The Swiss Finance Council (SFC) was established in November 2013 to engage in dialogue around policy developments in finance at a European and international level. It represents the interests of internationally active Swiss financial institutions and frequently engages with relevant stakeholders to foster the dialogue with a series of events.
The 2008 global financial crisis was a defining moment for the financial system. While it led to challenges for governments, regulators and banks alike that were unprecedented in recent times, it also required common and coordinated effort to regain control, triggering a new era of global regulatory cooperation.
Today, we see a number of threats to the goal of global regulatory convergence: fragmentation in the implementation of the agreed regulatory standards and inconsistencies in the application of the EU's equivalence framework are just two of them. A better coordinated approach across jurisdictions would yield immediate benefits for households and corporations consuming financial services.
Headwinds for consistent implementation of financial market reforms
Despite the important reforms delivered since the financial crisis that have made systemically important financial institutions more resilient, markets safer and addressed too-big-to-fail, we are now seeing increasing financial fragmentation through regulatory divergence, regulatory extraterritoriality, insufficient supervisory coordination and mistrust amongst regulators and policy makers – a combination of factors representing a clear setback for market resilience. As the implementation of the internationally agreed Basel III framework shows, global standards are not being implemented consistently in a comparable manner, neither with regard to content nor timing, countering the aim for a global level playing field for financial services providers.
Three key guiding principles and practical measures for better equivalence determination
Against this backdrop, and acknowledging the efforts in terms of transparency the European Commission has made in recent years, the Swiss Finance Council suggests the following guiding principles and practical measures to further improve the equivalence determination process:
- The equivalence process should take into account countries' efforts towards legislation that is equivalent to EU-legislation and thereby incentivise further convergence: Third countries like Switzerland, which generally provide for regulatory frameworks comparable to the EU, should be given proportionate preference in the process for equivalence assessments.
- The equivalence process should coordinate with, and support, global standards: Equivalence decisions should be outcome-based, reflecting relevant international standards, and allowing for different ways to achieve prescribed policy objectives. We encourage the EU to step-up its engagement in international fora in order to promote globally consistent standards. Where a country applies such standards in relevant regulation, this should be positively accounted for in the assessment.
- The equivalence process should be more transparent, outcome-oriented, offer reliable timeframes, continuously involve the third country's authorities and thereby provide for more legal certainty: The overall aim should be to improve the predictability of third country equivalence decisions. Equivalence decisions should be outcome-oriented, objective and proportionate. Decisive factors should include whether the relevant regulation of the third-country shares the same objectives as those of the EU and that the impact and results of the legal regime are comparable, although there may be different ways to reach certain policy aims. The substance of the equivalence decision should not be affected by other broader political issues being addressed separately with the third country in question. Clear timelines for the equivalence assessment processes should be provided to increase legal certainty and predictability. The competent authorities of the third country should be involved early on in the equivalence assessment, which would ensure an adequate picture of the relevant regulation and its purpose is taken into account in the assessment. Equivalence would benefit from increased transparency to create trust between jurisdictions, regulators and supervisors. This would allow stakeholders to avoid unnecessary uncertainty, which negatively impacts the investment climate and may lead to market fragmentation.
As we all seek for the best outcome for globally interconnected financial markets, a broadly supported framework helps to establish a reliable and transparent process for drawing up international financial regulation and supervision. At the heart of these efforts should be the following:
- Building a shared understanding of international, regional and national legislative, regulatory and supervisory processes;
- Clear roles of international financial regulators – their legal powers should be guided by principles of subsidiarity and proportionality;
- Information about emerging regulation should be shared 'ex ante', in a transparent fashion, to avoid disruptions;
- Mechanisms to handle regulatory differences and to determine equivalence determinations have to be predictable and transparent;
- Non-discriminating principles should be rigorously applied along with obligations to keep markets open; and
- Public consultations on newly proposed measures should be released in an open fashion and should come along with impact analyses of the proposed rules.
Regulatory and supervisory convergence is the very foundation of the equivalence concept put forward by the EU. It engenders trust and cooperation between regulators. The EU must remain open to third country investors and service providers in order for investors and European businesses to have access to broad and competitive funding and tailor-made services, encompassing the EU as well as important third countries.