Jonathan Hill, the European Union's financial services chief, asked the industry for “empirical evidence and concrete feedback” on how laws put in place since the crisis are hindering markets and growth. The lobbyists let him have it.

The U.S. Chamber of Commerce, which calls itself the world's largest business federation, told Hill that financial rules are forcing companies to rethink their businesses and maybe even their presence in Europe. Bond traders said one regulation could shut down some debt markets. Even the U.K. accounting regulator had a message for Brussels: Write simpler rules and consider deregulation.

These pleas and grievances were contained in just some of the hundreds of pages of letters that piled up on Hill's desk in Brussels after he announced in September that he wanted to review the vast array of financial regulations passed in response to the financial and debt crises. Letters poured in by the Jan. 31 deadline, supporting the review and lobbying for scores of changes that Hill already has said he might consider.

“The reforms were necessary; they have created more financial stability,” Johan Thijs, chief executive officer of Belgian bank and insurer KBC Groep NV, said at a regulatory conference on Jan. 28. “The question is, what is the optimal point? How far do you need to stretch regulation? Are we now pushing it over its optimal point?”

Hill's predecessor as EU financial-services commissioner, Michel Barnier, famously pushed through more than 40 laws that overhauled markets and industry. Hill took a different approach from the outset. In his reply to lawmakers' questions before his confirmation hearing in the European Parliament, Hill said regulation was entering a “new phase” focused on “implementation, enforcement, and evaluation,” not on rule making.

In part, this line was dictated by the emphasis on creating jobs and jump-starting economic growth laid down by Jean-Claude Juncker, president of the commission and Hill's boss. Juncker “has set me a very clear political objective,” Hill wrote to the lawmakers considering his nomination: “to play my part in contributing to our collective agenda of encouraging jobs and growth through the development of the capital markets union.”

“There is a price to be paid to have financial stability as a public good,” Erik van der Plaats, a senior official on financial matters at the European Commission, said at the same regulatory conference in Brussels. “Have we gone too far? Well, you tell us.”

Are EU Regs 'Working as Intended'?

Hill's review sought feedback in four areas: the ability of the economy to finance growth, if there are unnecessary regulatory burdens, inconsistencies and gaps in rules, and if rules are giving rise to unintended consequences.

The goal of the review is to see if legislation is “working as intended,” Hill said in a speech in Brussels on Feb. 1. “Our call for evidence has just ended,” Hill said. “We'll now go through the hundreds of detailed pieces of evidence we have received.”

The U.S. Chamber of Commerce said in its letter to Hill that the review “is extremely important” and that the EU should assess both the impact of regulations already in place as well as those that still loom.

“It is clear from discussions with our members that the legal, business, and operational challenges resulting from the implementation of these regulatory changes are forcing them to reconsider their activities, and even presence, in Europe,” the Washington-based Chamber said.

The Chamber and the Association for Financial Markets in Europe, which counts Barclays Plc and Societe Generale SA among its members, called on the commission to reconsider the need for a bill, currently mired in parliament, that could separate banks' retail operations from riskier investment banking arms. The lobbying groups said the legislation would hurt the European economy and the ability of banks to finance investment.

In a 116-page response and 45-page annex, AFME called on regulators to pause before imposing new capital requirements and for Hill to conduct an economic estimate of pending regulations for banks' trading books. The group asked Hill to use the results of such a study to possibly push for changes in rules set by the Basel Committee on Banking Supervision.

It's a Good Time for Europe to Revise Banking Regulations

The International Capital Markets Association (ICMA), which represents banks, brokers, and investors in debt markets, said in a Jan. 20 letter to Hill that one requirement buried in a 2014 regulation could significantly increase trading costs in sovereign and corporate bonds and repurchase agreements. The regulation mandates that trading venues or debt buyers appoint a third party to resolve failed deals in which sellers don't provide securities to buyers in a timely fashion.

The association said capital requirements and other regulations since the crisis have discouraged banks from holding large inventories of bonds, making it less likely sellers will have the specific bonds investors seek when they place an order. The mandatory buy-in requirement would be triggered if the seller can't quickly locate the security, which can be difficult in markets with low volume or few traders.

The group concluded in a study last year that “for many less-liquid bonds, including sovereign and public issues, market-makers will retrench from providing liquidity altogether,” the association said in the Jan. 20 letter. Markets for certain corporate bonds “may effectively close,” according to ICMA.

On Monday, the European Securities and Markets Authority proposed an exemption from the regulation for certain securities financing trades.

The European Banking Federation (EBF) decided to “focus” on 55 different issues, “on which we sought to bring concrete and proactive solutions that would help to serve the real economy.”

“It is now a good time for the European Commission to operate a revision of the regulatory framework in the area of banking regulation and supervision,” the EBF said.

Instant Insights /

EU Financial-Crisis Laws Need Overhaul

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