recent years we have witnessed a huge influx of political objectives in Europe and not much less reform in the USA.
All mainly, have laudable objectives, to improve the markets for the benefit of the customer or consumer, but tend to bring
high costs and interminable debate before implementation. The old saying was ‘you can’t buck the markets’
but this can now be modified to ‘you can’t change the markets’.
week we have seen the French unilaterally delay SEPA direct debits and we will likely see other countries follow suit. This
is after years of SEPA designing and planning and with supposedly widespread endorsement across all EU states.
have long had reservations about the SEPA project based on the narrow bank to bank focus of its original design and the lack
of widespread corporate involvement to capture their buy in and subsequent credit transfer volume.
the problems that SEPA had with credit transfer volume look likely to be repeated with SEPA direct debits, if the French have
did the Payments Service Directive (PSD) and SEPA not fully engage the banking service suppliers and their corporate customers?
it’s entirely logical if a new EU wide industry change is to be made to systems and practices; all those supplying volume
simply have to be engaged as early as possible. I have had it said to me that the European Commission thought that SEPA was a bank to bank issue and it was left to the banks to fully communicate with their customers. This
would have certainly been the case if the banks were going to win massive financial rewards but not if they feared their business
and revenue would be under threat. Turkeys
voting for Christmas has never been a basis for getting a Christmas dinner.
the fundamental weaknesses of the PSD and SEPA management the real problem lies with the inability of the EU Politicians to
understand the financial markets and appreciate the historical relationships that underpin them, across the domestic EU and
wider internationally. The market structures, practices and procedures are long standing and solid, with the backing of enormously
wealthy governments, institutions and individuals. Simply creating a Directive and transposing it into law is not a sure fire
method of making change, especially if the law fails to have strong sanctions for non compliance.
for example has weak compliance requirements for banks, this meant hardly any real development for SEPA has materialised,
with only a kind of phoney agreement was promoted by banks and organisations involved in SEPA, presenting uniformity and conviction
to implement, which indicated a willingness to comply but in reality very little happened. This was evidenced by the huge
number of software vendors that purported to have developed a SEPA solution when in actual fact only one or two have a real
EU also introduced MiFID into the securities market and this too created plenty of change and conjecture, with delays and
amendments by various EU States and banks delaying its implementation. However, MiFID at least was implemented and has created
a shift from traditional Stock Exchanges for orders and executions, too many new trading venues. But, it’s far too early
to get a real picture of how effective the changes have been. Certainly there has been plenty of hype in the post trading
systems and processes but the full impact will not be evident for a few years. The financial crisis has also masked the true
MiFID picture and will cause some delay in measuring the real effectiveness in meeting the political objectives.
question has to be; should political objectives to change market structure and practice be introduced via Directives and law
or by business opportunity?
a fact that the financial services industry rarely makes radical change unless there is a really big carrot. The financial
crisis demonstrates how bad financial institutions have become in keeping pace with change, let alone instigating change.
However, enforcing change by law, does open up debate and generally culminates in some change but unfortunately the change
tends to have been watered down from the original proposal and involves significant costs and take some considerable time
as we know.
change through business opportunity demands that an environment is created where entrepreneurs and established enterprises
can innovate and take risks. The environment is created through political agendas. This approach at least maintains the gap
between politics and business and as the saying goes “they don’t mix”
way is not perfect, if change is meant to be aggressively sort over a short timeframe but at least the later can positively
create economic benefits.
change approach to financial markets incurs real-time issues to implement, with perhaps the business approach being more evolutionary.
However, with political agendas being different across political parties its unlikely that any changes will carry cross party
global financial crisis will cause all international markets and their governments to reflect on their regulatory structures
and capabilities and there is a chance that there will be an international harmonised response. This clearly will take some
considerable effort by governments to first agree the approach and then the new rules and laws to be introduced. Some governments
will find this harder to introduce than others, as there is hardly going to be interest from countries that could ultimately
and rather callously gain, from most of the worlds markets, introducing more restrictions with tougher sanctions. A bit like
the French, who are clearly concerned about SEPA direct debits.
the end of the day it comes down to leadership!
who is going to lead the global financial markets to more security with harmonious laws and rules able to be enforced across
borders with standardised sanctions?
would not necessarily be some super global regulator but could simply be a single agreed rulebook. Enforcement and sanctions
could be adopted worldwide by all countries signing up to the new order and those countries not, would become economically
this model was adopted by the EU, it could create a better environment within the markets for processes and structure to evolve,
making Directives and legal transposition easier to implement, as Directives could be matched with the actual capabilities
of the market.
would entail the EU becoming more communicative with the financial services industry ensuring that any committees in a consultative
stage, were more widely representative. This should also entail making articles within a Directive easier to understand and
where possible should use existing Finance Industry terminology rather than legalise.
should be more transparency of the political agendas in all EU committees with the names of people and organisations taking
part public knowledge. Self protectionism should be made visible to the public and there should be a more democratic voting
on, of committee representatives.
this would not necessarily speed up the early consultative stages but it should make implementation faster and easier. It
should also reduce implementation costs and it should mean that there would be less argument at the final stages of projects.
The Directives would then have a reasonable chance of achieving political objectives and ensure that they were compatible
with the markets ability to change.
Gary Wright MSI