FIA, the leading global trade organisation for the futures, options and centrally cleared derivatives markets, has published a paper outlining its views on how to support the progress of the European Union’s Capital Markets Union (CMU).
FIA’s paper – Capital Markets Union at a Critical Juncture – sets out the role that derivatives play in effective capital markets. Specifically, FIA believes that centrally cleared derivatives are a key ingredient to building a strong CMU.
“As the EU aims to increase investor interest in its markets, it has many options in designing a system that protects its citizens, ensures market liquidity and attracts investors. The ideas shared in this paper, on behalf of the cleared derivatives markets, will help lay the groundwork for fit-for-purpose regulation, open and resilient markets, fair competition and opportunities for innovation. These adjustments will make EU capital markets more attractive to domestic and international investors and help to boost growth,” said Walt Lukken, President and CEO of FIA.
The recommendations in FIA’s paper support the objectives aligned with delivering a successful CMU:
- Promoting an open, competitive, pragmatic, predictable, safe, well-regulated and fair marketplace for domestic and international financial institutions alike
- Increasing transparency, public stakeholder engagement and certainty to ease the often complex and lengthy legislative process in the EU
- Establishing a fit-for-purpose regulatory environment that benefits both regulated financial institutions and their customers
- Facilitating client choice on where to clear and protecting the international competitiveness of EU market participants
FIA believes these objectives can be met largely through fine-tuning existing regulations, rather than overhauling them, and by international dialogue with peer regulators and global standard setters to avoid a patchwork of regulations that increases costs for all involved and disincentives investment. FIA has identified some specific steps that EU policymakers could undertake to help achieve these objectives, including:
- Establish clear definitions of scope in EU legislation (Level 1) and early clarifications on territorial and personal scope
- Allow sufficient time for implementation of requirements before carrying out regulatory and legislative reviews and align compliance dates of Level 1 and Level 2 requirements
- Conduct public engagement/consultation with industry and independent experts on important Level 3 rules before publishing them
- Provide meaningful cost-benefit analysis before proposing new requirements and add a competitiveness test as part of important policy proposals
- Optimise further CCP equivalence reviews and improve transparency
- Establish appropriate capital requirements and reduce other restrictive measures to alleviate clearing capacity for intermediaries
- Scrutinise the active account requirements under EMIR 3.0 that could, if not properly calibrated, adversely impact the competitiveness of EU firms
- Ensure the IFR regime for investment firms is proportionate to the risks these firms bring to their counterparties, themselves and the market as a whole
- Ensure globally consistent margin requirements to enable clearing margin transparency
- Harmonise certain aspects of non-bank insolvency laws in the EU.
Read the paper: Capital Markets Union at a Critical Juncture
