KPMG has called for the EU’s financial services regulatory reform agenda to be re-evaluated to avoid a serious risk to businesses, jobs and economic growth.
Following the appointment of the new European Parliament and ahead of the new European Commission, KPMG has published a new report, ‘New Commission, New Parliament’, which analyses the changes required to the regulatory reform agenda to support the increasing emphasis in Europe on jobs and growth.
While the report recognises that there is still work to be done to fine-tune the financial services industry, it also highlights the need to refine the regulatory agenda in the interests of European economic growth and jobs.
In particular, changes are necessary to stimulate the financing of long-term infrastructure investment and small and medium-sized enterprises (SMEs) and also to reduce the damaging impact of some post-financial-crisis regulatory reforms on long-run economic growth.
The report, which was presented to the European Commissions and members of the new Parliament, proposes five actions required to refine the agenda:
1. Develop EU capital markets
Identify and remove restrictions holding back dynamic and innovative capital markets in the EU. Complete the minimum harmonisation of national legislation and tax systems necessary to support efficient and effective EU capital markets.
2. Encourage long-term financing and small business lending
Reduce the regulatory constraints on the provision of long-term infrastructure finance by insurers, asset managers and banks. Reduce the regulatory constraints on the issuance and holding of high-quality securitisations, including the securitisation of small business financing.
3. Refine regulation
Pay more attention to the cumulative impact of existing and proposed regulatory reforms on the wider economy. Recognise the risk that over-regulation in consumer and investor protection will take us towards the ‘stability of the graveyard’.
4. Provide greater clarity
Undertake ruthless prioritisation to provide a more certain environment for both financial institutions and their customers.
5. Halt some regulatory proposals
The EU legislative proposals on banking structural separation should be shelved. Such proposals will not add significant value alongside other regulatory reforms. Furthermore, national requirements on structural separation have already been introduced in the UK, France and Germany.
Giles Williams, EMA head of KPMG’s financial services regulatory centre of excellence, said: ‘Financial institutions, and in particular the banks, are facing an ever-increasing regulatory and supervisory burden that is affecting the industry’s wider economic benefits. In particular, we are seeing evidence of risk aversion in Europe, resulting in reduced lending and deleveraging. While banks are not the sole determiner of European economic growth, they do have a vital role to play.
‘Financial stability is clearly important; however, a balance must be struck between a perfectly stable, albeit lacklustre, market, with one that creates the right conditions to sustain economic growth and job creation.
‘We recognise that the financial services industry still needs some fine-tuning. However, the fact of the matter is that in its current form, regulation risks stifling responsible growth. Therefore, we must refine and shift the regulatory reform towards the positive contributions that the financial sector can make to the EU’s jobs and growth agenda.’