Barnier: finance must be part of TIIP

Barnier: finance must be part of TIIP

The EU Commissioner responsible for financial markets has called for financial services to be included in an upcoming trade deal between the US and Europe.

Michel Barnier, the French politician who has led the EU market reform programme, used a speech on Friday to promise a “race to the top” in terms of financial market regulation in Europe.

His comments came as he argued in favour of the inclusion of financial services in the Transatlantic Trade and Investment Partnership (TIIP).

The TIIP is currently being negotiated between the US and the EU and represents potentially the largest trade deal in history reducing tariffs and boosting transatlantic trade in a wide range of sectors.

The EU has been pressing for financial services to be included in the agreement. However, US authorities have resisted calls citing concerns that the agreement could be used by US firms to circumvent Dodd-Frank requirements.

Regulatory cooperation

However, Barnier said on Friday that “joined-up markets need joined-up regulation and supervision”.

“It would be nothing short of a disaster if our agreements on broad principles are undermined by the detailed rules and their implementation being just too different,” he said. "This is why we want to include regulatory cooperation on financial services in the TTIP.

“I understand there are concerns that including financial services regulation would lead to the unravelling of the Dodd Frank Act and deregulation of financial services.

“For us, the objective is the opposite: better and high ability interoperable regulation. A race to the top, not a race to the bottom.”

His calls were welcomed by financial market associations on both sides of the Atlantic.

This morning, the Securities Industry and Financial Markets Association and the Association for Financial Markets in Europe released a joint statement welcoming the comments.

"SIFMA and AFME believe it is imperative that financial services regulatory coordination be included as a key component of TTIP, and we commend Commissioner Barnier for his focus on this issue.

“A financial services regulatory framework between the US and EU would enhance coordination, reduce conflict and confusion, and improve the efficiency of regulations across borders.

“We urge policymakers to capitalise on this opportunity provided by TTIP to promote consistent high-quality regulatory standards in global markets and economies that are closely intertwined."

Ongoing efforts to harmonise market regulation between the US and Europe have failed to establish common ground on some of the most important parts of the G20 regulatory reform.

Despite the Path Forward agreement between the CFTC and the EU intended to ease regulatory barriers to the transatlantic derivatives market, liquidity in many markets fragmenting as European firms seek to avoid onerous Dodd-Frank requirements.

Bank capital

Elsewhere, the EU has accused US regulators of unfairly targeting non-US banks in handing out fines and enforcing capital requirements.

In his speech on Friday Barnier argued that more developed securities markets in the US enabled US banks to deleverage faster than their European counterparts.

“There are reasons, due to structural features of the US banking environment, why US banks have been able to reduce their balance sheets more than EU banks.

“The US has more developed securitisation markets, for corporate loans in particular. While in Europe covered bonds feature in banks' balance sheets. US banks transfer many of their mortgage loans to Fannie Mae and Freddie Mac, which are not subject to leverage ratio requirements.

“In this way, significant leverage in the US financial system is transferred away from banks’ balance sheets. So there are structural differences, but they do not mean that European banks are weaker or less capitalised than American banks.”

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