Five steps to EU financial services regulatory reform

The European Union needs a radical rethink of its approach to financial services regulatory reform to avoid risks to businesses. That is the view expressed by KPMG in a new report that sets out a five-point plan for the regulatory reform agenda.

In particular, the New Commission, New Parliament report says changes are necessary to stimulate the financing of long-term infrastructure investment and small and medium-sized enterprises. The firm also wants to limit the potentially damaging impact of some post-financial crisis regulatory reforms on long-run economic growth.

The report comes as Britain’s Jonathan Hill, the former leader of the Lords, is handed the plum European Commission brief overseeing financial stability, financial services and capital markets.

KPMG’s report sets out a five-step action plan. Firstly, it calls for policymakers to identify and remove restrictions holding back capital markets in the EU. It suggests completing the minimum harmonisation of national legislation and tax systems necessary to support “efficient and effective” capital markets.

The second step demands greater encouragement of long-term financing and small business lending. This could be achieved by reducing the regulatory constraints on the provision of long-term infrastructure finance by insurers, asset managers and banks. The report also calls for lawmakers to lower regulatory constraints on the issuance and holding of high qualitysecuritisations, including the securitisation of small business financing.

The remaining steps are for policymakers to pay more attention to the cumulative impact of existing and proposed regulatory reforms on the wider economy; provider greater clarity over legislation; and to halt a number of current regulatory proposals.

Giles Williams, EMA head of KPMG’s financial services regulatory centre of excellence commented, said: “Financial institutions, and in particular the banks, are facing an ever-increasing regulatory and supervisory burden which is impacting 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.”