The Financial Regulator has said that, due to the credit and liquidity crisis, it ‘will work with [European] colleagues to examine and learn from the issues that have occurred in the financial markets during 2007,’ according to the Regulator’s Strategic Review of 2008-2010.
On the Regulator’s agenda is ‘the role of rating agencies, the use of financial models, the relationships between financial service providers and associated vehicles including hedge funds, conduits and other forms of special purpose vehicle.’
The Regulator said that it ‘must also recognise the structures already in place to facilitate the oversight of exposures being undertaken by financial service providers. Financial market participants, including regulators, enhance transparency and understanding of financial risks.’
The Regulator said that the crisis has already strengthened links between EU regulators, allowing for closer supervision of activities. Also, ‘as the present arrangements under the Lamfalussy framework have started to produce results, stakeholders appear to have developed increasingly ambitious expectations on what the process is expected to deliver’, the report says.
The role of innovation in the industry is also recognised in the report, but the Regulator warns that ‘events in 2007 have shown that innovation must be accompanied by a deeper understanding of risk if stability is to be maintained.’
Earlier in December, EU Commisioner for Internal Markets and Services, Charlie McCreevy raised concerns about the effectiveness of the financial services regulatory regime in light of the recent credit crisis, but doubts the prospect of an EU-wide regulatory body.
McCreevy said, ‘there is an urgent need to put in place a more effective cooperation and coordination process between supervisors who are responsible for overseeing large banking groups. We have been discussing this for some time and a useful report has been prepared by the EFC on how we can improve financial stability arrangements in the EU. However this report was largely prepared during the benign market conditions in the last quarter of 2006 and first half of 2007. The report provides a good analysis of what needs to be done to enable national supervisors to work together to manage a major cross border group in difficulties. What is missing from the report is a sense of real urgency underlined by current market difficulties in finding solutions for the many issues identified.’ McCreevy was addressing the Eurofi Conference in Brussels.
‘In so far as supervision of EU financial institutions is concerned, the current financial turmoil must be a wake-up call for everyone. On the positive side, our regulatory framework has held up well. Nevertheless, the effect of the sub-prime crisis have resulted in a small number of national financial institutions having to be bailed out,’ said McCreevy. |
