Post-crisis regulation: an open and critical debate

At the end of 2013, the government approved a new banking law, which undoubtedly can be considered as a milestone in the history of the Belgian financial landscape. Three years after the coming into effect of this law, the time has come for a first assessment. 

Annemie Rombouts (Vice-President FSMA), Jo Swyngedouw (Head of Prudential Policy and Financial Stability Division NBB), Saskia Mermans (Chairwoman of the ‘Instituut voor bedrijfsjuristen’ and General Counsel KBC), Jean Cattaruzza (Chairman of the Febelfin Legal Committee and Head Legal Department ING Belgium) and Tom Boedts (General Counsel and Director Legal and Risk Related Affairs Febelfin) take part in this interesting debate on the banking law, the purpose of regulation and the Brussels Financial Centre.  

How do you look back on the coming into effect of this law? 

Jo Swyngedouw (JS): The banking law was and still is an impressive document, which serves as a benchmark and a source of inspiration for many regulations which followed in its wake, such as the law on insurance supervision. The banking law strikes a nice balance between stability and competitiveness. It goes without saying that this law first and foremost stands out as a milestone of national regulation in financial matters. At present, no less than 19 national regulations must be applied within the framework of the European Single Supervisory Mechanism (SSM). A number of new institutions have been created at several levels in the wake of the crisis. As a result, reality has become a complicated matter which is hard to understand. In my opinion, the only way forward is more Europe.

Saskia Mermans (SM): Our general opinion also is positive. The positive aspect of the banking law is the fact that various matters have been brought together into a single framework, but unfortunately it also shows traces of goldplating. This is an obstacle for European harmonisation.

Jean Cattaruzza (JC): ING strongly pleaded for a harmonisation of rules at the European level. Most of the European rules are like a trunk to which anyone can add his own leaves and flowers. There is a danger however, that in the end it turns out to be quite different from what people expected it to be. However, I do not think that the solution lies in cutting away all of the leaves and flowers, for we would end up with a huge trunk of rules which cannot be applied because of the enormous amount of interpretations to be taken into account. The banking law in its current version is already too technical in many respects. It must be said however that fortunately, some cosmetic changes have been made to this law shortly after its publication in order to make it more practical. This is very positive.

"Consumers need to be informed, but is an overload of information really useful?" - Jean Cattaruzza

Are there still traces of goldplating?

Annemie Rombouts (AR): The first question one should ask is where does European regulation apply and where not? Goldplating indeed is typical for European regulation. In the absence of European regulation, it is up to the national legislative bodies to take measures if he is aware of specific risks.

As for the restriction on commercial activities? 

AR: No European regulation existed in this field and in the course of the legislative process, it became clear that there would not be any at all. So, this was an unexplored matter. The intention is to restrict goldplating as much as possible – regardless of the specific problems posed by the SSM – but, in my opinion, the national legislative bodies will still be facing the critical question whether or not one may have full confidence in supranational law? Personally, I do not think that Europe will solve all of the problems. Anyhow, this problem has become less important now that European rules are increasingly being imposed through Regulations.

Tom Boedts (TB): One thing is for sure: the debate on the usefulness of goldplating has become a predominant issue in the wake of the banking law. Regulators and policy-makers have become much more aware of the side effects of goldplating and that is a good thing. It is important for a small country with an open banking sector to restrain its use of goldplating, not because Europe knows best, but because goldplating – well-intentioned though it may be – can have a negative effect on the attractiveness and competitiveness of our country.

What are the triggers for having recourse to national rules in the absence of a European regulation?

JS: Are there any risks to be covered? Are there any consumers who need protection? What about stability? Ideally, matters should be the object of European regulation without any need or with as little need as possible for national rules. However, one must admit that Europe is far from being perfect and so, an assessment at the national level will keep its importance. In some cases, such as real estate, the risks have a local character and call for national measures.

Do those triggers always have to do with matters of public interest?

JC: This is a legitimate concern, but then there is also the fact that ‘good may kill better’… I think that sometimes we are overacting. Consumers need to be informed, but is an overload of information really useful? The current prospectuses are endless lists of rules. Is this the right way to help consumers? Is there no danger of losing sight of what is essential? 

SM: Be it the law on prospectuses, MiFID or due diligence or the transverse Royal Decree… The task of the supervisor is to protect the public interest. The question one must ask is whether all of those rules help to achieve the aim? Investors are flooded by information. With due respect, but they are considered as persons who have almost lost their ability to think of their own.

