structure??
• Discussions in different fora
• Council FSC, ECOFIN
• IIMG
• Commission Lamfalussy review

14
International dimension

• Why ?
• Globalisation trade, investment and capital
  movement are booming
• More efficient global allocation of capital
• Avoid spillover effects of legislations
• Promote EU regulatory model
• Support global expansion of EU FS industry
• Convergence towards international standards
• Have an offensive position in multilateral or
  bilateral negotiations

15
International dimension cont.

• How ?
• Informal regulatory dialogues Commissioner and
  DG level
• With Min Fin, Central Banks and regulatory
  agencies
• US Started in 2003 with SEC, FED and Treasury
• SOX, deregistration, reinsurance collateral
• Basel II, audit et accounting
• Japan et China started in 2005
• Russia et India started in 2006

16
Mutual recognition

• G7/G8, SEC have both raised this possibility
• We are strongly supportive, so long as our red
  lines are maintained
• Open and transparent criteria for granting of
  market access
• COM plays the leading role for EU
• EU States to grant market access only to
  firms/exchanges from comparably regulated
  jurisdictions
• EU rules apply to EU financial markets
• No regulatory spill-overs