Download SSDA Response to the European Commission consultation: Call for

SSDA Response to the European Commission consultation: Call for evidence: EU Regulatory
framework for financial services
Cover letter
The Swedish Securities Dealers Association (SSDA) was founded in 1908 and represents the
common interest of banks and investment services firms active on the securities market. The
mission of the SSDA is a sound, strong and efficient Swedish securities market. The SSDA currently
has 28 members.
The SSDA welcomes the European Commission consultation “Call for evidence: EU Regulatory
framework for financial services”. The consultation constitutes a valuable and much appreciated
opportunity to review recently adopted regulations and their implementation.
In addition to a detailed response to the consultation, the SSDA has some general concerns that we
would like to draw to the attention of the Commission. These concerns are described below.
Introduction
The SSDA supports the intention behind the Capital Markets Union (CMU) to create more integrated
and well-functioning capital markets in the EU. Well-functioning and efficiently regulated markets are
crucial to improving and supporting economic growth in Europe and will help protect against future
shocks to the economy. Given the very rapid development of financial markets related European
legislation in recent years, we believe that a first priority should be to ensure that existing regulation
of financial markets and participants is sustainable, effective and well-balanced, and not
counterproductive to the intentions of the CMU.
We believe that the EU regulatory framework should be fully reviewed before any new extensive EU
legislative reforms are undertaken. Regulation has progressed so quickly after the crisis that it is
advisable now to take the opportunity to pause and review. For legislative measures, priority needs
to be given to reviews and amendments that aim to improve the coherence, quality and
proportionality of the regulation.
Against this background, we strongly welcome the ambition of this consultation.
It is however at this point a bit too early to fully understand the implications of all the regulations
adopted in recent years. This consultation should thus be regarded as a starting point, and we look
forward to similar consultations in the future.
Post-crisis regulations fragment global markets
As regulations adopted post-crisis differ globally they have resulted in differing requirements for a
number of important cross-border financial market activities. Different requirements have a general
effect of fragmenting economies which in turn is leading to unnecessary funding constraints in
Europe as it constitutes hinders to the free flow of capital into EU. We believe this is unfortunate and
that it should be avoided to the extent possible.
Liquidity on important markets should be safeguarded
The lack of market liquidity observed on non-equities as well as equities markets has recently
become a concern for many financial markets participants and observers. Liquidity is crucial to
orderly markets, both for those who trade directly but also more broadly for those who are affected
by the values set by the market. The weakening of market liquidity is worrying.
Taken together, regulations introduced recently and those in the pipeline have had the effect of
financial market participants withdrawing from some important functions such as market making as
the costs of these functions have increased considerably. In this way, the supply of liquidity on
important markets has been impaired. At the same time, the demand is unchanged or increasing.
The regulations concerned are markets regulation such as MiFIDII/MiFIR as well as prudential
requirements in CRD4/CRR and BRRD. We believe it is necessary to go through the combined effect
of these regulations and see whether there are any unintended negative consequences for liquidity
on important markets.
Well regulated and capitalized sources of liquidity for the real economy
Maintaining healthy and resilient sources of funding should be a top priority. As we look forward in
the regulatory pipeline, the cumulative impact of financial regulation could make it more difficult for
regulated participants in the financial sector to provide funding to SMEs and the real economy. We
encourage the Commission to consider the possible effects of a financial shock on the economy if
other less regulated and well-capitalized liquidity sources such as shadow banking become a major
source of funding to the real economy.
Diversification of funding sources must be created on a level playing field for all market participants
and all channels must be appropriately regulated and subject to the principle of ‘same risk, same
rules’.
Barriers to entry for smaller actors and negative effects of very detailed rules
The amount of post-crisis regulation and the level of detail of these regulations together constitute
severe barriers to entry for small entities or newcomers. This means that competition decreases
which in turn may lead to less effective financial services being offered in the EU.
The amount of new regulation adopted is unprecedented in scope. Understanding and complying
with these amounts of regulations in general necessitates a large organization, or the use of other
entities to which certain functions are outsourced.
Furthermore, on a general level, the post-crisis regulations adopted to date are very detailed.
Detailed rules have certainly a number of advantages, but also a number of drawbacks.
First, detailed rules tend to demand a lot in terms of compliance. This is turn is an advantage for large
actors already established. For smaller actors there are challenges to comply with a large amount of
very detailed regulations. As such, it could also constitute a barrier to entry and decrease
competition.
Second, very detailed rules tend to be outdated fast, especially given the fast technological
development in recent years. This puts a lot of pressure on regulators on the one hand to be able to
change rules and regulations continuously, and on institution on the other hand that are to comply
with regulations that are changing fast.
There is a lack of harmonization regarding investor protection
A high level of investor protection and consumer access to investment products and the financial
markets are fundamental.
Whereas the overall impact of EU regulation on consumer and investor confidence seems positive it
is at this stage too early to more precisely verify the major impacts on investor protection, since
regulations such as the Markets in Financial Instruments Directive (MiFIDII), Insurance Distribution
directive (IDDII), the regulation on Packaged retail and insurance-based investment products (PRIIPs),
Payments Account Directive (PAD) and Mortgage Credit directive (MCD) has not yet been
implemented.
We find it problematic that there are different investor protection rules (conduct of business rules
and in particular conflict of interest rules) in MiFIDII and IDDII. The different conflict of interest rules
in MiFIDII and IDD might also lead to a market concentration and less competition.
Resources for ESAs should be safeguarded
The ESAs need additional resources and sustainable long term financing to be able to fulfill their
tasks, including ensuring consumer and investor protection. The ESAs are independent agencies of
the EU and should be treated as such. If the co-legislators and the Commission increase the workload
of the ESAs without taking into account the resources available, this would jeopardise their
independence. We therefore have the view that the Commission should explore options for new
sustainable long term financing of the ESAs, with the aim to safeguard their independence.
Furthermore, it is of vital importance that there is better consistency between the work of the ESAs
and the legislation decided by the co-legislators. For example, guidelines from the ESAs should not
go beyond the level 1 provision and respect the scope of different legislations.
Unclear definitions in many regulations
To avoid legal uncertainty and different interpretations in EU member states of important concepts
definitions used must be clear and introduced at the right level, i.e. level 1. In recently adopted
regulations such as MiFIDII/MiFIR, EMIR and SFT this is not always the case and we believe this is not
acceptable.