TB: Sometimes there is a big difference between what is expected from the financial sector and what people expect from other sectors, also as for those matters which are important for consumers. In the newspaper weekend edition, you can find a massive amount of publicity for real estate investments with a very high and guaranteed yield. Nearly all of them would turn out to be illegal and deceptive, if they had to pass the test of compliance with the current rules governing publicity for financial products.

"Personally, I do not think that Europe will solve all of the problems."  - Annemie Rombouts

AR: The regulation on informing and approaching the customer has one single purpose, i.e. preventing the customer from buying products which do not meet his needs or which imply risks he cannot understand. It would be hard to put the legitimate character of this aim into question. Within this context, people often confuse documentation and red tape. Customer relations inevitably have a legal character, so I think that formality may also be to the advantage of banks. If things go wrong, one must be able to prove that the right questions have been asked and the right information has been provided. You can bet on it that in this kind of situation, customers will exactly remember which question had been misunderstood.

Is there any chance of MiFID being considered by the sector as an opportunity in a world in which customers are being bombarded with all kinds of online initiatives and fintech players? Would it be wrong to say that the purpose of MiFID is to pave the way for a broad and profound dialogue? Customers surely no longer need bank counters. 

SM: I can see what you mean. The way you are dealing with this and your customer approach indeed may give you the edge on other competitors. We all want a financial system capable of providing quality services in a sustainable and stable way. The question is how to strike a balance. MIFID may indeed be principle based instead of rule driven, but regulation is increasingly becoming complex and technical… The question of how to turn this into a competitive advantage has become obsolete, because all our energy goes to applying the rules.

JS: There are limits to complicatedness. Getting a full grasp of CRR or CRD IV or just trying to understand them is far from being easy. I wonder if things have not gone out of control. It has been eight years since the crisis. One should look at a less distant past to find things to improve. Basel 3.5 still is an example of a post-crisis measure and so, regulatory fatigue is inevitable, because the distance has become too far.

What about regulation within the context of positioning Brussels as a financial centre?

JS: Obviously, ‘stability’ is the ultimate goal. Yet, competitiveness is also important in the environment we are living in now. I also think that one should take care of transposing European regulation in due time, just as it is important to guarantee predictability as well as clear and stable rules and to reach agreements in this respect. In this way, things can be assessed and rectified, if need be, after a couple of years. A good solution to this may help to attract new players.

AR: I fully agree. And as for Brussels as a financial centre: you are welcome. The FSMA is willing to take companies by the hand and to guide them through the process of registration in the best possible way. For the moment, it seems the number of test cases is limited though.

TB: What Brussels need now, is a number of promising projects. There is much going on about fintech and our country has some assets in this field many other countries are jealous about, and we may carve out a unique position for ourselves in comparison with other financial centres. Smart regulation may even contribute to making Brussels more attractive. Belgium has done this before. A couple of decades ago, clever regulation resulted in Belgium becoming a global player as for the settlement of securities transactions thanks to Euroclear.

JC: Brussels now comes 62nd in the Financial Centres Index, which means that Brussels is no obvious choice for those looking for ‘the place to be’. If Brussels wants to play a major role, for example in the field of fintech, quick and efficient action will be needed. Its image is somewhat tarnished. So, we must take the lead over others and make far-reaching political choices, because a simple facelift will not do.

Suppose this is 2026 and it is time for looking back. Was our reaction, back in 2016, to the crisis and to the challenge of turning Brussels into a prosperous financial centre as it should have been?

AR: In my opinion, the question one should ask is: What are the problems the regulator, who by definition has a reactive rather than a proactive attitude, has to cope with in 2026?  What are the risks we have to deal with in 2026 and what kind of damage should be avoided? Which kind of information will be the basis for our judgment? Those are the challenges.

JC: Most of the regulation is the result of some kind of post-crisis thinking. We shall have to make a switch if we want a positive result in 2026, but that does not mean that we can do without all of the buffers that have been installed since the crisis for obvious reasons. The course has been set and now it is time to look for a new impulse within those confines. This is the mission entrusted to the High Level Expert Group.

JS: There have been many changes all through the eight years after the crisis and the system undoubtedly has become more robust. However, we must be sure that the instruments and supervision mechanisms we are currently developing, will enable us to deal with future risks.

SM: Looking back always is easy, because you have new information at your disposal. 2026 will be no different in this respect. Everyone agrees that measures had to be taken in the wake of the crisis. Maybe we should stop for a while and take a look at our approach and at the lessons that have been drawn. In my opinion, the most important thing is to look at things from a distance from time to time and to put them into a broader context.

TB: Confidence has always been a key concept in the financial sector. After the crisis, there was a need for new regulation in order to restore confidence. Let us hope that in 2026, confidence will be strong enough without an overload of regulation.