iosco audit firm ownership consultation September 11, 2009
Posted by Bradley in : consultation , comments closedBeginning this week and until December IOSCO is seeking comments on the idea of non-professional ownership structures for audit firms. Although IOSCO doesn’t always publish the full text of responses to its consultations this is one of the times where it proposes to do so. There are other consultations on auditor communications and on transparency and responses to these documents are also to be published.
joining eu like getting married? September 9, 2009
Posted by Bradley in : eu , comments closedIceland didn’t yet manage to seal a union with the EU on this auspicious date, but the EU’s Commissioner for Enlargement, Ollie Rehn, was at least discussing the proposal for Iceland to join the EU, analogising the union between Member States and the EU to a marriage:
We can compare the commitment to EU membership to a commitment to marriage . The wedding normally takes place only after a longer or shorter courtship, during which the pros and cons of the union are thoroughly assessed… the European Union is not only a marriage of convenience. It is also a marriage of shared spirit and commitment to our common political endeavours, which aim at achieving peace through integration, and pooling our sovereignty for freedom and liberty, prosperity and solidarity, inside and outside Europe.
I’m not sure we should take this analogy much further….
credit rating agencies September 3, 2009
Posted by Bradley in : financial regulation , comments closedI just posted a paper on credit rating agencies to SSRN. Here is the abstract:
The market for credit ratings is a transnational market dominated by a small number of credit rating agencies (CRAs). The article examines how CRAs have used market protection rhetoric and harmonization rhetoric during the crisis in the financial markets. As criticisms of pre-crisis financial regulation proliferated one might have expected CRAs to be less forceful in their resort to market protection rhetoric. CRAs’ lobbying strategies have evolved as discussions about the broader future of financial regulation have evolved, and they have conceded a greater role for regulation in 2009 than they had before the crisis, but they continue to emphasize, with some success, that as a global business they should not be subjected to different rules in different jurisdictions, and to insist that the core of their methodological approaches to rating should be unregulated.
ethics and finance September 3, 2009
Posted by Bradley in : ethics , comments closedDr Duvvuri Subbarao, Governor of the Reserve Bank of India, gave a speech the other day which included the following passage.
John Stuart Mill said that if we make men honest, good and decent, then they will make themselves honest, good and decent engineers, doctors and teachers, and may I add, financial sector professionals. The financial sector is, after all, a reflection of the society in which it operates. So, the approach to bringing ethical values into finance has to begin not by special efforts to enforce or regulate ethical standards in finance, but by fostering a value system in society at large.
I think he is absolutely right on this one, but approaching the issue from this perspective makes it even more difficult a problem to solve than if we could just change a few rules here and there.
fsa develops eyebrows? September 1, 2009
Posted by Bradley in : financial regulation , comments closedIt used to be said that the UK financial markets were controlled by the Governor of the Bank of England’s eyebrows. It seems that interviews with the FSA have resulted in 10 per cent of candidates for senior management positions at UK financial institutions withdrawing before hearing whether the FSA would approve of them or not.
protection, not protectionism September 1, 2009
Posted by Bradley in : financial regulation , comments closedIn today’s New York Times, Daniel Price writes about an increase in protectionism, focusing in particular on protectionism in the financial markets. The specific examples he gives seem to be all about EU rules (although there is a reference to “several countries” (not named) having taken steps to “increase domestic lending at the expense of cross-border lending”). Now, in the context of a global crisis where defects in US policy and regulation were significant causal factors I have some sympathy for protective, if not protectionist, impulses.
But I think the EU examples don’t reflect so much European protectionism as a European negotiation with the market. Before the crisis, Commissioner McCreevy was a noted proponent of better regulation. The crisis changed the world, but perhaps not really so much in the context of technical rules of financial regulation. Rather than European clearing of credit default swaps just being a matter of European rules imposed on the markets by protectionist regulators, the new clearing system reflects a negotiation between the Commission and market participants:
In response to the Commission’s call for central clearing of credit default swaps (CDS), ten major dealers committed to clear CDS on European reference entities, and indices based on these entities, through one or more central counterparties (CCPs) established and regulated in the European Union by 31 July 2009. The Commission has set up a working group, involving dealers, the buy-side (e.g. banks, insurance companies and funds), CCPs and supervisors, to monitor the orderly roll-out of this commitment.
Market participants responded to an invitation by the Commissioner. OK, there was a big stick in the background, but the result was not just a matter of protectionism.
The EU’s proposals to regulate credit rating agencies, also referred to in the article, developed over time, and as the result of energetic lobbying about the ratings business being a global business (in fact dominated by three large US raters) and the need for the EU to back off its original position. The requirement for ratings developed by non-EU raters to be endorsed by EU-based entities doesn’t apply to smaller non-EU firms ( a certification system will apply to such firms instead). The details are still being worked out, but the story is at least as much an example of a victory for harmonization rhetoric, as it is an example of protectionism.