Tuesday, December 12, 2006

Capital Inadequacy Requirements

From The Sprout, 25th May 2006

This month has seen my desk covered in even more paper than usual: not just a symbol of my inability to tidy up, but the consequences of the Economics and Monetary Affairs committee having a legislative equivalent of diaorrhea. I have been hiding away in fear from one particular report, but even my chronic messiness has been unable to stop the corners of the document peeking out, teasing me with its terminal bulkiness.

Even if I did have the inclination to read and digest all these reports, how would it help? Whilst I did manage to graduate with an economics degree, attending lectures places irritatingly in the way of my social life, am I really qualified to pass judgement on the Directive for Markets in Financial Instruments? And if I am struggling to get to grips with it, assisted ably by people who work in the industry, then surely people who have never studied or worked in the financial industry must be having an even harder time of it?

Unless, of course, it is not them making the decisions: Never underestimate the vanity of a politician, after all. I heard word that the author of the Capital Adequacy Requirement, when questioned about who the Commission had stipulated to be the lender of last resort, answered that the questioner just 'didn't understand it'. Maybe not, but at least they understood enough to see the fundamental flaw in the intended legislation, and even more so, they had realised that the European Parliament should not be having an input into such complicated and important decisions.

Why and how, then, are MEPs going to make a fully informed decision with no experience? The answer, I suspect, is that they are not. Rather like 'pork pie' syndrome in the North of England and 'hat stand syndrome' in the South, they will vote for it because it is there, because it supports more powers to the Commission, and further harmonisation of the European Financial Markets.

Is this creep towards a single European Financial Regulator necessarily a 'bad thing'? In such complicated markets, shouldn't there be some kind of consumer protection? Someone to make sure that the money men don't screw little old ladies into investing all of their pension funds into projects that are never going to work: the Lisbon Agenda, for example?

Except that the FSA in the UK already does that, along with similar bodies worldwide in different countries. However complicated and diverse financial markets are, from Fund managements to Futures, Banking to Bonds, what we are really seeing is politics in action: using the compliant European Parliament to shoe horn in legislation which doesn't have anything in mind except to force together the countries of Europe into a political unit.

And what better way to do it than with the purse strings? If the Parliament can reject amendments reminding them that the French and Dutch voted 'no' to the defeated European Constitution then they can have no scruples in voting in legislation which will over regulate and over burden one of the only European industries which is still competitive. Clearly, they are risk averse.

The Lisbon Agenda seeks to promote 'more and better jobs' in Europe: MiFID will certainly produce more jobs, but does the world need more compliance officers? These bureaucrats in our midst, appointed to board positions in companies so the decision makers can concentrate on the real task of more and better jobs by making money, exist because of the unnecessary complications of regulation. This additional, strangling regulation is not necessary to the proper function of financial markets. The Euroelite burrowing away in the many buildings in Brussels cannot contemplate that their work is not needed.

The Commission, as with the new breed of career politicians, finds this a bitter pill to swallow.