Better instead of more regulations – fpmi is calling for a package of measures capable of precluding another financial crisis by stabilizing financial markets and by increasing consumer confidence
12. Oct 2009, Munich Financial Centre Initiative
These measures have to lead to the more effective regulation of markets and of their players, and to the enhancing of consumer protection. This twin thrusts will restore confidence in the financial industry. The thrusts are laid down in the position paper formulated by the 43 companies and institutions comprised in fpmi. The paper contains 11 key points. They address the pressing concerns arising from the financial crisis.
This paper’s thesis reprises fpmi’s call to solve financial markets’ problems by instituting “better as opposed to more” regulations. The keystone of this call is the improving of the system of supervising financial market products and actors by encompassing all of them in it. This ridding of gaps has to be accompanied by the achieving of transparency and comprehensibility as regarding risks, with this applying to both those carried in balance sheets and those arising from SPEs (special purpose entities). fpmi is also calling for a strengthening of corporate accountability through the instituting of beefed-up liability regulations. This especially applies to rating agencies. Needed in this area are regulations mandating liability for the awarding of ill-founded ratings.
fpmi also views there being a need for the enacting of supervisory regulations and standards encompassing and applying to the entire EU and business world. The achieving of these scopes will preclude distortions of competition. fpmi is against the passing of those measures by Germany’s parliament which have not been coordinated with those being legislated at the EU and worldwide levels. Such a unilateral approach would be counterproductive, as it would lead to Germany’s financial community’s having to shoulder unfair burdens. fpmi also rejects any tampering with properly functioning markets. This particularly applies to the efforts initiated by the EU Commission to impose new regulations upon mortgage credit markets.
Ban on a lasting basis uncovered short selling
fpmi hails the limited-term ban enacted by authorities supervising financial markets on uncovered short selling. When accompanied by rumor mongering on markets, this practice, often undertaken by hedge funds, can imperil the very existence of publicly-listed companies. This danger has caused fpmi to come out for a regulation extending this ban on an unlimited basis. This extension would represent a powerful way of putting a stop to abusive manipulations of markets.
Putting the Bundesbank in charge of the supervision of banks
fpmi welcomes the decision reached by the political parties to form the coalition ruling Germany’s federal government to put the Bundesbank in sole charge of the supervision of banks. Entailing the rescinding of the responsibilities entrusted to BaFin (Germany’s Federal Office for the Supervision of Financial Services) in this area, this move will put an end to redundant operations and to problems arising from the need to have inter-agency consultations. The financial crisis has shown the importance of having an effective system of supervision. This transferring of responsibilities has, however, to be accompanied by a maintaining of the operating independence traditionally accorded to the Bundesbank, maintains fpmi.
Easy-to-understand product information and high standards of consulting quality
The financial crisis has robbed investors of their confidence in markets. fpmi contends that internationally-coordinated measures have to be undertaken to restore this confidence in the consumer protection system. This particularly involves the encompassing of all financial products and players in an international system of supervision. This proposal was part of the commitments made by the countries attending the G20 summits in Washington and in London. fpmi is specifically calling for a legally-binding sheet cogently and concisely informing consumers about the product at hand. These stipulations would induce the requisite comprehensibility missing from today’s briefings. The stipulations could replace the often extensive (pre-contractual) provision of information mandated by current regulations. These have to be examined to ascertain their suitability. To also ensure that consulting services display the necessary professionalism and that they meet the needs of consumers, standards of qualification applying to all investment consultants and to their products should be instituted.
fpmi rejects the affixing of “traffic light” labels to financial products. The initiative is also against requiring products to undergo check-ups conducted by third parties. Both requirements do not adequately take into account either the financial products’ complexity or the individual needs of investors. Such requirements give rise, furthermore, to liability issues. According to fpmi, the key fact to be made apparent is the basis upon which the financial consultant is working: on commission or for a fee. This need for transparency would not be adequately met by the state’s pushing the latter. fpmi believes that market forces should decide which method of payment is used by investors.
This paper’s thesis reprises fpmi’s call to solve financial markets’ problems by instituting “better as opposed to more” regulations. The keystone of this call is the improving of the system of supervising financial market products and actors by encompassing all of them in it. This ridding of gaps has to be accompanied by the achieving of transparency and comprehensibility as regarding risks, with this applying to both those carried in balance sheets and those arising from SPEs (special purpose entities). fpmi is also calling for a strengthening of corporate accountability through the instituting of beefed-up liability regulations. This especially applies to rating agencies. Needed in this area are regulations mandating liability for the awarding of ill-founded ratings.
fpmi also views there being a need for the enacting of supervisory regulations and standards encompassing and applying to the entire EU and business world. The achieving of these scopes will preclude distortions of competition. fpmi is against the passing of those measures by Germany’s parliament which have not been coordinated with those being legislated at the EU and worldwide levels. Such a unilateral approach would be counterproductive, as it would lead to Germany’s financial community’s having to shoulder unfair burdens. fpmi also rejects any tampering with properly functioning markets. This particularly applies to the efforts initiated by the EU Commission to impose new regulations upon mortgage credit markets.
Ban on a lasting basis uncovered short selling
fpmi hails the limited-term ban enacted by authorities supervising financial markets on uncovered short selling. When accompanied by rumor mongering on markets, this practice, often undertaken by hedge funds, can imperil the very existence of publicly-listed companies. This danger has caused fpmi to come out for a regulation extending this ban on an unlimited basis. This extension would represent a powerful way of putting a stop to abusive manipulations of markets.
Putting the Bundesbank in charge of the supervision of banks
fpmi welcomes the decision reached by the political parties to form the coalition ruling Germany’s federal government to put the Bundesbank in sole charge of the supervision of banks. Entailing the rescinding of the responsibilities entrusted to BaFin (Germany’s Federal Office for the Supervision of Financial Services) in this area, this move will put an end to redundant operations and to problems arising from the need to have inter-agency consultations. The financial crisis has shown the importance of having an effective system of supervision. This transferring of responsibilities has, however, to be accompanied by a maintaining of the operating independence traditionally accorded to the Bundesbank, maintains fpmi.
Easy-to-understand product information and high standards of consulting quality
The financial crisis has robbed investors of their confidence in markets. fpmi contends that internationally-coordinated measures have to be undertaken to restore this confidence in the consumer protection system. This particularly involves the encompassing of all financial products and players in an international system of supervision. This proposal was part of the commitments made by the countries attending the G20 summits in Washington and in London. fpmi is specifically calling for a legally-binding sheet cogently and concisely informing consumers about the product at hand. These stipulations would induce the requisite comprehensibility missing from today’s briefings. The stipulations could replace the often extensive (pre-contractual) provision of information mandated by current regulations. These have to be examined to ascertain their suitability. To also ensure that consulting services display the necessary professionalism and that they meet the needs of consumers, standards of qualification applying to all investment consultants and to their products should be instituted.
fpmi rejects the affixing of “traffic light” labels to financial products. The initiative is also against requiring products to undergo check-ups conducted by third parties. Both requirements do not adequately take into account either the financial products’ complexity or the individual needs of investors. Such requirements give rise, furthermore, to liability issues. According to fpmi, the key fact to be made apparent is the basis upon which the financial consultant is working: on commission or for a fee. This need for transparency would not be adequately met by the state’s pushing the latter. fpmi believes that market forces should decide which method of payment is used by investors.